casa de las campanas...2875 michelle drive, suite 300, irvine , ca 92606 tel: 714.978.1300 fax:...

CASA DE LAS CAMPANAS

CONSOLIDATED FINANCIAL STATEMENTS

WITH SUPPLEMENTAL INFORMATION

YEARS ENDED JULY 31, 2018 AND 2017

WITH INDEPENDENT AUDITORS’ REPORT

CASA DE LAS CAMPANAS TABLE OF CONTENTS JULY 31, 2018 AND 2017

Page Independent Auditors’ Report .....................................................................................................1 Consolidated Financial Statements:

Statements of Financial Position ................................................................................................3

Statements of Activities .............................................................................................................4

Statements of Cash Flows ..........................................................................................................6 Notes to Financial Statements ....................................................................................................8 Supplemental Information: 2018 Consolidating Statements of Financial Position .............................................................36 2018 Consolidating Statements of Activities ..........................................................................37

2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893

Offices located in Orange and San Diego Counties

1

INDEPENDENT AUDITORS’ REPORT

To the Audit Committee of the Board of Directors of Casa de las Campanas Rancho Bernardo, California We have audited the accompanying consolidated financial statements of Casa de las Campanas (a nonprofit organization) (the “Organization”), which comprise the consolidated statements of financial position as of July 31, 2018 and 2017, and the related consolidated statements of activities and consolidated cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated 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 of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 auditors’ 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 auditors consider internal control relevant to the Organization’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 Organization’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.

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Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Casa de las Campanas as of July 31, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information on pages 36 through 38 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Irvine, California November 30, 2018

2018 2017

Current Assets:

Cash and cash equivalents $ 2,970,724 $ 3,308,661

Assets whose use is limited or restricted, required

for current liabilities (Note 3) 4,390,342 6,168,026

Accounts receivable, net of allowance for doubtful

accounts of $102,750 and $260,419, respectively 836,554 823,813

Prepaid expenses and other current assets 1,329,419 1,057,679

Contributions receivable 267,763 32,481

Other receivables 681,156 203,320

Total Current Assets 10,475,958 11,593,980

Assets whose use is limited or restricted, less amounts

classified as current (Note 3) 17,642,333 20,817,165

Long-term investments (Note 4) 93,647,657 89,925,736

Property, buildings, and equipment, net (Note 5) 98,826,026 86,874,566

Deferred financing fees - 236,952

Total Assets $ 220,591,974 $ 209,448,399

Current Liabilities:

Accounts payable and accrued expenses $ 4,581,009 $ 4,636,699

Interest payable 1,114,112 1,140,698

Deposits from residents 532,271 370,738

Refunds to residents 475,390 949,350

Current portion of obligations under capital leases (Note 12) 26,079 25,309

Current portion of obligations under gift annuity contracts (Note 1) 327,582 336,779

Current portion of estimated refundable entrance fees (Note 10) 3,300,085 2,899,345

Current portion of long-term debt (Note 11) 1,524,459 1,516,641

Total Current Liabilities 11,880,987 11,875,559

Obligations under capital leases, net of current portion (Note 12) 47,561 73,640

Obligations under gift annuity contracts, net of current portion (Note 1) 1,359,258 1,419,561

Estimated refundable entrance fees, net of current portion (Note 10) 21,795,350 19,891,041

Deferred revenue, pooled income funds 58,042 63,188

Long-term debt, net of current portion, unamortized discount,

and deferred financing fees (Note 11) 59,366,363 61,957,571

Deferred revenue from entrance fees (Note 10) 65,827,686 63,443,157

Total Liabilities 160,335,247 158,723,717

Net Assets:

Unrestricted 55,689,205 46,346,744

Temporarily restricted (Note 7) 1,382,680 1,258,974

Permanently restricted (Note 8) 3,184,842 3,118,964

Total Net Assets 60,256,727 50,724,682

Total Liabilities and Net Assets $ 220,591,974 $ 209,448,399


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

JULY 31, 2018 AND 2017

ASSETS

LIABILITIES AND NET ASSETS

The accompanying notes are an integral part of these consolidated financial statements.

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2018 2017

Changes in Unrestricted Net Assets:

Revenues, Gains, and Other Support:

Residents fees earned, including amortization of deferred

revenues from nonrefundable entrance fees

of $9,029,426 and $8,618,957, respectively $ 37,947,508 $ 36,859,693

Contributions 942,096 500,382

Net assets released from restrictions, used for operations 104,337 124,408

Total Revenues, Gains, and Other Support 38,993,941 37,484,483

Operating Expenses:

Food and beverage 6,511,322 6,410,434

Health center 5,831,786 5,956,936

Depreciation 5,554,934 5,731,987

General and administrative 4,713,325 4,683,615

Plant and maintenance 4,594,190 4,534,986

Interest expense for debt service 3,364,375 3,232,949

Assisted living 2,648,788 2,513,737

Housekeeping and laundry 1,787,678 1,800,482

Resident services 580,826 590,812

Home health 643,458 513,837

Donation expense 260,200 245,236

Total Operating Expenses 36,490,882 36,215,011

Income from Operations 2,503,059 1,269,472

Other Revenues (Expenses):

Interest and dividends, net 4,102,513 2,266,811

Net realized gains on sale of investments 931,193 844,804

Change in value of gift annuity contracts (16,215) 82,984

Loss on disposal of fixed assets (76,525) (660,053)

Loss on impairment of fixed assets - (212,249)

Other revenues 95,759 116,093

Total Other Revenues (Expenses) 5,036,725 2,438,390

Excess of Revenues over Expenses $ 7,539,784 $ 3,707,862


CONSOLIDATED STATEMENTS OF ACTIVITIES



4

2018 2017


Excess of revenue over expenses $ 7,539,784 $ 3,707,862

Net unrealized gains on investments 1,722,388 6,454,259

Net assets released from restrictions, used for capital

expenditures 80,289 54,105

Change in value of charitable remainder trusts and pooled

income funds - 5,135

Increase in Unrestricted Net Assets 9,342,461 10,221,361

Changes in Temporarily Restricted Net Assets:


Interest and dividends, net 140,395 61,362

Net realized gains (losses) on sale of investments 16,342 (12,828)

Net unrealized gains on investments 27,066 214,395

Net assets released from restrictions, used for operations (104,337) (124,408)


expenditures (80,289) (54,105)


income funds 12,404 9,883

Increase in Temporarily Restricted Net Assets 123,706 192,275

Changes in Permanently Restricted Net Assets:


Increase in Permanently Restricted Net Assets 65,878 79,402

Increase in Net Assets 9,532,045 10,493,038

Net Assets, Beginning of Year 50,724,682 40,231,644

Net Assets, End of Year $ 60,256,727 $ 50,724,682


CONSOLIDATED STATEMENTS OF ACTIVITIES (CONTINUED)



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2018 2017

Cash Flows from Operating Activities:

Cash received from residents and third-party payors $ 26,570,600 $ 27,848,261

Proceeds from entrance fees 19,544,264 22,095,201


Investment income received, net 4,271,888 2,328,173

Cash paid to suppliers and employees (27,742,904) (26,461,849)

Cash paid for rentals (91,167) (84,794)

Cash paid for interest on long-term debt and capital lease obligations,

net of amounts capitalized of $86,000 and $299,628, respectively (3,122,175) (2,982,903)

Net Cash and Cash Equivalents Provided by Operating Activities 20,249,445 23,307,966

Cash Flows from Investing Activities:

Capital expenditures (17,582,917) (18,996,378)

Interest and dividend reinvestment (4,271,888) (2,666,698)

Net purchases of investments 8,174,303 2,390,925

Net Cash and Cash Equivalents Used in Investing Activities (13,680,502) (19,272,151)

Cash Flows from Financing Activities:

Refunds of entrance fees (4,427,880) (2,080,865)

Net change in resident deposits 161,533 195,027

Proceeds from borrowings on obligations under capital leases - 104,677

Principal payments on obligations under capital leases (25,309) (32,948)

Bond issuance costs (881,224) (74,889)

Proceeds from borrowings on long-term debt 51,000 -

Principal payments on long-term debt (1,785,000) (1,500,000)

Net Cash and Cash Equivalents Used in Financing Activities (6,906,880) (3,388,998)

Net Change in Cash and Cash Equivalents (337,937) 646,817

Cash and Cash Equivalents, Beginning of Year 3,308,661 2,661,844

Cash and Cash Equivalents, End of Year $ 2,970,724 $ 3,308,661

Supplemental Disclosure of Noncash Information:

Accrued capital expenditures $ 1,429,117 $ 440,369


CONSOLIDATED STATEMENTS OF CASH FLOWS



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2018 2017

Reconciliation of Increase in Net Assets to Net Cash and Cash

Equivalents Provided by Operating Activities:

Increase in net assets $ 9,532,045 $ 10,493,038

Adjustments to reconcile increase in net assets to net cash

and cash equivalents provided by operating activities:

Depreciation 5,554,934 5,731,987

Amortization of deferred financing fees 257,672 264,237

Amortization of bond discount 11,114 11,114

Change in allowance for doubtful accounts (157,669) 52,487

Amortization of entrance fees (9,029,426) (8,618,957)

Forfeited entrance fees (1,723,670) (1,660,689)

Change in accruals of resident refunds (473,960) 949,350

Proceeds from entrance fees 19,544,264 22,095,201

Loss on disposal of fixed assets 76,525 660,053

Loss on impairment of fixed assets - 212,249

Net realized gains on sale of investments (947,535) (844,804)

