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Municipal Secondary Market Disclosure
Information Cover Sheet
This cover sheet should be sent with all submissions made to the Municipal Securities
Rulemaking Board, Nationally Recognized Municipal Securities Information
Repositories, and any applicable State Information Depository, whether the filing is
voluntary or made pursuant to Securities and Exchange rule 15c2-12 or any analogous
state statute.
See www.sec.gov/info/municipal/nrmsir.htm for the list of current NRMSIRs and SIDs.
If this filing relates to a Single Bond Issue:
Provide name of bond issue exactly as it appears on the cover of the Official
Statement (please include name of state where the Issuer is located).
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Provide 9-digit CUSIP* numbers to which the information relates:
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
If this filing relates to all securities issued by the Issuer or all
securities of a specific credit or issued under a single indenture:
Issuer’s Name (please include name of state where issuer is located):
Abilene Health Facilities Development Corporation
Other Obligated Person’s Name (if any): Sears Methodist Retirement System Obligated
Group Project
(exactly as it appears on the Official Statement Cover)
Provide six-digit CUSIP* number(s) of Issuer: See Attached
*(Contact CUSIP’s Municipal Disclosure Assistance Line at 212.438.6518 for
assistance with obtaining the proper CUSIP numbers).
Type of Filing:
(X) Electronic (number of pages attached) 1
( ) Paper (number of pages attached) _____
If information is also available on the Internet, give URL: ______________________
What type of information are you providing? (Check all that apply)
A. ( ) Annual Financial Information and Operating Data pursuant to Rule 15c2-12
(Financial information and operating data should not be filed with the MSRB)
Fiscal Year Covered: _ _________________
B. ( ) Audited Financial Statements of CAFR pursuant to Rule 15c2-12
Fiscal Year Covered: ________________________
C. ( ) Notice of Material Event pursuant to Rule 15c2-12 (Check as appropriate)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
( ) Principal and interest payment delinquencies
( ) Non-payment related defaults
( ) Unscheduled draws on debt service reserves reflecting financial difficulties
( ) Unscheduled draws on credit enhancements reflecting financial difficulties
( ) Substitution of credit or liquidity providers, or their failure to perform
( ) Adverse tax opinions or events affecting the tax-exempt status of the security
( ) Modifications to the rights of security holders
( ) Bond calls
( ) Defeasances
( ) Release, substitution, or sale of property securing repayment of the securities
( ) Rating changes
D. ( ) Notice of Failure to Provide Annual Financial Information as Required
E. (x ) Other Secondary Market Information (specify): Obligated Group Annual
Audited Financial Statements for SMRS and Obligated Group for year ended
December 31, 2009
I hereby represent that I am authorized by the issuer of obligor or its agent to distribute
this information publicly:
Issuer Contact:
Name _________________________________ Title _______________________________
Employer __________________________________________________________________
City _________________________________ State _______
Zip Code ___________
Telephone _____________________________ Fax _______________________________
Email Address ________________________ Issuer Web Site _____________________
Dissemination Agent Contact, if any:
Name _________________________________ Title _______________________________
Employer __________________________________________________________________
City _________________________________ State _______
Zip Code ___________
Telephone _____________________________ Fax _______________________________
Email Address ________________________ Relationship to Issuer ________________
Obligor Contact, if any:
Name Terry Myers
Title CFO
Employer Sears Methodist Retirement System, Inc.
City Austin, TX
State TX Zip Code 78746
Telephone 512.329.6716
Fax 512.329.0933
Email Address tmyers@sears-methodist.com
Obligor Web Site www.sears-methodist.com
Investor Relations Contact, if any:
Name _________________________________ Title _______________________________
Telephone _____________________________ Email Address ______________________
CUSIPS
Series 1998A
003453AJ6
003453AK3
003453AL1
003453AM9
003453AN7
003453AP2
Series 1998B
003453AA5
003453AU1
Series 1999
003453AW7
003453AX5
003453AY3
Series 2003
003453BB2
003453BC0
003453BD8
003453BE6
003453BF3
003453BG1
003453BH9
003453BJ5
003453BK2
003453BL0
003453BM8
003453BP1
003453BN6
Sears Methodist Retirement System, Inc.
A J'lot For Profit Corporation
AUSTIN
EXECUTIVE OFFICE
ABILENE
CORPORATE OFFICE
May 18, 2010
SERVICE LOCATIONS:
ABILENE
Mesa Springs
Retirement Village
Sears Methodist
Community Services
Michael K. Herberger
Vice President
The Bank of New York Mellon Trust Company, N.A.
2001 Bryan Street - 11th Floor
Dallas, TX 75201
SEars HomE Health
Southwest 'lherapy Associares
Sears Specialty Services
Sears Methodist Hospice
Wesley Court
Methodist Retirement Communiry
Re:
Abilene Health Development Corporation Retirement Facility Revenue
Bonds (Sears Methodist Retirement System Obligated Group) Series
1998, 1999 and 2003
Windcrest Alzheimer's
Care Center
AMARlLW
. Th~ C?-11Yons
Community
~etirement
The J. Paul & Polly Craig
Methodist Retirement
Community
LUBBOCK
Mildred & Shirley L. Garrison
Geriatric Education and
Care Center
ODESSA
Dear Michael:
.In accordance with Section 4.08(a) and (b) ofthe Master Trust Indenture and
Section 6.02(b) of the Supplemental Indenture, the audited financial statements
of the Sears Methodist Retirement System for the year ended December 31,
2009, are enclosed along with this letter. The Combining Balance Sheet and
Combining Statement of Activities and Change in Net Assets are provided for
the Obligated Group in the supplementary information ofthe audited financial
statements.
The financial statements for Sears Methodist Retirement Systems were audited
by Larson Allen for the period ending December 31, 2009. .
Parks Methodist
Retirement Village
Desert Haven
TYLER
Meadow Lake,
A Senior Living Community
(under development)
Sincerely,
---rg-Terry~rs
Senior Vice President, CFO
WACO
Wesley Woods
Alzheimer's Care Center
Austin Executive Office
1114 Lost Creek Blvd, Suite 220 • Austin, Texas 78746
512.329.6716 • 512.329.0933 Fax • W\.V\v.sears-methorust.com
Abilene Corporate Office
One Village Drive, Suite 400 • Abilene, Texas 79606-2231
325.691.5519 • 325.437.1191 Fax· \VWW.sears-methodist.com
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
SEARS METHODIST RETIREMENT SYSTEM, INC.
TABLE OF CONTENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
INDEPENDENT AUDITORS’ REPORT
1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
2
CONSOLIDATED STATEMENTS OF UNRESTRICTED ACTIVITIES
4
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION
44
SUPPLEMENTARY INFORMATION
CONSOLIDATING BALANCE SHEET
45
CONSOLIDATING STATEMENT OF UNRESTRICTED ACTIVITIES
49
CONSOLIDATING STATEMENT OF CHANGES IN NET ASSETS
51
CONSOLIDATING STATEMENT OF CASH FLOWS
53
COMBINING BALANCE SHEET – OBLIGATED GROUP
55
COMBINING STATEMENT OF ACTIVITIES AND CHANGES IN NET
ASSETS – OBLIGATED GROUP
57
COMBINING BALANCE SHEET – SEARS METHODIST CENTERS, INC.
59
COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND
CHANGES IN NET ASSETS – SEARS METHODIST CENTERS, INC.
61
INDEPENDENT AUDITORS’ REPORT
Board of Directors
Sears Methodist Retirement System, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheets of Sears Methodist Retirement System,
Inc. (the “System”) as of December 31, 2009 and 2008, and the related consolidated statements of
unrestricted activities, changes in net assets, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the System’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with U. S. generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Sears Methodist Retirement System, Inc. as of December 31, 2009 and
2008, and the results of its consolidated operations, its changes in consolidated net assets, and its cash
flows for the years then ended in conformity with U. S. generally accepted accounting principles.
LarsonAllen LLP
Richardson, Texas
April 19, 2010
(1)
LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
2009
2008
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
Accounts Receivable
Due from Related Party
Other Current Assets
Current Portion of Assets Limited as to Use
Total Current Assets
ASSETS LIMITED AS TO USE
Investments
Less: Current Portion Shown Above
Total Assets Limited as to Use (Net of
Current Portion Shown Above)
PROPERTY AND EQUIPMENT (at Cost)
Land and Land Improvements
Building and Improvements
Equipment
Leasehold Improvements
Construction in Progress
Total
Less: Accumulated Depreciation
Total Property and Equipment (at Depreciated Cost)
OTHER ASSETS
Deferred Financing Costs
Other Assets
Total Other Assets
Total Assets
See accompanying Notes to Consolidated Financial Statements.
(2)
$
6,150,490
9,076,109
1,608,148
5,093,721
21,928,468
$
4,598,674
9,839,422
286,985
1,612,707
3,128,881
19,466,669
60,910,807
5,093,721
25,994,197
3,128,881
55,817,086
22,865,316
10,697,067
114,302,721
14,185,425
150,882
10,915,661
150,251,756
35,959,091
114,292,665
12,344,041
125,250,368
14,366,210
145,268
8,355,225
160,461,112
39,265,370
121,195,742
5,558,474
1,773,967
7,332,441
3,907,654
739,937
4,647,591
$ 199,370,660
$ 168,175,318
2009
2008
LIABILITIES AND NET ASSETS (DEFICIT)
CURRENT LIABILITIES
Current Maturities of Long-Term Debt
Accounts Payable
Construction Payable
Accrued Interest Payable
Accrued Payroll and Related Taxes
Deferred Income
Resident Security Deposits
Other Accrued Liabilities
Total Current Liabilities
$
LONG-TERM DEBT (Net of Current Maturities Shown Above)
OTHER LIABILITIES
Deferred Compensation
Charitable Gift Annuities Payable
Entrance Fee Deposits
Deferred Revenue from Residency Fees
Total Other Liabilities
Total Liabilities
6,290,979
3,355,344
463,632
1,515,459
2,057,068
925,202
328,319
1,057,893
15,993,896
$
8,586,639
3,966,758
2,014,849
1,981,593
2,067,857
994,341
349,478
1,832,827
21,794,342
163,455,521
128,217,839
814,599
288,948
1,601,740
16,647,446
19,352,733
602,803
296,955
1,634,617
17,407,307
19,941,682
198,802,150
169,953,863
CONTINGENCIES AND COMMITMENTS
NONCONTROLLING INTEREST
(326,115)
(127,732)
NET ASSETS (DEFICIT)
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Net Assets (Deficit)
(4,788,934)
3,395,738
2,287,821
894,625
(7,669,848)
3,731,214
2,287,821
(1,650,813)
Total Liabilities and Net Assets (Deficit)
$ 199,370,660
(3)
$ 168,175,318
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED STATEMENTS OF UNRESTRICTED ACTIVITIES
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
OPERATING REVENUE
Resident Service
Amortization of Residency Fees
Net Assets Released from Restriction
Other
Total Operating Revenue
$
OPERATING EXPENSE
Nursing
Specialty Services
Dietary
Pharmacy Services
Activity Services
Social Services
Environmental Services and Utilities
Consultant Services
General and Administrative
Risk Management and Training
Marketing and Admissions
Employee Benefits
Interest Expense
Depreciation and Amortization
Total Operating Expense
2008
81,702,907
476,636
372,759
557,540
83,109,842
$
31,445,413
1,248,757
6,930,749
902,106
515,458
8,685,305
703,005
11,787,554
813,609
974,914
7,975,711
7,557,467
4,550,722
84,090,770
OPERATING LOSS
76,128,535
597,636
152,311
743,552
77,622,034
29,452,226
1,105,358
6,562,371
1,410,821
922,024
446,390
8,673,078
501,010
11,029,527
815,550
1,038,833
8,169,035
7,951,252
4,446,978
82,524,453
(980,928)
(4,902,419)
OTHER INCOME (EXPENSE)
Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments
Loss on Financing
Loss in Equity of Affiliate
Investment Income
Contributions
Grant Revenue-Net of Expenses
Gain on Sale of Assets
Development Expenses
Other Revenue (Expense)
Total Other Income (Expense)
553,096
46,871
(150,387)
777,954
1,367,878
50,000
(376)
(266,691)
(110,626)
2,267,719
(1,387,671)
(43,535)
(694,180)
1,234,467
628,176
50,000
(1,517,951)
60,203
(1,670,491)
EXCESS (DEFICIT) OF REVENUE OVER EXPENSE
1,286,791
(6,572,910)
NON-CONTROLLING INTEREST
(198,383)
TRANSFER TO REMOVE BOARD DESIGNATED ENDOWMENT FUNDS
FEDERAL INCOME TAX BENEFIT
INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS FROM CONTINUING
OPERATIONS
See accompanying Notes to Consolidated Financial Statements.
(4)
-
251,254
614,305
9,477
2,099,479
GAIN FROM DISCONTINUED OPERATIONS
INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS
(127,732)
(6,184,447)
781,435
$
2,880,914
272,346
$
(5,912,101)
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NET ASSETS (DEFICIT) - DECEMBER 31, 2007
CHANGE IN NET ASSETS (DEFICIT)
Deficit of Net Revenue Over Expense
Contributions
Net Assets Released from Restriction
Transfer to Remove Board Designated
Endowment Funds
Change in Net Assets (Deficit) from
Continuing Operations
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
$ (1,757,747)
$ 4,021,996
$ 2,268,700
$ 4,532,949
(6,184,447)
-
(6,184,447)
GAIN FROM DISCONTINUED OPERATIONS
272,346
Change in Net Asset (Deficit)
(5,912,101)
NET ASSETS (DEFICIT) - DECEMBER 31, 2008
(7,669,848)
109,475
(152,311)
22,429
-
(247,946)
(3,308)
(290,782)
19,121
(290,782)
3,731,214
(6,184,447)
131,904
(152,311)
(251,254)
(6,456,108)
-
272,346
19,121
(6,183,762)
2,287,821
(1,650,813)
CHANGE IN NET ASSETS (DEFICIT)
Excess of Net Revenue Over Expense
Contributions
Net Assets Released from Restriction
2,099,479
-
57,912
(393,388)
-
2,099,479
57,912
(393,388)
Change in Net Assets (Deficit) from
Continuing Operations
2,099,479
(335,476)
-
1,764,003
-
781,435
-
2,545,438
GAIN FROM DISCONTINUED OPERATIONS
Change in Net Asset (Deficit)
NET ASSETS (DEFICIT) - DECEMBER 31, 2009
781,435
2,880,914
$ (4,788,934)
See accompanying Notes to Consolidated Financial Statements.
(5)
(335,476)
$ 3,395,738
$ 2,287,821
$
894,625
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
CASH FLOWS FROM OPERATING ACTIVITIES
Change in Net Assets (Deficit)
Change in Net Assets (Deficit) from Discontinued Operations
Adjustments to Reconcile Change in Net Assets to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization
Amortization of Deferred Income
Unrealized (Gain) Loss on Investments
Realized Gain on Investments
Gain on Sale of Property
Loss in Equity of Affiliate
Loss on Financing
Decrease in Noncontrolling Interest
(Increase) Decrease in Current Assets:
Accounts Receivable
Due from Related Party
Other Assets
Increase (Decrease) in Current Liabilities:
Accounts Payable
Construction Payable
Accrued Interest Payable
Resident Security Deposits
Other Accrued Liabilities
Net Cash Provided (Used) by Operating Activities
$
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment, Net
Proceeds from Sale of Property
Change in Assets Limited as to Use
Net Cash Provided (Used) by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of Long-Term Debt
Proceeds from Notes Payable
Increase in Deferred Financing Costs
Cottage Deposit Proceeds
Refunds to Residents for Cottage Deposits
Net Cash Provided (Used) by Financing Activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents at Beginning of Year
CASH AND CASH EQUIVALENTS AT END OF YEAR
See accompanying Notes to Consolidated Financial Statements.
(6)
$
1,763,973
781,435
2008
$ (6,456,108)
272,346
4,794,646
(500,723)
(553,096)
(50,977)
(714,436)
150,387
(198,383)
4,861,592
(637,660)
1,387,671
694,180
(127,732)
1,114,152
(1,442,702)
(2,529,054)
120,555
458,134
(598,605)
179,254
(21,159)
(1,175,809)
3,527,957
(889,712)
2,014,849
651,554
384,198
(1,013,363)
(808,550)
(1,233,704)
5,719,644
(1,003,387)
3,482,553
(3,194,264)
1,062,698
(2,131,566)
(8,134,310)
1,745,162
3,095,700
(2,165,246)
(5,458,694)
(5,998,517)
5,835,066
(177,912)
2,126,064
(324,326)
1,460,375
1,551,816
(1,479,741)
4,598,674
6,150,490
$
6,078,415
4,598,674
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009
2008
SUPPLEMENTAL CASH FLOW INFORMATION
Assets Purchased through Capital Leases
$
-
$
239,132
Property Purchased through Notes Payable
$
-
$
800,000
$
-
$
345,000
505,420
6,877,016
88,614
78,950
7,895,000
Series 2008 Bonds:
Issuance
Debt Service Reserve and Project Funds
Acquisition Funding
Credit Enhancement Fees
Underwriter's Discount
$
Series 2009 Bonds:
Construction and Reserve Fund Deposits
Issuance
Repayment of 2007 Bond Anticipation Notes
Credit Enhancement Fees
Repayment of Related Party Notes
Payment of Construction Payable
Bond Discount
See accompanying Notes to Consolidated Financial Statements.
