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Financial Assessment

Commission staff analyzed the Sponsor’s financial statements, including the following:
• internally generated financial statements for year-to-date July 31, 2009 (“YTD09”);
• audited financial statements for fiscal-years-ending December 31, 2008, and 2007
("FYE08" and “FYE07”); and
• five-year pro forma.

Statement of Financial Position Summary

Increase Increase
YTD09 (Decrease) FYE08 (Decrease) FYE07
ASSETS:
Total Current Assets $ 4,431,282 $ (3,287,603) $ 7,718,885 $ (6,599,903) $ 14,318,788
Total Other Assets $ 6,522,591 $ (18,090,270) $ 24,612,861 $ (2,061,470) $ 26,674,331
Total Long-Term Assets $ 76,070,093 $ (2,413,368) $ 78,483,461 $ (4,233,014) $ 82,716,475
TOTAL ASSETS $ 87,023,966 $ (23,791,241) $ 110,815,207 $ (12,894,387) $ 123,709,594

LIABILITIES:
Total Current Liabilities $ 408,635 $ (667,621) $ 1,076,256 $ (308,808) $ 1,385,064
Total Long-Term Liabilities $ 27,000,000 $ (19,000,000) $ 46,000,000 $ (3,000,000) $ 49,000,000
TOTAL LIABILITIES $ 27,408,635 $ (19,667,621) $ 47,076,256 $ (3,308,808) $ 50,385,064

NET ASSETS:
Unrestricted $ 58,772,883 $ (3,790,355) $ 62,563,238 $ (9,142,202) $ 71,705,440
Temporarily Restricted $ 822,448 $ (333,265) $ 1,155,713 $ (443,377) $ 1,599,090
Permanently Restricted $ 20,000 $ - $ 20,000 $ - $ 20,000
TOTAL NET ASSETS $ 59,615,331 $ (4,103,620) $ 63,718,951 $ (9,585,579) $ 73,304,530

TOTAL LIABILITIES AND NET


ASSETS $ 87,023,966 $ (23,771,241) $ 110,795,207 $ (12,894,387) $ 123,689,594

Solvency:
An organization is solvent when assets are greater than liabilities. The Sponsor is solvent because net assets
are positive (YTD10 total assets are $87M; total liabilities are $27.4M).

Another gauge of solvency is whether or not the institution has sufficient net assets to pay off long-term debt.
The viability ratio (unrestricted net assets minus capital assets minus restricted endowments plus long-term
debt divided by total debt) measures one of the most basic determinants of clear financial health: the
availability of expendable net assets to cover debt should the institution need to settle its obligations as of the
Statement of Financial Position date. A ratio in the range of 1.25 to 2.0 indicates a strong creditworthy
institution.

YTD09 FYE08 FYE07


Viability Ratio 0.34:1 0.65:1 0.77:1

• The viability ratio is below what is considered creditworthy due to $27M in bond debt.
• During YTD 09 the sponsor liquidated $18M in investments and paid off $19M in bonds as
a result of a deal with the bank after the sponsor failed to meet bank covenants. (see
debt section of PASR)

Liquidity:
Liquidity relates to availability of, access to or convertibility to cash. A test of liquidity is current ratio (current
assets divided by current liabilities), which indicates how many times over the entity can pay its current
liabilities with its current assets. (Note: Restricted current assets were not used to calculate the current ratio
because they generally are not available to service current liabilities. Including restricted current assets in the
calculation could have the effect of artificially inflating the current ratio.) A current ratio of greater than 1:1 is
considered acceptable.
YTD09 FYE08 FYE07
Current Ratio 10.8:1 7.2:1 10.3:1

The current ratio is high due to nearly $3.7M in pledges receivable which, per the LPS, are not restricted and
are available for operations once collected. (sponsor to send substantiation of pledges)

The Sponsor’s YTD09 working capital is $4M. Days of cash-on-hand (an indication of how many days an
organization can pay expenses if its revenue stream ceases) at 12, is lower than the 30-day norm.
• At YTD 09 the cash balance is only $252K and current liabilities are $408K causing a potential
operational cash flow issue.

Leverage:
Leverage is the degree to which a sponsor is borrowing money. A measure of leverage is debt ratio (debt
divided by total assets).

YTD09, the Sponsor’s total assets are $87M and total debts are $27M. The debt ratio, which indicates what
proportion of debt an organization has relative to its assets, is 31 percent. This means that for every $1.00 of
assets, the Sponsor has $0.31 in debt.