Net unrealized gains on investments (1,749,454) (6,454,259)

Deferred revenue, pooled income fund (5,146) 2,346


income funds 12,404 15,018

Change in the value of gift annuity contracts (16,215) 82,984

Changes in operating assets and liabilities:

Accounts receivable 144,928 269,502

Prepaid expenses and other current assets (393,617) 260,506

Contributions receivable (235,282) (32,481)

Other receivables (689) (3,125)

Accounts payable and accrued expenses (55,692) (257,621)

Interest payable (26,586) (25,305)

Deposits from residents - 1,806

Obligations under gift annuity contracts (69,500) 103,329

Net Cash and Cash Equivalents Provided by

Operating Activities $ 20,249,445 $ 23,307,966


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



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CASA DE LAS CAMPANAS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies Nature of Business Casa de las Campanas (“Casa”) was incorporated on September 19, 1990, as a California nonprofit corporation for the purposes of constructing, owning, and operating a continuing care retirement community. The facilities include 374 independent living units, 34 assisted living units with a capacity of 43 beds, 18 dementia/assisted living units with a capacity of 27 beds, and an adjacent 95 bed skilled nursing facility. Casa provides housing, health care, and other related services to the elderly honoring their dignity and promoting independence. Casa operates under the continuing care concept whereby residents enter into agreements that require payment of a one-time entrance fee and a monthly charge. Generally, these payments will entitle residents to the use and privileges of the facility for life. The residence agreement does not entitle the residents to an ownership interest in the property. Casa Foundation (the “Foundation”), a California nonprofit public benefit corporation, was established in 1994 to solicit contributions from the general public in support of Casa. The Foundation’s Board of Directors consists of five members, three of whom are also members of the Casa Board of Directors and the remaining two are Casa residents in good standing. Funds of the Foundation are distributed to Casa for the benefit of its residents and operations as determined by the Foundation’s Board of Directors. The Foundation’s assets, liabilities, net assets, and results of operations are included in the accompanying consolidated financial statements. Consolidation Policy The accompanying consolidated financial statements include the accounts of Casa de las Campanas and Casa Foundation (collectively, the “Organization”). Intercompany transactions and balances have been eliminated in consolidation. Basis of Presentation The accompanying consolidated financial statements are presented using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). References to “ASC” hereafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Basis of Presentation (Continued) The Organization’s resources are classified for accounting and reporting purposes into three net asset categories according to the existence or absence of donor-imposed restrictions. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for general or specific purposes. Accordingly, the net assets of the Organization are classified and reported as follows:

Unrestricted Net Assets - Net assets that are not subject to donor-imposed

stipulations or the donor-imposed restrictions have expired. Unrestricted net assets represent the funds that are fully available, at the discretion of management and the Board of Directors, for the Organization to utilize in its programs or supporting activities.

Temporarily Restricted Net Assets - Net assets composed of contributions that are

subject to donor-imposed stipulations that can be fulfilled by the actions of the Organization pursuant to those stipulations or that expire by the passage of time. When the donor-imposed restrictions expire, that is, when a time restriction ends or a purpose restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets.

Permanently Restricted Net Assets - Net assets composed of contributions subject

to donor-imposed restrictions to be maintained in perpetuity. The related income is temporarily restricted either for a specific purpose (donor-imposed stipulation) or time period (in accordance with GAAP).

The Organization follows the provisions of FASB ASC 958-205, Presentation of Financial Statements, which provides guidance on the net asset classification and reporting of donor-restricted endowment funds for not-for-profit organizations that are subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). UPMIFA was signed into law in California (“CPMIFA”) on September 30, 2008. Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. Accounts Receivable Accounts receivable are stated at estimated net realizable value. An allowance for doubtful accounts is established based upon management’s estimate of uncollectible accounts. Collections on accounts previously written off are included in income as received.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Assets Whose Use is Limited or Restricted Assets whose use is limited or restricted include (a) investments held by trustees and the Organization under bond indenture agreements, (b) investments held in escrow accounts for Department of Social Services refund reserve and subscription and wait list deposit obligations, and (c) net assets restricted by donors. These assets include cash and cash equivalents and investments in debt and equity securities, which are stated at fair value in the accompanying consolidated financial statements. Amounts available to repay current liabilities are presented as current assets. Investments In accordance with GAAP, investments are measured at fair value. Investment income or loss (including interest, dividends, and realized gains or losses) is included in the excess of revenues over expenses unless the income is restricted by donor or law. Unrealized gains and losses on investments are excluded from the excess of revenues over expenses, unless the investments are classified as trading securities. Property, Buildings, and Equipment Property, buildings, and equipment are stated at cost. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method.

The estimated useful lives of the related assets are as follows:

Buildings and improvements 40 years Property held under capital leases 3-5 years Furniture and equipment 3-15 years Vehicles 3-5 years

Long-Lived Assets The Organization recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows are not sufficient to recover the assets’ carrying amount. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. For the year ended July 31, 2017, there was a total of $212,249 in impairment loss on fixed assets. There was no such loss for the year ended July 31, 2018.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Bond Discounts and Deferred Financing Fees Bond discounts and deferred financing fees incurred in connection with the issuance of long-term debt are amortized using the effective interest method over the term of the associated bond issue. Unamortized bond discounts and deferred financing fees are netted against the respective long-term debt in the accompanying consolidated statements of financial position. Deferred financing fees in connection with future debt issuance are presented as deferred financing fees in the accompanying consolidated statements of financial position. Deposits from Residents Deposits from residents represent entrance fees received prior to occupancy and are accounted for as liabilities of Casa, as they are refundable in accordance with the terms of the residence agreements. Estimated Refundable Entrance Fees Estimated refundable entrance fees are recorded based on Casa’s estimate of future refunds to current residents under the terms of the contracts in force and are based on current and historical refund experience. Entrance Fees Fees paid by a resident upon entering a continuing care retirement contract, net of estimated future refunds, are recorded as deferred revenue from entrance fees and are amortized to income using the straight-line method over the remaining life expectancy of the resident. Resident Fees Resident fees are recorded net of the provision for contractual allowances, which represents the difference between established rates and per diem reimbursement. Income Taxes Casa and the Foundation are exempt from federal and California income taxes under Section 501(c)(3) of the Internal Revenue Code (“IRC”) and corresponding California provisions, except to the extent of unrelated business taxable income (“UBTI”) as defined by the IRC. Casa and the Foundation maintain their tax-exempt status through devoting their resources to meet the primary needs of aged persons, housing, health care, and financial security. The Organization evaluates uncertain tax positions through its review of the sources of income to identify UBTI and certain other matters, including those which may affect its tax-exempt status. The effect of the uncertainty would be recorded if the outcome were considered probable and reasonably estimable. As of July 31, 2018 and 2017, the Organization had no uncertain tax positions requiring accrual.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Charity Care Pursuant to its mission statement as described in Note 1, the Organization provides free services to those residents who are unable to pay all or a portion of their charges and who meet certain eligibility criteria. Records are maintained to identify and monitor the level of charity care provided. For the years ended July 31, 2018 and 2017, unreimbursed costs foregone for charity care amounted to $349,255 and $577,277, respectively. For the years ended July 31, 2018 and 2017, charitable gifts received to offset costs amounted to $82,225 and $78,756, respectively. The Organization used an average-cost-per-resident-day amount to determine unreimbursed costs based on widely accepted cost reporting methodologies. Public Contributions Contributions are recognized as revenue when they are received or unconditionally pledged. Contributions of assets other than cash are recorded at their estimated fair value. The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities in net assets released from restrictions, used for operations. The Organization reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Public contributions of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long these long-lived assets must be maintained are reported by the Organization as unrestricted support. In-Kind Service Contributions In accordance with GAAP, in-kind services are recognized if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization. In addition, the Organization receives a significant amount of donated services from unpaid volunteers who are essential to the completion of the Organization’s purposes. However, these services have not been recorded in the consolidated financial statements since they do not meet the accounting criteria necessary for recognition. For the years ended July 31, 2018 and 2017, there were no in-kind services recognized.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Split-Interest Agreements The following instruments are recorded as income or net assets at the present value of the Organization’s beneficiary interest: Charitable Remainder Trusts - The Foundation is the beneficiary of four charitable remainder trust agreements (the “Trusts”). The Trusts are irrevocable, and the beneficiary designation may not be changed. Upon the death of the beneficiaries, or other termination of the Trusts as defined, the remaining Trust assets become the property of the Foundation as stipulated in the Trust agreements. The beneficial interest in the Trusts is recorded at the expected fair value to be received by the Foundation. The Foundation calculated the expected fair value using the fair value of the Trusts at year-end, discounted at a rate of 3.4% and 2.2% as of July 31, 2018 and 2017, respectively, over the life expectancy of the Trusts’ beneficiaries. The change in fair value of the Trusts is reflected in the consolidated statements of activities. All beneficial interests in charitable remainder trusts are included in the accompanying consolidated statements of financial position under assets whose use is limited or restricted and are classified as long term. Charitable Gift Annuities - Donors have contributed assets to the Organization in exchange for a promise by the Organization to pay a fixed amount for a specified period of time to the donor or to individuals designated by the donor. Under the terms of such agreements, no trust exists, as the assets are held by, and the annual liability is an obligation of, the Organization. The contributed assets are recorded at fair market value on the date of receipt, and the liability obligation is recorded at the expected value of the annuity liability. The expected value of the annuity liability is the present value of future annuity payments, discounted at the prescribed federal mid-term rate at the date of the gift over the life expectancy of the donor or the designated beneficiary, as defined in the Insurance Code of the State of California. These rates are based on the highest federal mid-term rate available over a three-month period, including the month of the gift. The change in fair value of the annuity liability is reflected in the consolidated statements of activities. The Organization is required to maintain a state-mandated reserve to cover its gift annuity liability. For the years ended July 31, 2018 and 2017, the amount of the reserve was $1,686,841 and $1,756,340, respectively, and is included in the accompanying consolidated statements of financial position under assets whose use is limited or restricted. Pooled Income Fund - The Foundation has formed one pooled income fund (the “Fund”). Donors have made irrevocable contributions of assets to the Fund in exchange for a promise by the Foundation to pay the actual income, as defined, earned on the donor’s contribution for the remainder of the donor’s or the donor’s designated income beneficiary’s lifetime. Upon the death of the donor or the designated income beneficiary, the value of his or her proportionate interest at the time reverts to the Foundation to be used for such purposes as the donor may have designated or, if there is no designation, as the Foundation’s Board of Directors may determine.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Split-Interest Agreements (Continued) The assets of the pooled income fund are held and managed by an outside trustee who is responsible for investing the assets and making the quarterly income distributions to the beneficiaries. The contributed assets are recorded at fair market value on the date of receipt, and temporarily restricted contribution revenue is recorded at the present value of the fair value of assets received, discounted at a rate of 3.6% over the life expectancy of the donors or beneficiaries. The change in fair value of the contributed assets is reflected in the consolidated statements of activities. The assets under the pooled income fund are included in the accompanying consolidated statements of financial position under assets whose use is limited or restricted. The corresponding liabilities for pooled income funds are assessed at fair value and included in deferred revenue, pooled income funds in the accompanying consolidated statements of financial position. Excess of Revenues over Expenses The accompanying consolidated statements of activities include excess of revenues over expenses. Changes in unrestricted net assets that are excluded from excess of revenues over expenses include net unrealized gains or losses on other-than-trading investments and net assets released from restrictions used for capital expenditures. Use of Estimates The preparation of financial statements in accordance with GAAP 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. Fair Value of Financial Instruments Financial instruments included in the Organization’s consolidated statements of financial position include cash and cash equivalents, investments, accounts and contributions receivable, payables arising in the ordinary course of business, split-interest agreements, and long-term debt. For cash and cash equivalents, accounts and contributions receivable, and payables arising in the ordinary course of business, the carrying amounts represent a reasonable estimate of the fair values due to their short-term maturity. Split-interest agreements consist of numerous arrangements in which a donor establishes and funds a trust where the Organization is either the trustee or has a beneficial interest in the trust. For trusts where the Organization is the trustee, the corresponding assets and liabilities are recorded at fair value, and for trusts where the Organization has a beneficial interest, the Organization records an asset at the fair value of its interest in the net assets held by the trust. The fair value of long-term debt is determined using current applicable rates for similar instruments and approximates the carrying value of such debt.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Fair Value of Financial Instruments (Continued) Financial instruments are reflected at estimated fair value in accordance with FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority given to unobservable inputs (Level 3). The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Organization uses appropriate valuation techniques based on the available inputs to measure the fair value of its investments. Investments with readily determinable fair values are reported at fair value as determined by quoted market prices (Level 1). Investments that represent pooled investment funds that are not publicly traded are reported at fair value based on the quoted market prices of the underlying securities (Level 2). Investments also include investments in limited partnerships and other alternative investments, which are made in accordance with the Organization’s investment policy and monitored through quarterly performance reviews. The alternative investments deal in and with securities of all kinds and descriptions. Publicly traded securities within the alternative investments are generally valued by reference to closing market prices on one or more national securities exchanges or generally accepted pricing services selected by the custodial trustees of the respective alternative investments. Securities not valued by such pricing services are valued based upon bid quotations obtained from independent dealers in securities. In the absence of any independent quotations, securities will be valued by respective custodial trustees based on data obtained from the best available sources (Level 3). Because these investments are not readily marketable, their estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for such investment existed. While the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets could result in a different fair value measurement at the measurement date. The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require transfer of financial instruments from one level to another. In such instances, the transfer is reported at the end of the reporting period. There have been no changes in the valuation methodologies used at July 31, 2018 and 2017, to value the Organization’s assets and liabilities at fair value.


