Financial Statements December 31, 2016 and 2015
INDEPENDENT AUDITOR S REPORT Board of Trustees The Nottingham Retirement Community, Inc.: We have audited the accompanying financial statements of The Nottingham Retirement Community, Inc., which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations and 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 financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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. 1 (Continued) 5784 Widewaters Parkway Syracuse, NY 13214 P: 315-446-3600 F: 315-446-3899 www.fcc-cpa.com
Board of Trustees Page 2 of 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Nottingham Retirement Community, Inc. as of December 31, 2016 and 2015, 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. May 30, 2017 2
Assets Current assets: Cash $ 2,572,958 2,676,848 Assets limited as to use 758,597 759,334 Tenants receivable 100,630 118,637 Capital lease receivable, current portion 251,910 239,302 Other receivables 16,290 2,808 Inventory 19,575 18,839 Prepaid expenses 414,275 301,102 Due from affiliates 3,055 5,399 Total current assets 4,137,290 4,122,269 Due from affiliates 481,994 474,270 Other receivables - 5,408 Assets limited as to use, net of current portion 1,050,267 946,794 Capital lease receivable 2,357,720 2,609,630 Property and equipment, net 9,143,091 9,254,426 Total assets $ 17,170,362 17,412,797 Liabilities and Net Assets Current liabilities: Current portion of long-term debt 986,277 935,459 Accounts payable 333,987 328,989 Accrued interest 263,500 281,900 Accrued payroll and other accruals 376,640 502,528 Refundable deposits and advance payments from tenants 277,030 231,350 Due to affiliates 51,631 233,710 Total current liabilities 2,289,065 2,513,936 Due to affiliates - 350,000 Long-term debt, net of current portion 9,516,102 10,480,932 Other liabilities 204,941 120,201 Total liabilities Net assets: 12,010,108 13,465,069 Unrestricted 5,139,254 3,947,728 Temporarily restricted 21,000 - Contingent liabilities (notes 7 and 9) Balance Sheets December 31, 2016 and 2015 5,160,254 3,947,728 Total liabilities and net assets $ 17,170,362 17,412,797 See accompanying notes to the financial statements. 3
Statements of Operations and Changes in Net Assets Years ended December 31, 2016 and 2015 Unrestricted revenues, gains and other support: Rental income $ 6,799,942 6,613,857 Program income 3,310,264 3,180,134 Residential services income 37,695 74,124 Interest income on capital lease 140,627 152,566 Other revenue 224,079 284,540 Total revenues, gains and other support 10,512,607 10,305,221 Expenses: Salaries and wages 3,036,101 2,759,513 Employee benefits 1,099,085 1,025,606 Supplies and other 1,932,383 1,825,332 Professional fees and other purchased services 1,574,711 1,536,648 Depreciation 1,181,711 1,128,135 Interest 521,886 545,245 Total expenses 9,345,877 8,820,479 Income from operations 1,166,730 1,484,742 Nonoperating gains: Investment income 3,296 1,604 Contributions from affiliate 21,500 3,135 Total nonoperating gains 24,796 4,739 Excess of revenues, gains and other support over expenses and increase in net assets 1,191,526 1,489,481 Temporarily restricted net assets- Contribution from affiliate 21,000 - Increase in temporarily restricted net assets 21,000 - Increase in net assets 1,212,526 1,489,481 Net assets at beginning of year 3,947,728 2,458,247 Net assets at end of year $ 5,160,254 3,947,728 See accompanying notes to the financial statements. 4
Statements of Cash Flows Years ended December 31, 2016 and 2015 Cash flows from operating activities: Change in net assets $ 1,212,526 1,489,481 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 1,181,711 1,128,135 Interest expense from amortization of debt issuance costs 47,575 47,575 Amortization of bond premium (81,132) (90,636) Realized and unrealized losses on investments 974 7,168 Changes in operating assets and liabilities: Tenants receivable 18,007 (48,868) Other receivables (8,074) 42,034 Inventory (736) (3,937) Prepaid expenses (113,173) (43,574) Accounts payable (3,052) 50,398 Accrued interest (18,400) (17,700) Accrued payroll and other accruals (125,888) (8,494) Refundable deposits and advance payments from tenants 45,680 (272,403) Due to/from affiliates, net (537,459) 41,949 Other liabilities 84,740 (34,195) Net cash provided by operating activities 1,703,299 2,286,933 Cash flows from investing activities: Purchases of property and equipment (1,000,680) (755,790) Proceeds from sales of assets limited as to use 3,568,341 2,911,284 Purchases of assets limited as to use (3,672,051) (3,020,515) Payments received on capital lease receivable 239,302 227,643 Net cash used in investing activities (865,088) (637,378) Cash flows used in financing activities- Repayment of long-term debt (942,101) (909,274) Increase (decrease) in cash (103,890) 740,281 Cash at beginning of year 2,676,848 1,936,567 Cash at end of year $ 2,572,958 2,676,848 See accompanying notes to the financial statements. 5