(7)
$ 33,284,853
983,068
4,716,226
813,688
2,436,179
1,715,986
(921,201)
$ 43,028,799
$
$
-
$
-
-
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Nature of Organization
Sears Methodist Retirement System, Inc. (the “System”) operates as the parent corporation
and is exempt from income tax under 501 (c) (3) of the Internal Revenue Code. The System is
organized and operates through the following entities:
Sears Methodist Centers, Inc.
Sears Methodist Centers, Inc. is a 501 (c) (3) non-profit corporation, which is organized and
operates through the following divisions:
Sears Methodist Center
Sears Methodist Center is located on 14 acres in Abilene, Texas. The community has 20
independent cottages, 75 assisted living units and a 117 bed licensed nursing care center.
This division was sold during 2009 (see Note 3).
Windcrest Alzheimer’s Care Center
Windcrest Alzheimer’s Care Center is located in Abilene, Texas and offers the necessary
surroundings to accommodate the needs of up to 120 residents with Alzheimer's or other
debilitating dementia. The facility offers activity focused programming, support for
caregivers and has a resource center.
Sears Home Health
Sears Methodist Home Health employs professionals to provide a variety of medical
services to patients in their homes in Abilene and Wichita Falls, Texas.
Sears Methodist Hospice
Sears Methodist Hospice employs professionals to provide in-home hospice services to
seniors in the Abilene, Texas area regardless of ability to pay, religious preference or
nationality.
Sears Specialty Services
Sears Specialty Services offers private duty services ranging from meal preparation to
personal care to individuals living independently or in assisted living or nursing home
communities in Abilene and Amarillo, Texas.
Southwest Therapy Associates
Southwest Therapy Associates provides rehabilitation services to Sears Methodist Center,
Craig Methodist Retirement Community, Parks Retirement Community, Garrison Geriatric
Education and Care Center, Mesa Springs Retirement Village and Health Center,
Windcrest Alzheimer’s Care Center, Wesley Woods Alzheimer’s Care Center, Wesley Court
Methodist Retirement Community and Sears Home Health in Abilene and Wichita Falls as
well as other health care communities and agencies within the state of Texas.
(8)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Sears Methodist Centers, Inc. (Continued)
Wesley Court Methodist Retirement Community
Wesley Court Methodist Retirement Community is a continuum of care retirement
community located on 70 landscaped acres in Abilene, Texas. This senior living community
provides a full continuum of living options, consisting of 35 executive homes, 78 apartment
homes, 19 assisted living apartments and 30 private nursing care rooms. Rehabilitative
services are also available as needed.
Sears/Craig Methodist Pharmacy
Sears Methodist Pharmacy provided medication to the System’s Abilene residents and
employees. Craig Methodist Pharmacy provided medication to the System’s Amarillo
residents and employees. The two pharmacies ceased operations in July of 2008.
Sears Methodist Foundation
Sears Methodist Foundation (“Foundation”), a non-profit 501 (c) (3) Corporation, solicits donor
support for the charitable needs of the residents of the System. The Foundation contains donor
restricted and board designated investments for benevolent care and capital needs of the
System.
Sears Panhandle Retirement Corporation
Sears Panhandle Retirement Corporation, a non-profit 501 (c) (3) Corporation, is the parent
company of Canyons Retirement Community and Craig Methodist Retirement Community. In
March 2008, Canyons Retirement Community was sold to Canyons Senior Living, LP, a related
party. Craig Methodist Retirement Community is a continuum of care campus, comprised of
173 independent living cottages and apartments, 40 assisted living units and a 120 bed long
term care skilled nursing and Alzheimer’s specialty care community.
Sears Permian Retirement Corporation dba: Parks Methodist Retirement Village
Sears Permian Retirement Corporation, a non-profit 501 (c) (3) Corporation, owns and
operates Parks Methodist Retirement Village in Odessa, Texas. Parks Methodist Retirement
Village has 55 independent living apartments and cottages, 23 assisted living units and
operates a 90 bed nursing center.
Sears Brazos Retirement Corporation dba: Wesley Woods Alzheimer’s Care Center
Sears Brazos Retirement Corporation, a non-profit 501 (c) (3) Corporation, owns and operates
Wesley Woods Alzheimer’s Care Center in Waco, Texas. Wesley Woods is a 120 bed nursing
facility.
Odessa Methodist Housing, Inc. dba: Desert Haven
Odessa Methodist Housing, Inc., a non-profit 501 (c) (3) Corporation, is a subsidiary of Sears
Permian Retirement Corporation, owns and operates Desert Haven a 40 unit one bedroom
HUD subsidized apartment complex in Odessa, Texas.
(9)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Senior Dimensions, Inc.
Senior Dimensions, Inc., a for-profit corporation, aides the development of various projects and
operates three Texas Veteran Homes throughout Texas on behalf of the State Land Board.
The homes are located in Big Spring, El Paso and McAllen, Texas.
Sears Plains Retirement Corporation dba: Garrison Geriatric Education and Care Center
Sears Plains Retirement Corporation, a non-profit 501 (c) (3) Corporation, owns and operates
Garrison Geriatric Education and Care Center (“Garrison”). Garrison is a Geriatric learning
center and nursing facility in Lubbock, Texas. The facility has 120 nursing care beds and is
used for a training ground for Texas Tech University students.
Sears Tyler Methodist Retirement Corporation dba: Meadow Lake
Sears Tyler Methodist Retirement Corporation, a non-profit 501 (c) (3) Corporation, was set up
to own and operate Meadow Lake, the System’s first continuing care retirement community in
Tyler, Texas. Construction began in 2006 and permanent financing was obtained through the
issuance of the Series 2009 tax exempt bonds and a corresponding line of credit on
November 10, 2009. Meadow Lake will consist of 80 independent living apartments, 56
independent living executive homes, 20 assisted living units, 34 memory support units and 30
skilled nursing beds and is scheduled to be completed in February 2011.
Sears Caprock Retirement Corporation dba: Mesa Springs Retirement Village
In April 2008, the System purchased Mesa Springs Retirement Village and Health Care Center,
a non-profit 501 (c)(3) which consists of 16 independent living executive homes, 34
independent living garden homes, and 10 independent living apartments and a 76 bed skilled
nursing facility in Abilene, Texas (see Note 2).
Sears Methodist Senior Housing, LLC
Sears Methodist Senior Housing, LLC, was established as a limited liability corporation with
Sears Methodist Retirement System, Inc. being the sole member. Sears Methodist Senior
Housing, LLC acts as the general partner for Canyons Senior Living, L.P. and owns .01%. An
independent third party acts as the limited liability partner and owns the remaining 99.99%.
This ownership is shown as a non-controlling interest in the financial statements (see Note 6).
Tax Status
Sears Methodist Retirement System, Inc. and all subsidiaries, with the exception of Senior
Dimensions, Inc. and Sears Methodist Senior Housing LLC, are incorporated as nonprofit
corporations under the laws of the State of Texas and are exempt from federal income tax
under Section 501 (c)(3).
The System adopted the income tax standard for uncertain tax positions. This standard clarifies
the accounting for uncertainty in income taxes recognized in an organization’s financial
statements in accordance with the income tax standard. This standard prescribes recognition
and measurement of tax positions taken or expected to be taken on a tax return that are not
certain to be realized.
(10)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Tax Status (Continued)
The System’s income tax returns are subject to review and examination by federal, state, and
local authorities. The System is not aware of any activities that would jeopardize its tax-exempt
status. The System is not aware of any activities that are subject to tax on unrelated business
income or excise or other taxes. The tax returns for the years 2006 to 2009 are open to
examination by federal, local, and state authorities.
Senior Dimensions, Inc., accounts for income taxes under an asset and liability approach that
requires recognition of deferred tax assets and liabilities for the expected future tax
consequences. All expected future events other than enactments of changes in the tax law or
rates are considered.
Income taxes are provided for the tax effects of transactions reported in the consolidated
financial statements and consist of taxes currently due and deferred taxes. Deferred taxes are
recognized for differences between the basis of assets and liabilities for financial statement
and income tax purposes. The differences relate primarily to vacation accrual and a net
operating loss carry-forward. The net operating loss carry-forward in the amount of
approximately $1,600,000 will begin to expire in 2020. The deferred tax assets and liabilities
represent the future tax consequences of those differences, which will either be taxable or
deductible when assets or liabilities are recovered or settled.
Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense (benefit) is the income tax payable
(receivable) for the year and the change during the year in deferred tax assets and liabilities.
Standards of Accounting and Financial Reporting
The System follows the accounting guidance in the audit and accounting guide, Health Care
Organizations, which is in conformity with the recommendations of the American Institute of
Certified Public Accountants.
Principles of Consolidation
The accompanying consolidated financial statements include all accounts of Sears Methodist
Retirement System, Inc., the Foundation, and wholly owned subsidiaries, Sears Methodist
Centers, Inc., Sears Panhandle Retirement Corporation, Sears Permian Retirement
Corporation, Senior Dimensions, Inc., Sears Brazos Retirement Corporation, Sears Tyler
Methodist Retirement Corporation, Sears Caprock Retirement Corporation, Sears Methodist
Senior Housing, LLC and Sears Plains Retirement Corporation that are under common control.
Inter-company transactions and balances have been eliminated in the consolidation.
Sears Methodist Retirement System, Inc. generates revenue through management fees
charged to the above entities to cover expenses of operating the entire system. For all bonds
payable which are the debt of the Obligated Group, the other facilities pay a debt service fee to
cover their portion of the principal and interest.
(11)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Financial Statement Presentation
Contributions received are recorded as an increase in unrestricted, temporarily restricted or
permanently restricted support, depending on the existence or nature of any donor restrictions.
Accordingly, net assets of the System and changes therein are classified and reported as
follows:
Unrestricted –Those resources over which the board of directors has discretionary control.
Designated amounts represent those assets which the board has set aside for a particular
purpose.
Temporarily Restricted –Those resources subject to donor imposed restrictions which will
be satisfied by actions of the System or passage of time.
Permanently Restricted –Those resources subject to a donor imposed restriction that they
be maintained permanently by the System. The donors of these resources permit the
System to use all or part of the income earned, including capital appreciation of related
investments for unrestricted or temporarily restricted purposes.
Unconditional promises to give cash and other assets are accrued at estimated fair value at the
date each promise is received. The gifts 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 a donor restriction is satisfied, net assets are released and reported as an
increase in unrestricted net assets. Donor-restricted contributions whose restrictions are met
within the same reporting period as received are recorded as unrestricted contributions.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted
accounting principles 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 consolidated financial statements. Estimates also affect the reported amounts of
revenue and expense during the reporting period. Actual results could differ from those
estimates.
Resident Services Revenue
The System provides care to residents covered by various third-party payors such as
Medicare, Medicaid and private insurance companies. Medicare and Medicaid agreements
provide for rate payments which are updated annually by the federal and applicable state
governments, respectively. Many of the residents served by the System are elderly and many
have limited resources to pay for care without assistance from the Medicare and Medicaid
programs.
Provisions for estimated third-party payor settlements are provided in the period the related
services are rendered. Differences between the amounts accrued and subsequent settlements
are recorded in revenue in the year of settlement.
(12)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Third Party Reimbursement Agreements
Medicaid
The System participates in the Texas Medicaid program administered by the Texas Health
and Human Services Commission. Effective September 1, 2008, the Texas nursing facility
Medicaid payments transitioned from the TILE system, to the Resource Utilization Group III
(RUG-III) system. This transition does include a hold harmless provision for the period
ended August 31, 2009.
The facilities are required to file annual Medicaid cost reports which are subject to audit by
the Texas Health and Human Services Commission. Adjustments to these reports may
retroactively affect payment rates.
Medicare
The System also owns facilities that participate in the Medicare program. Licensed nursing
facilities that participated in the Medicare program for the years ended December 31, 2009
and 2008 were reimbursed based on a Prospective Payment System (PPS). This program
is administered by the United States Department of Health and Human Services.
Veterans’ Land Board
The System has multiple contracts with the Veterans Land Board of the State of Texas (the
“Board”). The System, in the name of and on behalf of the Board, bills Medicare, Medicaid
and other third-party payor plans for collection of fees for services rendered to residents.
The Veterans Land Board then provides per-diem reimbursement to the System once
payment is received by the Board from third party payors. In addition to the per diem fees,
the Board also pays the System an annual management fee. The System currently
manages three homes for the Board with three- year contracts that automatically renew.
Occupancy Percentages
During the years ended December 31, 2009 and 2008, the occupancy percentages and the
percentage of resident days covered under the Medicaid and Medicare program for all of Sears
Methodist Retirement System, Inc.’s skilled nursing facilities were as follows:
2009
Campuses
Sears Methodist Center
Windcrest Alzheimer's Care Center
Craig Methodist Retirement Community
Parks Methodist Retirement Village
Garrison Geriatric Education and Care Center
Wesley Woods Retirement Community
Mesa Springs
Wesley Court Retirement Center
Location
Abilene, TX
Abilene, TX
Amarillo, TX
Odessa, TX
Lubbock, TX
Waco, TX
Abilene, TX
Abilene, TX
(13)
Licensed
Beds
117
120
120
90
120
120
76
30
793
Occupancy
Medicaid
Medicare
77%
95%
96%
88%
82%
83%
83%
97%
54%
35%
32%
47%
33%
43%
51%
13%
10%
14%
29%
1%
21%
31%
-
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Occupancy Percentages (Continued)
2008
Campuses
Sears Methodist Center
Windcrest Alzheimer's Care Center
Craig Methodist Retirement Community
Parks Methodist Retirement Village
Garrison Geriatric Education and Care Center
Wesley Woods Retirement Community
Mesa Springs
Wesley Court Retirement Center
Location
Abilene, TX
Abilene, TX
Amarillo, TX
Odessa, TX
Lubbock, TX
Waco, TX
Abilene, TX
Abilene, TX
Licensed
Beds
117
120
120
90
120
120
89
30
806
Occupancy
Medicaid
Medicare
86%
95%
94%
90%
87%
86%
63%
91%
55%
34%
35%
45%
29%
45%
50%
12%
10%
15%
22%
20%
31%
-
During the years ended December 31, 2009 and 2008, the occupancy percentages for the
senior living units were as follows:
Assisted Living
2009
Occupancy
Units
Sears Methodist Center
Wesley Court Retirement Center
Craig Methodist Retirement Community
Parks Methodist Retirement Village
75
19
40
23
157
Independent Living
2009
Occupancy
Units
Sears Methodist Center
Wesley Court Retirement Center
Desert Haven
Mesa Springs
Craig Methodist Retirement Community
Parks Methodist Retirement Village
Canyons Senior Living Community
68%
96%
93%
95%
20
113
40
60
173
55
109
570
98%
96%
97%
97%
88%
88%
88%
2008
Occupancy
77%
96%
90%
98%
2008
Occupancy
95%
95%
100%
96%
93%
90%
84%
Sears Methodist Center occupancy percentages are through the date of sale, July 31, 2009.
Cash and Cash Equivalents
The System considers all highly liquid debt instruments and certificates of deposit with a
maturity of three months or less to be cash equivalents.
The System places their temporary cash investments with financial institutions. The System
also has cash held at an unrelated Foundation. At times such investments may be in excess of
the FDIC insurance limit. As of December 31, 2009 and 2008, cash held by the Foundation
was $4,656,697 and $2,600,757, respectively.
(14)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Accounts Receivable
Accounts receivable are primarily from Medicaid, Medicare, private pay residents and the
Veterans Land Board of the State of Texas (“VLB”).
The System accounts for uncollectible accounts by using management’s judgment. Resident
services are provided on an unsecured basis and payment is required upon receipt of the
invoice. Accounts past due more than 90 days are individually analyzed for collectibility. In
addition, an allowance is estimated for other accounts based on historical experience of the
System. The allowance for uncollectible accounts was approximately $1,100,000 and $695,000
at December 31, 2009 and 2008, respectively. Accounts receivable is uncollaterized.
Assets Limited as to Use
Assets limited as to use include assets set aside by the board of directors for benevolent care
needs, the retirement of debt, deferred compensation, future capital improvements and other
purposes, over which the Board retains control and may, at its discretion, subsequently use for
other purposes; assets held by trustees under the bond agreements and required HUD
reserves and assets limited as to use by donors.
Also, under the two HUD regulatory agreements, Odessa Methodist Housing Inc., and Sears
Plains Retirement Corporation make required deposits into restricted escrow accounts. These
HUD projects are required to deposit any surplus cash from operations into a residual receipts
account. There is also a requirement to deposit monthly amounts into a reserve for
replacement account. All disbursements from these accounts require the prior written approval
of HUD. These HUD projects also hold in trust security deposit amounts received by the
tenants of the projects upon move-in.
Assets limited as to use are invested in cash and cash equivalents, guaranteed investment
contracts and land for future use, which are measured at cost. Other investments such as fixed
income securities and corporate and government obligations with readily determinable fair
values are measured at fair value on the balance sheet.