JULY 31, 2018 AND 2017

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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Recent Accounting Pronouncements - Implemented

In May 2015, the FASB issued Accounting Standards Update (ASU) 2015‐07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), a consensus of the Emerging Issues Task Force. Pursuant to ASU 2015‐07, investments for which fair value is measured at net asset value, or its equivalent, using the practical expedient will no longer be categorized in the fair value hierarchy. Removing such investments from the fair value hierarchy thereby ensures that all investments categorized in the fair value hierarchy are classified using a consistent approach. ASU 2015‐07 also removes the requirement that makes certain disclosures for all investments that are eligible to be measured at fair value using the net asset value practical expedient. Instead, such disclosures are limited to investments for which the entity has elected to estimate the fair value using the practical expedient. ASU 2015‐07 is effective in the annual periods beginning after December 15, 2016, with earlier adoption permitted. ASU 2015‐07 should be applied retrospectively to all prior periods presented. Accordingly, the Organization has adopted the provisions of ASU 2015‐07 on the presentation of its consolidated financial statements. Recent Accounting Pronouncements - Pending In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU establishes a comprehensive revenue recognition standard for virtually all industries in GAAP, including those that previously followed industry-specific guidance, such as the real estate, construction, and software industries. The ASU’s core principal is to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. During 2014-2016, the FASB issued various amendments to this topic and the amendments clarified certain positions and extended the implementation date until annual periods beginning after December 15, 2018. Early adoption is permitted, but no earlier than periods beginning after December 15, 2016. The adoption is effective for the Organization beginning August 1, 2018. The Organization is currently evaluating the impact of the provisions of ASU 2014-09 on the presentation of its consolidated financial statements. In January 2016, the FASB issued ASU 2016‐01, Recognition and Measurement of Financial Assets and Financial Liabilities, Financial Instruments - Overall (Subtopic 825‐10), which enhances the reporting model for financial instruments to provide users of financial statements with more decision‐useful information. The update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not‐for‐profit entities and employee benefit plans, the amendment is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption of ASU 2016-01 is effective for the Organization beginning August 1, 2019, and the adoption is not expected to have a material impact on the presentation of its consolidated financial statements.


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Note 1: Nature of Business and Summary of Significant Accounting Policies (Continued) Recent Accounting Pronouncements - Pending (Continued) In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous standards. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of asset not to recognize lease assets and lease liabilities. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and early application is permitted. The adoption of ASU 2016-02 is effective for the Organization beginning August 1, 2019. The Organization is currently evaluating the impact of the provisions of ASU 2016-02 on the presentation of its consolidated financial statements. In August 2016, the FASB issued ASU 2016‐14, Presentation of Financial Statements of Not‐for‐Profit Entities (Topic 958), which improves the current net asset classification requirements and the information presented in financial statements and notes about an entity’s liquidity, financial performance, and cash flows. The update removes the requirement to present three classes of net assets with two classes, net assets with donor restrictions and net assets without donor restrictions. The update also removes the requirement to present or disclose the indirect method (reconciliation) if using the direct method for the statement of cash flows, as well as added several additional enhanced disclosures to the notes. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods beginning after December 15, 2018, with application to interim financial statements permitted but not required in the initial year of application. The adoption of ASU 2016-14 is effective for the Organization beginning August 1, 2018. The Organization is currently evaluating the impact of the provisions of ASU 2016‐14 on the presentation of its consolidated financial statements. In June 2018, the FASB issued ASU 2018-08, Not-for-Profit Entities - Revenue Recognition (Topic 958-605). ASU 2018-08 clarifies and improves the scope and the accounting guidance for contributions received and contributions made. This update provides guidance to assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) within the scope of Topic 958 or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. ASU 2018-08 is effective for fiscal years beginning after December 15, 2019; however, early adoption is permitted. The adoption of ASU 2018-08 is effective for the Organization beginning August 1, 2020. The Organization is currently evaluating the impact of the provisions of ASU 2018-08 on the presentation of its consolidated financial statements. Note 2: Concentrations of Credit Risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist principally of cash and cash equivalents, investments, and receivables. The Organization places its cash and cash equivalents and investments with several high-credit quality financial institutions. For the years ended July 31, 2018 and 2017, cash accounts at each institution were insured by the Federal Deposit Insurance Corporation for up to $250,000.


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Note 2: Concentrations of Credit Risk (Continued) Investments in general 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 the amounts reported in the consolidated financial statements. The Organization mitigates these risks with an investment policy designed to limit the exposure and concentration, while achieving optimal return within reasonable risk tolerances. With respect to the receivables, the Organization’s customer base consists of a large number of customers. The Organization performs credit evaluations and writes off uncollectible amounts as they become known. Note 3: Assets Whose Use is Limited or Restricted Assets whose use is limited or restricted were available for the following purposes for the years ended July 31, 2018 and 2017: 2018 2017

Held by trustee under bond indenture $ 9,017,432 $ 14,621,551 Refund reserve* 7,880,950 7,322,846 Restricted by donors 2,815,335 2,659,595 Charitable gift annuities 1,686,841 1,756,340 Charitable remainder trusts 382,173 369,536 Pooled income fund 249,944 255,323 22,032,675 26,985,191 Less: Amounts required for current liabilities (4,390,342) (6,168,026)

$ 17,642,333 $ 20,817,165 *In order to meet the refund reserve requirement for the years ended July 31, 2018 and 2017, the California Department of Social Services (“CDSS”) approved for the reserve requirement to be secured by the escrow agreement and the deed of trust on the Organization’s facilities, including real property.


