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11/14/2016 1

ASC 606

Understanding the Actuarial and Accounting Impacts

f the New

Revenue Recognition Standard

November 15, 2016

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Webinar Disclaimer

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Continuing Care Actuaries and Hertzbach & Co to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her tax professional prior to taking any specific action based upon this

information. Continuing Care Actuaries and Hertzbach & Co assumes no
bligation to inform the user of any changes in tax laws or other factors

that could affect the information contained herein.

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11/14/2016 2

Webinar Housekeeping

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ther useful links can be found on the Resources Tab

We will hold all questions until the end, but encourage you to start sending them in throughout the presentation.

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@HertzbachCPAs P r o v i d i n g a c c o u n t i n g a n d c o n s u l t i n g s e r v i c e s t o t h e h e a l t h c a r e c o m m u n i t y f o r o v e r 3 5 y e a r s .

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Our firm is staffed by a highly skilled team of professionals and our extensive involvement in today’s healthcare field enables us to meet the needs of healthcare specialists.

4

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11/14/2016 3

Speaker Introduction

Mark Steinberg, CPA, CVA

Mark is a Partner with Hertzbach & Company where he is the Director of the Health Care Industry Group, Director of Assurance Services, and a member of the Management Committee. He has 25 years of experience serving the senior living industry providing services in the areas of audit, tax, reimbursement consulting, budgets and projections, and business valuations,. His clients include continuing care retirement communities, skilled nursing facilities, nonprofits, residential treatment centers, and service providers for the developmentally disabled. Mark is a certified public accountant as well as a certified valuation analyst. He is a member of the American Institute of Certified Public Accounts, Maryland Association of Certified Public Accountants, National Association of Certified Valuation Analysts, and the Association of Certified Fraud Examiners. He has spoken on a variety topics related to senior living for Leading Age, Health Facilities Association

f

Maryland, and Maryland Association

f

Certified Public

Accounts. He has authored articles for publications on a variety of

topics impacting senior living providers.

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What is ASU 2014-09 Revenue Recognition from Contracts with Customers?

In May of 2014, the FASB and IASB issued their converged standard on revenue recognition The new standard creates significant change to how revenue from contracts with customers is recognized All industries will be affected by the new standard The AICPA has created a task force for the health care industry to identify implementation issues and provide guidance on practical implementation

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ASU 2014-09 – The Basics

What is the standard trying to accomplish?

Recognize revenue to depict the transfer of promised 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

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ASU 2014-09 – The Basics

Five Step Revenue Model

1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when (or as) each performance obligation is satisfied

Effective Date

Public companies and those with conduit debt - Periods beginning

after December 15, 2017

Nonpublic entities - Periods beginning after December 15, 2018
Debt that is issued through a municipality is considered public debt

for purposes of the effective date requirements

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So How Does this Effect CCRC’s

“Given the complex, long-term nature of continuing care contracts, CCRC’s are expected to be among the health care organizations whose revenue recognition is most significantly affected by the new guidance”

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Identify the Contract

Customer

A party that has contracted to obtain goods or services that

are an output of an entity’s ordinary activities

Contract

Agreement between two or more parties that creates

enforceable rights and obligations

Elements that must be present

1. Approved contract 2. Identify each party’s rights 3. Identify payment terms 4. Commercial substance 5. Probability all consideration will be collected

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CCRC Contracts

Contracts span several years Include payment of a combination of monthly fees plus a one-time upfront entrance fee Entrance fees typically paid in advance Offer multiple types of contracts Large number of services covered under the contract Declining refunds

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Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service (or a series of distinct goods or services)

You must account for goods or services separately if they are

distinct, which includes both of the following conditions:

The customer can benefit from the good or service on its own or

together with other resources readily available to the customer

Distinct within the context of the contract, because the good or

service is separately identifiable from other goods or services

If a promised service is not distinct it should be combined

with other promised goods or services in a contract as a single performance obligation