December 31, 2016 and 2015 (1) Description of Organization and Summary of Significant Accounting Policies (a) Organization The Nottingham Retirement Community, Inc. (the Corporation) is a not-for-profit corporation that owns and operates a senior residential community of 234 units that offers a comprehensive program of service and support for retired adults in the Central New York community. Loretto Management Corporation (LMC), a not-for-profit corporation, is the sole corporate member of the Corporation and parent of other subsidiaries. LMC and its subsidiaries are referred to collectively as Loretto. (b) 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 may differ from those estimates. (c) Assets Limited as to Use Assets limited as to use are stated at fair value and consist of cash and cash equivalents and debt securities. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in the excess of revenues over expenses unless the income or loss is restricted by donor or law. (d) Revenue and Tenants Receivable Rental income includes charges for basic rent. Program income is generated from a range of services at varying levels which may include food service, social and recreational services, medical alert system services, transportation services, concierge services, communication services, security and personal assistance services. Residential services income consists of additional services provided to residents not included in program income such as additional meal programs, laundry and housekeeping services. Rental income, program income and residential services income are billed monthly and recognized as earned when services are provided. Advance payments from tenants represent rental income received in advance by the Corporation and the refundable portions of community fees. 6 (Continued)
(1) Description of Organization and Summary of Significant Accounting Policies, Continued (d) Revenue and Tenants Receivable, Continued The Corporation grants credit without collateral to its residents, the vast majority of whom are private payors. The allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for doubtful accounts charged to earnings. Doubtful accounts are charged against the allowance when management believes the uncollectibility of a receivable balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for doubtful accounts is evaluated on a regular basis by management and is based on periodic reviews of the collectibility of tenant s receivable considering historical experience, the nature and volume of the receivables, prevailing economic conditions and any adverse situations that may affect the resident s ability to pay. An allowance for doubtful accounts on tenants receivable was not necessary at December 31, 2016 and 2015. (e) Inventory Inventory is stated at the lower of cost or net realizable value. (f) Property and Equipment Property and equipment is recorded at cost. Depreciation is computed by using the straight-line method over the estimated useful lives as follows: Buildings Building improvements Moveable equipment Vehicles 30 years 3-20 years 3-15 years 5 years (g) Debt Issuance Costs Debt issuance costs are amortized over the term of the related debt obligation under the straight-line method which approximates the effective interest method. Amortization expense amounted to $47,575 in 2016 and 2015 and is included in interest expense within the statements of operations and changes in net assets. Accumulated amortization of debt issuance costs totalled $261,663 and $309,238 at December 31, 2016 and 2015, respectively. 7 (Continued)
(1) Description of Organization and Summary of Significant Accounting Policies, Continued (h) Insurance Claims Liabilities and Related Insurance Recoveries The Corporation maintains traditional premium based programs with several insurance providers to provide coverage for workers compensation and general and professional liability claims. The Corporation records insurance claims liabilities based on estimates provided by its insurance carriers of loss exposures and the related insurance recoveries receivables based on its assessment of the insurance providers financial ability to pay those claims. The Corporation classifies these liabilities and receivables on the balance sheet as current or long-term assets or liabilities based on the expected settlement dates of these outstanding claims. (i) Contributions Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. Such contributions are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When the donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statements of operations and changes in net assets as net assets released from restrictions. Donorrestricted contributions whose restrictions are met within the same year as received are reflected as unrestricted contributions. (j) Temporarily Restricted Net Assets Temporarily restricted net assets are those whose use by the Corporation has been limited by donors to a specific time period or purpose. (k) Operating and Performance Indicator For purposes of display, transactions deemed by management to be ongoing, major or central to the provision of residential housing services to tenants are reported as operating revenue and expenses. Peripheral or incidental transactions are reported as nonoperating gains or losses, which includes investment income. Changes in unrestricted net assets which are excluded from income from operations, consistent with industry practice include investment income, related party debt forgiveness, permanent transfers of assets to and from affiliates for other than goods and services and contributions of long-lived assets (including assets acquired using contributions which by donor restriction were to be used for the purposes of acquiring such assets). The performance indicator is the excess of revenues over expenses. 8 (Continued)