The System also participates in the Texas Methodist Foundation’s pooled investment funds.
Each participant is allocated their pro-rata share of investment earnings (losses) and expenses
in the program. The assets in the pooled investment funds are invested in cash and cash
equivalents and equity funds and measured at fair value in the accompanying consolidated
balance sheet.
Investment income or loss from assets limited as to use (including realized gains and losses on
investments, interest and dividends) are included in net revenue over expense unless the
income or losses is restricted by donor or law.
Property and Equipment
Property and equipment are recorded at cost for purchased assets or fair market value at the
date of receipt for donated assets. Depreciation is computed using the straight-line method
over the estimated useful lives of the asset. Leasehold improvements are amortized over the
shorter of the lease term or estimated useful life of the asset.
(15)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Interest Capitalization
Interest costs incurred on borrowed funds during the period of construction of capital assets
are capitalized as a component of the cost of acquiring those assets, and depreciated over
their estimated useful lives by the straight-line method of depreciation.
Construction in Progress
Construction in progress costs have been deferred until the projects have been completed.
When the planned projects are completed, the construction in progress costs are capitalized
and depreciated over the estimated life of the project including interest costs from borrowed
funds.
Construction in progress is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In the
event that facts and circumstances indicate that the cost of construction in progress may be
impaired, an evaluation of recoverability is performed.
Deferred Financing Costs
Costs incurred of $6,882,124 in connection with the issuance of debt are capitalized and
amortized over the term of the related indebtedness on the Series 1998, 1999, 2001, 2003,
2008A, 2008B, 2009A and 2009B Series bonds. During 2009, $1,994,179 of costs which are
included in the total shown above were incurred in relation to the Series 2009 Bonds.
Amortization expense for the years ended December 31, 2009 and 2008 was $202,349 and
$211,631, respectively.
Deferred Marketing Costs
Advertising and marketing costs incurred in connection with acquiring initial continuing-care
contracts are capitalized during the start up phase of the retirement community. One year
following the completion of construction or when occupancy is stabilized, whichever occurs
first, these capitalized marketing cost will be amortized to expense on a straight-line basis over
the average expected remaining lives of the residents under contract at Meadow Lake. Total
marketing costs capitalized as of December 31, 2009 and 2008 totaled $889,869 and $-0-,
respectively.
Refundable Residency Fees and Deferred Revenue from Residency Fees
The cottages, apartments and executive homes (“residences”) located at Craig Methodist
Retirement Community, Wesley Court Methodist Retirement Community, Parks Methodist
Retirement Village, Mesa Springs Retirement Community and Garrison Geriatric Education and
Care Center are for persons who are sixty years of age and older. Residents of these senior
housing facilities enter into a personal and non-assignable agreement. When entrance fees are
received, 90% is amortized over the life of the applicable residence and 10% is amortized
monthly over the life expectancy of the resident. The contract states that the 10% nonrefundable portion is contributed to Sears Methodist Foundation and used for future benevolent
care; therefore all amortization revenue calculated on the non-refundable portion is reflected in
the statement of activities of the Foundation. Certain facilities adjust the standard average life
expectancy to account for time spent in assisted living and the nursing center.
(16)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Refundable Residency Fees and Deferred Revenue from Residency Fees (Continued)
Upon termination of such agreement, either by resident, by the System or by reason of death
and under the terms of these agreements, the respective organization is required to refund
90% of the residency fee to residents upon resale of the residence. All refunds are paid without
interest. Residents pay a monthly fee while living in these residences. These fees cover
operating expenses and capital costs, and do not include any health care benefits.
The future apartments and executive homes (“Independent Living Residences”) located at
Sears Methodist Retirement System, Inc. (“Meadow Lake”) are for persons who are fifty-five
years of age and older (“ILU Residents”). Residency fees for Independent Living Units consist
of a lump-sum one-time payment, the amount of which is based on the type of independent
living unit to be reserved and subsequently occupied by the ILU Resident (the “Entrance Fee”).
In addition, to reserve a residence, an ILU resident must execute a Residency Agreement and
make an initial payment equal to 10% of the Entrance Fee (the “Entrance Fee Deposit”) prior to
or upon execution of the residency agreement. The resident must pay the remaining 90% of
the Entrance Fee on or before the date of occupancy. The Organization will offer a 90%
Refundable Entrance Fee Plan for the independent living units. When the resident occupies
their unit, 90% of their entrance fee is amortized over the life of the applicable residence and
10% is amortized monthly over the life expectancy of the resident. ILU residents will pay a
monthly service fee for services provide by the Organization.
As a marketing incentive, Meadow Lake offered a 100% Refundable Entrance Fee Plan for
apartments to the first 30 residents to submit a $1,000 deposit on a future independent living
residence. The 100% Refundable Entrance Fee Plan consists of lower Entrance Fees and
higher monthly service fees than those offered under the 90% Refundable Entrance Fee Plan.
Prior to occupancy, prospective ILU residents who have paid an initial entrance fee may
terminate the residency agreement and receive a refund plus interest and less an
administrative fee of $2,500, by providing 10 days written notice of termination to the
Organization. After occupancy, the residency agreement may be terminated at any time by
providing 90 days notice to the Organization. Upon termination, the Organization will refund
90% (less financial assistance provided by the Organization) of the entrance fee paid by the
departing ILU resident (or 100% in the case of the ILU residents who elected the 100%
refundable entrance plan fee) within 30 days after the residence is reoccupied and the
Organization receives an entrance fee from the new resident occupying the unit.
Resident Deposits
Guaranty deposits of amounts ranging from $500 to $5,000 are required for each resident
entering an independent or assisted living facility within the System. The deposits in the case
of non-rental units are credited to the residents' accounts upon execution of the occupancy
agreement. In the case of rental units, the deposits are treated as security deposits and
refunded at the time the premises are vacated. These deposits are shown in resident security
deposits on the balance sheet.
(17)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Deferred Revenue
In addition to the resident contracts for cottages and executive homes, the System received
$500,000 from the Development Corporation of Abilene in 2005 for future development costs in
exchange for maintaining the corporate offices in Abilene, Texas. The term of the agreement is
ten years, and the associated deferred revenue is being amortized over 10 years. The balance
of the deferred revenue from this contract as of December 31, 2009 and 2008 was $291,667
and $341,667, respectively.
Increase (Decrease) in Unrestricted Net Assets from Continuing Operations
The consolidated statement of unrestricted activities includes a line entitled the “increase
(decrease) in unrestricted net assets from continuing operations” which is the performance
indicator for the System. Changes in unrestricted net assets which are excluded from increase
(decrease) in unrestricted net assets from continuing operations, consistent with industry
practice, include permanent transfers of assets to and from affiliates for other than goods and
services, discontinued operations, 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).
Charitable Gift Annuities Payable
The System has established a gift annuity program whereby donors may contribute assets to
the System in exchange for the right to receive a fixed dollar annual return during their lifetime.
A portion of the transfer is considered to be a charitable contribution. The difference between
the amount provided for the gift annuity and the present value of the liability for future
payments is recognized as a temporarily restricted contribution at the date of the gift as
specified by the donor. The System uses published mortality rate tables adopted by the United
States Internal Revenue Service. The annuity liability is revalued annually based upon
computed present values and discounted at rates between 3.0% and 10.0%. Total charitable
gift annuities payable as of December 31, 2009 and 2008 was $369,959 and $373,351,
respectively. The current portion of gift annuities payable as of December 31, 2009 and 2008
was $81,011 and $76,396, respectively, and are included in other accrued liabilities. The
corresponding assets associated with these liabilities are in assets limited as to use.
Accounting Standard for Endowments of Not-for-Profit Organizations
In August 2008, the Financial Accounting Standards Board issued the accounting standard for
endowments of not-for-profit organization, Endowments of Not-for-Profit Organizations: Net
Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent
Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds.
This standard, which the System has adopted, provides guidance on the net asset
classification of donor-restricted endowment funds for a not-for-profit organization that is
subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of
2006 (UPMIFA). The standard also improves disclosures about an organization’s endowment
funds (both donor restricted endowment funds and board designated endowment funds).
(18)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Charity Care
Sears Methodist Retirement System, Inc. provided care to residents who meet criteria under its
charitable care policy without charge or at amounts less than its established charge rates. In
addition, the System also provides care under the Medicaid program for which the costs to
provide such care exceeds reimbursement. The total charitable care provided under these
programs was $4,648,439 and $4,426,317 for the years ended December 31, 2009 and 2008,
respectively. The System also provides a number of other services to its residents and on
behalf of the community where costs exceed revenues.
Fair Value of Financial Instruments
Fair value measurement applies to reported balances that are required or permitted to be
measured at fair value under an existing accounting standard. The system emphasizes that fair
value is a market-based measurement, not an entity specific measurement. Therefore, a fair
value measurement should be determined based on the assumptions that market participants
would use in pricing the asset or liability and establishes a fair value hierarchy. The fair value
hierarchy consists of three levels of inputs that may be used to measure fair value as follows:
Level 1 – Inputs that utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that the System has the ability to access.
Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets
and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument. Fair values for these instruments are
estimated using pricing models, quoted prices of securities with similar characteristics, or
discounted cash flows.
Level 3 – Inputs that are unobservable inputs for the asset or liability, which are typically
based on an entity’s own assumptions, as there is little, if any, related market activity.
In instances where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value hierarchy within which the
entire fair value measurement falls is based on the lowest level input that is significant to the
fair value measurement in its entirety.
The System also adopted the policy of valuing certain financial instruments at fair value. This
accounting policy allows entities the irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and liabilities on an instrument-byinstrument basis. The System has elected to measure investments at fair value at January 1,
2008, with the exception of investments in the captive insurance companies and land held for
investment, and guaranteed investment contracts which are recorded at cost. The Company
may elect to measure newly acquired financial instruments at fair value in the future.
The System has elected the fair value option for investments to simplify record keeping. This
election effectively moves the classification of investments from available for sale to trading
which has no impact on the balance sheet presentation. The impact on the statement of
operations pertaining to this election is that unrealized gains and losses on investments will be
shown within the performance indicator effective January 1, 2008.
(19)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Fair Value of Financial Instruments (Continued)
Securities Available for Sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value
measurement is based upon quoted prices, if available. If quoted prices are not available,
fair values are measured using independent pricing models or other model-based valuation
techniques such as the present value of future cash flows, adjusted for the security’s credit
rating, prepayment assumptions, and other factors such as credit loss assumptions.
Securities valued using Level 1 inputs include those traded on an active exchange, such as
the New York Stock Exchange. Level 2 inputs include fixed income securities, corporate
obligations and US. Government backed securities that are traded by dealers or brokers in
active over-the-counter markets. Level 3 inputs include investments in pooled funds.
Investments in equity and fixed income securities and government and corporate obligations
with readily determinable fair values are measured at fair value on the balance sheet.
Investment income or loss (including realized gains and losses on investments, interest and
dividends) is included in net revenue over expense unless the income or loss is restricted by
donor or law.
Other Operating Revenue
Other operating revenue consists primarily of non-resident rental income, laundry, barber and
beauty, cafeteria sales and other miscellaneous revenue.
Contributed Services
The System receives a substantial amount of services donated by volunteers. No amounts
have been reflected in the financial statements for these services.
Risks and Uncertainties
The System has investments in a variety of investment holdings. In general, investments are
exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to
the level of risk associated with certain investments, it is reasonably possible that changes in
the values of the investments will occur in the near term and that such changes could
materially affect account balances reported on the balance sheet of the System.
Advertising
Advertising costs are charged to operations when incurred. Advertising expense was $690,746
and $485,844 for the years ended December 31, 2009 and 2008, respectively.
(20)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
Other Investments
The System had an investment in an unconsolidated entity (SeniorSafe@Home) which was
being recognized as a long-term investment under the equity method. During 2008,
SeniorSafe@Home discontinued operations and the System’s investment in
SeniorSafe@Home was impaired to $0. As of December 31, 2008, the System had an
outstanding receivable from SeniorSafe@Home of $286,985 which is shown in due from
related party on the balance sheet. The balance of this receivable has been collected.
Reclassifications
Amounts in the consolidated balance sheet as of December 31, 2008 and the related
consolidated statements of unrestricted activities, changes in net assets and cash flows for the
year then ended have been reclassified to conform to the 2009 classification.
Subsequent Events
In preparing these financial statements, the System has considered events and transactions for
potential recognition or disclosure through April 19, 2010, the date the financial statements
were available to be issued.
NOTE 2
ACQUISITION OF MESA SPRINGS RETIREMENT VILLAGE, INC.
Effective April 10, 2008 (the “Closing Date”), Sears Caprock Retirement Corporation
(“Caprock”) acquired the assets of Mesa Springs Retirement Village, Inc. (“Mesa Springs”). In
consideration for the assets of Mesa Springs, the System paid the seller $5,600,000 which was
financed through the issuance of Series 2008A Revenue Bonds.
Mesa Springs has 16 executive homes. Prior to the purchase of Mesa Springs by Caprock,
Mesa Springs had been gifted twelve of these residential executive independent living homes
(the “Gifted Homes”). As part of the asset purchase agreement, Caprock agreed to pay the
seller fifty percent of the proceeds of any initial sale or transaction where a deposit is
generated or received involving any of the twelve gifted homes and fifty percent of the increase
in the amount of the refundable portion of any new deposits collected over the amount of the
refundable portion of the previous deposit (the “Appreciated Value”) in any sale or other
transaction (a “Resale”) where a deposit is generated or received involving the remaining four
non-gifted executive homes at any time within seven years after the closing date of the sale of
Mesa Springs to Caprock up to a maximum of one million three hundred thousand dollars
($1,300,000) or a minimum of eight hundred thousand dollars ($800,000) (“Deferred Purchase
Price Payment”).
(21)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 2
ACQUISITION OF MESA SPRINGS RETIREMENT VILLAGE, INC. (CONTINUED)
This Deferred Purchase Price Payment is payable in installments equal to fifty percent of the
sales proceeds of the initial sale of a Gifted Home or if applicable, fifty percent of the
appreciated value resulting from a resale of a non-gifted home payable promptly upon closing
of such sale or other transaction at any time within the seven year period after the Closing
Date. If the aggregate amount of $800,000 has not been paid within the seven-year period,
then on the seventh anniversary of the Closing Date, a final installment shall be payable equal
to the $800,000 less the amount of all such prior installments of the Deferred Purchase Price
Payment that have been paid prior to the seventh year anniversary date.
As of December 31, 2008, $800,000 was recorded as a note payable on the balance sheet and
the timing of payment is contingent upon the future sale and resale of the gifted and non-gifted
executive homes. The remaining amount potentially due to a maximum of $1,300,000 is
contingent upon the same factors and currently has not been recorded as a liability.
Management will evaluate annually over the seven years their liability based on annual
occurrences surrounding the homes and adjust the balance due to seller accordingly, as well
as adjust the purchase price of the buildings on the balance sheet.
During 2009, Caprock sold one of the gifted homes and paid the seller $122,500. Subsequent
to December 31, 2009, Caprock sold an additional gifted home and paid the seller $75,000.
The balance of the contingent liability as of December 31, 2009 was $677,500, of which
$75,000 is included in the current portion of long-term debt.
NOTE 3
DISCONTINUED OPERATIONS
On July 1, 2009, the System sold the assets of Sears Methodist Center (“SMC”) for
$6,250,000; accordingly, the operations of SMC for the years ended December 31, 2009 and
2008 are accounted for as a discontinued operation. In addition to the purchase price, the
buyer also assumed $1,030,000 of the liability to residents of the cottages located at SMC. A
portion of the proceeds were used to retire Series 1998 Bonds in the amount of $3,725,000. In
addition, SMC agreed to retain up to $500,000 of resident deposit liabilities to be applicable
solely to the residents residing in the cottages as of the sale date. This $500,000 shall be
repaid to the residents of the cottages as of the sale date in future periods when they move out.
As of December 31, 2009, $26,229 is included in the current portion of long-term debt and the
remaining $473,771 is included in the long-term debt on the consolidated balance sheet.
In accordance with the accounting standard Accounting for the Impairment or Disposal of LongLived Assets, the operating activity for SMC is presented as discontinued operations in the
consolidated statement of unrestricted activities for the years ended December 31, 2009 and
2008. The amounts included in discontinued operations include:
Total Operating Revenues
Gain on Sale of Discontinued Operations
Total Operating Expenses
Gain from Discontinued Operations
$
$
(22)
December 31,
2009
2008
4,495,713
$
7,863,227
714,436
4,428,714
7,590,881
781,435
$
272,346
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 4
ASSETS LIMITED AS TO USE
The balances of assets limited as to use and the respective composition of related investments
at December 31, 2009 and 2008 are as follows:
2009
BOARD DESIGNATED
Benevolent Care
Deferred Compensation
Accelerated Debt Retirement
Expansion Projects
Other Board Designated
Subtotal
$
PERMANENTLY AND TEMPORARILY
RESTRICTED
By Donors or Grantors for Specific Purposes
HELD BY BOND TRUSTEE
Under Indenture Agreement
RESTRICTED DEPOSITS AND FUNDED
RESERVES
Replacement Reserves
Resident Trust Funds
Residual Receipts
Subtotal
Total Assets Limited as to Use
2008
580,840
722,317
1,060,254
4,987,000
3,951,650
11,302,061
$
836,375
510,521
823,741
4,175,000
3,382,952
9,728,589
2,947,013
3,254,619
43,062,240
10,313,163
1,092,927
2,493,714
12,852
3,599,493
1,062,141
1,635,581
104
2,697,826
$ 60,910,807
$ 25,994,197
Assets limited as to use that are required for obligations classified as current liabilities and
other required uses within one year are reported as current assets.
