THE CENTER FOR HEALTH AFFAIRS
AND AFFILIATES
COMBINED FINANCIAL REPORT
DECEMBER 31, 2015 and 2014
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
CONTENTS
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Page
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INDEPENDENT AUDITORS' REPORT ON THE COMBINED FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
Combined statements of financial position
Combined statements of activities
Combined statements of cash flows
Notes to combined financial statements
1-2
3
4
5
6-14
Independent Auditors' Report
To the Board of Trustees
The Center for Health Affairs
Cleveland, Ohio
We have audited the accompanying combined financial statements of The Center for Health Affairs
and affiliates, which comprise the combined statements of financial position as of December 31, 2015
and 2014, and the related combined statements of activities and cash flows for the years then ended,
and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined 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 combined financial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the combined financial statements. The procedures selected depend on the auditors' judgment,
including the assessment of the risks of material misstatement of the combined financial statements,
whether due to fraud or error. In making those risk assessments, the auditors consider internal
control relevant to the entity's preparation and fair presentation of the combined financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
-1-
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material
respects, the financial position of The Center for Health Affairs and affiliates as of December 31,
2015 and 2014, and the changes in their net assets and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Cleveland, Ohio
April 28, 2016
-2-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF FINANCIAL POSITION
December 31, 2015 and 2014
2015
2014
$ 9,590,943
2,227,454
79,497
11,897,894
$ 3,319,162
1,897,911
27,070
5,244,143
3,263,208
1,475,706
4,738,914
2,590,975
2,147,939
3,217,816
1,443,959
4,661,775
2,340,754
2,321,021
28,992
11,340,527
(2,143,137)
5,490,509
22,311
11,939,462
(2,401,433)
5,449,901
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Total current assets
PROPERTY AND EQUIPMENT, AT COST
Building
Equipment
Less accumulated depreciation
OTHER ASSETS
Deposits
Investments - other (Note 3)
Less subscription payable (Note 3)
Investments - marketable (Note 3)
Total assets
$ 28,762,724
$ 22,575,405
$
$
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Current portion of long-term debt (Note 6)
Current portion of capital lease (Note 6)
Accounts and grants payable
Accrued expenses and other liabilities
Deferred revenue (Note 4)
Federal income tax payable
Current portion of fair value of interest rate swap (Note 6)
Total current liabilities
LONG-TERM OBLIGATIONS
Long-term debt, less current portion (Note 6)
Capital lease, less current portion (Note 6)
Deferred compensation liability (Note 7)
Deferred tax liability (Note 8)
Fair value of interest rate swap, less current portion (Note 6)
Total long-term obligations
NET ASSETS
Unrestricted:
Operating
Board designated
Unrealized gain on investments
Total unrestricted
Total liabilities and net assets
213,119
98,842
305,170
753,903
132,394
1,576,476
67,644
3,147,548
210,155
95,739
428,772
891,171
113,240
1,259,353
78,617
3,077,047
1,961,991
69,572
4,412,017
1,681,900
30,656
8,156,136
2,174,703
167,872
4,343,803
1,446,300
84,245
8,216,923
14,428,154
65,261
2,965,625
17,459,040
7,550,396
63,332
3,667,707
11,281,435
$ 28,762,724
$ 22,575,405
The accompanying notes are an integral part of these financial statements.
