Consolidated Financial Statements

Consolidated Financial Statements June 30, 2015 and 2014 Certified Public Accountants & Consultants 4401 Dominion Boulevard, 2nd Floor Glen Allen, VA...
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Consolidated Financial Statements June 30, 2015 and 2014

Certified Public Accountants & Consultants 4401 Dominion Boulevard, 2nd Floor Glen Allen, VA 23060

www.keitercpa.com

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Table of Contents

Page Report of Independent Accountants

1

Financial Statements: Consolidated Statements of Financial Position

3

Consolidated Statements of Activities

4

Consolidated Statements of Cash Flows

5

Notes to Consolidated Financial Statements

6

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees Richmond Memorial Health Foundation, Inc. Richmond, Virginia Report on the Financial Statements We have audited the accompanying consolidated financial statements of Richmond Memorial Health Foundation, Inc. and its subsidiary (collectively, the “Foundation”), which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Certified Public Accountants & Consultants nd 4401 Dominion Boulevard, 2 Floor Glen Allen, VA 23060 T:804.747.0000 F:804.747.3632 www.keitercpa.com

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Richmond Memorial Health Foundation, Inc. and subsidiary as of June 30, 2015 and 2014, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

September 9, 2015 Glen Allen, Virginia

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Consolidated Statements of Financial Position June 30, 2015 and 2014

Assets

2015

Current assets: Cash and cash equivalents Prepaid assets

$

1,689,539 $ 25,759

934,941 12,701

1,715,298

947,642

75,389,626 155,811

79,839,871 -

75,545,437

79,839,871

149,672,000

137,762,000

$ 226,932,735

$ 218,549,513

$

$

Total current assets Other assets: Investments Property and equipment, net Total other assets Program-related investment in Bon Secours Richmond Health System (Note 6) Total assets

2014

Liabilities and Net Assets Current liabilities: Accrued expenses

172,438

221,310

172,438

221,310

72,021,469

75,620,751

149,672,000

137,762,000

221,693,469

213,382,751

Temporarily restricted Permanently restricted

42,631 5,024,197

42,631 4,902,821

Total net assets

226,760,297

218,328,203

$ 226,932,735

$ 218,549,513

Total liabilities Net assets: Unrestricted: Unrestricted Program-related investment in Bon Secours Richmond Health System Total unrestricted net assets

Total liabilities and net assets

See accompanying notes to consolidated financial statements. 3

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Consolidated Statements of Activities Years Ended June 30, 2015 and 2014

2015

Unrestricted

2014

Temporarily Restricted

Permanently Restricted

$

$

Total

Unrestricted

Temporarily Restricted

Permanently Restricted

$

$

Total

Revenues, gains and other support: Contributions Investment income Grant income Tuition revenue Net unrealized gain (loss) on investments Total revenues, gains and other support Expenses: Management and general Program administration Investment administration Program expenses Total expenses

$

2,486 6,770,062 92,400 (5,751,304)

-

1,113,644

-

192,838 876,449 581,768 3,061,871

-

4,712,926

-

(3,599,282)

-

11,910,000

-

8,310,718 213,382,751

42,631

121,376 4,902,821

42,631

$ 5,024,197

-

121,376 -

$

121,376

123,862 $ 6,770,062 92,400 (5,751,304)

134 4,837,645 95,200 6,747,702

5,000 -

-

$

134 4,837,645 5,000 95,200 6,747,702

1,235,020

11,680,681

5,000

-

11,685,681

-

192,838 876,449 581,768 3,061,871

378,089 685,268 692,870 2,574,611

-

-

378,089 685,268 692,870 2,574,611

-

4,712,926

4,330,838

-

-

4,330,838

(3,477,906)

7,349,843

5,000

-

7,354,843

11,910,000

28,662,000

-

-

28,662,000

8,432,094 218,328,203

36,011,843 177,370,908

5,000 37,631

4,902,821

42,631

$ 4,902,821

Surplus (deficit) of revenues, gains and other support over expenses Change in equity interest of unconsolidated program-related investment Change in net assets Net assets at beginning of year Net assets at end of year

$ 221,693,469

$

121,376

-

See accompanying notes to consolidated financial statements. 4

$

226,760,297

$

213,382,751

$

36,016,843 182,311,360 $

218,328,203

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Consolidated Statements of Cash Flows Years Ended June 30, 2015 and 2014

Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash from operating activities: Net realized and unrealized gain on investments Depreciation Change in equity interest of unconsolidated program-related investment Changes in current assets and liabilities: Prepaid assets Accrued expenses Net cash used in operating activities Cash flows from investing activities: Purchases of investments Proceeds from sales of investments Purchase of property and equipment Net cash provided by investing activities

2015

2014

$ 8,432,094

$ 36,016,843

(199,931) 17,281

(11,046,718) -

(11,910,000)

(28,662,000)

(13,058) (48,872) (3,722,486)

4,827 42,463 (3,644,585)

(21,802,300) 26,452,476 (173,092) 4,477,084

(7,041,309) 10,949,614 3,908,305

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year

754,598

263,720

934,941

671,221

Cash and cash equivalents at end of year

$ 1,689,539

$

934,941

Supplemental cash flow information Cash paid for excise tax

$

$

50,260

See accompanying notes to consolidated financial statements. 5

59,259

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements

1.

Description of Organization: The Richmond Memorial Health Foundation, Inc. (the “Foundation”) is organized exclusively for charitable, scientific and educational purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, including the promotion of the health and well-being of the residents of the City of Richmond and central Virginia. The Foundation’s subsidiary, Richmond Memorial Hospital (“RMH”), is a membership corporation, the sole member of which is the Foundation. The Foundation’s operating subsidiary as of June 30, 2015 and 2014 and its principal activities are described below: Richmond Memorial Hospital - a nonstock, tax-exempt entity which formerly operated an acute health care facility located in Richmond, Virginia. Prior to May 30, 1998, the Foundation (formerly Richmond Memorial Hospital Foundation) was a member, nonstock subsidiary of Health Corporation of Virginia (“HCV”). Effective May 30, 1998, HCV was merged into the former Richmond Memorial Hospital Foundation to create the Foundation. Effective July 1, 2009, the Foundation became a private foundation as defined under Section 509(a) of the Internal Revenue Code (the “Code”). In July 1996, HCV and Bon Secours Health System, Inc. (“BSHSI”) entered into a joint venture agreement to build a 225-bed replacement hospital for RMH in Hanover County, Virginia. The replacement hospital operates as Bon Secours Memorial Regional Medical Center (“MRMC”), which is a not-for-profit Virginia non-stock corporation that is exempt from federal and state income taxes under Section 501(a) of the Internal Revenue Code. Effective September 1, 1996, HCV transferred its ownership interest in certain of its subsidiaries and in certain other entities to BSHSI in exchange for a 4% interest in Bon Secours Richmond Health System (“BSRHS”) which is a non-stock, tax-exempt entity. In addition, HCV leased the employees and operations of RMH to BSRHS. MRMC opened in May 1998, at which time HCV transferred certain property and equipment to BSRHS in exchange for an additional 13% interest in BSRHS, thereby becoming a 17% member of BSRHS. In accordance with a private letter ruling from the Internal Revenue Service dated June 3, 2009, the Foundation’s member interest in BSRHS is considered a program related investment and is exempt from its private foundation grant distribution requirements. Effective March 1, 2010, the Foundation began operating the Nurse Leadership Institute of Virginia (“NLI”) as a direct program of the Foundation. NLI’s purposes include increasing nurse retention in healthcare institutions by increasing nurses’ leadership and management skills. The core program of the NLI is a leadership development program designed for nurse leaders from all sectors of health care including community hospitals, academic health centers, public health, schools of nursing, long term care and home health. 6

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

1.

Description of Organization, Continued: Effective May 19, 2009, the Foundation launched the Greater Richmond Patient Centered Medical Home Initiative (“PCMH”) as a direct program of the Foundation. The purpose of the PCMH is to strengthen the region’s health care safety net by helping primary care safety net clinics implement the patient centered medical home model of care and to encourage partnerships among safety net providers to build systems of care to ensure that patients receive the right care at the right time. Participating clinics are provided technical assistance relating to team-based care, care coordination, National Committee for Quality Assurance recognition as a part of health reform implementation, change management, and in collecting, analyzing and using data to drive quality improvement.

2.

Summary of Significant Accounting Policies: Basis of Presentation: The Foundation classifies net assets and revenues, expenses, gains and losses based upon the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Foundation and changes therein are classified and reported as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Foundation and/or the passage of time. At June 30, 2015 and 2014, temporarily restricted net assets consisted of $42,631 of purposerestricted grants. Permanently restricted net assets - Net assets which have been restricted by donors to be maintained by the Foundation in perpetuity. Generally, the income from permanently restricted net assets can be used for operating purposes. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Contributions, including unconditional promises to give, with no donor-imposed restrictions are recognized as revenues in the period made as increases in unrestricted net assets. Contributions received with donor-imposed temporary restrictions are reported as increases in temporarily restricted net assets. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets.