The estimated fair value and cost of assets limited as to use at December 31, 2009 and 2008
were as follows:
Cash and Cash Equivalents
Guaranteed Investment Contracts
Corporate Obligations
Government Obligations
Equities
Fixed Income Securities
Land
Funds Held by Texas Methodist Foundation
Other
Totals
$
$
(23)
2009
Cost
Fair Value
29,606,806
$ 29,606,806
9,880,672
9,880,672
1,324,383
555,184
4,383,559
4,343,039
4,100,000
4,100,000
11,136,077
11,797,566
627,540
627,540
61,059,037
$ 60,910,807
$
$
2008
Cost
Fair Value
3,703,902
$ 3,703,902
5,431,061
5,431,061
102,967
102,605
103,861
109,469
3,482,293
3,572,437
4,100,000
4,100,000
9,094,649
8,727,185
247,538
247,538
26,266,271
$ 25,994,197
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 5
PLEDGES RECEIVABLE
Pledges receivable are as follows at December 31:
2009
Unconditional Promises Expected to be Collected in:
Less Than One Year
One to Five Years
Total Pledges Receivable
$
$
559,832
201,742
761,574
2008
$
$
500,000
94,154
594,154
Pledges receivable are included in other assets and assets limited as to use in the
consolidated balance sheets as of December 31, 2009 and 2008, in the amounts of $149,161
and $500,000, and $612,413 and $94,154, respectively. At December 31, 2009 and 2008, the
pledges receivable were reported net of an allowance of $200,000 and $-0-, respectively.
NOTE 6
INVESTMENT IN LIMITED PARTNERSHIP
On August 7, 2007, Sears Methodist Senior Housing, LLC, which is a wholly owned subsidiary
of Sears Methodist Retirement System, Inc., entered into an agreement with an independent
development company to own and operate Canyons Senior Living LP (“Partnership”). Sears
Methodist Senior Housing, LLC is the general partner (the “General Partner”) of Canyons
Senior Living LP. Profits and losses of the Partnership are allocated based on percentages of
ownership.
As the General Partner maintains controlling interest in the Partnership, the Partnership totals
have been included in the consolidated financial statements. The equity attributable to the
limited partner of the Partnership has been reflected on the consolidated balance sheets as
“noncontrolling interest.”
Under the partnership agreement, the Partnership shall dissolve upon the earliest to occur of
any of the following events;(i) December 31, 2046 (ii) Bankruptcy, incompetency, or withdrawal
of the General Partner unless the Limited Partners select a successor General Partner within
30 days of the General Partners, incompetency, or withdrawal and elect to continue the
partnership; (iii) the passage of 6 months after the sale or other disposition of the property and
all other assets of the Partnership; (iv) unanimous vote of the General Partner and the Limited
Partner.
(24)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT
Sears Methodist Retirement System, Inc.’s long-term debt at December 31, 2009 and 2008 is
summarized below:
Description
2009
2008
HFDC of Central Texas, Inc. Series 2009A and 2009B
Revenue Bonds, Due from November 15, 2019 to
November 15, 2044. Secured by the Underlying
Mortgage on the Property.
See (1)
HFDC of Central Texas, Inc. Series 2008 Variable Rate
Demand Retirement Facility Revenue Bonds, Due
November 1, 2037. Secured by Letter of Credit.
See (2)
HFDC of Central Texas, Inc. Series 2007 Bond
Anticipation Notes, no periodic interest payment,
accrues interest at 13% per annum, compounded
semiannually until the Accreted Value is paid or duly
provided for, with a final maturity of January 13, 2012,
secured by deed of trust.
See (3)
-
3,320,000
Abilene Health Facilities Development Corporation
Retirement Facility Series 2003 Revenue Bonds, Due
April 15, 2033, with maximum annual debt service
requirements of $8,646,950, which occurs in 2030 after
Series 1998 and 1999 bonds are fully paid. Secured by
deed of trust and gross revenues (Sears Methodist
Obligated Group).
See (4)
47,070,000
47,310,000
Lubbock Health Facilities Development Corporation
Series 2001 Revenue Bonds (GNMA Collateralized),
Due January 20, 2041. Secured by HUD Mortgage.
See (5)
8,360,000
8,455,000
Abilene Health Facilities Development Corporation
Retirement Facility Series 1999 Revenue Bonds
Payable, Due November 15, 2029, with maximum
annual debt service requirements of $959,300.
Secured by deed of trust and gross revenues (Sears
Methodist Obligated Group).
See (6)
11,000,000
11,285,000
Abilene Health Facilities Development Corporation
Series 1998 Bonds, Maturing through November 15,
2028, with maximum annual debt service requirements
of $4,267,713. Secured by deed of trust and gross
revenues (Sears Methodist Obligated Group).
See (7)
44,525,000
49,620,000
(25)
$
43,950,000
7,895,000
$
-
7,895,000
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Description
2009
Notes Payable to Texas Methodist Foundation, monthly
interest only payments at MLF plus( .50% and 3.15%
at December 31, 2009 and 2008, respectively)
beginning March 7, 2009. One final payment of
Interest due on January 31, 2010, unsecured (Sears
Methodist Obligated Group).
$
2008
-
$
2,482,276
Note Payable to Texas Methodist Foundation, Interest
only payments at MLF plus .50% (3.15% at December
31, 2008) beginning June 7, 2008. One Final Payment
of Principal and Interest on May 31, 2009, unsecured
(Sears Methodist Obligated Group).
-
169,943
Note Payable to the Ziegler Companies, due on
demand, Interest accrued at 5.6% per annum,
unsecured (Sears Methodist Obligated Group).
-
251,969
Note Payable to First Financial Bank-Abilene, due April
27, 2010, with monthly payments of $1,701, including
interest at 7.25%, secured by transportation
equipment, unsecured (Sears Methodist Obligated
Group).
4,375
6,592
Note Payable to First Financial Bank, 11 consecutive
payments of $7,000 beginning August 7, 2008 includes
interest at prime plus 1.0%. One final payment of
principal and interest on July 7, 2009.
-
215,215
Note Payable to First Financial Bank-Abilene, due
March 4, 2011, with monthly payments of $304,
including interest at 5.95%, secured by transportation
equipment (Sears Methodist Obligated Group).
-
7,661
Note Payable to Texas Methodist Foundation, Interest
only payments at MLF plus 1.00% (3.65% at December
31, 2008) beginning April 7, 2009. One Final Payment
of Interest due on January 31, 2010, secured by
investments (Sears Methodist Obligated Group).
-
450,000
Note Payable to Texas Methodist Foundation, Interest
only payments at Prime plus 1.25% (4.75% at
December 31, 2008) beginning March 7, 2009, One
Final Payment of Interest due on January 31, 2010,
secured by deed of trust (Sears Methodist Obligated
Group).
-
1,500,000
(26)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Description
2009
Note Payable to Texas Methodist Foundation, Interest
only payments at prime plus .50% (3.75% at December
31, 2009). until payments of $63,000 to begin
February 7, 2010. The monthly payment will be
adjusted January 7, 2011 and annually thereafter to
correspond with the interest rate. One final payment of
principal and unpaid interest on January 7, 2015,
unsecured (Sears Methodist Obligated Group).
$
3,427,971
2008
$
-
Promissory Note with Texas Methodist Foundation.
Interest only Payments at Prime plus .50% beginning
February 10, 2010. Principal and Interest Payments
amortized over a sixty month period beginning
February 7, 2015. One final payment of principal and
interest on January 7, 2020. Secured by Deed of Trust.
2,369,658
2,409,978
Pre-Development Loan with Bank, due July 30, 2009,
Interest payments due monthly beginning, February 1,
2009 at 5.25%. Secured by Property.
1,654,000
1,654,000
Asset Purchase Agreement Payable, due April 2013,
see Note 2.
677,500
800,000
Asset Purchase Agreement Payable for Sears
Methodist Center Resident Refunds, see Note 3.
500,000
-
Notes Payable, Insurance, matures April 1, 2010.
Unsecured.
172,210
-
195,455
171,801,169
213,080
138,045,714
Capital Leases Payable require monthly payments of
$6,044 and expire in 2013. As of December 31, 2008,
the equipment associated with the leases had cost and
accumulated depreciation of $239,132 and $21,100,
respectively (Sears Methodist Obligated Group).
Unsecured.
Less: Current Maturities
Less: Unamortized Discount on Bonds
Total Long-Term Debt
(6,290,979)
(2,054,669)
$ 163,455,521
(27)
(8,586,639)
(1,241,236)
$ 128,217,839
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
The obligated group for the Series 1998, 1999, and 2003, Revenue Bonds consists of
consolidated Sears Methodist Retirement System, Inc., excluding Desert Haven, which is a
HUD 202 project, Senior Dimensions, Inc., which operates as a for-profit entity, Sears Plains
Retirement Corporation, which is a HUD 232 project, Sears Tyler Methodist Retirement
Corporation, which is still in the development stages and has its own permanent financing
arrangement, Sears Caprock Retirement Corporation which was acquired in April 2008 and
Sears Methodist Senior Housing, LLC (the “Obligated Group”).
The unamortized discount and premium on revenue bonds relates to the Series 1998, 1999,
2003, 2008 and 2009 Series Revenue Bonds and are being amortized over the term of the
bonds using straight line amortization.
Bonds Payable
(1) On November 1, 2009, Sears Tyler Methodist Retirement Corporation (“Tyler”) through
HFDC of Central Texas, Inc. issued $8,545,000 Series 2009A Term Retirement Facility
Revenue Bonds, $27,555,000 Series 2009A Term Retirement Facility Revenue Bonds
and $7,850,000 Series 2009B Term Retirement Facility Revenue Bonds. The proceeds of
the Series 2009A and 2009B bonds were used to finance the construction and equipping
of, and the start up costs in connection with the construction of, a senior living community
to be known as Meadow Lake, A Senior Living Community consisting of executive homes,
independent living apartments, assisted living units, a health center, and a memory
support area together with common areas near Tyler, Texas (the “Tyler Project”).
On November 9, 2009, the System entered into a $4,000,000 revolving line of credit
agreement with Texas Methodist Foundation bearing interest at prime plus one-half
percent with a floor of 4.75%. Monthly payments of accrued interest only began on
December 7, 2009 and continue through October 7, 2012. One final payment of all
principal and accrued interest is due in full on November 7, 2012. The line is secured by
assets of the System. Tyler, in turn, signed a revolving promissory note with the System
dated November 10, 2009 for which they can draw up to $4,000,000, however, any
amounts borrowed and repaid may be re-borrowed up to a cumulative total of
$15,000,000. The intent of the revolving note is to fund construction of 56 executive
homes as part of the Meadow Lake campus. Proceeds from the entrance fees of these
executive homes will be used to pay on the revolving promissory note with the System.
Interest is paid monthly based on outstanding advances at prime plus 1.5% but in no
event will be less than 4.75% per annum or more than 7.75% per annum. The revolving
note with the System matures on January 1, 2015 with five annual extension options
through January 1, 2020. As of December 31, 2009, the System had no draws on the
revolving note.
(28)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Bonds Payable (Continued)
Operating Support Agreement
In conjunction with the issuance of the Series 2009 Bonds, Tyler entered into an operating
support agreement (the “Support Agreement”) on November 1, 2009 with Senior Dimensions,
Inc. (“SDI”). Under this agreement, SDI agrees to deposit all of its excess cash flow from its
Veterans Land Board Contracts (“VLB Contracts”) into a trustee held fund called the Operating
Support Fund. The Support Agreement further calls for SDI to grant the System a continuing
security interest in and to all, right, title and interest of SDI in its right to receive payments of
money under their VLB Contracts. Repayments of funded amounts from SDI to the System are
defined in the Master Trust Indenture and shall not be released and repaid until after the Series
2009B Bonds have been redeemed and Tyler is in compliance with the required covenants of
the Master Trust Indenture. Any funds deposited by SDI and not repaid pursuant to the above
criteria shall be added to the outstanding note payable between SDI and the System under the
same repayment terms. If the note has been repaid or no longer exist at the termination of the
Support Agreement, then a new note bearing the same terms shall be executed. No amounts
were received by the System under the Support Agreement during 2009.
Professional Services Agreement
Effective July 1, 2009, Tyler entered into professional services agreement (the “Services
Agreement”) with the System. The Services Agreement calls for the System to provide
centralized management services in the areas of accounting, budgeting, cash management,
payroll, purchasing, long range planning and fund raising as well as negotiate with vendors and
suppliers on Tyler’s behalf. The term of the Service Agreement is five years and will renew
annually unless directed otherwise by the board of directors. The System will not begin
charging Tyler a management fee for these services until after December 31, 2013, at which
time the fee will be based upon census level, net revenue and other operational factors.
Completion Guaranty
On September 30, 2009, Tyler entered into a construction completion agreement (the
“Completion Guaranty”) with the System. In the unlikely event that the Tyler fails to meet
substantial completion of the Tyler Project, the System shall cause the substantial completion
of the Tyler Project in accordance with the plans and specifications of the construction
contracts, subject to the System’s receipt of the funds necessary to complete the Tyler Project
from the proceeds of the Series 2009 Bonds concerning all of the Tyler Project, except the
Executive Home portion of the Tyler Project.
(2) On April 10, 2008, Sears Caprock Retirement Corporation, issued $3,275,000 Series
2008A Variable Rate Demand Retirement Facility Revenue Bonds and $4,620,000 Series
2008B Issuer’s Variable Rate Demand Retirement Facility Revenue Bonds. The proceeds
of the Series 2008A and 2008B were used to finance the acquisition, remodeling and
equipping of, a senior living community currently known as Mesa Springs Retirement
Village in Abilene, Texas (the “Mesa Springs Project”). The bonds were also used to fund
additional startup costs and miscellaneous capital expenditures of the Mesa Springs
Project.
(29)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Bonds Payable (Continued)
(2) (Continued)
By, definition, a Variable Rate Demand Bond is a long-term tax-exempt bond the interest
rate of which is indexed to a current short-term market rate. The interest rate of the Series
2008A and 2008B bonds for the periods ended December 31, 2009 and 2008 were .23%
and .43%, and 1.10% and .67%, respectively.
A demand feature allows the bonds to be remarketed upon 7 days notice at par value plus
accrued interest. The System holds an irrevocable letter of credit with the bond trustee for
the face amount of the bonds. The letter of credit has an initial five year term, expiring in
March 2013. In the event remarketing is not successful; the letter of credit will be drawn
upon to pay the bond trustee.
The System has a liability to the bond trustee immediately upon a draw on the letter of
credit. Any draws on the letter of credit are subject to a 60 month payment term and other
provisions applicable. The maturities of these related bonds are based on these 60 month
repayment terms in accordance with the letter of credit agreement.
(3) On January 1, 2007, Sears Tyler Methodist Retirement Corporation Project, borrowed
$3,320,000 of Bond Anticipation Notes through HFDC of Central Texas, Inc. The
proceeds of the Series 2007 Notes were applied, together with other moneys, to pay a
portion of the pre-construction development costs of the Tyler Project. The notes were
repaid during 2009 with the financing of the 2009 Series Bonds.
(4) On April 10, 2003, Sears Methodist Retirement System, Inc. issued $43,060,000 Series
2003A Retirement Facility Revenue Bonds $2,500,000 Series 2003B-1 Extended Rate
Adjustable Securities and $2,500,000 Series 2003B Extendable Rate Adjustable
Securities under the Abilene Health Facilities Development Corporation. The proceeds of
the bonds were used (i) to construct, furnish and equip certain facilities of the Obligated
Group located in Waco and Abilene, Texas, (ii) refinance certain indebtedness of SMRS,
(iii) reimburse SMRS for certain other capital expenditures relating to project costs of the
Garrison facility; (iv) to fund capitalized interest on bond proceeds allocated to Wesley
Woods and Wesley Court; (vi) to purchase new equipment; (v) to fund start up and
marketing expenses for Wesley Woods and Wesley Court; (vi) to fund a deposit to the
debt service reserve fund with respect to the Series 2003 Bonds and (vii) to pay a portion
of the costs of issuance of the Series 2003 Bonds. Interest on the 2003A Bonds is
payable semi-annually at rates from 5.15% to 7.00%. The interest rates at December 31,
2009 for the Series 2003B-1 and 2003B-2 Bonds were 5.10% and 5.15%, respectively.
The 2003A Bonds required annual principal payments and are due in full November 15,
2033. The 2003B-1 and 2003B-2 Bonds are due in full on November 15, 2034. The bonds
are secured by the gross receipts of the Obligated Group.