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Performance Obligations

Issues for CCRCs

CCRC contracts are a complex bundle of rights and

bligations that combine aspects of leasing, hospitality,

and health care A single contract might be viewed as having thousands of individual performance obligations over multiple years Many of these performance obligations are interrelated How should these obligations be grouped Consider grouping the performance obligations as independent care, assisted living, and skilled nursing care The task force is discussing the matter and should be providing additional guidance

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Determine the Transaction Price This is the amount of consideration to which an entity expects to be entitled to from a customer

Issues for CCRCs

Aggregation of fees – Likely will need to aggregate the entrance fee and monthly fees together when estimating the transaction price Contracts where refundability of entrance fees diminish

ver time

Fees refundable only from proceeds of re-occupancy

No longer allowed to be deferred and amortized into income over

the contract’s term.

Such amounts must now be reported as a liability

Time value of money – Is the entrance fee considered a loan

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Allocation of Price / Revenue Recognition

Must allocate the transaction price to performance obligations within

the contract based on standalone selling prices

Recognize revenue as performance obligations are satisfied by

transferring control to the customer

Issues for CCRCs

Can the allocation be applied to a portfolio of contracts? Yes
Can the revenue be recognized over a period of years? Yes
How to treat differences between the estimated transaction price and

the actual

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Transition to the New Standard Full Retrospective Method

Cumulative effect adjustment is applied to the opening balance of net

assets as of the earliest year presented in the financial statements

Applies to all existing contracts

Modified Retrospective Method

Cumulative effect adjustment is applied to the year of adoption and the

prior year (if shown) is not restated

Applies to all existing contracts
Requires additional disclosures

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What Should You Be Doing

Develop a implementation plan and assign a leader Train the staff Continue to monitor new guidance from the AICPA Health Care Revenue Recognition Task Force Evaluate current contracts Identify potential IT system/software application changes needed Run schedule of the revenue recognition calculation under the new standard parallel to the old standard Educate your Board of Directors Choose an implementation method Implement

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About Continuing Care Actuaries

A leading provider of actuarial consulting services to the CCRC industry. Our actuaries have provided work to over 450 CCRC’s. Our actuaries are credentialed by the Society of Actuaries, the Conference

f Consulting Actuaries, and the American Academy of Actuaries.

Possess one of the largest databases of CCRC residents Currently work with approximately 75% of the operational At Home programs. Our self-insured clients include governmental entities, employee and retiree organizations, and private employers. Expertise in self-funding health plans and stop-loss coverage. Offer consultative advice on the stop loss structure, contracts, terms/conditions and pricing. Lasers, aggregating specific arrangements, terminal liability options, return of surplus and more are all facets of stop loss that require your consideration and a professional review.

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11/14/2016 10

Speaker Introduction

Brad Paulis, ASA, FCA, MAAA

Brad is a partner with Continuing Care Actuaries and has over twenty-five years of experience in providing actuarial consulting services for the health care industry, with an emphasis in Life Plan Communities, Life Care at Home and Long Term Care. Brad currently provides actuarial services to numerous Life Plan Communities and Life Care at Home programs throughout the year, focusing on the long-term sustainability and mitigating against the inherent pricing risks of entrance fee contracts. Brad is an Associate

f the Society of Actuaries, a Fellow of the Conference of

Consulting Actuaries, and a Member of the American Academy of

Actuaries. Brad is a frequent guest speaker at the Annual

LeadingAge Conference.