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Note 4: Investments and Fair Value Disclosure

The Organization’s investments are managed as a diversified portfolio governed by various third-party brokers and financial institutions in accordance with the Organization’s investment policy. The composition of investments at fair value at July 31, 2018 and 2017, is as follows:

2018 2017 Money market funds $ 9,274,923 $ 14,808,820 Domestic - bond mutual funds 28,137,352 27,378,595 International - bond mutual funds 2,885,681 3,934,078 Domestic - equity (including mutual funds) 28,696,146 29,072,069 International - equity (including mutual funds) 20,331,363 17,912,485 Balanced mutual funds 7,898,230 7,333,330 Limited partnerships 241,063 310,637 Absolute return 1,021,463 270,722 US government obligation 768,412 786,964 Real asset fund 10,305 5,104 Hedge fund 5,197,126 4,928,587 Real estate partnerships 10,836,095 9,800,000 Charitable remainder trusts 382,173 369,536 115,680,332 116,910,927 Less: Amounts classified as assets whose use is limited or restricted - current and noncurrent (22,032,675) (26,985,191)

Long-Term Investments $ 93,647,657 $ 89,925,736 Investment income and losses on cash equivalents, investments, and assets whose use is limited or restricted for the years ended July 31, 2018 and 2017, are summarized as follows: 2018 Temporarily Unrestricted Restricted Total

Interest and dividends $ 4,623,739 $ 140,395 $ 4,764,134 Realized gains on sale of investments 931,193 16,342 947,535 Net unrealized gains on investments 1,722,388 27,066 1,749,454 Change in value of gift annuity contracts (16,215) 12,404 (3,811) 7,261,105 196,207 7,457,312 Less: Investment expenses (521,226) - (521,226) Total $ 6,739,879 $ 196,207 $ 6,936,086

2017 Temporarily Unrestricted Restricted Total

Interest and dividends $ 2,612,725 $ 61,362 $ 2,674,087 Realized gains (losses) on sale of investments 844,804 (12,828) 831,976 Net unrealized gains on investments 6,454,259 214,395 6,668,654 Change in value of gift annuity contracts 82,984 9,883 92,867 9,994,772 272,812 10,267,584 Less: Investment expenses (345,914) - (345,914) Total $ 9,648,858 $ 272,812 $ 9,921,670


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Note 4: Investments and Fair Value Disclosure (Continued) The following tables present the Organization’s fair value hierarchy for those assets measured at fair value on a recurring basis as of July 31, 2018 and 2017: 2018 Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Assets: (Level 1) (Level 2) (Level 3) Total Money market funds $ 9,274,923 $ - $ - $ 9,274,923 Mutual funds Domestic - bond mutual funds 28,137,352 - - 28,137,352 International - bond mutual funds 2,885,681 - - 2,885,681 Domestic - equity (including mutual funds) 28,696,146 - - 28,696,146 International - equity (including mutual funds) 20,331,363 - - 20,331,363 Balanced mutual funds 7,898,230 - - 7,898,230 Limited partnerships - - 241,063 241,063 US government obligations - 768,412 - 768,412 Real asset fund 10,305 - - 10,305 Charitable remainder trusts - - 382,173 382,173 Total assets measured at fair value $ 97,234,000 $ 768,412 $ 623,236 $ 98,625,648 Total assets measured at net asset value 17,054,685 Total Investments $ 115,680,333

Liabilities: Obligations under gift annuity contracts $ - $ - $ 1,686,840 $ 1,686,840 Deferred revenue, pooled income funds - - 58,042 58,042 Total Liabilities $ - $ - $ 1,744,882 $ 1,744,882 2017 Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Assets: (Level 1) (Level 2) (Level 3) Total Money market funds $ 14,808,820 $ - $ - $ 14,808,820 Mutual funds Domestic - bond mutual funds 27,378,595 - - 27,378,595 International - bond mutual funds 3,934,078 - - 3,934,078 Domestic - equity (including mutual funds) 29,072,069 - - 29,072,069 International - equity (including mutual funds) 17,912,485 - - 17,912,485 Balanced mutual funds 7,333,330 - - 7,333,330 Limited partnerships - - 310,637 310,637 US government obligations - 786,964 - 786,964 Real asset fund 5,104 - - 5,104 Charitable remainder trusts - - 369,536 369,536 Total Assets $ 100,444,481 $ 786,964 $ 680,173 $ 101,911,618 Total assets measured at net asset value 14,999,309 Total Investments $ 116,910,927


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Note 4: Investments and Fair Value Disclosure (Continued) 2017 Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Liabilities: (Level 1) (Level 2) (Level 3) Total Obligations under gift annuity contracts $ - $ - $ 1,756,340 $ 1,756,340 Deferred revenue, pooled income funds - - 63,188 63,188 Total Liabilities $ - $ - $ 1,819,528 $ 1,819,528 For investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended July 31, 2018 and 2017, the reconciliation of beginning and ending balances is as follows: 2018 Obligations under Gift Annuity Charitable Contracts and Limited Remainder Pooled Income Partnerships Trusts Funds Fair value, beginning of year $ 310,637 $ 369,536 $ (1,819,528) Net realized gains 20,279 - - Unrealized gains (23,869) - - Changes in value - 12,647 74,646 Purchases - - - Sales (65,984) - - Fair Value, End of Year $ 241,063 $ 382,183 $ (1,744,882) 2017 Obligations under Gift Annuity Charitable Contracts and Limited Remainder Pooled Income Partnerships Trusts Funds Fair value, beginning of year $ 579,271 $ 304,401 $ (1,713,853) Net realized gains 119,760 - - Unrealized loss (89,611) - - Changes in value - 65,135 (105,675) Purchases - - - Sales (298,783) - - Fair Value, End of Year $ 310,637 $ 369,536 $ (1,819,528)


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Note 4: Investments and Fair Value Disclosure (Continued) The following are the techniques used to determine fair values for the financial instruments listed in the above tables:

Investments in limited partnerships are valued based on the prorata interest in the net assets of the underlying investment as reported by the investment funds’ investment managers or general partners. An advisor independently evaluates the valuation provided by the fund managers, and this evaluation takes into consideration numerous factors which may include, but are not limited to, the attributes of the interest held, risks inherent in the inputs to the manager’s valuation, restrictions on the disposition of the interest, and data reasonably available to market participants.

Absolute return funds invest primarily in investment funds, limited partnerships, limited liability companies, or non-U.S. corporations. Valuation of interests in these funds is based on an amount equal to the prorata interest in net assets, which are at fair value consistent with the measurement principles in FASB ASC 946, Financial Services - Investment Companies, of such investment funds as reported by the management of the investment funds monthly, adjusted for management and incentive fees, if any. Fair value of these funds has been estimated using net asset value as a practical expedient.

Alternative Investment funds invest primarily in investment funds that are not registered under the 1940 Act and invest in and actively trade securities and a variety of financial instruments using different strategies and techniques that may involve significant credit, market, and liquidity risks. The closely held entity fund strategy is to invest in collaterized debt obligations and other structured credit investments, while the hedge fund strategy is diversified amongst direct lending, distressed debt, equity long/short, event equities and structured credit type investments. Valuation of interests in these funds is based on an amount equal to the prorata interest in net assets, which are at fair value consistent with the measurement principles in FASB ASC 946, Financial Services - Investment Companies, of such investment funds as reported by the management of the investment funds at least quarterly, adjusted for management and incentive fees, if any. Fair value of these funds has been estimated using net asset value as a practical expedient.

Charitable remainder trusts, obligations under gift annuity contracts and deferred revenue, and pooled income funds fair values are estimated using present value techniques. The net present value is determined using investment returns consistent with the composition of the asset portfolios, life expectancies, and the appropriate federal interest rate and is adjusted annually.


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Note 5: Property, Buildings, and Equipment Property, buildings, and equipment are as follows at July 31, 2018 and 2017: 2018 2017

Land and improvements $ 15,469,782 $ 15,139,357 Buildings and improvements 114,867,929 110,636,905 Property under capital leases 105,159 105,159 Furniture and equipment 16,756,047 16,494,192 Vehicles 1,245,670 1,088,662 Art collection 349,905 346,558 148,794,492 143,810,833 Less: Accumulated depreciation and amortization (72,116,428) (67,560,980) 76,678,064 76,249,853 Construction in progress 22,147,962 10,624,713 Property, Buildings, and Equipment, Net $ 98,826,026 $ 86,874,566

Depreciation expense for the years ended July 31, 2018 and 2017, amounted to $5,554,934 and $5,731,987, respectively. Casa has several projects under construction and predevelopment. Total predevelopment and construction costs as of July 31, 2018 and 2017 amounted to $22,147,962 and $10,624,713, respectively. Casa’s estimated costs to complete construction of these projects are approximately $45,852,038 as of July 31, 2018. Outstanding commitments on these projects totaled approximately $1,429,117 as of July 31, 2018. Note 6: Endowment The Organization’s endowment consists of various individual funds established for a variety of purposes. Net assets associated with endowment funds, including funds designated by the Board of Directors (the “Board”) to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board has interpreted CPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the 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 Organization in a manner consistent with the standard of prudence prescribed by CPMIFA.