(30)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Bonds Payable (Continued)
(5) On February 1, 2001, the Lubbock Health Facilities Development Corporation authorized
the issuance of $8,910,000 of Series 2001 Revenue Bonds, bearing interest between
5.00% and 5.70%. The bond proceeds were used to acquire, construct, improve, equip
and furnish the Garrison Geriatric Education and Care Center in Lubbock, Texas, a 120unit chronic and Alzheimer’s nursing care facility and pay cost of issuance of the Series
2001 Bonds. The Series 2001 Bonds are secured by GNMA securities in the amount of
$8,418,404 as of December 31, 2009.
The Series 2001 Bonds are secured by GNMA securities in the amount of $8,327,222 and
$8,418,404 as of December 31, 2009 and 2008, respectively. The GNMA security is
secured by a 5.92% HUD insured mortgage in the original amount of $8,906,200, which is
further secured by a security agreement placed on all the buildings, fixtures and
equipment. The outstanding balance of the HUD Insured Mortgage as of December 31,
2009 and 2008 is $8,327,222 and $8,418,404, respectively.
The mortgage and security agreement have been assigned to The Bank of New York as
trustee. All payments of principal and interest on the bonds are made from the monthly
pay down of principal and interest from the GNMA securities to the bond funds in
accordance with the terms of an indenture of trust with the trustee.
(6) On January 15, 1999, the System issued $13,085,000 Series 1999 Retirement Facility
Revenue Bonds under the Abilene Health Facilities Development Corporation. The Series
1999 Bonds are secured equally and ratably by the Series 1999 Note, which is secured by
a security interest in the gross revenues of the Obligated Group as supplemented by the
Supplemental Indenture date January 1, 1999 between the Obligated Group and the
master trustee. Bond proceeds were used to construct improvements and expand certain
facilities of the Obligated Group located in Odessa and Abilene, Texas; refinance an
existing mortgage; pay capitalized interest on bond proceeds allocated to Windcrest
Retirement Community and Parks Methodist Retirement Community and purchase new
equipment. Interest and principal on the 1999 Series Bonds are paid semi-annually at
rates from 5.35% to 6.00%.
(7) On August 1, 1998, the System issued $46,530,000 Series 1998A Retirement Facility
Revenue Bonds, $8,095,000 Retirement Facility Revenue Bonds Series 1998B-1
Extended Rate Adjustable Securities, $4,055,000 Taxable Series 1998B-2 Extended Rate
Adjustable Securities Retirement Facility Revenue Bonds and $1,435,000 Taxable Series
1998C Retirement Facility Revenue Bonds, under the Abilene Health Facilities
Development Corporation. Proceeds of the bonds were used to construct improvements
and expansions to certain facilities of the Obligated Group located in Abilene and Amarillo,
Texas and to pay the cost of issuance of the bonds and the refinancing and defeasance of
the 1996 Bonds. Interest and principal on the 1998 Series Bonds are paid semi-annually
at rates from 4.10% to 5.90%. During 2009, $3,725,000 of the 1998 Series Bonds were
repaid with a portion of the proceeds obtained from the sale of Sears Methodist Center.
(31)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 7
LONG-TERM DEBT (CONTINUED)
Bonds Payable (Continued)
(7) (Continued)
Under terms of the bond indentures the System is required to maintain certain deposits
with the respective trustees that are recorded as assets limited as to use on the
consolidated balance sheets of the System. The Series 1998, 1999 and 2003 Bonds are
governed by the Supplemental Master Trust Indenture dated April 1, 2003.
Substantially all of the System’s property, equipment and assets are pledged as collateral
for the above the bonds.
Scheduled principal payments on long-term debt are as follows:
Year Ending December 31,
2010
2011
2012
2013
2014
Thereafter
Current Maturities on Long-Term Debt
Unamortized Discount on Revenue Bonds
Total Long-Term Debt
Amount
$
6,290,979
5,817,051
8,243,688
3,599,012
3,784,952
144,065,487
171,801,169
(6,290,979)
(2,054,669)
$ 163,455,521
Restricted Covenants-Obligated Group
The provisions of the debt agreements of the Bonds Payable described above contain various
restrictive covenants that limit the occurrence of additional debt, place restrictions on the
disposition of property and require that certain measures of financial performance be satisfied
as long as the bonds are outstanding.
Restricted Covenants-Series 2009 Bonds
The provisions of the trust indenture for the Series 2009 Bonds require that certain financial
covenants are required at the earlier of stable occupancy or the year ended December 31,
2013. As of December 31, 2009, the Master Trust Indenture has marketing covenant based on
a number of reserved independent living apartments. Management has determined that all
covenants have been satisfied.
As of December 31, 2009, the System did not meet its covenant as required by the Master
Trust Indenture relating to days cash on hand. This violation is not considered an event of
default and management is currently taking the appropriate actions to restore an appropriate
cash position in future reporting periods.
(32)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 8
HUD CAPITAL ADVANCE
Desert Haven received a capital advance note from HUD in the amount of $1,942,600. The
note bears no interest and payment is not required as long as the housing remains available for
low-income elderly persons. The note will be forgiven at its maturity date of September 1, 2037
if the housing facility remains available for occupancy by eligible families until that date.
Otherwise, the entire amount, plus interest at 7% since October 9, 1996, will be declared due
and payable to HUD. The note is secured by all property owned by Desert Haven and all
related receipts attributed to its operations. The capital advance has been accounted for as
contribution revenue and is carried in temporarily restricted net assets.
NOTE 9
FAIR VALUE MEASUREMENTS
The System uses fair value measurements to record fair value adjustments to certain assets
and liabilities and to determine fair value disclosures. For additional information on how the
System measures fair value refer to Note 1 – Summary of Significant Accounting Principles.
The following table presents the fair value hierarchy for the balances of the assets and
liabilities of the Company measured at fair value on a recurring basis as of December 31, 2009
and 2008:
2009
Level 2
Level 1
Corporate Obligations
Funds Held by Texas Methodist Foundation
Equities
Fixed Income Securities
Total Assets Measured
at Fair Value
Corporate Obligations
Government Obligations
Funds Held by Texas Methodist Foundation
Fixed Income Securities
Total Assets Measured
at Fair Value
(33)
Level 3
$
555,184
4,343,039
$
-
$
2,765,805
-
$
4,898,223
$
-
$
2,765,805
$
-
$
2,104,316
-
$
-
$
2,104,316
Level 1
$
102,605
109,469
3,572,437
$
3,784,511
2008
Level 2
Level 3
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 9
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table provides a summary of changes to fair value of the System’s Level 3
financial assets for the years ended December 31, 2009 and 2008.
Balance at January 1, 2008
$
Investment Earnings
2,189,088
(84,772)
Balance at January 1, 2009
2,104,316
Investment Earnings
661,489
Balance at December 31, 2009
$
2,765,805
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
HUD Capital Advances
The fair value of the HUD capital advance is estimated based upon the remaining term of the
advance and current rates for similar instruments.
Funds Held by Texas Methodist Foundation
Funds held by Texas Methodist Foundation are pooled equity investment funds which are
recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices,
if available. Unrealized gain (loss) and other investment earnings are allocated among the
members of the pool on a monthly basis based on percentage of ownership. The System
values the pooled investment funds using Level 3 inputs as there is no active market for the
System to sell their interest in the pooled investment funds.
Long-Term Debt
The fair value of long-term debt is estimated for each individual issue based upon current
reasonable interest rates taking type of debt and maturities into account.
All Other
The carrying value is a reasonable estimate of the fair value for all other financial instruments
due to the short-term nature of those financial instruments.
The following disclosures represent financial instruments in which the ending balances at
December 31, 2009 and 2008 are not carried at fair value in their entirety on the consolidated
balance sheets.
HUD Capital Advances
Long-Term Debt Fixed
Long-Term Debt Variable
Notes Payable and Capital
Lease Obligations
2009
Cost
Fair Value
$
1,942,600 $
2,351,991
$ 141,480,000 $ 126,164,988
$ 21,320,000 $ 21,320,000
2008
Cost
Fair Value
$
1,942,600 $ 2,358,421
$ 119,990,000 $ 85,389,738
$
7,895,000 $ 7,895,000
$
$
(34)
9,001,169
$
9,001,169
8,218,114
$
8,218,114
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 10
RETIREMENT PLANS
Non-Qualified Retirement Plans
The System has entered into a deferred compensation contract with a certain officer to provide
benefits after retirement or the attainment of age sixty-five. The present value of these benefits
is recognized in accrued liabilities over the service life of the officer. The deferred
compensation liability related to this contract as of December 31, 2009 and 2008 was
approximately $92,000. Employee benefit expense related to this agreement was $5,361 in
both 2009 and 2008.
The System provides a 457(f) plan for the benefit of selected executives. The assets of the
457(f) plan totaled $722,317 and $510,521 at December 31, 2009 and 2008, respectively. The
System contributed $160,394 and $172,655 for the years ended December 31, 2009 and 2008,
respectively. The plan assets are included in assets limited as to use with a corresponding
liability in other liabilities in the consolidated balance sheets.
Qualified Retirement Plans
The System also sponsors a defined contribution 403(b) plan available to substantially all
employees with the exception of those employed by Senior Dimensions, Inc., a for profit
corporation. The System currently does not match employee contributions.
The System sponsors a defined contribution 401(k) plan for the employees of Senior
Dimensions, Inc., a for-profit corporation. All employees of Senior Dimensions, Inc. are eligible
to enter the plan upon employment. An employee may participate by contributing, at their
election, a percentage of their salary within IRS regulations. The System currently does not
match employee contributions.
NOTE 11
CONCENTRATION OF CREDIT RISK
The System’s financial instruments that are exposed to concentrations of credit risk consist
primarily of cash and cash equivalents and temporary cash investments. The System believes
it places its cash and cash equivalents and temporary cash investments with high quality credit
institutions. At times such investments may be in excess of the FDIC insurance limit.
The System grants credit without collateral to its various facility residents or their families, most
of whom are local individuals and are insured under third-party payor agreements. The mix of
receivables from residents and third-party payors was as follows at December 31, 2009 and
2008:
2009
10.3%
30.7%
21.0%
38.0%
100.0%
Medicaid
Medicare
Private and Insurance
Veterans Land Board of Texas
Total
(35)
2008
10.5%
19.4%
28.5%
41.6%
100.0%
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 12
NET ASSET CLASSIFICATIONS
Temporarily Restricted Net Assets
Temporarily Restricted Net Assets consist of amounts restricted for benevolent care,
Alzheimer’s care, HUD capital advance and miscellaneous operational purposes.
Net assets released from restriction for operations of $398,388 and $152,311 consists of
proceeds from contributions that were used for the donor imposed restricted purpose during
the years ended December 31, 2009 and 2008, respectively.
Permanently Restricted Net Assets
Permanently restricted net assets at December 31, 2009 and 2008 consist of investments
providing a permanent source of income for capital, equipment, patient care and other
operating purposes as follows:
Wally German Endowment
Irwin Endowment
Cook Education Endowment
Garrison Permanent Endowment
Holbert Endowment Fund
Benevolent Endowment
Parks Endowment
Young Endowment
Total
$
$
2009
327,540
91,600
96,376
500,000
100,000
1,024,774
142,661
4,870
2,287,821
$
$
2008
327,540
91,600
96,376
500,000
100,000
1,024,774
142,661
4,870
2,287,821
Changes in endowment net assets during the years ended December 31, 2009 and 2008 were
as follows:
Endowment Net Assets
December 31, 2007
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
$
$
-
$ 1,969,236
$ 1,969,236
-
Contributions
-
-
22,429
22,429
Net Asset Reclassification
Based on Change in Law
-
-
296,156
296,156
-
-
2,287,821
2,287,821
(5,121)
52,559
-
-
52,559
(5,121)
(5,121)
52,559
-
47,438
(52,559)
-
(52,559)
Endowment Net Assets
December 31, 2008
Interest Income
Net Depreciation
Total Investment Return
Appropriation of Endowment
Assets for Expenditure
Endowment Net Assets,
December 31, 2009
$
(5,121)
(36)
$
-
$ 2,287,821
$ 2,282,700
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 12
NET ASSET CLASSIFICATIONS (CONTINUED)
Permanently Restricted Net Assets (Continued)
As required by Generally Accepted Accounting Principles (GAAP), net assets associated with
endowment funds, including those designated by the board of directors as to function as
endowments, are classified and reported based on the existence or absence of donor-imposed
restrictions.
Interpretation of Relevant Law
The State of Texas adopted State Prudent Management of Institutional Funds Act (the Act)
effective July 1, 2007. The Board of Directors of the System has interpreted the Act as
requiring the preservation of the fair value of the original gift as of the gift date of the donorrestricted endowment funds absent explicit donor stipulations to the contrary. As a result of this
interpretation, the System classifies as permanently restricted net assets (1) the original value
of gifts donated to the permanent endowment, (2) the original value of subsequent gifts to the
permanent endowment, and (3) 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 donor-restricted 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 the System in a manner consistent with the
standard of prudence prescribed in the Act. In accordance with the Act, the System considers
the following factors in making a determination to appropriate or accumulate donor restricted
endowment funds:
•
•
•
•
•
•
•
The duration and preservation of the fund
The purposes of the organization and the donor-restricted endowment fund
General economic conditions
The possible effect of inflation and deflation
The expected total return from income and the appreciation of investments
Other resources of the organization
The investment policies of the organization
Return Objectives and Risk Parameters
The System has adopted investment and spending policies for endowment assets that attempt
to provide a predictable stream of funding to programs supported by its endowment.
Endowment assets include those assets of donor-restricted funds that the System must hold in
perpetuity or for a donor-specified period. Under this policy, as approved by the Board of
Directors, the endowment assets are invested in a manner that is intended to preserve and
grow capital, strive for consistent absolute returns, preserve purchasing power by striving for
long-term returns which either match or exceed the set payout, fees and inflation without
putting the principal value at imprudent risk, and diversify investments consistent with
commonly accepted industry standard to minimize the risk of large losses.
(37)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 12
NET ASSET CLASSIFICATIONS (CONTINUED)
Strategies Employed for Achieving Objectives
To satisfy its long-term rate-of-return objectives, the System 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). The System targets a diversified asset
allocation that meets the System’s long-term rate-of-return objectives while avoiding undue risk
from imprudent concentration in any single asset class or investment vehicle.
Spending Policy
The System’s spending policy is consistent with its objective of preservation of the fair value of
the original gift of the endowment assets held in perpetuity as well as to provide additional real
growth through new gifts and investment return.
NOTE 13
CONSTRUCTION IN PROGRESS
Construction in progress consisted of numerous ongoing projects as follows:
Meadow Lake Construction
Sears Methodist Retirement System, Inc. is developing a new continuing care retirement
community. As of December 31, 2009 and 2008, approximately $9,000,000 and $6,700,000,
respectively, was recorded as construction in progress for costs of architectural, engineering,
construction and development fees related to the Tyler Project. The project was financed with
the Series 2009 Bonds and the related line of credit. Completion of the project is expected to
occur in February 2011 at a total project cost of approximately $40,550,000. As of
December 31, 2009, there was approximately $34,500,000 in commitments related to this
project.
Phase II Garrison
The System began a project in 2005 to construct Phase II of the Garrison Center in Lubbock,
TX. The construction was put on hold in 2007, and is awaiting further approval of a business
expansion plan. As of December 31, 2009 and 2008, approximately $437,000, was recorded in
construction in progress.
Wesley Woods
In 2005, the System purchased and was partially contributed land in Waco, Texas on which to
build independent living units around a newly developed golf course. The land related to this
project is included in assets limited as to use on the consolidated balance sheets. As of
December 31, 2009 and 2008, approximately $400,000 was recorded in construction in
progress.
Canyons Senior Living
In 2008, the System became a General Partner in a limited partnership with an independent
party to complete a renovation of the existing Canyons Retirement Community. As of
December 31, 2009 and 2008, approximately $775,000 and $745,000, respectively, was
recorded as construction in progress for cost associated with the architectural, engineering,
construction and development fees related to the project.
(38)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 14
CAPTIVE INSURANCE
Sears Methodist Retirement System, Inc. has a claims made policy for their general and
professional liability insurance through Caring Communities Insurance Company (CCIC). The
System was required to make a capital contribution of $336,445 at inception of the insurance
policy. The System made subsequent capital contributions of $345,492 from 2003 through
2008. The capital contributions are recorded as an investment at December 31, 2009 and 2008
using the cost basis, which is included in other long-term assets as of December 31, 2009 and
2008. The System also pays annual amounts to CCIC for their professional liability insurance
coverage. The policy includes professional, commercial, and employee benefits liability and
calls for a $75,000 deductible per occurrence and liability limits of $1,000,000 per occurrence
and $3,000,000 in the aggregate. Insurance expense under the Communities program
amounted to $1,095,000 and $1,050,000 for the years ended December 31, 2009 and 2008,
respectively.
As an additional benefit to members, monies are distributed into CCIC maintained savings
accounts. The System’s cumulative member savings account balance as of December 31,
2009 and 2008 was $206,959 and $104,932, respectively.
NOTE 15
CONTINGENT LIABILITIES
Government Regulations - Medicaid
The Texas Health and Human Services Commission (HHSC) reserves the right to perform field
audit examinations of the System's records. Any adjustments resulting from such examinations
could retroactively adjust Medicaid revenue.