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ASC 606 Review Process

ASC 606

156 - Total number of identified Implementation issues
Industry Task Force / CCRC Sub-Group
3 implementation issues related to CCRCs
AICPA Revenue Recognition Working Group
Financial Reporting Executive Committee
FASB’s Transition Resource Group
Posted for exposure to get public comments
Re-submitted to two committees
Final guide published
0 CCRC exposures posted for public comments

Presentation based on currently available information

Details on methodology will change
Numbers present scope of change

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Monthly Service Fee @ Entry $3,000 Stand Alone Market Rates IL per month $3,988 AL per day 142 SNF per day 285 Entrance Fee $300,000 Refundability 0% Fiscal Year End December 31 Date of Birth 1/1/1940 Date of Entry 1/1/2015 IL Life Expectancy 10.5 yrs AL Life Expectancy 1.0 yrs SNF Life Expectancy 1.2 yrs Total 12.7 yrs

Demographic and Financial Assumptions

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry – 12/31/15 Development

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Expected Cash Flows

Entrance Fee Monthly Fees Deferred Revenue IL AL SNF Total 2015 $300,000 $35,877 $335,877 ---> reflects actual experience 2016 37,080 37,080 2017 38,192 38,192 2018 39,338 39,338 2019 40,518 40,518 2020 41,734 41,734 2021 42,986 42,986 2022 44,275 44,275 reflects life expectancy at age 76 2023 45,604 45,604 2024 46,972 46,972 2025 44,299 4,082 48,381 2026 46,184 3,648 49,832 2027 51,327 51,327 2028 7,988 7,988 $300,000 $456,875 $50,267 $62,964 $870,106 Total Expected Transaction Price $870,106 Life Expectancy IL AL SNF Total 75 10.5 yrs 1.0 yrs 1.2 yrs 12.7 yrs 76 9.9 yrs 1.0 yrs 1.2 yrs 12.1 yrs Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry – 12/31/15 Development

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11/14/2016 12

Stand Alone Market Rates

IL AL SNF Total 2015 $51,661 $51,661

--> reflects actual experience

2016 53,394 53,394 2017 54,995 54,995 2018 56,645 56,645 2019 58,345 58,345 2020 60,095 60,095 2021 61,898 61,898 2022 63,755 63,755 reflects life expectancy at age 76 2023 65,667 65,667 2024 67,637 67,637 2025 63,788 6,085 69,873 2026 68,835 10,874 79,709 2027 153,000 153,000 2028 23,812 23,812 $657,880 $74,919 $187,687 $920,486 Distribution 71.5% 8.1% 20.4% Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry – 12/31/15 Development

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Allocation Based on Stand Alone Market Rates

Total Expected Transaction Price $870,106 IL AL SNF Distribution 71.5% 8.1% 20.4% Allocation $621,873 $70,819 $177,414

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry – 12/31/15 Development

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Redevelopment of Cash Flows Based on Allocation

Actual Revenue Recognized IL AL SNF MSF's Paid Unamortized Revenue 2015 $48,833 $35,877 $12,957 $287,043 2016 50,471 37,080 2017 51,985 38,192 2018 53,545 39,338 2019 55,151 40,518 2020 56,806 41,734 2021 58,510 42,986 2022 60,265 44,275 2023 62,073 45,604 2024 63,935 46,972 2025 60,297 5,752 48,381 2026 65,067 10,279 49,832 2027 144,626 51,327 2028 22,509 7,988 $621,873 $70,819 $177,414 $570,106 71.5% 8.1% 20.4%

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry – 12/31/15 Development

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Life Expectancies

Entry Age Life Expectancy Projected Terminal Age 75 12.7 87.7 80 10.0 90.0 85 7.8 92.8

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Old Revenue Recognition

EF MSF Total Revenue 2015 $25,581 $35,877 $61,458 2016 24,743 37,080 61,823 2017 23,613 38,192 61,805 2018 22,527 39,338 61,865 2019 21,361 40,518 61,879 2020 20,213 41,734 61,947 2021 18,903 42,986 61,889 2022 17,607 44,275 61,882 2023 16,270 45,604 61,874 2024 14,945 46,972 61,917 2025 22,638 48,381 71,019 2026 35,407 49,832 85,239 2027 36,193 36,713 72,906 $300,000 $547,502 $847,503