7

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

2.

Summary of Significant Accounting Policies, Continued: Basis of Presentation, Continued: Income and realized net gains (losses) on investments of specific purpose funds are reported as follows: 

Increases (decreases) in temporarily restricted net assets if the terms of the gift impose restrictions on the use of the income; or



Increases (decreases) in unrestricted net assets in all other cases.

Principles of Consolidation: The consolidated financial statements include the accounts of the Foundation and its subsidiary. All significant intercompany balances and transactions have been eliminated. Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: For purposes of the consolidated statements of cash flows, the Foundation considers all highly liquid debt instruments with maturities of three months or less at time of purchase to be cash equivalents, except for those included in investments. The carrying amount of cash and cash equivalents approximates fair value. Investments: Investments are held to further the purpose and mission of the Foundation in providing charitable, scientific and educational purposes including the promotion of the health and well-being of the residents of the City of Richmond and Central Virginia. The Foundation’s investments in traditional equity and debt investments (stocks, bonds, notes and mutual funds) are reported at their fair values, based on quoted market prices. Limited partnership investments are stated at fair value based on estimates derived from the investment entity. The Foundation believes that the fair values reported by the entities are fairly stated in all material respects. See Note 4. Grants: To carry out its mission, the Foundation awards grants to various not-for-profit organizations in Richmond and Central Virginia. Grants are generally paid within one to three years of authorization by the Board of Trustees. Grants are paid to recipients based upon agreed milestones. A grant is recognized as an expense when the recipient organization meets the milestones and funds are disbursed.

8

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

2.

Summary of Significant Accounting Policies, Continued: Property and Equipment: Property and equipment consists primarily of computer equipment, furniture, and leasehold improvements and is recorded at cost, or if donated, at fair market value at the date of receipt, which is then treated as cost. Depreciation is computed on the straight-line method over the estimated useful life of the related assets, which is approximately five to nine years. Upon retirement or sale of an asset, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations. Income Taxes: The Internal Revenue Service has determined that the Foundation is exempt from federal income tax under Section 509(a) of the Internal Revenue Code as a private foundation described in Section 501(c)(3). As a non-operating private foundation, the Foundation is subject to a 2% excise tax (1% if certain criteria are met) computed on its net investment income. During 2015 and 2014, the Foundation had $61,882 and $86,100 of excise tax expense, respectively, and is included in management and general in the accompanying consolidated statements of activities. Deferred tax liabilities arise because the accrual basis is used for recognition of investment income, gains, and losses, but the cash basis is used for tax purposes. Taxes are payable when dividends, interest, and other investment income are received in cash and when gains are realized by selling the investments. Realized losses can be used to offset any gains realized in the same year; the excess of realized losses over realized gains cannot be carried back or carried forward to offset gains in prior or future tax years. Thus, because there are net unrealized gains on the investment held by the Foundation, the tax expense exceeds the taxes payable and results in a deferred federal excise tax liability. At June 30, 2015 and 2014, deferred payable excise taxes are not considered material. Income Tax Uncertainties: The Foundation follows Financial Accounting Standards Board (“FASB”) guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the consolidated financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Foundation’s tax returns to determine whether the tax positions are "morelikely-than-not" of being sustained "when challenged" or "when examined" by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense and liability in the current year. Management evaluated the Foundation's tax position and concluded that the Foundation had taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance. The Foundation’s tax returns for years since 2012 remain open for examination by tax authorities. The Foundation is not currently under audit by any tax jurisdiction. Investment in Joint Venture: The Foundation accounts for its investment in BSRHS on the equity method. The investment is recognized as a program-related investment by the Internal Revenue Service.

9

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

2.

Summary of Significant Accounting Policies, Continued: Allocation of Expenses: The Foundation allocates general and administrative expenses to investment administration and program administration based on the percentage of time spent by the Foundation’s personnel on these programs and supporting activities. Risks and Uncertainties: The Foundation maintains its cash balances in financial institutions which are insured by the FDIC for up to $250,000. The Foundation occasionally maintains balances in excess of insured amounts. The Foundation has investments which are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to the changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect investment account balances and the amounts reported in the consolidated financial statements. Reclassifications: Certain prior year balances have been reclassified to conform to current year presentation. Subsequent Events: Management has evaluated subsequent events for potential recognition and/or other disclosure through September 9, 2015, the date the consolidated financial statements were available to be issued, and has determined there are no subsequent events to be reported in the accompanying financial statements.