-3-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF ACTIVITIES
Years Ended December 31, 2015 and 2014
SUPPORT AND REVENUE
Membership support
Program fees
Government grant
Grant revenue and other
Net investment (loss) income
(Loss) income on investment in CHAMPS Patient Experience
Total support and revenue
EXPENSES
Member services
Program and grant expenses
Government grant expense
Total expenses
2015
2014
$ 1,051,000
13,327,621
772,848
24,444
(36,262)
(22,980)
15,116,671
$ 1,059,550
14,133,288
1,297,053
10,234
51,088
36,136
16,587,349
947,468
14,122,900
773,630
15,843,998
942,559
12,732,989
1,297,053
14,972,601
CHANGE IN NET ASSETS BEFORE OTHER ADJUSTMENTS AND
PROVISION FOR INCOME TAX
(727,327)
1,614,748
OTHER ADJUSTMENTS
Change in unrealized gain on investments, net of deferred income taxes
of $238,700 and $952,170, respectively
Investment income
Patron dividends
Unrealized gain on interest rate swap
Total other adjustments
(702,082)
9,704,925
64,562
9,067,405
2,046,663
4,648,711
(1,898,640)
74,342
4,871,076
PROVISION FOR INCOME TAX
2,162,473
3,578,394
CHANGE IN NET ASSETS
6,177,605
2,907,430
11,281,435
8,374,005
$ 17,459,040
$ 11,281,435
NET ASSETS – BEGINNING OF YEAR
NET ASSETS – END OF YEAR
The accompanying notes are an integral part of these financial statements.
-4-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Change in net assets
Adjustments to reconcile change in net assets to
net cash used by operating activities:
Depreciation
Net realized and unrealized gain on investments
Loss (income) on investment in CHAMPS Patient Experience
Unrealized gain on interest rate swap
Deferred income taxes
(Increase) decrease in:
Accounts receivable
Prepaid expenses
Deposits
Increase (decrease) in:
Accounts and grants payable
Accrued expenses and other liabilities
Deferred revenue
Federal income tax payable
Deferred compensation liability
Pension termination liability
Total adjustments
Net cash used by operating activities
$
6,177,605
2014
$
285,157
(9,114,075)
22,980
(64,562)
(109,200)
261,883
(7,706,563)
(36,136)
(74,342)
939,300
(329,543)
(52,427)
(6,681)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds from sale of investments
Purchases of investments
Net cash provided (used) by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt
Payment on capital lease
Net cash used by financing activities
2,907,430
231,040
759,449
161,330
(123,602)
(137,268)
19,154
317,123
68,214
(9,224,730)
(3,047,125)
(708,020)
68,770
(401,299)
1,259,353
125,742
(1,122,437)
(6,241,930)
(3,334,500)
(87,746)
13,781,742
(4,070,145)
9,623,851
(176,393)
9,290,307
(10,192,590)
(1,078,676)
(209,748)
(95,197)
(304,945)
(206,850)
(20,512)
(227,362)
CHANGE IN CASH AND CASH EQUIVALENTS
6,271,781
(4,640,538)
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
3,319,162
7,959,700
CASH AND CASH EQUIVALENTS – END OF YEAR
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Taxes
Interest
$
9,590,943
$
3,319,162
$
1,310,350
163,796
$
1,360,604
188,875
The accompanying notes are an integral part of these financial statements.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1.
Summary of Significant Accounting Policies
A. Organization – The Center for Health Affairs (the "Center") commenced operations on
January 1, 1998 to represent and serve hospitals and health systems in meeting the
health needs of communities in Northeast Ohio. The Center is a not-for-profit trade
association exempt from income taxes pursuant to Section 501(c)(6) of the Internal
Revenue Service Code. The Center is the sole member of The Greater Cleveland
Healthcare Association, Inc. ("Association"), an Ohio nonprofit corporation organized
and operated to improve the quality of health care in Northeast Ohio. Its activities
include providing health-related education programs, monitoring the distribution of
charitable funds to hospitals, providing a community-wide forum for critical health
care issues, organizing and supporting disease control and prevention, wellness and
outreach programs and conducting and/or supporting research and data collection
concerning health care.
The Association is a not-for-profit organization as described in Section 501(c)(3) of
the Internal Revenue Code and is exempt from federal income taxes. However,
HealthComp, Inc. ("HealthComp"), the Association's wholly-owned subsidiary, is a
for-profit corporation, subject to federal, state and local income taxes.
Central Hospital Services, Inc. ("CHS") is a not-for-profit cooperative hospital and
health systems services organization. Its participants are not-for-profit hospitals and
health system members of the Center. CHS is a not-for-profit organization as
described in Section 501(c)(3) of the Internal Revenue Code and is exempt from
federal income taxes. CHS also qualifies as a hospital cooperative under Section 501
(e).