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry

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New Revenue Recognition

EF MSF Total Revenue 2015 $12,957 $35,877 $48,833 2016 12,912 37,080 49,992 2017 12,782 38,192 50,975 2018 12,550 39,338 51,888 2019 12,286 40,518 52,804 2020 11,903 41,734 53,637 2021 11,510 42,986 54,496 2022 11,020 44,275 55,295 2023 10,525 45,604 56,129 2024 9,932 46,972 56,904 2025 12,340 48,381 60,721 2026 24,002 49,832 73,834 2027 145,281 36,713 181,993 $300,000 $547,502 $847,502

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry

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Comparison of Amortization Revenue Recognized

Old New Difference % Change 2015 $25,581 $12,957 ($12,624)

49.4%

2016 24,743 12,912 (11,831)

47.8%

2017 23,613 12,782 (10,831)

45.9%

2018 22,527 12,550 (9,977)

44.3%

2019 21,361 12,286 (9,075)

42.5%

2020 20,213 11,903 (8,310)

41.1%

2021 18,903 11,510 (7,393)

39.1%

2022 17,607 11,020 (6,587)

37.4%

2023 16,270 10,525 (5,745)

35.3%

2024 14,945 9,932 (5,013)

33.5%

2025 22,638 12,340 (10,298)

45.5%

2026 35,407 24,002 (11,405)

32.2%

2027 36,193 145,281 109,088 301.4% $300,000 $300,000 $0

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry

29

Comparison of Total Revenue Recognized

Old New Difference % Change 2015 $61,458 $48,833 ($12,624)

20.5%

2016 61,823 49,992 (11,831)

19.1%

2017 61,805 50,975 (10,831)

17.5%

2018 61,865 51,888 (9,977)

16.1%

2019 61,879 52,804 (9,075)

14.7%

2020 61,947 53,637 (8,310)

13.4%

2021 61,889 54,496 (7,393)

11.9%

2022 61,882 55,295 (6,587)

10.6%

2023 61,874 56,129 (5,745)

9.3%

2024 61,917 56,904 (5,013)

8.1%

2025 71,019 60,721 (10,298)

14.5%

2026 85,239 73,834 (11,405)

13.4%

2027 72,906 181,993 109,088 149.6% $847,503 $847,503 $0

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on Life Expectancy Upon Entry

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Comparison of Amortization Revenue Recognized

Old New Difference % Change 2015 $25,581 $12,957 ($12,624)

49.4%

2016 24,743 12,912 (11,831)

47.8%

2017 23,613 12,782 (10,831)

45.9%

2018 22,527 12,550 (9,977)

44.3%

2019 34,504 17,564 (16,940)

49.1%

2020 63,813 32,144 (31,669)

49.6%

2021 105,220 199,092 93,872 89.2% $300,000 $300,000 $0

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on 4.5/1.0/1.2

31

Comparison of Amortization Revenue Recognized

Old New Difference % Change 2015 $25,581 $12,957 ($12,624)

49.4%

2016 24,743 12,912 (11,831)

47.8%

2017 23,613 12,782 (10,831)

45.9%

2018 22,527 12,550 (9,977)

44.3%

2019 21,361 12,286 (9,075)

42.5%

2020 20,213 11,903 (8,310)

41.1%

2021 18,903 11,510 (7,393)

39.1%

2022 17,607 11,020 (6,587)

37.4%

2023 16,270 10,525 (5,745)

35.3%

2024 14,945 9,932 (5,013)

33.5%

2025 13,523 9,346 (4,177)

30.9%

2026 12,164 8,724 (3,440)

28.3%

2027 10,836 8,076 (2,760)

25.5%

2028 9,589 7,481 (2,108)

22.0%

2029 8,350 6,830 (1,520)

18.2%

2030 7,222 6,169 (1,053)

14.6%

2031 9,505 6,914 (2,591)

27.3%

2032 12,322 16,304 3,982 32.3% 2033 10,726 111,779 101,053 942.1% $300,000 $300,000 $0

Sample Calculation – Single Female – Age 75 Type A Lifecare Contract Based on 16.5/1.0/1.2