Government Regulations - Medicare
The Medicare intermediary has the authority to audit the skilled nursing facility's records any
time within a three-year period after the date the skilled nursing facility receives a final notice of
program reimbursement for each cost reporting period. Any adjustments resulting from these
audits could retroactively adjust Medicare revenue.
Workers’ Compensation Insurance and Health Insurance
The System is a non-subscriber to workers’ compensation. Claims paid for workers’
compensation approximated $275,000 and $138,000 for the years ended December 31, 2009
and 2008, respectively. No liabilities have been accrued for potential claims at December 31,
2009 and 2008.
Health insurance claims paid during the years ended December 31, 2009 and 2008
approximated $3,668,000 and $3,798,000, respectively, and a liability of $378,000 and
$1,227,000 has been recorded for outstanding unpaid claims at December 31, 2009 and 2008,
respectively.
The first $150,000 of covered health insurance claims for each individual participant is the
responsibility of the System. If total claims for an individual exceed $150,000, the System will
be reimbursed by the insurance provider up to a maximum of $850,000 per individual
participant.
(39)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 15
CONTINGENT LIABILITIES (CONTINUED)
Litigation
The System is subject to asserted and unasserted claims encountered in the normal course of
business. The System's Management and legal counsel assess such contingent liabilities and
such assessment inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the System or unasserted claims that
may result in such proceedings, the System's legal counsel evaluates the perceived merits of
any legal proceedings or unasserted claims as well as the perceived merits of the amount of
relief sought or expected to be sought therein. In the opinion of management, disposition of
these matters will not have a material effect on the System's financial condition or results of
operations.
Health Care
The health care industry is subject to numerous laws and regulations of federal, state, and
local governments. These laws and regulations include, but are not necessarily limited to,
matters such as licensure, accreditation, government health care program participation
requirements, reimbursement for resident services, and Medicare and Medicaid fraud and
abuse. Recently, government activity has increased with respect to investigations and
allegations concerning possible violations of fraud and abuse statutes and regulations by
health care providers.
Violations of these laws and regulations could result in expulsion from government health care
programs together with the imposition of significant fines and penalties, as well as significant
repayments for patient services previously billed.
NOTE 16
COMMITMENTS
The System has entered into operating lease commitments for the lease of corporate office
facilities and various equipment. The following minimum rental payments are to be incurred
under operating leases for the years ending December 31:
Year Ending December 31,
2010
2011
2012
2013
2014
Thereafter
Total
(40)
$
$
Amount
441,616
425,585
393,219
295,457
233,019
120,312
1,909,208
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 17
RELATED PARTY TRANSACTIONS
The System and its subsidiaries share office facilities and perform services for one another. All
intercompany revenue and expense is eliminated upon consolidation; however, there are
various other related party transactions which occurred during the year ended December 31,
2009 as follows:
NOTE 18
•
The Chief Executive Officer of Sears Methodist Retirement System, Inc. currently serves
on the executive committee of CCIC, a federal risk retention company of which SMRS is
a part owner along with various other non-profit organizations.
•
Sears Methodist Retirement System, Inc. leases office space in a building that is
partially owned by a board member. Rental payments for this office space totaled
approximately $194,000 for the year ended December 31, 2009.
•
During 2008, the System had an investment in a start up company called
SeniorSafe@Home. The company was impaired and the investment was written off the
System’s books as of December 31, 2008. As of December 31, 2008, the System had a
balance due from SeniorSafe@Home of $286,978 which has since been collected.
INCOME TAXES
Senior Dimensions, Inc. files a Federal income tax return on a calendar year basis. The
provision for income taxes consisted of the following for the years ended December 31, 2009
and 2008:
2009
Deferred Benefit
$
(614,305)
2008
$
(9,477)
The income tax provision differs from the amount of income tax determined by applying the
U.S. Federal income tax rate to pretax income for the years ended December 31, 2009 and
2008:
Computed "Expected" Tax Benefit
Increase (Decrease) in Income Taxes Resulting from:
Decrease in Deferred Tax Asset Allowance
Permanent Differences
Net Tax Benefit
(41)
$
2009
(572,450)
$
(44,991)
3,136
(614,305)
$
2008
(184,268)
$
150,168
24,623
(9,477)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 18
INCOME TAXES (CONTINUED)
The components of the net deferred tax asset included in the consolidated balance sheets
were as follows at December 31, 2009 and 2008:
Deferred Tax Asset
Allowance for Deferred Tax Asset
Net Deferred Tax Asset
$
$
2009
666,965
666,965
$
$
2008
988,772
(936,112)
52,660
The tax effects of each type of significant item that gave rise to deferred taxes are as follows at
December 31, 2009 and 2008:
Vacation Accrual
Net Operating Loss Carryforward
Provision for Bad Debt
Prepaid Expenses
AMT Credit Carryover
Allowance for Deferred Tax Asset
$
$
2009
53,580
554,890
92,505
(48,434)
14,424
666,965
$
$
2008
52,660
936,112
(936,112)
52,660
As of December 31, 2009, management determined that an allowance for the deferred tax
asset was no longer deemed necessary.
The Company’s income tax returns are subject to review and examination by federal, state and
local authorities. The tax returns for the years 2006 to 2009 are open to examination by federal,
local and state authorities.
NOTE 19
FUNCTIONAL CLASSIFICATION OF EXPENSES
Functional classification of expenses for the year ended December 31, 2009 and 2008
consisted of the following:
Program
Management and General Support
Total Operating Expenses
2009
2008
70,583,935
13,506,835
$ 84,090,770
$ 70,835,764
11,688,689
$ 82,524,453
$
(42)
SEARS METHODIST RETIREMENT SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 19
FUNCTIONAL CLASSIFICATION OF EXPENSES (CONTINUED)
Salaries and related expenses are allocated based on job descriptions and the best estimates
of Management. Expenses, other than salaries and related expenses, which are not directly
identifiable by program or supporting services, are allocated based on the best estimates of
Management.
NOTE 20
SUBSEQUENT EVENTS
On March 24, 2010, the System sold the last remaining building that had been occupied by
Sears Methodist Center and its related companies. The contract sales price was $375,000. A
gain of $3,132 was recorded on such sale.
(43)
INDEPENDENT AUDITORS’ REPORT ON
SUPPLEMENTARY INFORMATION
Board of Directors
Sears Methodist Retirement System, Inc.
Austin, Texas
Our report on our audits of the consolidated financial statements of Sears Methodist Retirement System,
Inc. for 2009 and 2008 appears on page 1. We conducted our audits for the purpose of forming an opinion
on the consolidated financial statements taken as a whole. The consolidating and combining information
presented on pages 45 through 62 is presented for purposes of additional analysis of the consolidated
financial statements rather than to present the financial position and results of operations of the individual
entities. The consolidating and combining information has not been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, accordingly, we express no opinion
on it.
LarsonAllen LLP
Richardson, Texas
April 19, 2010
(44)
LarsonAllen LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc.
Sears
Methodist
Foundation
Sears
Methodist
Centers, Inc.
Sears
Panhandle
Retirement
Corporation
Parks
Methodist
Retirement
Village
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
Accounts Receivable
Due from Related Party
Other Current Assets
Notes Receivable - Related Party
Current Portion of Assets Limited as to Use
Total Current Assets
ASSETS LIMITED AS TO USE
Investments
Less: Current Portion Shown Above
Total Assets Limited as to
Use (Net of Current Portion
Shown Above)
PROPERTY AND EQUIPMENT
(at Cost)
Land and Land Improvements
Building and Improvements
Equipment
Leasehold Improvements
Construction in Progress
Total
Less: Accumulated Depreciation
Total Property and Equipment
(at Depreciated Cost)
OTHER ASSETS
Deferred Financing Costs
Investment in Sears Methodist Foundation
Note Receivable - Related Party
Other Assets
Total Other Assets
Total Assets
$
547,771
38,950
12,939,760
444,080
2,759,136
16,729,697
$
736,641
736,641
$
3,750,643
2,428,340
6,297,691
117,054
557,828
13,151,556
344,423
466,055
1,523,722
103,639
500,000
7,336
2,945,175
7,336
(7,336)
$
239,927
874,655
96,996
24,199
16,538
1,252,315
10,799,169
(2,759,136)
17,950,328
-
8,040,033
17,950,328
-
-
-
830,150
1,652,674
131,055
460,308
3,074,187
1,397,286
-
2,553,073
35,413,801
3,064,048
19,827
136,129
41,186,878
9,344,164
2,005,888
35,016,185
3,719,102
5,094
40,746,269
13,322,672
981,225
12,510,495
1,509,862
46,692
15,048,274
4,913,328
1,676,901
-
31,842,714
27,423,597
10,134,946
2,530,452
9,330,696
4,031,494
681,937
16,574,579
-
1,172,029
1,172,029
1,439,226
1,439,226
1,019,026
50,000
1,069,026
$ 43,021,210
$ 18,686,969
$ 46,166,299
$ 31,807,998
$ 12,456,287
(45)
557,828
(557,828)
$
16,538
(16,538)
Sears
Brazos
Corporation
$
Senior
Dimensions
Inc.
Desert
Haven
70,080
260,296
7,455
15,418
7,356
360,605
7,356
(7,356)
$
1,112
168
2,004
9,661
12,945
39,085
(9,661)
$
Sears Plains
Retirement
Corporation
600
3,657,727
828,625
314,550
4,801,502
314,550
(314,550)
$
166,998
877,179
22,478
269,400
1,336,055
Sears Tyler
Methodist
Retirement
Corporation
$
1,827
249,623
921,714
1,173,164
Mesa Springs
Retirement
Village
Canyons
Senior Living
L.P.
$
$
196,705
466,843
258,014
83,812
230,202
1,235,576
93,763
5,896
284
5,339
105,282
Eliminating
Entries
$
(21,373,545)
(38,500)
(500,000)
(21,912,045)
Total
$
6,150,490
9,076,109
1,608,148
5,093,721
21,928,468
1,345,755
(269,400)
35,064,695
(921,714)
320,277
(230,202)
-
(5,512,110)
-
60,910,807
(5,093,721)
-
29,424
-
1,076,355
34,142,981
90,075
-
(5,512,110)
55,817,086
580,354
9,985,614
1,001,427
395,570
11,962,965
1,996,143
269,730
1,683,664
114,202
2,067,596
776,004
326,059
326,059
275,095
1,068,399
10,477,317
1,587,474
13,133,190
3,207,880
1,297,813
356,549
11,000
9,001,473
10,666,835
25,819
891,590
7,099,165
1,175,151
94,860
9,260,766
602,559
218,845
2,159,931
24,426
775,535
3,178,737
98,141
(400,000)
(400,000)
-
10,697,067
114,302,721
14,185,425
150,882
10,915,661
150,251,756
35,959,091
9,966,822
1,291,592
50,964
9,925,310
10,641,016
8,658,207
3,080,596
(400,000)
114,292,665
94,566
94,566
-
200
1,101,751
1,101,951
679,469
1,619,353
2,298,822
1,986,726
23,898
1,039,030
3,049,654
361,827
1,050
362,877
3,000
3,000
(14,700,044)
(5,133,245)
(19,833,289)
5,558,474
1,773,967
7,332,441
$ 10,421,993
$ 1,333,961
$ 5,954,417
$ 14,636,542
$ 49,006,815
$ 10,346,735
$ 3,188,878
$ (47,657,444)
$ 199,370,660
(46)
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATING BALANCE SHEET (CONTINUED)
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
Sears
Methodist
Foundation
Sears
Methodist
Centers, Inc.
Sears
Panhandle
Retirement
Corporation
Parks
Methodist
Retirement
Village
LIABILITIES AND NET ASSETS (DEFICIT)
CURRENT LIABILITIES
Current Maturities of Long-Term Debt
Accounts Payable
Construction Payable
Due to Related Party
Accrued Interest Payable
Accrued Payroll and Related Taxes
Deferred Income
Resident Security Deposits
Other Accrued Liabilities
Total Current Liabilities
LONG-TERM DEBT (Net of Current
Maturities Shown Above)
OTHER LIABILITIES
Due to Related Party
Deferred Compensation
Charitable Gift Annuities Payable
Entrance Fee Deposits
Deferred Revenue from Residency Fees
Total Other Liabilities
Total Liabilities
$ 5,081,537
680,925
4,568,571
1,022,599
301,637
291,667
326,468
12,273,404
$
606,257
31,795
154,482
81,011
873,545
$
57,736
524,920
339,384
436,539
633,535
96,301
71,859
2,160,274
$
217,118
450,308
188,352
107,675
30,705
994,158
$
256,069
2,304,684
131,295
28,300
60,487
2,780,835
99,571,277
2,821,714
556,261
-
-
814,599
814,599
288,948
288,948
384,686
5,731,163
6,115,849
454,539
5,900,678
6,355,217
256,569
2,661,430
2,917,999
112,659,280
3,984,207
8,832,384
7,349,375
5,698,834
-
-
-
-
-
11,755,749
659,192
2,287,821
14,702,762
37,333,915
37,333,915
24,458,623
24,458,623
6,757,453
6,757,453
$ 18,686,969
$ 46,166,299
$ 31,807,998
$ 12,456,287
CONTINGENCIES AND COMMITMENTS
NONCONTROLLING INTEREST
NET ASSETS (DEFICIT)
Unrestricted
Temporarily Restricted
Permanently Restricted
Retained Earnings (Deficit)
Total Net Assets (Deficit)
Total Liabilities and Net Assets (Deficit)
(69,638,070)
(69,638,070)
$ 43,021,210
(47)
Sears
Brazos
Corporation
$
Senior
Dimensions
Inc.
Desert
Haven
144,567
4,496,770
126,888
13,692
4,781,917
$
4,773
82,856
9,660
878
98,167
$
Sears Plains
Retirement
Corporation
83,135
882,518
3,030,322
17,876
668,536
429,878
5,112,265
$
100,000
251,648
228,950
143,051
10,000
733,649
Sears Tyler
Methodist
Retirement
Corporation
$
106,291
463,632
458,082
1,028,005
Mesa Springs
Retirement
Village
Canyons
Senior Living
L.P.
Eliminating
Entries
Total
$
1,654,000
208,063
34,491
3,089
51,190
42,750
37,345
2,030,928
$ 2,154,000
46,657
1,212,449
38,500
9,580
43,633
10,194
3,515,013
$ (3,445,686)
(16,674,317)
(253,637)
(14,624)
(20,388,264)
$ 6,290,979
3,355,344
463,632
1,515,459
2,057,068
925,202
328,319
1,057,893
15,993,896
-
-
2,369,658
8,260,000
49,089,217
6,844,156
-
(6,056,762)
163,455,521
-
-
-
4,935,123
287,550
5,222,673
1,601,740
1,601,740
81,480
2,066,625
2,148,105
-
(6,112,397)
(6,112,397)
814,599
288,948
1,601,740
16,647,446
19,352,733
4,781,917
98,167
7,481,923
14,216,322
51,718,962
11,023,189
3,515,013
(32,557,423)
198,802,150
-
-
-
-
-
-
5,640,076
5,640,076
$ 10,421,993
(706,806)
1,942,600
1,235,794
$ 1,333,961
(1,527,506)
(1,527,506)
$ 5,954,417
(1,217,861)
1,138,081
500,000
420,220
$ 14,636,542
(2,861,308)
149,161
(2,712,147)
$ 49,006,815
(48)
(676,454)
(676,454)
$ 10,346,735
(326,115)
(20)
(20)
$ 3,188,878
-
(14,106,725)
(493,296)
(500,000)
(15,100,021)
$ (47,657,444)
(326,115)
(3,261,408)
3,395,738
2,287,821
(1,527,526)
894,625
$199,370,660
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATING STATEMENT OF UNRESTRICTED ACTIVITIES
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
OPERATING REVENUE
Resident Service
Amortization of Residency Fees
Fees
Net Assets Released From Restriction
Other
Total Operating Revenue
$
Sears
Methodist
Foundation
5,037,801
23
5,037,824
$
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
8,455
2,000
10,455
$
22,012,962
154,287
63,393
22,230,642
$
Parks
Methodist
Retirement
Village
12,651,280
188,685
10,991
292,502
13,143,458
$
6,725,833
81,058
19,102
6,825,993
OPERATING EXPENSE
Nursing
Specialty Services
Dietary
Pharmacy Services
Activity Services
Social Services
Environmental Services and Utilities
Consultant Services
General and Administrative
Risk Management and Training
Marketing and Admissions
Employee Benefits
Interest Expense
Depreciation and Amortization
Total Operating Expenses
55,925
178,500
4,731,073
13,150
571,305
6,797,113
292,056
12,639,122
382,763
90,965
473,728
8,274,272
1,248,757
1,264,000
138,678
122,447
1,608,891
156,697
3,940,079
174,011
227,176
1,818,634
13,414
1,257,062
20,244,118
3,510,685
1,250,848
131,028
61,756
1,437,553
86,724
1,164,512
124,374
191,743
997,832
10,539
1,158,433
10,126,027
2,458,186
742,166
58,261
44,883
809,373
37,500
791,915
37,289
98,092
596,651
1,407
441,251
6,116,974
OPERATING INCOME (LOSS)
(7,601,298)
(463,273)
1,986,524
3,017,431
709,019
(97,470)
50,977
612,649
50,000
17,577
658,534
(4,106)
218,041
1,345,837
1,576
66,347
16,421
(376)
33,206
28,126
40
6,909
195
5,580
8,980
90
232,362
(3,235,210)
(2,887,160)
OTHER INCOME (EXPENSE)
Unrealized Gain (Loss) on Investments
Realized Loss on Investments
Loss on Financing
Investment Income
Contributions
Grant Revenue-Net of Expenses
Gain on Sale of Assets
Other Revenue (Expenses)
Change in Investment in Sears
Methodist Foundation
Transfers from Sears Methodist Foundation
Debt Service Payments
Development Expenses
Total Other Income (Expense)
812,178
5,321
8,251,491
9,702,723
(329,047)
1,890,835
EXCESS (DEFICIT) OF NET
REVENUE OVER EXPENSE
2,101,425
1,427,562
NONCONTROLLING INTEREST
-
-
FEDERAL INCOME TAX BENEFIT
-
-
INCREASE (DECREASE) IN
UNRESTRICTED NET ASSETS
FROM CONTINUING OPERATIONS
2,101,425
1,427,562
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS
-
-
INCREASE (DECREASE) IN UNRESTRICTED
NET ASSETS AFTER TAXES AND
DISCONTINUED OPERATIONS
$
2,101,425
(49)
$
1,427,562
18,491
25,730
(2,981,188)
(2,901,892)
(900,636)
115,539
229,717
-
-
-
-
-
-
115,539
229,717
-
-
(900,636)
781,435
$
573,512
9,945
(1,077,514)
(479,302)
(119,201)
$
115,539
$
229,717
Sears
Brazos
Corporation
$
$
2,339,272
460,044
78,825
28,035
494,049
29,432
491,554
82,353
134,902
578,996
1,396
335,307
5,054,165
23,063
6,639
128
23,538
1,619
(957,579)
(925,655)
(902,592)
Canyons
Senior Living
L.P.