The accompanying combined financial statements include the accounts of The Center
for Health Affairs and affiliates, including the Association, HealthComp and CHS
(hereinafter referred to together as "CHA"). Due to the shared services and customer
relationships, management has determined that a combined reporting for these entities
is appropriate. All significant intercompany transactions have been eliminated in the
combined financial statements.
B. Use of Estimates – The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C. Recognition of Contribution Revenue – Contributions received are recorded as
unrestricted, temporarily restricted and permanently restricted support depending on
the existence and/or nature of any donor restrictions. Temporarily restricted net assets
are reclassified to unrestricted net assets upon satisfaction of time or purpose
restrictions. Permanently restricted net assets represent funds which are subject to
donor restrictions that the contributed principal be invested in perpetuity and only the
income be utilized. Temporarily restricted revenue that is received and spent in the
same year is recorded as unrestricted revenue. At December 31, 2015 and 2014, CHA
had no permanently or temporarily restricted net assets.
-6-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 1.
Summary of Significant Accounting Policies (Continued)
D. Cash and Cash Equivalents – For purposes of the combined statements of cash flows,
CHA considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents. Cash on hand at financial institutions may at times
exceed federally insured amounts. Cash restricted for the government grant was
$121,564 and $61,512 at December 31, 2015 and 2014, respectively.
During 2014, GCHA acquired equipment in a noncash transaction by entering into a
capital lease as disclosed in Note 6.
E. Accounts Receivable – Accounts receivable represent amounts due primarily from
group purchasing activities and fees for service programs to hospitals and healthcare
providers. At December 31, 2015 and 2014, CHA has reserves against these
receivables of $10,000, based upon historical and expected collectibility.
F.
Property and Equipment – Property and equipment is recorded at historical cost.
Depreciation on property and equipment is calculated on the straight-line method over
the estimated useful lives of the assets. Additions and major improvements are
capitalized. Repairs and maintenance costs are expensed as incurred. Depreciation
expense was $285,157 and $261,883 for 2015 and 2014, respectively.
G. Investments – CHA reports investments in the combined statements of financial
position at fair value, except for HealthComp's investments in CHAMPS Patient
Experience and Premier, Inc. which are recorded on the equity method, with any
realized or unrealized gains and losses reported in the combined statements of
activities. Investment income is reported as revenue in the period it is earned and
gains and losses are recognized as changes in net assets in the accounting periods in
which they occur.
H. Board Designated Net Assets – The Board of Trustees of the Association has
designated a portion of unrestricted net assets to fund programs that support member
hospitals.
I.
Fair Value of Financial Instruments – The carrying values of cash and cash
equivalents, accounts receivable, accounts and grants payable and accrued expenses
and other liabilities are reasonable estimates of fair value due to the short-term nature
of these financial instruments. The carrying value of long-term debt is based upon
CHA's current incremental borrowing rates for similar types of borrowing
arrangements which approximate fair value.
CHA estimates the fair value of financial instruments using available market
information and other generally accepted valuation methodologies. Fair value is
defined as the price that would be received to sell an asset or would be paid to transfer
a liability in an orderly transaction between market participants at the measurement
date. The inputs used to measure fair value are classified into three levels:
Level 1 – Quoted market prices in active markets for identical assets and
liabilities.
Level 2 – Observable market-based inputs or unobservable inputs that are
corroborated by market data.
Level 3 – Unobservable inputs in which little or no market data exists.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 1.
Summary of Significant Accounting Policies (Continued)
I.