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Sample Contract Assumptions

EF MSF Type A High EF/Low MSF $300,000 $3,000 Type A Low EF/High MSF 225,000 3,800 Type C High EF/Low MSF 265,000 2,400 Type C Low EF/High MSF 220,000 3,000

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Entrance Fee Amortization Comparison

Old New Difference % Change 1991 $65,537 $35,482 ($30,055)

45.9%

1992 $858,913 $651,759 ($207,154)

24.1%

1993 $1,556,050 $789,179 ($766,871)

49.3%

1994 $1,918,815 $1,122,435 ($796,380)

41.5%

1995 $2,881,334 $2,452,919 ($428,415)

14.9%

1996 $2,290,818 $1,775,819 ($514,999)

22.5%

1997 $3,012,197 $2,916,498 ($95,699)

3.2%

1998 $3,304,910 $2,570,353 ($734,557)

22.2%

1999 $3,004,888 $2,414,701 ($590,187)

19.6%

2000 $3,706,990 $3,568,201 ($138,789)

3.7%

2001 $4,397,795 $3,858,720 ($539,075)

12.3%

2002 $4,688,785 $3,912,137 ($776,648)

16.6%

2003 $5,393,948 $5,045,484 ($348,464)

6.5%

2004 $4,980,938 $4,144,362 ($836,576)

16.8%

Min Difference (years 11-25):

19.7%

2005 $6,883,746 $6,630,696 ($253,050)

3.7%

Max Difference (years 11-25): 9.6% 2006 $6,200,509 $4,977,569 ($1,222,940)

19.7%

2007 $6,601,189 $6,959,111 $357,922 5.4% 2008 $6,544,094 $6,708,732 $164,638 2.5% 2009 $6,218,177 $6,103,189 ($114,988)

1.8%

2010 $6,220,706 $5,365,034 ($855,672)

13.8%

2011 $7,030,489 $7,178,645 $148,156 2.1% 2012 $6,206,432 $6,285,770 $79,338 1.3% 2013 $6,063,460 $5,608,116 ($455,344)

7.5%

2014 $6,212,257 $6,810,409 $598,152 9.6% 2015 $6,730,743 $6,353,689 ($377,054)

5.6%

Type A – High EF/Low MSF 34

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Entrance Fee Amortization Comparison

Old New Difference % Change 1991 $65,537 $35,482 ($30,055)

45.9%

1992 $858,913 $651,759 ($207,154)

24.1%

1993 $1,556,050 $789,179 ($766,871)

49.3%

1994 $1,918,815 $1,122,435 ($796,380)

41.5%

1995 $2,881,334 $2,452,919 ($428,415)

14.9%

1996 $2,290,818 $1,775,819 ($514,999)

22.5%

1997 $3,012,197 $2,916,498 ($95,699)

3.2%

1998 $3,304,910 $2,570,353 ($734,557)

22.2%

1999 $3,004,888 $2,414,701 ($590,187)

19.6%

2000 $3,706,990 $3,568,201 ($138,789)

3.7%

2001 $4,397,795 $3,858,720 ($539,075)

12.3%

2002 $4,688,785 $3,912,137 ($776,648)

16.6%

2003 $5,393,948 $5,045,484 ($348,464)

6.5%

2004 $4,980,938 $4,144,362 ($836,576)

16.8%

Min Difference (years 11-25):

19.7%

2005 $6,883,746 $6,630,696 ($253,050)

3.7%

Max Difference (years 11-25): 9.6% 2006 $6,200,509 $4,977,569 ($1,222,940)

19.7%

2007 $6,601,189 $6,959,111 $357,922 5.4% 2008 $6,544,094 $6,708,732 $164,638 2.5% 2009 $6,218,177 $6,103,189 ($114,988)

1.8%

2010 $6,220,706 $5,365,034 ($855,672)

13.8%

2011 $7,030,489 $7,178,645 $148,156 2.1% 2012 $6,206,432 $6,285,770 $79,338 1.3% 2013 $6,063,460 $5,608,116 ($455,344)