3.

Investments: The composition of investments as of June 30, 2015 and 2014 is as follows:

Stocks Hedging investments Private equity Real assets Bonds Short-term

2015

2014

$ 58,728,332 4,466,088 3,850,004 8,099,194 246,008 $ 75,389,626

$ 56,142,132 8,596,943 4,923,680 1,827,678 8,105,555 243,883 $ 79,839,871

Short-term investments include all highly liquid debt instruments with maturities of three months or less at time of purchase.

10

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

3.

Investments, Continued: Investment income, excluding unrealized gains related to unrestricted investments, is comprised of the following for the years ended June 30, 2015 and 2014:

Dividend and interest income

$

Net realized gains

1,218,689

$

3,863,810

5,551,373 $

6,770,062

973,835

$

4,837,645

Included in investment administration expense is $126,395 for 2015 and $117,939 for 2014, related to allocated general and administrative expenses. Additionally, investment management, consulting and custodian expense amounted to $455,373 for 2015 and $574,931 for 2014. 4.

Fair Value Measurements: The FASB has issued guidance for measurement and disclosure of fair value and establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Foundation has the ability to access.

Level 2

Quoted prices for similar instruments in active and inactive markets; and model driven valuations with significant inputs and drivers derived from observable active markets.

Level 3

Inputs to the valuation methodology are unobservable for the instrument and significant to the fair value measurement.

Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for investments carried or disclosed at fair value: Short-term investments – Short term investments are valued at cost, which approximates fair value. Stocks – Stocks are valued at the closing price reported on a national exchange. Bonds – Bonds are valued at the closing price on a national exchange.

11

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

4.

Fair Value Measurements, Continued: Hedging investments, private equity and real assets – Hedging investments, private equity and real assets are presented in the accompanying consolidated financial statements at fair value as determined by the fund’s management or the general partner of each limited partnership investment. Valuation of interests in underlying investments are based on an amount equal to the investment’s pro-rata interest in the net assets, which are at fair value, of such limited partnership’s as reported by the management of the limited partnership, adjusted for manager and incentive fees, if any. The fair value of the investments are based on available information and does not necessarily represent the amounts that might ultimately be realized, which depend on future circumstances and cannot be reasonably determined until the investment is actually liquidated. The fair values may differ significantly from the values that would have been used had a ready market for the limited partnerships’ investments existed. Assets measured at fair value on a recurring basis at June 30, 2015, include the following:

Investments: Stocks Private equity Real assets Bonds Short-term Total investments

Level 1

Fair Value Using Level 2

$ 19,056,423 2,593,600 3,901,636 246,008

$ 39,671,909 2,292,060 4,197,557 -

$

2,174,029 1,256,404 -

$ 58,728,332 4,466,089 3,850,004 8,099,193 246,008

$ 25,797,667

$ 46,161,526

$

3,430,433

$ 75,389,626

12

Level 3

Assets at Fair Value

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

4.

Fair Value Measurements, Continued: Assets measured at fair value on a recurring basis at June 30, 2014 include the following:

Fair Value Using

Investments: Stocks Hedging investments Private equity Real assets Bonds Short-term Total investments

Assets

Level 1

Level 2

$ 22,345,662

$ 33,796,470

3,534,641 243,883

2,162,785 4,570,914 -

8,596,943 2,760,895 1,827,678 -

8,596,943 4,923,680 1,827,678 8,105,555 243,883

$ 26,124,186

$ 40,530,169

$ 13,185,516

$ 79,839,871

Level 3

$

at Fair Value

-

$ 56,142,132

For level 3 investments, underlying asset managers may utilize one or more methodologies to obtain the fair value of their investments. The methodologies may include, but are not limited to, discounted cash flows, multiple analysis, comparable asset analysis, third party appraisal, third party pricing service, bona fide offer, the application of either spreads to swaps or other applicable indices, etc. The specific characteristics of each investment, including, but not limited to, type, location, quality, existing tenant base, length of lease, seniority in the capital structure, etc., are inputs in these methodologies. The following is a reconciliation of investments in securities for which significant unobservable inputs (Level 3) were used in determining value:

Balance at June 30, 2013 Purchases Distributions Net realized and unrealized gain on investments

$

Balance at June 30, 2014 Purchases Distributions Net realized and unrealized gain on investments Balance at June 30, 2015

13,185,516 457,217 (10,265,958) 53,658 $

13

13,121,966 451,817 (1,647,907) 1,259,640

3,430,433

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

4.