Fair Value of Financial Instruments (Continued)
The following tables set forth by level CHA's assets and liabilities that are accounted
for at a fair value on a recurring basis:
As of December 31, 2015
Fair Value
Level 1
Level 2
Assets:
Marketable equity securities
Bonds and fixed income funds
Mutual funds
Money market funds and cash
Liabilities:
Interest rate swap
$ 3,165,387
1,960,346
296,525
68,251
5,490,509
$
$ 3,165,387
1,960,346
296,525
68,251
5,490,509
98,300
$
98,300
As of December 31, 2014
Fair Value
Level 1
Level 2
Assets:
Marketable equity securities
Bonds and fixed income funds
Commodities
Money market funds and cash
Liabilities:
Interest rate swap
$ 3,403,290
1,767,815
53,026
225,770
5,449,901
$ 162,862
$ 3,403,290
1,767,815
53,026
225,770
5,449,901
$ 162,862
Investments – CHA invests in money market funds, common stocks, equity mutual
funds, bonds and fixed income mutual funds and commodities funds with quoted
prices in active markets that are considered to be Level 1 inputs.
Interest Rate Swap – The Association has an interest rate swap for which it pays a
fixed rate and receives a variable interest rate that is observable based upon a forward
interest rate curve and is, therefore, considered a Level 2 input.
J.
Revenue Recognition – CHA recognizes revenues from program fees and grants as the
related services are performed. Membership support revenue is recognized over the
term of the membership.
K. Subsequent Events – CHA has evaluated subsequent events through April 28, 2016,
which is the date the combined financial statements were available to be issued.
L. Reclassification – Certain reclassifications have been made to prior year amounts to be
consistent with the current year presentation.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 2.
Transactions With Affiliated Organizations
The Association and HealthComp provide professional staff and certain support services to
the Center and CHS as well as each other. The services provided and the allocation to each
organization are approved by the respective Boards.
All such allocations and
intercompany balances are eliminated in combination.
Note 3.
Investments
Investments are stated at fair value as determined by quoted prices. At December 31, 2015
and 2014, CHA's investment portfolio, excluding investments in CHAMPS Patient
Experience and Premier, Inc., consists of the following:
2015
2014
Market
Cost
Market
Cost
Marketable equity securities
Bonds and fixed income funds
Mutual funds
Commodities
Money market funds and cash
$ 3,165,387
1,960,346
296,525
68,251
$ 2,897,285
2,037,634
301,150
68,251
$ 3,403,290
1,767,815
53,026
225,770
$ 3,229,535
1,776,405
59,742
225,770
Total
$ 5,490,509
$ 5,304,320
$ 5,449,901
$ 5,291,452
HealthComp was invested in a joint venture arrangement with a third party that provided
patient experience services, through which it obtained a 50% interest in CHAMPS Patient
Experience. HealthComp accounted for its investment in CHAMPS Patient Experience on
the equity method. The carrying value of this investment at 2014 was $207,485. The joint
venture was terminated during 2015. During the years ended December 31, 2015 and
2014, HealthComp recognized $(22,980) and $36,136, respectively, for its share of
CHAMPS Patient Experience activities.
In April 2013, HealthComp entered into an investment and subscription agreement with
Premier Purchasing Partners, LP ("Premier LP") and Premier, Inc. ("Premier") for a total
initial investment of $5,220,773 and $75,000, respectively. As part of the investment,
HealthComp recognized a subscription payable for $5,205,093. In June 2013, due to
Premier's reconciliation of partner capital accounts, the investment in Premier LP and the
corresponding subscription payable were reduced by $2,500,000. The subscription note
payable requires quarterly payments of principal and interest at a rate of 1.728% which are
withheld by Premier LP from distributions based upon the income earned each quarter.
The principal of the subscription note payable is due in full in April 2018.
Effective October 1, 2013, Premier went through a reorganization and initial public
offering. As part of the reorganization, HealthComp received 1,975,705 class B units in
Premier Healthcare Alliance, L.P. ("PHA"), which is the majority owner of newly formed
Premier, which is the public entity. One-seventh of the B units in PHA are convertible to
class A common shares of Premier on a one-to-one basis on each of the first seven
anniversary dates, provided that HealthComp continues to participate in Premier's Group
Purchasing Agreement.