(1) Description of Organization and Summary of Significant Accounting Policies, Continued (l) Advertising Expense The Corporation charges the cost of advertising expense as incurred. Total expenses incurred of $19,401 and $6,203 during the years ended December 31, 2016 and 2015, respectively, are reported as supplies and other expenses. (m) Income Taxes The Corporation has been granted tax exempt status pursuant to Section 501(c)(3) of the Internal Revenue Code (the Code) and is exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. As of December 31, 2016, the Corporation did not have any significant unrecognized tax benefits or any related accrued interest or penalties. The tax years open to examination by federal and New York State taxing authorities are 2013 through 2016. (n) Concentrations of Credit Risk The Corporation maintains cash in financial institutions that customarily exceed FDIC insurance limitations and extends credit to individual residents. (o) Collective Bargaining Agreement At December 31, 2016, the Corporation has approximately 70% of its employees working under a collective bargaining agreement with us due to expire in June 2017. (p) New Accounting Pronouncement In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs to be presented as a deduction from the corresponding debt liability. Amortization of debt issuance costs shall be reported as interest expense. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015 and is to be applied on a retrospective basis for all previous periods presented. The retrospective adoption of ASU 2015-03 resulted in a decrease to long-term assets, and long-term debt of $451,965 in the balance sheet as of December 31, 2015, a reclassification of $47,575 of amortization of debt issuance costs from depreciation and amortization to interest expense in the statements of operations and changes in net assets and cash flows (cash flows from operating activities) for the year ended December 31, 2015. The standard had no effect on changes in net assets or net assets as of or for the year ended December 31, 2015. 9 (Continued)
(1) Description of Organization and Summary of Significant Accounting Policies, Continued (q) Reclassifications Certain amounts in the 2015 financial statements have been reclassified to conform to the 2016 presentation. (r) Subsequent Events Subsequent events have been evaluated through May 30, 2017, which is the date the financial statements were issued. (2) Capital Lease Receivable In conjunction with the original purchase of the facility in 1995, the Corporation used a portion of the bond proceeds and constructed a 40-bed nursing home. The Corporation leases the nursing home building and equipment, under the terms of a capital lease, to an affiliated corporation, The Nottingham Residential Health Care Facility (NRHCF). The cost of the assets leased under the agreement is approximately $4,938,000 and are excluded from the Corporation s property and equipment. The term of the lease is 15 years which commenced in May 2010 and expires in 2025. The lease provides for the Corporation to recover the cost of the leased property with no profit. NRHCF pays an annual rent in equal monthly installments at an amount to satisfy its proportionate share of debt service and insurance attributable to the nursing home project. The lease does not transfer title to NRHCF at the end of the lease term. The capital lease receivable is recorded at the net of the gross receipts to be received, less the unearned interest income from NRHCF through the capital lease agreement. The gross receipts receivable is discounted at the interest rates paid by the Corporation on the bonds. All assets covered under the capital lease agreement are pledged as collateral. Minimum lease payments to be received as of December 31, 2016 for each of the next five years and in the aggregate thereafter are as follows: 2017 $ 379,986 2018 380,242 2019 379,858 2020 379,474 2021 379,698 Thereafter 1,330,290 3,229,548 Less imputed interest (619,918) 2,609,630 Less current portion (251,910) $ 2,357,720 10 (Continued)