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Note 6: Endowment (Continued) Interpretation of Relevant Law (Continued) In accordance with CPMIFA, the Organization 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

Composition and Changes in Endowment Net Assets The composition of endowment net assets by type of fund is as follows at July 31, 2018: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (613,922) $ 509,889 $ 3,184,842 $ 3,080,809 Board-designated endowment fund 3,801,512 - - 3,801,512 $ 3,187,590 $ 509,889 $ 3,184,842 $ 6,882,321 Changes in endowment net assets for the year ended July 31, 2018, were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 2,593,485 $ 405,582 $ 3,118,964 $ 6,118,031 Investment return: Investment income, net 169,709 135,583 - 305,292 Net appreciation, (realized/unrealized) 62,232 46,821 - 109,052 Change in value (66,975) 11,191 - (55,784) Total investment return 164,968 193,595 - 358,563 Contributions 485,770 - 65,878 551,648 Transfers 110,939 - - 110,939 Expenditures (38,438) - - (38,438) Appropriation of endowment assets for expenditure (129,133) (89,288) - (218,422) Endowment Net Assets, End of Year $ 3,187,590 $ 509,889 $ 3,184,842 $ 6,882,321


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Note 6: Endowment (Continued) Composition and Changes in Endowment Net Assets (Continued) The composition of endowment net assets by type of fund is as follows at July 31, 2017: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (546,948) $ 405,582 $ 3,118,964 $ 2,977,598 Board-designated endowment fund 3,140,433 - - 3,140,433 $ 2,593,485 $ 405,582 $ 3,118,964 $ 6,118,031 Changes in endowment net assets for the year ended July 31, 2017, were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 2,299,664 $ 208,395 $ 3,039,562 $ 5,547,621 Investment return: Investment income, net 72,555 56,599 - 129,154 Net appreciation, (realized/unrealized) 254,725 201,911 - 456,636 Change in value (33,460) 9,537 - (23,923) Total investment return 293,820 268,047 - 561,867 Contributions 55,495 - 79,402 134,897 Transfers 50,650 - - 50,650 Appropriation of endowment assets for expenditure (106,143) (70,861) - (177,004) Endowment Net Assets, End of Year $ 2,593,485 $ 405,582 $ 3,118,964 $ 6,118,031 Endowment Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or the law requires the Organization to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $613,922 and $546,948 at July 31, 2018 and 2017, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred after the investment of permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the Board of Directors. Return Objectives and Risk Parameters The Organization has adopted investment and spending policies for endowment funds that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted endowment funds that the Organization must hold in perpetuity, as well as quasi endowment funds established by the Board of Directors.


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Note 6: Endowment (Continued) Return Objectives and Risk Parameters (Continued) Under this policy, as approved by the Board, the endowment funds are invested in a manner that is expected to:

• produce a nominal average annual rate of return of 6.20% assuming 2.30% inflation, or an annual compound total rate of return of approximately 3.90% in excess of the rate of inflation, as measured by the National Urban Consumer Price Index (CPI), in the long-term portfolio; and

• perform above average in the comparable fund universe with volatility that is equal to or less than that of such similarly managed funds.

Actual returns in any given year may vary from the expected amounts, as past experience is not an indicator of future performance. Strategies Employed for Achieving Objectives To satisfy its long-term return objectives, the Organization relies on a total-return strategy in which investment returns and real growth are achieved through both capital appreciation (realized and unrealized) and current income (interest and dividends). As asset allocation is the major determinant of investment performance, the endowment assets are allocated across a number of investment classes to provide diversification and achieve long-term return objectives. As a general policy guideline, the target asset allocations for quasi endowment funds are 75% to growth investments, including both equities and alternative investments, and 25% to fixed-income investments. The long-term portfolio will be invested in mutual and/or exchange-traded funds, hedge funds - fund of funds, limited partnerships, structured notes, and/or individually managed accounts that focus on specific style segments within each asset class. The asset allocation plan provides for diversification of assets in an effort to maximize the investment return and manage the risk of the endowment assets consistent with market conditions. Due to the fluctuation of market values, allocations within a specified range constitute compliance with the policy. Spending Policy and How the Investment Objectives Relate to Spending Policy Currently, Casa’s intent is to reinvest all dividends, interest, and capital gains in the long-term portfolio. At a future date, the Board may elect to establish a spending policy and will do so subject to a spending analysis that will consider the impact of various spending policies on the real value of the portfolio relative to the current allocation. The Foundation has a spending policy that applies to all endowment funds (unrestricted and permanently restricted) that provides for a distribution of the percentage of assets that is sufficient to allow for growth in principal net of expected inflation and investment management fees. The formula for determining the distribution’s percentage evaluates long-term expected rate of returns, inflation, and fees.


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Note 6: Endowment (Continued) Spending Policy and How the Investment Objectives Relate to Spending Policy (Continued) In establishing this policy, the Organization considered the long-term expected return on its endowment funds. Accordingly, over the long term, the Organization expects the current spending policy to allow its endowment funds to grow at a rate equal to or above the CPI. This is consistent with the Organization’s objective to maintain the purchasing power of the endowment funds held in perpetuity, as well as to provide additional real growth through new gifts and investment return. Note 7: Temporarily Restricted Net Assets Temporarily restricted net assets were available for the following purposes at July 31, 2018 and 2017: 2018 2017 Endowment Funds - Purpose Restriction:

Assets restricted for scholarships $ 180,583 $ 145,795 Assets restricted for health care 55,846 40,103 Assets restricted for activities 13,909 12,483 Assets restricted for music activities 55,053 46,442 Assets restricted for care 204,498 160,759 Total endowment funds 509,889 405,582

Nonendowment Funds - Purpose Restriction:

Assets restricted for activities 4,505 3,071 Assets restricted for art 2,282 2,282 Assets restricted for chaplains 15,419 11,796 Assets restricted for charitable remainder trusts 84,478 83,032 Assets restricted for art collections 349,905 346,558 Assets restricted for education assistance 5,981 7,481 Assets restricted for employee disaster and assistance 5,977 5,940 Assets restricted for employee scholarships 94,162 48,215 Assets restricted for maintenance 922 2,620 Assets restricted for music activities 15,767 16,527 Assets restricted for pooled income 191,902 192,136 Assets restricted for the residential fund 62 62 Assets restricted for residential hardship 34 - Assets restricted for the Norte library 176 - Assets restricted for the Sur library 6,650 8,094 Assets restricted for the Rose and Garden Club 17,516 19,394 Assets restricted for the Rosenmeier Health Fund 56,527 82,542 Assets restricted for the transportation fund 20,526 23,642 Total nonendowment funds 872,791 853,392 $ 1,382,680 $ 1,258,974


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Note 7: Temporarily Restricted Net Assets (Continued) Temporarily restricted net assets were released from restrictions by incurring expenses, thereby satisfying the donor-restricted purposes or time requirements during the years ended July 31, 2018 and 2017, as follows:

2018 2017 Resident hardships $ 27,970 $ 26,105 Employee scholarships 26,335 60,916 General purpose 50,032 37,387 Capital expenditures 80,289 54,105 $ 184,626 $ 178,513

Note 8: Permanently Restricted Net Assets Permanently restricted net assets consist of the following at July 31, 2018 and 2017: 2018 2017 Restricted for Scholarships:

McCullagh Scholarship Endowment Fund $ 23,864 $ 23,864 Chen Scholarship Endowment Fund 9,500 9,500 Hunt Scholarship Endowment Fund 20,041 20,041 Burk Scholarship Endowment Fund 9,500 9,500 Yu Scholarship Endowment Fund 19,505 19,505 Palmer Scholarship Endowment Fund 17,000 17,000 Gilkeson Scholarship Endowment Fund 18,554 18,554 Nauman Scholarship Endowment Fund 39,650 39,650 Fouts Scholarship Endowment Fund 12,000 12,000 Kelley Scholarship Endowment Fund 27,975 27,975 Wang Scholarship Endowment Fund 29,450 26,125 Greene Scholarship Endowment Fund 37,033 17,867 Shogren Scholarship Endowment Fund 19,637 - Johnson Scholarship Endowment Fund 23,750 -

307,459 241,581 Restricted for Activities:

Carpenter Activities Endowment Fund 26,209 26,209 Restricted for Transportation Activities:

Barkell Transportation Activities Endowment Fund 460,898 460,898

Restricted for Health Care: Hegewald Health Endowment Fund 93,000 93,000 Wynhoff Endowment Fund 1,085,628 1,085,628 1,178,628 1,178,628

Restricted for Music: T & G Music Endowment Fund 187,209 187,209

Restricted for Resident Hardship:

Newman Care Endowment Fund 536,998 536,998


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Note 8: Permanently Restricted Net Assets (Continued) 2018 2017 Restricted for Norte Library:

Levinson Norte Library Endowment Fund $ 14,234 $ 14,234 Restricted for General Use:

Harriet Maclean General Endowment Fund 180,792 180,792 B&M King General Endowment Fund 292,415 292,415

473,207 473,207 $ 3,184,842 $ 3,118,964 Note 9: Residence Agreements For the right to occupy a living unit for life and to receive certain services, residents are required to pay an entrance fee. Upon execution of a deposit agreement, $20,000 of the entrance fee is payable with the remaining balance due on or before occupancy by the residents. Residents may cancel their Residence Agreement at any time up to 90 days after establishing residency at Casa and will be refunded the full amount of the entrance fee paid, less an application fee of $1,000. After the 90-day period has expired, residents are entitled to receive various amounts of refunds based upon one of the four agreements covering Casa as of July 31, 2018, as follows:

• Standard Resident Agreement (241 agreements) - If cancellation occurs in the first seven and one-half years of residency, the resident shall be refunded the entrance fee, less 10% of the amount paid and 1% for each month or partial month that they were a resident. After seven and one-half years of residency, no refund is made. If the resident expires after the 90-day cancellation period, no refund is made and the unamortized entrance fee is recognized into income. This agreement is no longer offered.