-9-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 3.
Investments (Continued)
HealthComp accounts for its investment in PHA on the equity method, except as class B
units are considered to vest. Under the equity method, the carrying value for the
investment in PHA is increased by allocations of income earned by PHA and decreased by
cash distributions made by PHA. Class B units are considered to vest pro-rata through the
year and are recorded based upon the market value of the class A common shares of
Premier. Although HealthComp owns less than 20% of PHA, management believes
accounting for its investment in this way provides a more accurate reporting of operations.
HealthComp's ownership and activity for its Premier investment was as follows as of and
for the year ended December 31:
2015
Value/Unit
Units
Unvested class B units held, excluding those deemed vested
Vested, or considered vested, class B units held
Class A common shares held
Class B units converted
Class A common shares sold
1,340,656
70,561
69,280
394,488
325,208
2014
Value/Unit
Units
Unvested class B units held, excluding those deemed vested
Vested, or considered vested, class B units held
Class A common shares held
Class B units converted
Class A common shares sold
$ 4.78
35.27
35.27
34.55
1,622,900
182,805
170,000
170,000
$ 3.31
33.53
30.41
The components of the investments - other were as follows as of December 31:
2015
2014
$ 6,408,337
$ 5,602,553
Investment in Premier:
Class B units recorded on equity method
Class B units vested and recorded at fair value
of class A common shares
Investment in CHAMPS Patient Experience
Less subscription payable to Premier
4,932,190
11,340,527
(2,143,137)
$ 9,197,390
Total investments - other
-10-
6,129,424
207,485
11,939,462
(2,401,433)
$ 9,538,029
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 4.
Deferred Revenue
As of December 31, 2015 and 2014, deferred revenue is comprised as follows:
2015
Government grants
Program fees and other
Note 5.
2014
$ 121,564
10,830
$
61,512
51,728
$ 132,394
$ 113,240
Line of Credit
CHA has an available line of credit with a maximum borrowing limit of $750,000. As of
December 31, 2015 and 2014, the outstanding balance on this line of credit was $-0-.
Interest payments are made monthly at a variable rate based upon the prime rate (3.5% at
December 31, 2015). The line of credit is collateralized by an interest in substantially all
of CHA's assets.
Note 6.
Long-Term Obligations
In August 2013, CHA obtained a $1,000,000 term note. The note requires 59 monthly
payments of $9,788 principal and interest at a fixed rate of 3.239%. All outstanding
principal and accrued interest is due on August 16, 2018. The term note is collateralized
by an interest in substantially all of HealthComp's and CHS's assets. As of December 31,
2015 and 2014, the outstanding balance on the term note was $795,110 and $884,858,
respectively.
In 2007, the Association obtained a mortgage note payable at a variable interest rate of
1.5% plus the one month LIBOR rate (1.92% as of December 31, 2015). The note requires
monthly principal payments of $10,000 plus interest through June 2017 and is
collateralized by the building. All unpaid principal and interest is due in full in June 2017.
The outstanding balance on this note was $1,380,000 and $1,500,000 as of December 31,
2015 and 2014, respectively.
Principal payments required are as follows:
2016
2017
2018
$ 213,119
1,356,180
605,811
$ 2,175,110
As part of the mortgage note payable financing in 2007, the Association entered into a
corresponding interest rate swap agreement with PNC Bank amortized at $10,000 per
month with a termination date of June 30, 2017. The interest rate swap agreement is
designated and qualifies as a fair value hedge and is reported at fair value. The swap
agreement created a synthetic fixed interest rate of 5.73%. Amounts receivable or payable
under the swap are settled by the parties on a monthly basis and are treated as an increase
or decrease in interest expense. If the swap agreement would have been terminated as of
December 31, 2015 and 2014, the Association would have owed $98,300 and $162,862,
respectively. Changes in the swap's fair value are reported in the combined statements of
activities within unrestricted net assets. For the years ended December 31, 2015 and 2014,
the unrealized gain on the swap agreement was $64,562 and $74,342, respectively.