Fair Value Measurements, Continued: The following is a listing of certain redemption restrictions and other information regarding the Foundation’s investments at June 30, 2015:

Market Value $ 47,081,574

Investments with rolling liquidity Investments with specific lock-up dates: Less than one year Over one and up to five years Greater than five years

1,348,018 24,069,973 2,890,061 28,308,052 $

75,389,626

The Foundation has unfunded commitments to the investments totaling approximately $3,268,000 as of June 30, 2015. 5.

Property and Equipment Property and equipment consisted of the following components at June 30, 2015 and 2014:

2015 Computer equipment Furniture and equipment Leasehold improvements

$

Less: accumulated depreciation $

14

104,076 10,727 58,289

2014 $

4,937 -

173,092

4,937

(17,281)

(4,937)

155,811

$

-

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

6.

Program-Related Investment in Bon Secours Richmond Health System: In July 1996, Health Corporation of Virginia (“HCV”) and Bon Secours Health System, Inc. (“BSHSI”) entered into a joint venture agreement to build a 225-bed replacement hospital for RMH in Hanover County, Virginia. The replacement hospital operates as Bon Secours Memorial Regional Medical Center (“MRMC”), which is a not-for-profit Virginia non-stock corporation that is exempt from federal and state income taxes under Section 501(a) of the Internal Revenue Code. Effective September 1, 1996, HCV transferred its ownership interest in certain of its subsidiaries and in certain other entities to BSHSI in exchange for a 4% interest in Bon Secours Richmond Health System (“BSRHS”) which is a non-stock, tax-exempt entity. In addition, HCV leased the employees and operations of RMH to BSRHS. MRMC opened in May 1998, at which time HCV transferred certain property and equipment to BSRHS in exchange for an additional 13% interest in BSRHS, thereby becoming a 17% member of BSRHS. This interest is accounted for under the equity method of accounting. There is no public market for the sale of the Foundation’s member interest in BSRHS. The Internal Revenue Service recognizes the Foundation’s noncontrolling interest BSRHS as a program related investment. The summarized unaudited balance sheets and statements of operations of BSRHS as of and for the twelve-month periods ended June 30, 2015 and 2014 are as follows (in thousands):

2015

2014

Balance Sheets (Unaudited) Current assets Total assets Current liabilities Total liabilities Net assets

$

756,213 1,606,424 135,895 686,376 920,048

$

669,151 1,478,126 128,900 499,901 849,325

Statements of Operations (Unaudited) Operating revenues Operating expenses Income from operations Excess of revenue over expense Increase in unrestricted net assets

$ 1,325,951 1,211,993 113,956 99,649 75,780

15

$ 1,270,229 1,167,014 103,216 88,948 172,516

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

7.

Permanently Restricted Net Assets: The Foundation had been a 20% income beneficiary of the Arthur Graham Glasgow Trust (the “Trust”). As of May 24, 2011, the remaining measuring life ended and as a result, 20% of the Trust’s assets were distributed to the Foundation as the Arthur and Margaret Glasgow Endowment. The Foundation has received $121,376 in 2015 and $5,024,197 in total from the endowment as of June 30, 2015 and the amount is included in permanently restricted net assets in the accompanying consolidated financial statements.

8.

Program Expense: In accordance with its mission, the Foundation awards grants to not-for-profit organizations to support health and healthcare in Richmond and Central Virginia. The Foundation awarded grants of $2,189,000 in 2015 and $1,790,925 in 2014 to various related and unrelated entities. In order for the grants to be fully awarded, generally the recipients must meet certain milestones in their grant proposals. The Foundation disbursed grants in the amounts of $2,836,330 in 2015 and $2,448,037 in 2014. The Foundation also disbursed $125,139 in direct support to NLI in 2015 and $126,574 in 2014. Included in program expense is rent and furnishing expense for leased office space allocated for community and grantee use totaling $100,402 in 2015 and $0 in 2014. At June 30, 2015, the Foundation has appropriated $2,492,013 of its assets to service the unpaid amounts of approved grants. Included in program administration expenses is $876,449 for 2015 and $685,268 for 2014 related to allocated general and administrative expenses.