7.5%

2014 $6,212,257 $6,810,409 $598,152 9.6% 2015 $6,730,743 $6,353,689 ($377,054)

5.6%

Type A – High EF/Low MSF 35

Entrance Fee Amortization Comparison

Old New Difference % Change 1991 $49,026 $21,703 ($27,323)

55.7%

1992 $643,111 $427,741 ($215,370)

33.5%

1993 $1,164,496 $488,404 ($676,092)

58.1%

1994 $1,436,240 $717,762 ($718,478)

50.0%

1995 $2,154,800 $1,745,794 ($409,006)

19.0%

1996 $1,715,460 $1,230,769 ($484,691)

28.3%

1997 $2,255,939 $2,143,086 ($112,853)

5.0%

1998 $2,473,130 $1,787,024 ($686,106)

27.7%

1999 $2,250,767 $1,681,887 ($568,880)

25.3%

2000 $2,775,297 $2,564,097 ($211,200)

7.6%

2001 $3,289,484 $2,756,277 ($533,207)

16.2%

2002 $3,505,948 $2,800,584 ($705,364)

20.1%

2003 $4,035,871 $3,669,403 ($366,468)

9.1%

2004 $3,725,965 $2,954,073 ($771,892)

20.7%

Min Difference (years 11-25):

23.1%

2005 $5,150,375 $4,932,701 ($217,674)

4.2%

Max Difference (years 11-25): 9.3% 2006 $4,639,682 $3,565,822 ($1,073,860)

23.1%

2007 $4,940,581 $5,237,746 $297,165 6.0% 2008 $4,896,922 $4,967,250 $70,328 1.4% 2009 $4,649,583 $4,472,247 ($177,336)

3.8%

2010 $4,650,924 $3,873,406 ($777,518)

16.7%

2011 $5,258,261 $5,371,819 $113,558 2.2% 2012 $4,643,244 $4,719,362 $76,118 1.6% 2013 $4,536,875 $4,177,005 ($359,870)

7.9%

2014 $4,649,263 $5,083,759 $434,496 9.3% 2015 $5,036,465 $4,662,431 ($374,034)

7.4%

Type A – Low EF/High MSF 36

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Entrance Fee Amortization Comparison

Old New Difference % Change 1991 $57,241 $64,020 $6,779 11.8% 1992 $752,404 $944,683 $192,279 25.6% 1993 $1,359,591 $1,353,601 ($5,990)

0.4%

1994 $1,678,216 $1,786,600 $108,384 6.5% 1995 $2,509,526 $2,646,446 $136,920 5.5% 1996 $2,007,967 $2,191,025 $183,058 9.1% 1997 $2,643,306 $2,819,292 $175,986 6.7% 1998 $2,888,308 $3,041,613 $153,305 5.3% 1999 $2,638,713 $2,865,175 $226,462 8.6% 2000 $3,247,776 $3,649,291 $401,515 12.4% 2001 $3,835,966 $4,088,318 $252,352 6.6% 2002 $4,082,214 $3,952,482 ($129,732)

3.2%

2003 $4,710,344 $4,806,073 $95,729 2.0% 2004 $4,344,863 $4,306,944 ($37,919)

0.9%

Min Difference (years 11-25):

5.8%

2005 $6,011,324 $5,754,505 ($256,819)

4.3%

Max Difference (years 11-25): 11.0% 2006 $5,418,696 $5,102,534 ($316,162)

5.8%

2007 $5,774,337 $6,192,150 $417,813 7.2% 2008 $5,718,290 $6,345,305 $627,015 11.0% 2009 $5,413,586 $5,856,301 $442,715 8.2% 2010 $5,412,845 $5,245,497 ($167,348)

3.1%

2011 $6,129,309 $6,353,488 $224,179 3.7% 2012 $5,417,223 $5,640,908 $223,685 4.1% 2013 $5,296,257 $5,029,344 ($266,913)