$
$
$
105,470
96,020
201,490
$ 24,424,072
24,424,072
$ 8,363,571
10,929
10,243
8,384,743
137,185
68,131
15,105
5
68,840
289,266
11,881,728
2,097,422
284,698
221,187
2,590,000
112,221
3,285,335
202,132
96,121
2,129,006
58,313
45,065
23,003,228
4,255,192
467,222
136,998
523,418
59,000
952,001
103,944
128,175
722,670
497,383
431,642
8,277,645
200,000
70,847
270,847
(87,776)
1,420,844
107,098
79,992
350,839
350,839
5,320,215
44,151
14,750
5,379,116
2,326,609
515,096
52,000
37,150
722,736
42,931
688,045
26,225
97,301
441,248
204,959
393,766
5,548,066
53,558
43,456
121,318
23,898
(266,691)
(393,144)
50
4,649
15,038
1,245,878
228,416
(313,152)
(153,912)
5,965
(174,966)
-
-
-
-
-
-
-
614,305
-
-
-
1,860,183
228,416
-
-
(902,592)
-
$
(87,766)
$
(3,600,531)
(5,037,801)
(194,569)
(8,832,901)
(7,968)
15,689
2,618
24,710
(406)
-
-
133,951
21,618
306,175
129,947
50,131
1,404
104,264
76,542
56,453
880,485
(150,387)
36
-
10
(87,766)
$ (3,600,531)
(5,037,801)
(8,638,332)
(198,171)
(180,931)
1,860,183
$
228,416
(313,152)
-
$
(313,152)
(50)
$
(153,912)
81,702,907
476,636
372,759
557,540
83,109,842
31,445,413
1,248,757
6,930,749
902,106
515,458
8,685,305
703,005
11,787,554
813,609
974,914
7,975,711
7,557,467
4,550,722
84,090,770
51
(283)
(194,539)
-
553,096
46,871
(150,387)
777,954
1,367,878
50,000
(376)
(110,626)
(232)
(1,505,315)
(1,699,854)
(266,691)
2,267,719
(198,403)
(1,505,285)
1,286,791
(396,786)
-
$
$
(980,928)
-
-
Total
194,569
(198,383)
(153,912)
Eliminating
Entries
633,448
48,866
682,314
(168,950)
10
-
(87,766)
(902,592)
$
Mesa Springs
Retirement
Village
Sears Plains
Retirement
Corporation
Desert
Haven
5,066,587
10,641
5,077,228
Sears Tyler
Methodist
Retirement
Corporation
Senior
Dimensions
Inc.
(396,786)
-
(198,383)
-
614,305
(1,505,285)
2,099,479
-
$ (1,505,285)
781,435
$
2,880,914
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATING STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
Sears
Methodist
Foundation
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
Parks
Methodist
Retirement
Village
UNRESTRICTED NET ASSETS
Net Assets - December 31, 2008
$ (71,638,547)
Change in Net Assets:
Excess (Deficit) of Net
Revenue Over Expense
Elimination of Retained Earnings
Transfer from (to) Affiliate
2,101,425
(100,948)
1,427,562
54,179
(119,201)
(22,777)
115,539
(15,432)
229,717
(8,730)
2,000,477
1,481,741
(141,978)
100,107
220,987
-
-
CHANGE IN NET ASSETS BEFORE
NONCONTROLLING INTEREST
Noncontrolling Interest
Net Assets - December 31, 2009
$
10,274,008
$
37,475,893
$
-
24,358,516
$
-
6,536,466
-
$ (69,638,070)
$
11,755,749
$
37,333,915
$
24,458,623
$
6,757,453
$
-
$
632,900
$
-
$
-
$
-
Change in Net Assets:
Contributions
-
57,912
-
-
-
Net Assets Released from Restriction
Change in Net Assets
Net Assets - December 31, 2009
$
-
$
(31,620)
26,292
659,192
$
-
$
-
$
-
$
-
$
2,287,821
$
-
$
-
$
-
$
-
$
2,287,821
$
-
$
-
$
-
TEMPORARILY RESTRICTED NET ASSETS
Net Assets - December 31, 2008
PERMANENTLY RESTRICTED NET ASSETS
Net Assets - December 31, 2008
Change in Net Assets
Contributions
Change in Net Assets
Net Assets - December 31, 2009
STOCKHOLDERS' EQUITY
Net Deficit - December 31, 2008
Net Income
Federal Income Tax Benefit
Change in Net Assets
Net Deficit - December 31, 2009
$
-
$
(51)
$
$
-
$
$
-
$
$
-
$
$
-
Sears
Brazos
Corporation
$
Senior
Dimensions
Inc.
Desert
Haven
6,418,123
$
(619,040)
$
Sears Tyler
Methodist
Retirement
Corporation
Sears Plains
Retirement
Corporation
-
$
(1,438,537)
$
(499,445)
$
Eliminating
Entries
Total
(13)
$ (15,989,116)
(1,505,285)
1,860,183
-
(87,766)
-
-
228,416
(7,740)
(313,152)
-
(153,912)
(23,097)
(198,403)
-
(778,047)
(87,766)
-
220,676
(313,152)
(177,009)
(198,403)
354,898
-
-
(198,383)
-
-
$
5,640,076
$
$
-
$
(706,806)
1,942,600
-
$
(1,217,861)
$
$
-
$
1,149,010
$
500,000
$
(350,839)
(350,839)
149,161
$
-
$
-
-
-
$
-
$
1,942,600
$
-
$
(10,929)
(10,929)
1,138,081
$
-
$
-
$
-
$
500,000
$
-
$
-
$
-
$
500,000
-
$
$
-
-
$
-
$
(2,548,156)
Canyons
Senior Living
L.P.
(902,592)
124,545
-
$
$
Mesa Springs
Retirement
Village
$
$
(3,387,689)
1,245,878
614,305
1,860,183
(1,527,506)
(2,861,308)
-
$
$
-
$
-
$
(52)
$
$
3,731,214
$
(393,388)
(335,476)
3,395,738
$
2,287,821
$
2,287,821
$
$
-
$
(493,296)
$
-
$
-
$
(500,000)
$
-
$
-
$
(500,000)
$
$
(198,383)
$
-
-
2,682,531
(4,788,934)
-
$
822,348
1,860,183
-
$
-
-
-
(7,669,848)
$ (15,634,218)
-
$
$
(20)
$
-
$
(676,454)
$
(493,296)
-
$
$
3,387,689
(1,245,878)
(614,305)
(1,860,183)
1,527,506
57,912
$
$
-
SEARS METHODIST RETIREMENT SYSTEM, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
CASH FLOWS FROM OPERATING ACTIVITIES
Change in Net Assets from Continuing Operations
Change in Net Assets from Discontinued Operations
Adjustments to Reconcile Change in Net Assets to Net Cash
Provided by Operating Activities:
Depreciation and Amortization
Amortization of Deferred Income
Unrealized (Gain) Loss on Investments
Realized (Gain) on Investments
Gain on Sale of Equipment
Change in Investment in Sears Methodist Foundation
Loss on Financing
Decrease in Noncontrolling Interest
(Increases) Decreases in Current Assets:
Accounts Receivable
Due from Related Party
Other Assets
Increases (Decreases) in Current Liabilities:
Accounts Payable
Construction Payable
Due to Related Party
Interest Payable
Resident Security Deposits
Other Accrued Liabilities
Net Cash Used by Operating Activities
$
2,000,477
-
Sears
Methodist
Foundation
$
292,056
97,470
(50,977)
(812,178)
-
1,508,033
-
$
(8,455)
(658,534)
-
17,596
3,201,738
68,268
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
-
(923,413)
781,435
$
100,107
-
Parks
Methodist
Retirement
Village
$
220,987
-
1,500,986
(178,374)
(714,436)
(90)
-
1,158,433
(188,685)
(18,491)
-
441,251
(81,058)
(573,512)
-
399,646
(3,123,557)
(45,831)
55,219
(594,274)
35,909
(66,600)
(47,916)
(5,522)
(36,722)
4,567,368
140,748
(906,408)
8,579,436
21,581
150,839
(3,392)
1,010,072
(108,281)
129,256
6,100
(401,510)
(2,678,069)
(66,811)
(151,091)
(43,500)
(22,188)
264,628
10,127
(30,010)
3,700
22,490
(106,063)
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of Notes Receivable
Purchase of Property, Plant, and Equipment, Net
Proceeds from Sale of Property
Change in Assets Limited as to Use
Net Cash Provided by Investing Activities
(4,031,494)
(80,858)
(339,337)
(4,451,689)
(923,517)
1,162,078
238,561
(448,407)
5,719,644
(557,829)
4,713,408
(262,186)
(7,336)
(269,522)
(89,218)
(16,538)
(105,756)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt
Proceeds from Notes Payable
Proceeds from Related Party Notes
Increase in Deferred Financing Costs
Cottage Deposit Proceeds
Refunds to Residents for Cottage Deposits
Net Cash Provided by Financing Activities
(6,840,923)
1,006,771
(5,834,152)
(526,296)
(526,296)
571,724
1,106,022
(997,904)
679,842
(210,524)
741,465
(448,350)
82,591
650,792
(490,115)
160,677
NET INCREASE IN CASH AND CASH EQUIVALENTS
(1,706,405)
722,337
2,715,181
77,697
(51,142)
2,254,176
14,304
1,035,462
266,726
291,069
Cash and Cash Equivalents at Beginning of Year
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
547,771
(53)
$
736,641
$
3,750,643
$
344,423
$
239,927
Sears
Brazos
Corporation
$
Desert
Haven
(778,047)
-
$
(87,766)
-
$
1,860,183
-
Sears Tyler
Methodist
Retirement
Corporation
Sears Plains
Retirement
Corporation
$
209,747
-
$
(663,991)
-
Mesa Springs
Retirement
Village
$
(177,009)
-
Canyons
Senior Living
L.P.
$
Eliminating
Entries
(20)
-
$
Total
(1,505,315)
-
$
1,763,973
781,435
335,307
(23,538)
-
68,840
-
45,065
-
431,642
(53,558)
-
70,847
(23,898)
150,387
-
393,766
(44,151)
7,968
(50)
-
56,453
(198,383)
1,505,315
-
4,794,646
(500,723)
(553,096)
(50,977)
(714,436)
150,387
(198,383)
(78,406)
21,499
3,140
(98)
(1,602)
44,044
(591,648)
157,013
1,349
350,839
(249,623)
(913,762)
235,685
(239,515)
6,870
(786)
127
1,031,648
-
(4,574)
463,835
(3,591)
(64,375)
3,104
21,402
192
4,072
(105,335)
(98,639)
15,443
174,185
1,343,298
(125,478)
(359,085)
1,063
(1,228)
261,465
118,207
(1,160,994)
(312,249)
(32,609)
1,800
(18,777)
(178,271)
7,826
208,953
22,000
10,549
(15,390)
91,329
(4,870,219)
(3,838,571)
1,114,152
(1,442,702)
(598,605)
179,254
(21,159)
(1,175,809)
3,527,957
(22,684)
(7,356)
(30,040)
(17,524)
(10,586)
(28,110)
(1,101,751)
(314,550)
(1,416,301)
(84,018)
(30,573)
(114,591)
(171,560)
142,333
(29,227)
(57,249)
(57,249)
6,056,762
(1,103,935)
4,952,827
(1,233,704)
5,719,644
(1,003,387)
3,482,553
(339,067)
166,667
(172,400)
(95,000)
(95,000)
(1,114,256)
(1,114,256)
(8,134,310)
1,745,162
3,095,700
(2,165,246)
(5,458,694)
-
$
Senior
Dimensions
Inc.