9.

Leases: The Foundation has entered into noncancellable agreements to lease office space and office equipment with terms ranging from three to ten years. The Foundation records rent on the straight-line basis resulting in deferred rent of $71,783 as of June 30, 2015, and is recorded in accrued expenses. At June 30, 2015, future minimum lease payments under the operating lease agreements are as follows for subsequent years ending June 30:

Year

Amount

2016 2017 2018 2019 2020 Thereafter

$

216,136 222,517 229,088 233,824 239,328 1,169,250

$

2,310,143

The amount of rent expense was $194,488 for 2015 and $80,436 for 2014. 16

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

10.

Deferred Compensation Plan: The Foundation has a deferred compensation plan (the “Plan”) with a key employee. The terms of the Plan include a non-elective deferred income amount payable annually. The annual contribution of the maximum allowable deferred compensation is paid in January each year. The amount is payable provided the key employee is employed by the Foundation on the date of the distribution. The Foundation recognized deferred compensation expense in the amount of $24,000 in 2015 and $23,000 in 2014 related to the Plan.

11.

Retirement Plan: The Foundation has an employee retirement plan under Section 403(B) of the Internal Revenue Code. The plan provides for salary reduction contributions by eligible participants, subject to certain limitations, and discretionary Foundation matching contributions as determined by the Board of Trustees. The Foundation’s contributions to the plan were $14,313 for 2015 and $17,353 for 2014.

12.

Endowment Funds: The proceeds from the Arthur Graham Glasgow Trust (the “Trust”) are donor-restricted, have been accounted for as an endowment fund, and have been unified with the overall investment pool. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law: The Board of Trustees of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) as requiring the preservation of the fair value of the original gift of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of the gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor restricted endowment funds that are not classified as permanently restricted net assets are classified as temporarily restricted net assets until those amounts appropriate for expenditure are disbursed in accordance with the donor restrictions in a manner consistent with the standard of prudence prescribed by UPMIFA.

17

RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

12.

Endowment Funds, Continued: In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate funds in the endowment funds designated by the Board of Trustees:       

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

Funds with Deficits: From time to time, the fair value of assets associated with individual endowment funds may fall below the level that the donor or the UPMIFA requires the Foundation to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $0 as of June 30, 2015. Return Objectives and Risk Parameters: The Foundation unified the endowment with its total investment pool. The Foundation’s investment policy is intended to provide a predictable stream of funding and seeks to maintain the purchasing power of the endowment assets. Endowment assets include assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period(s). Under this policy, as approved by the Board of Trustees, the portfolio is to attain a favorable absolute and relative rate of return consistent with a prudent, balanced portfolio management approach. Strategies Employed for Achieving Objectives: To satisfy its long-term rate-of-return objectives, the Foundation 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 Foundation targets a diversified asset allocation to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy: The Foundation has a policy of appropriating distributions each year based on a Board approved Budget Plan. In establishing this policy, the Foundation considered the long-term expected rate of return. Accordingly, over the long-term the Foundation expects the current spending policy to allow the endowments to continue to grow annually. This is consistent with objectives to maintain the purchasing power of the endowment assets held in perpetuity or for a specific term as well as to provide additional real growth through investment return restrictions.

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RICHMOND MEMORIAL HEALTH FOUNDATION, INC. Notes to Consolidated Financial Statements, Continued

12.

Endowment Funds, Continued: At June 30, 2015, the permanently restricted net asset balance was $5,024,197. All of the investment earnings of the endowment are considered unrestricted and are used to support the activities of the Foundation. At June 30, 2015, the endowment had $1,218,232 of unspent earnings, carried in unrestricted net assets.

13.

Indemnifications: The Foundation has agreed to indemnify any person who was or is a party to any proceeding by reason of having been a Trustee or officer of the Foundation, or a Trustee or officer who is or was serving at the request of the Foundation as a director, trustee, partner or officer of another entity, against any liability incurred in connection with such proceeding unless the Trustee or officer engaged in willful misconduct or a knowing violation of criminal law. Any indemnification shall be made by the Foundation in accordance with the requirements outlined in its Articles of Incorporation. In addition to the indemnification provided through the Foundation’s Articles of Incorporation, the Foundation acquired Nonprofit Directors’ and Officers’ (D&O) Liability Insurance. The D&O insurance provides further protection to Directors and Officers in conducting the affairs of the Foundation.

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