5.0%

2014 $5,432,583 $5,995,487 $562,904 10.4% 2015 $5,880,247 $5,974,128 $93,881 1.6% Type C – High EF/Low MSF 37

Entrance Fee Amortization Comparison

Old New Difference % Change 1991 $47,345 $52,391 $5,046 10.7% 1992 $622,817 $769,179 $146,362 23.5% 1993 $1,124,366 $1,101,580 ($22,786)

2.0%

1994 $1,388,271 $1,458,964 $70,693 5.1% 1995 $2,073,054 $2,162,364 $89,310 4.3% 1996 $1,662,281 $1,796,800 $134,519 8.1% 1997 $2,189,140 $2,317,318 $128,178 5.9% 1998 $2,389,027 $2,487,076 $98,049 4.1% 1999 $2,186,082 $2,346,119 $160,037 7.3% 2000 $2,688,618 $2,998,932 $310,314 11.5% 2001 $3,170,685 $3,371,751 $201,066 6.3% 2002 $3,372,268 $3,275,378 ($96,890)

2.9%

2003 $3,895,325 $3,975,190 $79,865 2.1% 2004 $3,591,685 $3,569,935 ($21,750)

0.6%

Min Difference (years 11-25):

5.8%

2005 $4,971,305 $4,748,650 ($222,655)

4.5%

Max Difference (years 11-25): 11.2% 2006 $4,482,279 $4,222,049 ($260,230)

5.8%

2007 $4,777,811 $5,170,414 $392,603 8.2% 2008 $4,729,810 $5,259,632 $529,822 11.2% 2009 $4,472,118 $4,841,067 $368,949 8.2% 2010 $4,470,742 $4,335,544 ($135,198)

3.0%

2011 $5,065,685 $5,241,600 $175,915 3.5% 2012 $4,479,038 $4,649,414 $170,376 3.8% 2013 $4,380,313 $4,162,288 ($218,024)

5.0%

2014 $4,494,952 $4,897,565 $402,613 9.0% 2015 $4,863,786 $4,887,353 $23,567 0.5% Type C – Low EF/High MSF 38

SLIDE 20

11/14/2016 20

Old Standards - Entrance Fee Amortization Comparison

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

EF Amortization - Old

Type A High EF/Low MSF Type A Low EF/High MSF Type C High EF/Low MSF Type C Low EF/High MSF

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Old Standards - Total Revenue Comparison

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Total Revenue - Old

Type A High EF/Low MSF Type A Low EF/High MSF Type C High EF/Low MSF Type C Low EF/High MSF

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SLIDE 21

11/14/2016 21

New Standards - Entrance Fee Amortization Comparison

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

EF Amortization - New

Type A High EF/Low MSF Type A Low EF/High MSF Type C High EF/Low MSF Type C Low EF/High MSF

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New Standards - Total Revenue Comparison

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Total Revenue - New

Type A High EF/Low MSF Type A Low EF/High MSF Type C High EF/Low MSF Type C Low EF/High MSF

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SLIDE 22

11/14/2016 22

Type A Contracts - Unamortized Revenue Comparison

5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Unamortized Revenue - Type A

Old Methodology High EF/Low MSF New Methodology High EF/Low MSF Old Methodology Low EF/High MSF New Methodology Low EF/High MSF

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Type C Contracts - Unamortized Revenue Comparison

5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Unamortized Revenue - Type C

Old Methodology High EF/Low MSF New Methodology High EF/Low MSF Old Methodology Low EF/High MSF New Methodology Low EF/High MSF

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SLIDE 23

11/14/2016 23

Takeaways

Year-to-year fluctuation of revenue will increase Impact on Type A and Type C will be different Type A - Unamortized revenue will increase

Net Profit/Loss will decrease
Future Service Obligation liability will decrease

Discuss with and prepare your Board of Directors

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Contact us

Mark Steinberg, Partner MSteinberg@Hertzbach.com 410-363-3200 Brad Paulis, Partner BPaulis@ContinuingCareActuaries.com 410-833-4220

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