• Refundable 2% Plan (135 agreements) - Residents (or their estates) are entitled to a decreasing portion of the entrance fee that is refundable after the first 90 days less 2% per month if the resident cancels or terminates. If Casa terminates the entrance fee agreement, the refund will be decreased for reasonable cost of services including a processing fee.

• Refundable 75 Plan (57 agreements) - Residents (or their estates) are entitled to a refund of 75% of the entrance fee paid.

• Refundable 80 Plan (1 agreement) - Resident (or their estate) is entitled to a refund of 80% of the entrance fee paid. This plan is no longer offered.

Included in deferred revenue from entrance fees as of July 31, 2018 and 2017, are approximately $60,016,000 and $59,160,000, respectively, of amounts contractually refundable under these agreements. In addition to the entrance fees, all residents are charged monthly fees. In addition to receiving various services such as food, utilities, cleaning, scheduled transportation services, and other services offered by Casa, residents are entitled to various levels of care, including assisted living and nursing care.


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Note 10: Deferred Entrance Fees Monthly fees are established at the inception of occupancy and may be increased by Casa according to economic necessity, which is related to the percentage change in the prior-year per capita cost of operating expenses of Casa for furnishing services to the residents. Deferred entrance fees are amortized to income using the straight-line method over future periods based on the estimated life of the resident in accordance with FASB ASC 954-430, Health Care Entities - Deferred Revenue. The period of amortization is adjusted annually based on the actuarially determined estimated remaining life expectancy of each individual or joint and last survivor life expectancy of each pair of residents occupying the same unit, as published in Section 1792.2 of the State of California Continuing Care Contract Statutes. The unamortized portion is included in deferred revenues from entrance fees in the accompanying consolidated statements of financial position. At July 31, 2018 and 2017, deferred revenue from unamortized deferred entrance fees consists of the following:

2018 2017

Deferred entrance fees before repayment $ 150,661,419 $ 147,083,705 Less: Accumulated amortization of deferred entrance fees (59,738,298) (60,850,162) Deferred revenue from unamortized deferred entrance fees, net before refundable entrance fees 90,923,121 86,233,543 Less: Amounts classified as refundable entrance fees (25,095,435) (22,790,386) Deferred Revenue from Entrance Fees, net $ 65,827,686 $ 63,443,157

During 2018 and 2017, the deferred entrance fees amortized into income were $9,029,426 and $8,618,957, respectively. The amount shown in the accompanying consolidated statements of financial position for unamortized entrance fees has been reduced by the amount set up as a liability for refunds of $25,095,435 and $22,790,386 at July 31, 2018 and 2017, respectively. Note 11: Long-Term Debt In August 2017, Casa issued $39,000,000 Insured Revenue Bonds (Casa de las Campanas, Inc.), Series 2017 (the “2017 Bonds”). The 2017 Bonds are issued to finance the ongoing construction, installation, furnishing, and equipping of improvements to the care retirement facility. The 2017 Bonds have a variable interest rate (the initial rate was 2.25%), call for monthly payments of interest only for the first 18 months (or earlier if desired and construction is completed), and have monthly payments of principal and interest based on a 25-year amortization schedule due thereafter. The Bonds mature through September 1, 2022, and can be redeemed prior to their maturity. Other provisions of the 2017 Bonds mirror existing 2010 Bond and 2014 Bonds as further described below.


JULY 31, 2018 AND 2017

31

Note 11: Long-Term Debt (Continued) In December 2014, Casa issued $19,000,000 Insured Revenue Bonds (Casa de las Campanas, Inc.), Series 2014 (the “2014 Bonds”). The 2014 Bonds are issued to finance the construction, installation, furnishing, and equipping of improvements to the care retirement facility. The 2014 Bonds have a fixed annum interest rate of 2.67% and are set to mature at various dates through December 1, 2021, but can be redeemed prior to maturity. Mandatory sinking account payments are due annually starting January 1, 2017 through December 2021, and range from $45,000 to $50,000. Interest payments on the 2014 Bonds began on January 1, 2015. In January 2010, Casa issued $54,310,000 Insured Revenue Bonds (Casa de las Campanas, Inc.), Series 2010 (the “2010 Bonds”). The 2010 Bonds are set to mature at various dates through September 1, 2037, but can be redeemed prior to maturity. Remaining annual principal payments range from $1,140,000 to $3,760,000. Interest on the 2010 Bonds is payable semiannually on March 1 and September 1 and is equal to all interest accrued during the period from the last such interest payment date to such current interest payment date. Casa used the proceeds of the 2010 Bonds, together with other available funds, to (i) refund the outstanding Series 2007 Bonds; (ii) fund a termination fee for a certain swap agreement in connection with the Series 2007 Bonds; (iii) finance the costs of the acquisition, construction, and equipping, of certain facilities of Casa; (iv) fund a bond reserve account in an amount equal to the Bond Reserve Account Requirement for the 2010 Bonds; and (v) pay certain costs of issuance of the 2010 Bonds, including the insurance premium. The 2017 Bonds, 2014 Bonds, and 2010 Bonds (collectively, the “Bonds”) are secured by (i) a security interest in all of the gross revenues of Casa and (ii) a lien on all real property and fixtures of Casa. A contract of insurance was entered into with the Office of Statewide Health Planning and Development of the State of California (the “Office”), pursuant to which the Office will insure the payment of the principal of, and interest on, the Bonds. In connection with the issuance of the Bonds described above, Casa is subject to certain financial or operational covenants, such as limitations on the ability of Casa to incur indebtedness, to dispose of property, or to create liens on property. Casa is also required to maintain revenues at levels sufficient to provide coverage of debt service on the Bonds or any other indebtedness. As of July 31, 2018 and 2017, Casa was in compliance with these covenants. A debt service reserve fund is required to be maintained in the amount equal to the maximum annual bond service on all bonds outstanding as of the date issuance of the Bonds. The fund balance as of July 31, 2018 and 2017, amounted to $5,078,671 and $5,059,798, respectively, which is included in assets whose use is limited or restricted, as these amounts are held by a trustee under bond indenture. Casa capitalized interest in connection with the construction of certain property, buildings, and equipment of $86,000 and $299,628 for the years ended July 31, 2018 and 2017, respectively.


JULY 31, 2018 AND 2017

32

Note 11: Long-Term Debt (Continued) Long-term debt was composed of the following at July 31, 2018 and 2017: 2018 2017

Series 2017 Insured Revenue Bonds, bearing interest at a variable rate, 2.25% at July 31, 2018. Payments are interest only for the first 18 months and the bonds mature through September 2022. $ 51,000 $ - Series 2014 Insured Revenue Bonds, bearing interest at a fixed rate of 2.67%, paid monthly, and maturing through December 2021. 18,145,000 18,685,000

Series 2010 Insured Revenue Bonds, bearing interest at fixed rates ranging from 3% to 6%, paid semiannually on March 1 and September 1 of each year, and maturing through September 1, 2037. 45,990,000 47,235,000 Less: Unamortized bond discounts (200,994) (212,108) Less: Unamortized deferred financing fees (3,094,184) (2,233,680) Total long-term debt 60,890,822 63,474,212 Less: Current Portion of Long-Term Debt (1,524,459) (1,516,641) Long-Term Portion of Long-Term Debt $ 59,366,363 $ 61,957,571

The maturities of long-term debt and amortization of debt issuance costs for each of the next five years and in the aggregate are as follows: Amortization Amortization of Bond of Deferred Principal Discounts Financing Fees Total 2019 $ 1,860,000 $ (11,114) $ (324,427) $ 1,524,459 2020 1,975,000 (11,114) (569,120) 1,394,766 2021 2,050,000 (11,114) (581,326) 1,457,560 2022 17,915,000 (11,114) (496,727) 17,407,159 2023 1,600,000 (11,114) (151,104) 1,437,782 Thereafter 38,786,000 (145,424) (971,480) 37,669,098 $ 64,186,000 $ (200,994) $ (3,094,184) $ 60,890,823


JULY 31, 2018 AND 2017

33

Note 12: Commitments Obligation to Provide Future Services Casa annually calculates the present value of the net cost of future services and the use of facilities to be provided to current residents and compares that amount with the present value of monthly fees and the balance of deferred revenue from entrance fees. If the present value of the net cost of future services and the use of facilities exceeds the monthly fees and deferred revenue from entrance fees, a liability is recorded (obligation to provide future services and use of facilities) with the corresponding charge to income. The obligation is discounted at 5.00% in both 2018 and 2017, respectively. At July 31, 2018 and 2017, the present value of the net cost of future services and the use of facilities did not exceed the anticipated revenues. Consequently, a liability has not been recorded. Obligations under Capital Leases Casa leases certain equipment under a capital lease agreement. The cost of assets under the capital lease agreement amounted to $105,159 for each year, with accumulated amortization of $32,862 and $6,572 as of July 31, 2018 and 2017, respectively, which is included in property, buildings, and equipment in the accompanying consolidated statements of financial position and amortized over the applicable lease terms of three to five years. Amortization expense of capital leases in 2018 and 2017 amounted to $26,290 and $25,127, respectively, and is included in depreciation and amortization expense (see Note 5). Future minimum lease payments for fiscal years ending July 31 are as follows:

2019 $ 27,931 2020 27,931 2021 20,949 Total minimum lease payments 76,811 Less: Amount representing interest at 3% (3,171) Present value of net minimum capital lease payments 73,640 Less: Current portion (26,079) $ 47,561

Management Agreements Casa entered into a management agreement with Life Care Services LLC, which expires on July 31, 2019. Management fee expense related to this agreement, included in general and administrative expenses, was $1,241,523 and $1,207,721, inclusive of salary and benefits, for the years ended July 31, 2018 and 2017, respectively. Amounts due and payable (net of refunds) under this agreement amounted to $163,088 and $196,507 at July 31, 2018 and 2017, respectively. Management fee expense may vary year to year, as certain amounts are based upon an incentive performance computation.