-11-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 6.
Long-Term Obligations (Continued)
In 2014, the Association entered into two capital leases for office equipment. Both leases
have 36-month terms, and require monthly payments of $697 and $7,195, respectively.
The total cost of equipment associated with these leases is $284,123. As of December 31,
2015 and 2014, accumulated depreciation on the equipment amounted to $38,679 and $-0-,
respectively.
Payments required for under the capital leases are as follows:
2016
2017
Less: amount attributable to interest
$ 98,842
87,152
185,994
(17,580)
$ 168,414
Interest expense for the years ended December 31, 2015 and 2014 was $135,166 and
$132,611, respectively. CHA has met all loan covenants.
Note 7.
Pension Plans
HealthComp maintained a noncontributory defined benefit pension plan for the benefit of
eligible employees. Benefits were based on years of service and the employee's career
average compensation. It was HealthComp's policy to contribute annually to the defined
benefit plan amounts which were actuarially determined to provide the plan with sufficient
assets to meet future benefit payment requirements.
Effective January 1, 2005, HealthComp froze the defined benefit plan. During 2013,
HealthComp elected to terminate the defined benefit plan, and recorded as a current
liability the estimated payment required upon regulatory approval to terminate. In June
2014, HealthComp paid $1,487,710 to complete the termination.
HealthComp has a defined contribution 401(k) plan. Under the terms of the plan,
HealthComp is obligated to contribute the first 3% of an employee's salary. The plan
covers all employees meeting service requirements. Contributions to the plan for the years
ended December 31, 2015 and 2014 were $282,186 and $269,305, respectively.
HealthComp has a non-qualified deferred compensation plan for certain employees. The
participants vest in the plan over seven years. Contributions to the plan for the years ended
December 31, 2015 and 2014 were $213,992 and $2,593,995, respectively. The deferred
compensation accrual at December 31, 2015 and 2014 was $4,412,017 and $4,343,803,
respectively. Upon retirement or termination, participants can receive payments in lump
sum or up to 120 monthly installments.
-12-
THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 8.
Income Taxes
Under the asset and liability method of accounting for income taxes under accounting
principles generally accepted in the United States of America, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
The components of the provision for taxes are as follows:
Current federal provision
State and local taxes
Deferred tax (benefit) provision - income items
2015
2014
$ 1,781,673
490,000
(109,200)
$ 2,440,000
360,000
778,394
$ 2,162,473
$ 3,578,394
HealthComp has timing differences which relate primarily to the deductibility of deferred
compensation and the deferral of unrealized gains on investments from taxable income.
The components of the net deferred tax liability are as follows:
2015
Deferred tax assets
Deferred tax liabilities
$
452,600
(2,134,500)
Net deferred tax liability
$ (1,681,900)
2014
$
443,100
(1,889,400)
$ (1,446,300)
CHA recognizes the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by taxing authorities, based on
the technical merits of the position. CHA believes that it has appropriate support for any
tax positions taken and, as such, does not have any uncertain tax positions that are material
to the financial statements.
As of December 31, 2015, CHA's income tax and informational returns remain subject to
examination by the Internal Revenue Service, as well as state and local taxing authorities,
generally for three years.
Note 9.
Operating Leases
The Association has executed several operating leases for office equipment, parking and
automobiles. Minimum lease payments required are as follows:
2016
2017
2018
$
13,122
7,788
1,947
$
22,857
Lease payments for the years ended December 31, 2015 and 2014 were $22,885 and
$23,534, respectively.
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THE CENTER FOR HEALTH AFFAIRS AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Note 10. Functional Expenses
The following represents management's classification of operating expenses by function
for the years ended 2015 and 2014:
Program services
Supporting services
2015
2014
$ 12,507,984
3,336,014
$ 12,846,932
2,125,669
$ 15,843,998
$ 14,972,601
Note 11. Patron Dividends
During 2014, CHS paid $1,898,640 as patron dividends to its hospital and health system
members.
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