YTD09 FYE08 FYE07


Debt Ratio 31% 42% 40%

The sponsor’s debt consists of:

• Bonds payable – adjusted rate demand revenue bonds, require sinking fund payments of $10M
per year from 2034-2038 (bear interest at variable market rate ranging from 0.20% to .7% in
2009.
• Reimbursement agreements related to letters of credit no longer require LPS to make annual
principal reductions until the bond sinking fund payments start or the LOC agreements are
amended.
• Bonds backed by letter of credit NURFC did not meet on going covenant requirements at either
measurement (June 30 or Dec 31, 2008). The sponsor paid off $19M in bond debt by
liquidating investments and bank extended a revised LOC
o In event of default all amount related to the debt could become due and payable
immediately.\
• In March of 2009 LOC currently extended to 7/31/10 – with prior instances of noncompliance
waived

Change in Net Assets:


Change in net assets examines changes over several years to see where an entity is headed.
Change in Net Assets Summary
Increase Increase
YTD09 (Decrease) FYE08 (Decrease) FYE07
Total Revenues $ 2,707,111 $ (5,078,615) $ 7,785,726 $ (11,831,340) $ 11,831,340

Total Expenses (net of depreciation) $ 4,642,718 $ (5,942,104) $ 10,584,822 $ (12,190,830) $ 12,190,830


CHANGES IN NET ASSETS (Pre-Depreciation) $ (1,935,607) $ 863,489 $ (2,799,096) $ 359,490 $ (359,490)
Depreciation $ (2,463,200) $ 1,875,737 $ (4,338,937) $ 4,555,891 $ (4,555,891)
Realized/Unrealized Loss/Gain on Investments $ 275,189 $ 2,722,735 $ (2,447,546) $ (567,285) $ 567,285

CHANGES IN NET ASSETS (Post-Depreciation) $ (4,123,618) $ 5,461,961 $ (9,585,579) $ 4,348,096 $ (4,348,096)

• Decline in 08 to 09 due to decrease in government grants and admission. Average monthly grants and
admissions in FYE08 was $649K and in YTD 09 average monthly grants and admissions is $178K
• Significant unrealized loss in FYE 08 ($2.4M). However, the prognostics for investment markets are
now favorable and recouping a portion of the past unrealized losses is probable going forward.
• The sponsor is operating at pre and post depreciation losses
• Sponsor continues to operate at losses confirming need of credit enhancement. Federalization
legislation will not be introduced to Congress until next session. (at least 12 months away from
happening)

Pro Forma Review:


A pro forma review is a projection showing anticipated expenses and revenues for the period.

Operating Pro Forma Summary

FYE09 FYE10 FYE11 FYE12 FYE13


Total Revenues $ 4,581,000 $ 4,555,000 $ 8,400,000 $ 8,543,000 $ 8,547,000
Total Expenses $ 6,298,000 $ 6,400,000 $ 7,880,000 $ 7,929,000 $ 7,978,000
Pre-Depreciation
Surplus (Deficit) $ (1,717,000) $ (1,845,000) $ 520,000 $ 614,000 $ 569,000
Investment Income $ (258,000) $ (86,800) $ (45,000) $ (64,000) $ (79,000)
Interest Expense $ 1,008,000 $ 937,000 $ 222,000 $ 217,000 $ 212,000
Post-Depreciation
Surplus (Deficit) $ (2,467,000) $ (2,695,200) $ 343,000 $ 461,000 $ 436,000
• The proforma assumes enactment of the proposed Federal legislation to transfer title of the facility to the Federal
government as well as transferring the bulk of the bonds payable to a second entity. The proposal calls for the
bonds to be unsecured. In FYE 2011 revenues increase $4M to $8.4M due to operating subsidies by the
Federal government and interest expense decreases to $222K because bonds payable have been transferred.
The result is a projected pre depreciation surplus in FYE 2011 and beyond

• Per the proposed resolution; “Federal legislation is enacted that provides for the Federal
Government to be responsible for the Facility and to provide sufficient operating
subsidies to ensure future operations of the Facility, satisfactory to the Executive
Director of the Commission in her sole discretion.”

A review of the Sponsor’s solvency, liquidity, leverage, change in net assets and pro forma indicates it is
likely the Sponsor will be able to operate the Facility and present culture to the public over a sustained period
of time in accordance with Section 3383.07 of the ORC if the proposed Federal Legislation passes.

See Exhibit E for a summary of the Sponsor’s financial statements.