JULY 31, 2018 AND 2017

34

Note 12: Commitments (Continued) Management Agreements (Continued) In October 2013, Casa entered into a development agreement with LCS Development LLC. The agreement covers services relating to the renovation and expansion of existing buildings and common spaces on the Casa campus, including the following: planning and development, assisting with financing, managing state and local approvals, arranging design and construction services, and handling certain bookkeeping functions. In July 2016, Casa completed an amendment to the development agreement with LCS Development LLC, which changed the development fee to equal 4.50%, from 4.75%, of the capital costs relating to the project. The development fee will be paid coinciding with achieving certain milestones throughout the development and construction phases of the renovation and expansion project, as detailed in the agreement. The renovation and expansion project commenced during 2015 and is expected to be completed in 2019. Fee expense related to this development agreement, included in general and administrative expenses, was $758,038 and $1,636,755 for the years ended July 31, 2018 and 2017, respectively. Amounts due and payable under this development agreement amounted to $7,632 and $63,804 at July 31, 2018 and 2017, respectively. Purchase Commitment Casa is obligated to buy a minimum amount of electricity under a Master Energy Sales Agreement (the “Agreement”) that expires May 31, 2020. Casa may also sell excess energy back to the open market. As of July 31, 2018 and 2017, the remaining commitment under the Agreement amounted to $688,837 and $351,136, respectively. Expenditures under the Agreement amounted to $389,857 and $383,914 for the years ended July 31, 2018 and 2017, respectively. Litigation Casa may, from time to time, be involved in litigation and regulatory investigations that arise in the normal course of doing business. After consultation with legal counsel and based on current facts and circumstances, management believes that resolution of such matters, if any, is not expected to have a material adverse effect on the financial position of Casa. Note 13: Benefit Plan Casa sponsors a 403(b) defined contribution plan (the “Plan”) covering all eligible employees. Eligible employees may defer their compensation as employee contribution, subject to current IRC limits. Casa currently makes matching contributions to the Plan in the amount equal to 50% of the employee contribution, not to exceed 3% of the eligible compensation. Casa contributions to the Plan for 2018 and 2017 amounted to $207,834 and $186,980, respectively.


JULY 31, 2018 AND 2017

35

Note 14: Insurance Coverage Professional Liability Casa is insured for professional and general liability claims, including malpractice, under a claims-made policy for $1,000,000 per occurrence and $3,000,000 aggregate and $27,500,000 program aggregate. Losses in excess of the limits are covered by an umbrella liability policy for up to $10,000,000 per occurrence and $50,000,000 aggregate. Deductibles under the policy range from $0 to $25,000. Self-Insurance Casa was self-insured for workers’ compensation claims for up to a maximum of $250,000 per occurrence until July 31, 2009. Self-insured losses were accrued based upon Casa’s consultant’s estimates of the aggregate liability for uninsured claims incurred. As a requirement of this policy, Casa deposited funds into a workers’ compensation escrow account to fund any potential unpaid claims, which is classified as a workers’ compensation receivable. The balance of the workers’ compensation receivable amounted to approximately $142,000 and $151,000 at July 31, 2018 and 2017, respectively, and is included in other receivables in the accompanying consolidated statements of financial position. Note 15: Continuing Care Reserve Requirements Casa is subject to statutory reserve requirements. As of July 31, 2018 and 2017, Casa’s reserves, as calculated in accordance with Continuing Care Statutes of the California Health and Safety Code, were in excess of such requirement. Note 16: Subsequent Events In September 2018, Casa secured a parcel of land for a total consideration of $850,000. All events occurring after July 31, 2018, have been evaluated for possible adjustment to the consolidated financial statements or disclosure as of November 30, 2018, which is the date the consolidated financial statements were available to be issued.

SUPPLEMENTARY INFORMATION

Casa de las Casa

Campanas Foundation Eliminations Consolidated

Current Assets:

Cash and cash equivalents $ 2,945,313 $ 25,411 $ - $ 2,970,724

Assets whose use is limited or restricted

required for current liabilities 4,390,342 - - 4,390,342

Accounts receivable, net 836,554 - - 836,554

Prepaid expenses and other current assets 1,329,419 - - 1,329,419

Contributions receivable - 267,763 - 267,763

Other receivables 676,994 4,162 - 681,156

Total Current Assets 10,178,622 297,336 - 10,475,958

Intercompany receivables - 849,847 (849,847) -

Assets whose use is limited or restricted, less

amounts classified as current 14,194,881 3,447,452 - 17,642,333

Long-term investments 89,673,649 3,974,008 - 93,647,657

Property, buildings, and equipment, net 98,476,121 349,905 - 98,826,026

Interest in Casa Foundation 8,849,666 - (8,849,666) -

Total Assets $ 221,372,939 $ 8,918,548 $ (9,699,513) $ 220,591,974

Current Liabilities:

Accounts payable and accrued expenses $ 4,570,169 $ 10,840 $ - $ 4,581,009

Interest payable 1,114,112 - - 1,114,112

Deposits from residents 532,271 - - 532,271

Refunds to residents 475,390 - - 475,390

Current portion of obligations under capital leases 26,079 - - 26,079

Current portion of obligations under gift annuity contracts 327,582 - - 327,582

Current portion of estimated refundable entrance fees 3,300,085 - - 3,300,085

Current portion of long-term debt 1,524,459 - - 1,524,459

Total Current Liabilities 11,870,147 10,840 - 11,880,987

Intercompany payables 849,847 - (849,847) -

Obligations under capital leases, net of current portion 47,561 - - 47,561

Obligations under gift annuity contracts, net of

current portion 1,359,258 - - 1,359,258

Estimated refundable entrance fees, net of

current portion 21,795,350 - - 21,795,350

Deferred revenue, pooled income funds - 58,042 - 58,042

Long-term debt, net of current portion, unamortized discount,

and deferred financing fees 59,366,363 - - 59,366,363

Deferred revenue from entrance fees 65,827,686 - - 65,827,686

Total Liabilities 161,116,212 68,882 (849,847) 160,335,247

Net Assets:

Unrestricted 55,689,205 4,282,144 (4,282,144) 55,689,205

Temporarily restricted 1,382,680 1,382,680 (1,382,680) 1,382,680

Permanently restricted 3,184,842 3,184,842 (3,184,842) 3,184,842

Total Net Assets 60,256,727 8,849,666 (8,849,666) 60,256,727

Total Liabilities and Net Assets $ 221,372,939 $ 8,918,548 $ (9,699,513) $ 220,591,974


CONSOLIDATING STATEMENTS OF FINANCIAL POSITION

JULY 31, 2018

ASSETS

LIABILITIES AND NET ASSETS

36

Casa de las Casa

Campanas Foundation Eliminations Consolidated


Revenues, Gains, and Other Support:

Residents fees earned, including amortization of deferred

revenues from nonrefundable entrance fees $ 37,979,180 $ - $ (31,672) $ 37,947,508

Contributions 203,999 738,097 - 942,096

Net assets released from restrictions, used for operations - 104,337 - 104,337

Change in unrestricted interest in Casa Foundation 442,280 - (442,280) -

Total Revenues, Gains, and Other Support 38,625,459 842,434 (473,952) 38,993,941

Operating Expenses:

Food and beverage 6,511,322 - - 6,511,322

Health center 5,831,786 - - 5,831,786

Depreciation 5,554,934 - - 5,554,934

General and administrative 4,605,043 139,954 (31,672) 4,713,325

Plant and maintenance 4,594,190 - - 4,594,190

Interest expense for debt service 3,364,375 - - 3,364,375

Assisted living 2,648,788 - - 2,648,788

Housekeeping and laundry 1,787,678 - - 1,787,678

Resident services 580,826 - - 580,826

Home health 643,458 - - 643,458

Donation expense - 260,200 260,200

Total Operating Expenses 36,122,400 400,154 (31,672) 36,490,882

Income from Operations 2,503,059 442,280 (442,280) 2,503,059

Other Revenues (Expenses):

Interest and dividends, net 3,922,038 180,475 - 4,102,513

Net realized gains on sale of investments 921,291 9,902 - 931,193

Change in value of gift annuity contracts - (16,215) - (16,215)

Loss on disposal of fixed assets (75,432) (1,093) - (76,525)

Other revenues 95,759 - - 95,759

Total Other Revenues (Expenses) 4,863,656 173,069 - 5,036,725

Excess of Revenues over Expenses $ 7,366,715 $ 615,349 $ (442,280) $ 7,539,784


CONSOLIDATING STATEMENTS OF ACTIVITIES

YEAR ENDED JULY 31, 2018

37

Casa de las Casa

Campanas Foundation Eliminations Total


Excess of revenue over expenses $ 7,366,715 $ 615,349 $ (442,280) $ 7,539,784

Net unrealized gains on investments 1,679,940 42,448 - 1,722,388


expenditures - 80,289 - 80,289


income funds - - - -

Change in unrestricted interest in Casa Foundation 295,806 - (295,806) -

Increase (Decrease) in Unrestricted Net Assets 9,342,461 738,086 (738,086) 9,342,461