-
80,242
80,242
1,114,256
(32,877)
1,081,379
(122,500)
597,421
(196,000)
278,921
-
(94,415)
(24,038)
(245,403)
51,874
627
71,423
34,080
-
1,551,816
164,495
25,150
246,003
115,124
1,200
125,282
59,683
-
4,598,674
70,080
$
1,112
$
600
$
166,998
$
1,827
(54)
$
196,705
$
93,763
$
-
$
6,150,490
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING BALANCE SHEET - OBLIGATED GROUP
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
Sears
Methodist
Foundation
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
Parks
Methodist
Retirement
Village
Sears
Brazos
Corporation
Total
Obligated
Group
Eliminating
Entries
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
Accounts Receivable
Due from Related Party
Other Current Assets
Note Receivable - Related Party
Current Portion of Assets Limited as to Use
Total Current Assets
$
ASSETS LIMITED AS TO USE
Investments
Less: Current Portion Shown Above
Total Assets Limited as to
Use (Net of Current Portion
Shown Above)
$
10,799,169
(2,759,136)
8,040,033
PROPERTY AND EQUIPMENT
(at Cost)
Land and Land Improvements
Building and Improvements
Equipment
Leasehold Improvements
Construction in Progress
Total
Less: Accumulated Depreciation
Total Property and Equipment
(at Depreciated Cost)
OTHER ASSETS
Deferred Financing Costs
Other Investments
Investment in Sears Methodist Foundation
Note Receivable - Related Party
Other Assets
Total Other Assets
Total Assets
547,771
38,950
12,939,760
444,080
2,759,136
16,729,697
$
736,641
736,641
$
17,950,328
-
$
557,828
(557,828)
344,423
466,055
1,523,722
103,639
500,000
7,336
2,945,175
$
7,336
(7,336)
239,927
874,655
96,996
24,199
16,538
1,252,315
$
16,538
(16,538)
70,080
260,296
7,455
15,418
7,356
360,605
7,356
(7,356)
$
(11,533,610)
(11,533,610)
$
5,689,485
4,068,296
9,332,014
704,390
500,000
3,348,194
23,642,379
(4,475,164)
-
24,863,391
(3,348,194)
(4,475,164)
21,515,197
17,950,328
-
-
-
-
830,150
1,652,674
131,055
460,308
3,074,187
1,397,286
-
2,553,073
35,413,801
3,064,048
19,827
136,129
41,186,878
9,344,164
2,005,888
35,016,185
3,719,102
5,094
40,746,269
13,322,672
981,225
12,510,495
1,509,862
46,692
15,048,274
4,913,328
580,354
9,985,614
1,001,427
395,570
11,962,965
1,996,143
-
6,950,690
92,926,095
10,947,113
150,882
1,043,793
112,018,573
30,973,593
1,676,901
-
31,842,714
27,423,597
10,134,946
9,966,822
-
81,044,980
2,530,452
681,937
9,330,696
4,031,494
16,574,579
-
1,172,029
1,172,029
1,439,226
1,439,226
1,019,026
50,000
1,069,026
94,566
94,566
(13,055,543)
(13,055,543)
2,530,452
681,937
4,031,494
50,000
7,293,883
10,421,993
$ (29,064,317)
$ 133,496,439
43,021,210
-
3,750,643
2,428,340
6,297,691
117,054
557,828
13,151,556
$
18,686,969
$
46,166,299
(55)
$
31,807,998
$
12,456,287
$
-
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING BALANCE SHEET - OBLIGATED GROUP (CONTINUED)
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
Sears
Methodist
Foundation
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
Parks
Methodist
Retirement
Village
Sears
Brazos
Corporation
Total
Obligated
Group
Eliminating
Entries
LIABILITIES AND NET ASSETS (DEFICIT)
CURRENT LIABILITIES
Current Maturities of Long-Term Debt
Accounts Payable
Due to Related Party
Accrued Interest Payable
Accrued Payroll and Related Taxes
Deferred Revenue
Resident Security Deposits
Other Accrued Liabilities
Total Current Liabilities
$
LONG-TERM DEBT (Net of Current
Maturities Shown Above)
OTHER LIABILITIES
Due to Related Party
Deferred Compensation
Charitable Gift Annuities Payable, Net of Current Portion
Deferred Revenue from Residency Fees
Total Other Liabilities
Total Liabilities
5,081,537
680,925
4,568,571
1,022,599
301,637
291,667
326,468
12,273,404
$
606,257
31,795
154,482
81,011
873,545
$
57,736
524,920
339,384
436,539
633,535
96,301
71,859
2,160,274
$
217,118
450,308
188,352
107,675
30,705
994,158
$
256,069
2,304,684
131,295
28,300
60,487
2,780,835
$
144,567
4,496,770
126,888
13,692
4,781,917
$
(2,945,686)
(11,752,157)
(215,137)
(14,912,980)
-
$
2,799,844
1,855,394
562,042
807,462
1,184,711
925,202
232,276
584,222
8,951,153
99,571,277
2,821,714
556,261
-
-
-
102,949,252
814,599
814,599
288,948
288,948
384,686
5,731,163
6,115,849
454,539
5,900,678
6,355,217
256,569
2,661,430
2,917,999
-
(1,095,794)
(1,095,794)
814,599
288,948
14,293,271
15,396,818
112,659,280
3,984,207
8,832,384
7,349,375
5,698,834
4,781,917
(16,008,774)
127,297,223
(69,638,070)
(69,638,070)
11,755,749
659,192
2,287,821
14,702,762
37,333,915
37,333,915
24,458,623
24,458,623
6,757,453
6,757,453
5,640,076
5,640,076
(13,055,543)
(13,055,543)
3,252,203
659,192
2,287,821
6,199,216
10,421,993
$ (29,064,317)
$ 133,496,439
CONTINGENCIES AND COMMITMENTS
NET ASSETS (DEFICIT)
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Net Assets (Deficit)
Total Liabilities and Net Assets (Deficit)
$
43,021,210
$
18,686,969
$
46,166,299
(56)
$
31,807,998
$
12,456,287
$
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS – OBLIGATED GROUP
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
OPERATING REVENUE
Resident Service
Amortization of Residency Fees
Fees
Net Assets Released from Restriction
Other
Total Operating Revenue
$
5,037,801
23
5,037,824
Sears
Methodist
Foundation
$
8,455
2,000
10,455
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
$
22,012,962
154,287
63,393
22,230,642
$
12,651,280
188,685
10,991
292,502
13,143,458
Parks
Methodist
Retirement
Village
$
6,725,833
81,058
19,102
6,825,993
Sears
Brazos
Corporation
$
5,066,587
10,641
5,077,228
OPERATING EXPENSE
Nursing
Specialty Services
Dietary
Pharmacy Services
Activity Services
Social Services
Environmental Services and Utilities
Consultant Services
General and Administrative
Risk Management and Training
Marketing and Admissions
Employee Benefits
Interest Expense
Depreciation and Amortization
Total Operating Expenses
55,925
178,500
4,731,073
13,150
571,305
6,797,113
292,056
12,639,122
382,763
90,965
473,728
8,274,272
1,248,757
1,264,000
138,678
122,447
1,608,891
156,697
3,940,079
174,011
227,176
1,818,634
13,414
1,257,062
20,244,118
3,510,685
1,250,848
131,028
61,756
1,437,553
86,724
1,164,512
124,374
191,743
997,832
10,539
1,158,433
10,126,027
2,458,186
742,166
58,261
44,883
809,373
37,500
791,915
37,289
98,092
596,651
1,407
441,251
6,116,974
2,339,272
460,044
78,825
28,035
494,049
29,432
491,554
82,353
134,902
578,996
1,396
335,307
5,054,165
OPERATING INCOME (LOSS)
(7,601,298)
(463,273)
1,986,524
3,017,431
709,019
23,063
(97,470)
50,977
612,649
50,000
17,577
812,178
5,321
8,251,491
9,702,723
658,534
(4,106)
218,041
1,345,837
1,576
(329,047)
1,890,835
66,347
16,421
(376)
33,206
90
232,362
(3,235,210)
(2,887,160)
28,126
40
6,909
18,491
25,730
(2,981,188)
(2,901,892)
OTHER INCOME (EXPENSE)
Unrealized Gain (Loss) on Investments
Realized Loss on Investments
Investment Income
Contributions
Grant Revenue-Net of Expenses
Gain on Sale of Assets
Other Revenue (Expenses)
Change in the Investment in Sears Methodist Foundation
Transfers from Sears Methodist Foundation
Debt Service Payments
Total Other Income (Expense)
(57)
195
5,580.00
8,980
573,512
9,945
(1,077,514)
(479,302)
6,639
128
23,538
1,619
(957,579)
(925,655)
Total
Obligated
Group
Eliminating
Entries
$
(1,981,996)
(2,605,358)
(64,013)
(4,651,367)
(1,981,996)
(2,605,358)
(172,569)
(4,759,923)
108,556
(172,569)
(1,427,809)
54,070
(1,546,308)
$
44,474,666
432,485
2,432,443
10,991
323,648
47,674,233
14,600,419
1,248,757
3,717,058
406,792
257,121
4,405,791
488,853
8,896,538
431,177
651,913
4,563,418
6,742,265
3,484,109
49,894,211
(2,219,978)
561,064
46,871
759,428
1,367,878
50,000
(376)
68,376
2,853,241
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS – OBLIGATED GROUP (CONTINUED)
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Retirement
System, Inc
CHANGE IN UNRESTRICTED NET ASSETS
Sears
Methodist
Foundation
2,101,425
Sears
Panhandle
Retirement
Corporation
Sears
Methodist
Centers, Inc.
1,427,562
(900,636)
Parks
Methodist
Retirement
Village
Sears
Brazos
Corporation
115,539
229,717
Total
Obligated
Group
Eliminating
Entries
(902,592)
(1,437,752)
633,263
TEMPORARILY RESTRICTED NET ASSETS:
Contributions
Net Assets Released from Restriction
-
57,912
(31,620)
-
-
-
-
-
57,912
(31,620)
CHANGE IN TEMPORARILY RESTRICTED
NET ASSETS
-
26,292
-
-
-
-
-
26,292
PERMANATELY RESTRICTED NET ASSETS:
Contributions
-
-
-
-
-
-
-
CHANGE IN PERMANATELY RESTRICTED
NET ASSETS
-
-
-
-
-
-
-
-
2,101,425
1,453,854
(900,636)
115,539
229,717
54,179
(22,777)
(15,432)
2,000,477
1,508,033
(923,413)
100,107
220,987
-
-
-
-
2,000,477
1,508,033
100,107
220,987
CHANGE IN NET ASSETS
TRANSFERS
INCREASE (DECREASE) IN UNRESTRICTED
NET ASSETS FROM CONTINUING OPERATIONS
Gain from Discontinued Operations
INCREASE (DECREASE) IN NET ASSETS
Net Assets (Deficit) - December 31, 2008
NET ASSETS (DEFICIT) AT END OF YEAR
(100,948)
(71,638,547)
$ (69,638,070)
781,435
(141,978)
13,194,729
$
14,702,762
37,475,893
$
(58)
37,333,915
(8,730)
24,358,516
$
24,458,623
(902,592)
124,545
(778,047)
(778,047)
6,536,466
$
6,757,453
$
(1,437,752)
659,555
-
30,837
(1,437,752)
690,392
-
781,435
(1,437,752)
6,418,123
(11,617,791)
5,640,076
$ (13,055,543)
1,471,827
4,727,389
$
6,199,216
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING BALANCE SHEET – SEARS METHODIST CENTERS, INC.
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Center
Windcrest
Alzheimer's
Care Center
Sears
Home
Health
Sears
Methodist
Hospice
Sears
Specialty
Services
Sears/Craig
Methodist
Pharmacies
Wesley Court
Methodist
Retirement
Center
Southwest
Therapy
Associates
Total
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
Accounts Receivable
Due from Related Party
Other Current Assets
Current Portion of Assets Limited as to Use
Total Current Assets
ASSETS LIMITED AS TO USE
Investments
Less: Current Portion Shown Above
Total Assets Limited as to
Use (Net of Current Portion
Shown Above)
PROPERTY AND EQUIPMENT
(at Cost)
Land and Land Improvements
Building and Improvements
Equipment
Leasehold Improvements
Construction in Progress
Total
Less: Accumulated Depreciation
Total Property and Equipment
(at Depreciated Cost)
OTHER ASSETS
Investment in Sears Methodist Foundation
Total Assets
$
2,923,438
186,241
6,268,969
9,378,648
-
$ 1,169,085
251,278
7,067
58,977
2,183
1,488,590
$
2,183
(2,183)
2,147,952
671,344
14,956
2,834,252
$
559,912
410,485
5,502
975,899
$
(584,184)
177,827
9,670
(396,687)
$
-
$
179,755
554,488
459
734,702
-
-
-
-
-
$
(2,645,315)
176,677
21,196
27,949
555,645
(1,863,848)
$
555,645
(555,645)
3,750,643
2,428,340
6,297,691
117,054
557,828
13,151,556
557,828
(557,828)
-
-
-
-
-
-
-
-
-
559,121
559,121
210,597
734,600
7,356,287
1,120,409
33,792
9,245,088
4,109,798
285,552
8,054
293,606
181,823
45,803
2,115
47,918
10,689
84,308
7,543
91,851
30,098
-
109,940
2,115
112,055
65,311
1,818,473
27,498,393
1,418,036
102,337
30,837,239
4,735,848
2,553,073
35,413,801
3,064,048
19,827
136,129
41,186,878
9,344,164
348,524
5,135,290
111,783
37,229
61,753
-
46,744
26,101,391
31,842,714
582,167
497,987
6,280
33,367
33,396
-
3,181
15,651
1,172,029
$ 10,309,339
$ 7,121,867
2,952,315
$ 1,046,495
784,627
$ 24,253,194
$
(59)
$
(301,538)
$
-
$
$
46,166,299
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING BALANCE SHEET – SEARS METHODIST CENTERS, INC. (CONTINUED)
DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Center
Windcrest
Alzheimer's
Care Center
Sears
Home
Health
Sears
Methodist
Hospice
Sears
Specialty
Services
Sears/Craig
Methodist
Pharmacies
Wesley Court
Methodist
Retirement
Center
Southwest
Therapy
Associates
Total
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Current Maturities of Notes Payable
Accounts Payable
Due to Related Party
Accrued Payroll and Related Taxes
Deferred Income
Resident Security Deposits
Other Current Liabilities
Other Accrued Liabilities
Total Current Liabilities
LONG-TERM DEBT (Net of Current
Maturities Shown Above)
OTHER LIABILITIES
Due to Related Party
Deferred Revenue from Residency Fees
Total Other Liabilities
Total Liabilities
$
26,229
10,770
452
84,127
2,687
124,265
$
184,654
39
68,201
1,347
254,241
$
28,020
56,094
37,953
77,890
199,957
$
30,824
24,602
55,339
110,765
$
3,919
146,889
29,486
$
180,294
-
$
14,216
191,955
135,501
1,269
342,941
$
3,487
224,443
49
56,669
555,645
96,301
11,217
947,811
$
57,736
524,920
339,384
436,539
633,535
96,301
1,269
70,590
2,160,274
473,771
-
81,602
-
-
-
-
888
556,261
-
-
-
-
-
-
-
384,686
5,731,163
6,115,849
384,686
5,731,163
6,115,849
598,036
254,241
281,559
110,765
180,294
-
342,941
7,064,548
8,832,384
9,711,303
6,867,626
2,670,756
935,730
(481,832)
-
441,686
17,188,646
37,333,915
784,627
$ 24,253,194
$ 46,166,299
CONTINGENCIES AND COMMITMENTS
NET ASSETS
Unrestricted
Total Liabilities and Net Assets
$ 10,309,339
$
7,121,867
$
2,952,315
(60)
$
1,046,495
$
(301,538)
$
-
$
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN NET ASSETS –
SEARS METHODIST CENTERS, INC.
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Center
OPERATING REVENUE
Resident Service
Amortization of Residency Fees
Net Assets Released from Restriction
Other
Total Operating Revenue
$
Windcrest
Alzheimer's
Care Center
-
$
5,763,592
15,472
5,779,064
Sears
Home
Health
$
Sears
Methodist
Hospice
2,428,101
38,251
2,466,352
$
1,732,813
1,732,813
Sears
Specialty
Services
$
1,610,348
1,610,348
Sears/Craig
Methodist
Pharmacies
$
Southwest
Therapy
Associates
(31)
(31)
$
4,468,938
(60,596)
4,408,342
Wesley Court
Methodist
Retirement
Center
$
6,009,201
154,287
70,266
6,233,754
Total
$
22,012,962
154,287
63,393
22,230,642
OPERATING EXPENSE
Nursing
Specialty Services
Dietary
Pharmacy Services
Activity Services
Social Services
Environmental Services and Utilities
Consultant Services
General and Administrative
Risk Management and Training
Marketing and Admissions
Employee Benefits
Interest Expense
Depreciation and Amortization
Total Operating Expenses
-
2,118,931
485,400
78,505
40,552
528,623
36,737
709,172
51,573
19,068
573,845
1,046
274,412
4,917,864
1,288,535
320
12,691
16,827
580,758
10,745
36,683
144,524
4,892
38,140
2,134,115
745,257
44,632
5,436
77,889
436,939
7,721
4,537
79,617
2,766
9,484
1,414,278
OPERATING INCOME (LOSS)
-
861,200
332,237
318,535
10,686
3,112
58,832
1,118
623
237
(1,187)
(691)
(376)
(1,901)
73
-
(193)
(508)
55,117
13,309
(22,653)
66,347
16,421
(376)
33,206
101,530
26,386
(700,893)
(500,347)
1,741
20,039
1,645
20,734
2,200
(768)
73
50
200
(451)
1,613
18,170
(2,226,609)
(2,161,053)
90
232,362
(3,235,210)
(2,887,160)
OTHER INCOME (EXPENSE)
Investment Income
Contributions
Gain on Sale of Assets
Other Revenue (Expense)
Change in Investment in Sears
Methodist Foundation
Transfers from Sears Methodist Foundation
Debt Service Payments
Total Other Income (Expense)
(123,142)
183,761
(307,708)
(247,089)
(61)
32,554
1,248,757
13,145
370,430
21,102
7,792
137,838
2,848
19,817
1,854,283
(243,935)
(31)
2,916,937
1,030
8,905
1,251,015
51,304
69,973
341,153
250
15,182
4,655,749
(247,407)
1,172,058
778,600
60,173
35,913
1,040,091
25,244
591,765
31,566
89,123
541,657
1,612
900,027
5,267,829
8,274,272
1,248,757
1,264,000
138,678
122,447
1,608,891
156,697
3,940,079
174,011
227,176
1,818,634
13,414
1,257,062
20,244,118
965,925
1,986,524
SEARS METHODIST RETIREMENT SYSTEM, INC.
COMBINING STATEMENT OF UNRESTRICTED ACTIVITIES AND CHANGES IN NET ASSETS –
SEARS METHODIST CENTERS, INC. (CONTINUED)
YEAR ENDED DECEMBER 31, 2009
(SEE INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY INFORMATION)
Sears
Methodist
Center
EXCESS (DEFICIT) OF REVENUE
OVER EXPENSE
Windcrest
Alzheimer's
Care Center
(247,089)
TRANSFERS
2,227,521
INCREASE (DECREASE) IN
UNRESTRICTED NET ASSETS FROM
CONTINUING OPERATIONS
Sears
Home
Health
360,853
(7,740)
Sears
Methodist
Hospice
Sears
Specialty
Services
333,978
339,269
1,705
-
Sears/Craig
Methodist
Pharmacies
(244,703)
42
-
(247,858)
(2,232,036)
-
(1,207,355)
(923,413)
353,113
335,683
339,269
-
-
-
INCREASE (DECREASE) IN
UNRESTRICTED NET ASSETS
2,761,867
353,113
335,683
339,269
(244,703)
(2,231,994)
(247,858)
(1,207,355)
6,949,436
6,514,513
2,335,073
596,461
(237,129)
2,231,994
689,544
18,396,001
9,711,303
$
6,867,626
$
2,670,756
(62)
$
935,730
$
(481,832)
(247,858)
(22,777)
781,435
$
(2,231,994)
(900,636)
(12,227)
1,980,432
-
-
$
-
-
$
441,686
Total
(1,195,128)
Gain from Discontinued Operations
Unrestricted Net Assets
at Beginning of Year
UNRESTRICTED NET ASSETS
AT END OF YEAR
(244,703)
Wesley Court
Methodist
Retirement
Center
Southwest
Therapy
Associates
-
$
17,188,646
781,435
(141,978)
37,475,893
$
37,333,915