(3) Assets Limited as to Use Assets limited as to use consists of the following at December 31: Building and equipment reserve fund (1) $ 550,750 448,837 Debt service funds: Debt service fund (2) 758,597 759,334 Debt service reserve fund (3) 499,517 497,957 1,808,864 1,706,128 Less assets required for current use (758,597) (759,334) Noncurrent assets limited as to use $ 1,050,267 946,794 1. Building and equipment reserve fund: The loan agreement requires the funding of a building and equipment reserve, subject to certain allowable withdrawal provisions for qualified purposes. 2. Debt service fund: The debt service fund is used to make the required interest, principal and sinking fund payments due in January and July of each year. The debt service fund is classified as a current asset as of December 31, 2016 and 2015. 3. Debt service reserve fund: The debt service reserve fund was established to meet the requirements of the New York State Dormitory Authority which directs that the debt service reserve fund must be maintained at an amount equal to the lesser of the sum of interest, principal and sinking fund installments due in any future year, or 10% of the net proceeds. Investment income is comprised of the following for the years ended December 31: Investment income: Interest income $ 4,270 8,772 Realized losses on sales of investments (1,008) (9,259) Change in net unrealized gains on investments 34 2,091 $ 3,296 1,604 11 (Continued)
(4) Property and Equipment Property and equipment at December 31 are summarized as follows: Land $ 610,000 610,000 Buildings and improvements 22,460,927 21,817,373 Moveable equipment and vehicles 2,932,509 2,554,993 Construction in progress 20,000-26,023,436 24,982,366 Less accumulated depreciation (16,880,345) (15,727,940) (5) Long-Term Debt Property and equipment, net $ 9,143,091 9,254,426 At December 31, long-term debt consisted of the following: Dormitory Authority of the State of New York 2010 Series Revenue Bonds $ 10,540,000 11,460,000 Installment loan with finance company, payable in monthly installments including interest at a rate of 10.4%, secured by a vehicle with a net book value of $34,311 26,407 41,866 Installment loan with finance company, payable in monthly installments including interest at a rate of 6.89%, secured by a vehicle with a net book value of $55,481 55,004-10,621,411 11,501,866 Plus unamortized bond premium 285,358 366,490 Less current portion (986,277) (935,459) Less unamortized debt issuance costs (404,390) (451,965) Long-term debt, net of current portion $ 9,516,102 10,480,932 12 (Continued)
(5) Long-Term Debt, Continued Bonds Payable The 2010 Series A (tax exempt) and B (taxable) Revenue Bonds, collectively, the Series 2010 Bonds, are special obligations of the Dormitory Authority and the mortgage securing the bonds is insured by a State of New York Mortgage Authority (SONYMA) insurance policy. The property and equipment owned by the Corporation are pledged as security for the bonds. Series of bonds are outstanding as follows: Year Amount Year Amount 2017 $ 955,000 2022 $ 1,220,000 2018 1,005,000 2023 1,280,000 2019 1,055,000 2024 1,345,000 2020 1,105,000 2025 1,415,000 2021 1,160,000 Serial bonds maturing in 2016 bear interest at a coupon rate of 4.0%. Bonds maturing between 2017 and 2025 bear interest at a coupon rate of 5.0%. Repayment of the bonds by the Corporation coincides with the repayment of the bonds and interest by the Dormitory Authority. In addition, the Corporation must also reimburse the Dormitory Authority and SONYMA for certain expenditures. The Series 2010 Bonds maturing on or after July 2, 2021 are subject to redemption prior to maturity at the option of the Dormitory Authority at the redemption price of par plus accrued interest to the date of redemption. Principal payments on long-term debt are as follows: 2017 $ 986,277 2018 1,029,608 2019 1,071,665 2020 1,113,861 2021 1,160,000 Thereafter 5,260,000 $ 10,621,411 Cash paid for interest amounted to $621,418 and $606,003 for the years ended December 31, 2016 and 2015, respectively. 13 (Continued)
(6) Transactions with Affiliates In its efforts to provide a complete range of services to its residents and program participants, the Corporation is affiliated with a number of Loretto entities through common membership. Because of this affiliated relationship, generally advances and other balances due from/to affiliated entities arising in the normal course of business are recorded on an interest free basis. Amounts due from/to affiliates are collected/paid based on availability of funds from operations and on expected payment terms. Various services are provided, or received by the Corporation, including payments made for and on behalf of the Corporation by its affiliates. A summary of balances and transactions as of and for the years ended December 31 is as follows: Receivable Payable Receivable Payable Loretto Management Corporation $ 481,994 48,165 474,270 73,588 The Nottingham Residential Health Care Facility 1,885 - - 510,122 Loretto Independent Living Services, Inc. 1,170-5,399 - Loretto Health and Rehabilitation Center - 1,509 - - Advanced Institutional Support Services, LLC - 1,957 - - $ 485,049 51,631 479,669 583,710 Classified as follows: Due from affiliates - current 3,055-5,399 - Due from affiliates - long-term 481,994-474,270 - Due to affiliates - current - 51,631-233,710 Due to affiliates - long-term - - - 350,000 $ 485,049 51,631 479,669 583,710 14 (Continued)