Changes in Temporarily Restricted Net Assets:

Contributions - 112,125 - 112,125

Interest and dividends, net - 140,395 - 140,395

Net realized gains on sale of investments - 16,342 - 16,342

Net unrealized gains on investments - 27,066 - 27,066

Net assets released from restrictions, used for operations - (104,337) - (104,337)


expenditures - (80,289) - (80,289)


income funds - 12,404 - 12,404

Change in temporarily restricted interest in Casa Foundation 123,706 - (123,706) -

Increase (Decrease) in Temporarily Restricted Net Assets 123,706 123,706 (123,706) 123,706

Changes in Permanently Restricted Net Assets:

Contributions - 65,878 - 65,878

Change in permanently restricted interest in Casa Foundation 65,878 - (65,878) -

Increase (Decrease) in Permanently Restricted Net Assets 65,878 65,878 (65,878) 65,878

Increase (Decrease) in Net Assets 9,532,045 927,670 (927,670) 9,532,045

Net Assets at Beginning of Year 50,724,682 7,921,996 (7,921,996) 50,724,682

Net Assets at End of Year $ 60,256,727 $ 8,849,666 $ (8,849,666) $ 60,256,727

CONSOLIDATING STATEMENTS OF ACTIVITIES (CONTINUED)



38


CONTINUING CARE RESERVE REPORT

AS OF AND FOR THE YEAR ENDED JULY 31, 2018

WITH INDEPENDENT AUDITORS’ REPORT

CASA DE LAS CAMPANAS TABLE OF CONTENTS

JULY 31, 2018

Page Independent Auditors' Report ......................................................................................................1 Notes to Continuing Care Reserve Report ..................................................................................3 Continuing Care Liquid Reserves Schedules: Form 5-1 Long-Term Debt Incurred in a Prior Fiscal Year .............................................................4 Form 5-2 Long-Term Debt Incurred During Fiscal Year ................................................................5 Form 5-3 Calculation of Long-Term Debt Reserve Amount ...........................................................6 Form 5-4 Calculation of Net Operating Expenses ...........................................................................7 Support Schedule for Form 5-4 Reconciliation of Interest Paid During Fiscal Year, line 2a .........8 Support Schedule for Form 5-4 Reconciliation of Revenues Received During the Year for

Services to Persons Who Did Not Have a Continuing Care Contact, line 2e ............................9 Form 5-5 Annual Reserve Certification .........................................................................................10 Support Schedule for Form 5-5 Reserve Disclosure ......................................................................11

2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893

Offices located in Orange and San Diego Counties

1

INDEPENDENT AUDITORS’ REPORT

To the Members of the Audit Committee of Casa de las Campanas Rancho Bernardo, California Report on the Continuing Care Reserve Report We have audited the accompanying continuing care reserve report (the Report) of Casa de las Campanas (a nonprofit organization), (“Organization”) which comprises the continuing care liquid reserve schedules Form 5-1 through Form 5-5, as of July 31, 2018, and the related notes to continuing care reserve report for the year then ended. Management’s Responsibility for the Continuing Care Reserve Report Management is responsible for the preparation and fair presentation of this Report in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Report that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the Report based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Report. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Report, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Organization’s preparation and fair presentation of the Report 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 Organization's internal control. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Report, assessing the accounting principles used and significant estimates made by the Organization’s management, as well as evaluating the overall presentation of the Report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

2

Opinion In our opinion, the Report presents fairly, in all material respects, the liquid reserve requirements of Casa de las Campanas as of July 31, 2018, in accordance with report preparation provisions of California Health and Safety Code Section 1792. Other Matter The accompanying Report was prepared for the purpose of complying with California Health and Safety Code section 1792 and is not intended to be a complete presentation of the Organization’s assets, liabilities, revenues and expenses. Purpose of the Report This report is intended solely for the use of the Organization and for filing with the California Department of Social Services and is not intended to be and should not be used for any other purpose. However, this report is a matter of public record and its distribution is not limited. Irvine, California November 30, 2018

CASA DE LAS CAMANAS NOTES TO CONTINUING CARE RESERVE REPORT


3

Note 1: Mission Statement Casa de las Campanas is a not-for-profit continuing care retirement community, providing seniors with the highest quality of care and services, honoring their dignity and promoting independence. Note 2: Description of Business Casa de las Campanas was incorporated on September 19, 1990 as a California nonprofit corporation for the purposes of constructing, owning and operating a continuing care retirement community. The facilities include 374 independent living units, 34 assisted living units with a capacity of 43 beds, 18 dementia/assisted living units with a capacity of 27 beds, and an adjacent 95 bed skilled nursing facility. The Organization provides housing, health care and other related services to the elderly. Casa de las Campanas operates under the "continuing care" concept whereby residents enter into agreements which require payment of a one-time entrance fee and a monthly service charge. Generally, these payments will entitle residents to the use and privileges of the facility for life. The residence agreement does not entitle the residents to an ownership interest in the property. Note 3: Continuing Care Reserve Report Schedules The California Health and Safety Code section 1792 (H&SC) requires continuing care contract providers to establish and maintain statutory and refund reserves to ensure financial resources will be available to fulfill contractual obligations to residents. The continuing care reserve report (the Report), which calculates reserve requirements, is prepared in accordance with the January 1, 2007 Annual Report Instructions provided by the State of California Department of Social Services. The Report is required to be submitted annually to the California Department of Social Services within four months of year-end.

Long-TermDebt Obligation

(a)

Date Incurred

(b)

Principal PaidDuring Fiscal Year

(c)

Interest PaidDuring Fiscal Year

(d)Credit Enhancement

Premiums Paidin Fiscal Year

(e)

Total Paid(columns (b) + (c) + (d))

1 04/20/17 $25,309 $2,622 $0 $27,9312 01/28/10 $1,245,000 $2,705,772 $0 $3,950,7723 12/01/14 $540,000 $413,781 $0 $953,7814 $05 $06 $07 $08 $0

TOTAL: $3,122,175 $0 $4,932,484(Transfer this amount to

Form 5-3, Line 1)

PROVIDER: Casa de las Campanas, Inc. FYE 7-31-18

FORM 5-1LONG-TERM DEBT INCURRED

IN A PRIOR FISCAL YEAR(Including Balloon Debt)

NOTE: For column (b), do not include voluntary payments made to pay down principal.

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Long-TermDebt Obligation

(a)

Date Incurred

(b)

Total Interest PaidDuring Fiscal Year

(c)

Amount of Most RecentPayment on the Debt

(d)

Number ofPayments overnext 12 months

(e)

Reserve Requirement(see instruction 5)(columns (c) x (d))

1 08/20/17 $0 $0 12 $02 $03 $04 $05 $06 $07 $08 $0

TOTAL: $0 $0 12 $0(Transfer this amount to

Form 5-3, Line 2)

PROVIDER:

FORM 5-2LONG-TERM DEBT INCURRED

DURING FISCAL YEAR(Including Balloon Debt)

NOTE: For column (b), do not include voluntary payments made to pay down principal.

Casa de las Campanas, Inc. FYE 7-31-18

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Line TOTAL

1 Total from Form 5-1 bottom of Column (e) $4,932,484

2 Total from Form 5-2 bottom of Column (e) $0

3Facility leasehold or rental payment paid by provider during fiscal year (including related payments such as lease insurance) $91,167

4 TOTAL AMOUNT REQUIRED FOR LONG-TERM DEBT RESERVE: $5,023,651

PROVIDER: Casa de las Campanas, Inc. FYE 7-31-18

FORM 5-3CALCULATION OF LONG-TERM DEBT RESERVE AMOUNT

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Line Amounts TOTAL

1 $36,122,400

2

a. Interest paid on long-term debt (see instructions) $3,122,175

b. Credit enhancement premiums paid for long-term debt (see instructions) $0

c. Depreciation $5,554,934

d. Amortization $268,786

e. Revenues received during the fiscal year for services to persons who did not have a continuing care contract $4,192,058

f. Extraordinary expenses approved by the Department $0

3 $13,137,953

4 $22,984,447

5 $62,971

6 $4,722,832

PROVIDER:COMMUNITY:

Deductions:

FORM 5-4CALCULATION OF NET OPERATING EXPENSES

Total operating expenses from financial statements

Casa de las Campanas, Inc. FYE 7-31-18Casa de las Campanas, Inc. FYE 7-31-18

Divide Line 4 by 365 and enter the result.

Net Operating Expenses

Multiply Line 5 by 75 and enter the result. This is the provider's operating expense reserve amount.

Total Deductions

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SUPPORT SCHEDULE FOR FORM 5-4 CALCULATION OF NET OPERATING EXPENSES, line 2aFYE 7-31-18

2018Interest paid per Statement of Cash Flows 3,122,175$

Interest paid during the fiscal year per Form 5-1 3,122,175$ Interest paid during the fiscal year per Form 5-2 -$ Total Interest paid per Form 5-4 3,122,175$

Accrued Bond Interest, beginning of the year 1,140,698$ Interest expense, net of amounts capitalized 3,364,375 Financing Costs amortized (93,728) Bond Premium amortized (11,114) Mortgage Insurance (163,944) Accrued Bond Interest, end of the year (1,114,112) Cash paid for Interest on long-term debt per statement of cash flows 3,122,175$

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casa de las campanas...2875 michelle drive, suite 300, irvine , ca 92606 tel: 714.978.1300 fax:...

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