(6) Transactions with Affiliates, Continued Transactions with affiliates for the years ended December 31: Interest income on capital lease - The Nottingham Residential Health Care Facility $ 140,627 152,566 Professional fees and other purchased services - human resource, information technology, management and financial services - Loretto Management Corporation $ 968,000 999,000 Program income - member services provided to Loretto Independent Living Services, Inc. $ 103,000 134,000 Contributions from affiliate - The Loretto Foundation $ 42,500 3,135 (7) Employee Pension Plans The Corporation participates in the Loretto Employee 401(k) Savings Plan (the Plan ), a benefit plan covering non-union employees. The Plan provides for an employer discretionary match of 50% match up to 6% of the employee contribution. Pension expense related to the Plan, net of forfeitures, for the years ended December 31, 2016 and 2015, amounted to approximately $45,000 and $33,000, respectively. The Corporation, along with other Loretto affiliates, makes a contribution to the Service Employees Benefit Fund of Central New York (Union Plan), a multi-employer defined benefit plan, which covers union employees of the Corporation. Pension expense for the years ended December 31, 2016 and 2015 was approximately $62,000 and $56,000, respectively, and reflects increased funding requirements as a result of pension underfunding issues. The Corporation may be liable for its share of unfunded vested benefits, if any, related to the Union Plan. Information from the Union Plan s Administrator is not available to permit the Corporation to estimate its share, if any, of unfunded vested benefits. The risks of participating in this multiemployer plan are different from single-employer plans in the following aspects: - Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. - If a participating employer stops contributing to the Union Plan, the unfunded obligations of the plan may be borne by the remaining participating employers. - If the Corporation chooses to stop participating in the multiemployer plan, the Corporation may be required to pay the Union Plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. 15 (Continued)
(7) Employee Pension Plans, Continued Loretto s participation in the Union Plan for the annual periods ended December 31, 2016 and 2015, is outlined in the table below. The EIN/Pension Plan Number column provides the Employee Identification Number (EIN) and the three digit plan number, if applicable. The most recent Pension Protection Act (PPA) zone status available in 2016 is for the Union Plan s year-end at December 31, 2015. The zone status is based on information that Loretto received from the Union Plan and is certified by the Union Plan s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining agreement to which the Union Plan is subject. Pension Protection Act FIP/RP Status Pension EIN/Pension Zone Status Pending/ Fund Plan Number Implemented Service Employees Pension Fund of Upstate New York 16-0908576/ 001 Red as of 12/31/16 Red as of 12/31/15 Surcharge Imposed Expiration Date of Collective- Bargaining Agreement Implemented in 2009 No 6/30/2017 The total of all Loretto contributions to the Plan amounted to approximately $2,444,000 and $2,117,000 for the years ended December 31, 2016 and 2015, respectively. Loretto was listed in the Plans Form 5500 as providing more than 5 percent of the total contributions for the Fund for the Plan year ended December 31, 2015. At the date the financial statements were issued, Form 5500 was not available for the plan year ended December 31, 2016. (8) Fair Value of Financial Instruments The Fair Value Measurement Topic of the FASB Accounting Standards Codification requires disclosures that categorize assets and liabilities measured at fair value based on a fair value hierarchy. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. In general, fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. The Corporation considers a security that trades at least weekly to have an active market. This pricing methodology applies to the Corporation s Level 1 financial assets such as money market funds and government securities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Corporation has no level 2 or level 3 financial instruments. 16 (Continued)
(8) Fair Value of Financial Instruments, Continued The following tables present the Corporation s investments measured at fair value on a recurring basis: Carrying amount at December 31, 2016 Fair value measurements at December 31, 2016 Quoted prices Significant in active other Significant markets for observable unobservable identical assets inputs inputs (Level 1) (Level 2) (Level 3) Financial assets: Cash equivalents - money market funds $ 119,429 119,429 - - U.S. Treasury obligations 1,689,435 1,689,435 - - $ 1,808,864 1,808,864 - - Carrying amount at December 31, 2015 Fair value measurements at December 31, 2015 Quoted prices Significant in active other Significant markets for observable unobservable identical assets inputs inputs (Level 1) (Level 2) (Level 3) Financial assets: Cash equivalents - money market funds $ 334,876 334,876 - - U.S. Treasury obligations 1,371,252 1,371,252 - - $ 1,706,128 1,706,128 - - The investments are reflected in the accompanying balance sheets as follows at December 31: Assets limited as to use - current $ 758,597 759,334 Assets limited as to use - long-term 1,050,267 946,794 $ 1,808,864 1,706,128 17 (Continued)
(8) Fair Value of Financial Instruments, Continued At December 31, 2016 and 2015, the recorded value approximates the fair value for financial assets and liabilities which are not measured at fair value on a recurring basis, except for long-term debt. The fair value of long-term debt at December 31, 2016 and 2015 was approximately $11,500,000 and $12,900,000, respectively. The fair value of the revenue bonds was determined by price quotes from an investment banker. The fair value of other fixed rate issues was estimated using discounted cash flow analysis, based on the current incremental borrowing rate of similar types of borrowing arrangements. (9) Contingent Liabilities General and Professional Liability Insurance The Corporation along with its other Loretto affiliates is presently insured for general and professional liability risks through a claims-made insurance policy with coverage limits of $1,000,000 per occurrence and $3,000,000 in the aggregate. Should the annual claims-made policy not be renewed or replaced with equivalent insurance, claims based on incidents during its term but reported subsequently will be uninsured. Prior to October 2009, the Corporation was self insured for general and professional liability. A provision for claims under the self-insured program is recorded based upon the Corporation s estimate, after consultation with insurance advisors and actuaries, of the aggregate liability for claims incurred. Workers Compensation Self-Insured Trusts At various periods from 2001 to December 2009, Loretto participated as a group in two selfinsurance trusts, Healthcare Industry Trust of New York (HITNY) and Healthcare of New York Workers Compensation Trust (HONY), together referred to as Trusts, to provide workers compensation coverage to its employees. The agreements for the Trusts stipulated, among other things, that each member participating in the Trusts were jointly and severally liable for the workers compensation and employer s liability obligation of the Trusts incurred during the member s period of membership in the Trusts, irrespective of the subsequent termination of the membership in the Trusts, the insolvency or bankruptcy of another member of the Trusts or other facts or circumstances. These trusts subsequently were determined by the New York State Worker s Compensation Board (WCB) to be underfunded on a regulatory basis and were either taken over by the WCB or were closed by their Board of Trustees prior to 2013. 18 (Continued)
(9) Contingent Liabilities, Continued Workers Compensation Self-Insured Trusts, Continued Loretto entered into settlement agreements with the WCB in 2013 regarding its pro rata deficit allocation obligation for participating in HITNY and accepted certain payment option plans of either two years at no interest or ten years at a rate of 3.5%. Loretto is paying its allocable share of this liability on a monthly basis. At December 31, 2016 and 2015, the total amount remaining on these settlement agreements amounted to approximately $3,538,000 and $3,996,000, respectively. Should the WCB recover additional funds from legal actions it has initiated against the operators of HITNY and other parties beyond what was estimated in its deficit, or if the HITNY trust s claims based liabilities are resolved for less than anticipated, Loretto may be entitled to a distribution of any surplus funds from the HITNY trust. In February 2014, Loretto was notified that the HONY Trust Board of Trustees had approved an assessment amongst its former members for the claims liability shortfall that the HONY Trust was experiencing. The HONY Trust assessment allocated to Loretto amounted to approximately $1,246,000 and may be subject to future adjustment depending upon, among other matters, the solvency of other HONY members and ultimate settlement of the underfunding measurement. Loretto began making monthly payments in June 2014 based on a sixty-month amortization. At December 31, 2016 and 2015, the total amount remaining on this initial assessment amounted to approximately $602,000 and $852,000, respectively. As of December 31, 2016 and 2015, the Corporation s allocable share of the remaining Loretto liability under these Trusts amounted to approximately $115,000 and $137,000, respectively. The Corporation has classified the current portion of these workers compensation liabilities amounting to approximately $23,000 at December 31, 2016 and 2015, within accrued payroll and other accruals and the long-term portion amounting to approximately $92,000 and $114,000 at December 31, 2016 and 2015, respectively, in other liabilities in the accompanying balance sheets. Effective January 1, 2010, Loretto changed from self-insured trusts to a traditional premium based program to provide workers compensation benefits to its employees. 19 (Continued)
(10) Functional Expenses Expenses relating to providing service and support for retired adults for the years ended December 31 are as follows: Residential services $ 7,045,736 6,651,015 General and administrative 2,300,141 2,169,464 (11) Statements of Cash Flows - Supplemental Disclosures $ 9,345,877 8,820,479 Non-cash investing and financing activities for the years ended December 31: Property and equipment acquisitions in accounts payable $ 131,814 123,764 Long-term debt issued for vehicle 61,646 49,015 20