Atchison Hospital Association, Inc. and Riverbend Regional Healthcare Foundation. Consolidated Financial Report September 30, 2015

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1 Consolidated Financial Report September 30, 2015

2 Contents Independent Auditor s Report on the Financial Statements 1 2 Financial Statements Consolidated balance sheets 3 4 Consolidated statements of operations and changes in net assets 5 Consolidated statements of cash flows 6 Notes to consolidated financial statements 7 23 Supplementary Information Consolidating balance sheets Consolidating statements of operations and changes in net assets 28 29

3 Independent Auditor s Report Board of Directors Atchison Hospital Association, Inc. Atchison, Kansas Report on the Financial Statements We have audited the accompanying consolidated financial statements of Atchison Hospital Association, Inc. and which comprise the consolidated balance sheets as of September 30, 2015 and 2014, and the related consolidated statements of operations and changes in net assets and cash flows for the years then ended and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States 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 auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atchison Hospital Association, Inc. and Riverbend Regional Healthcare Foundation as of September 30, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information is presented for purposes of additional analysis rather than to present the financial position, results of operations and cash flows of the individual entities and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating 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. Davenport, Iowa January 29,

5 Consolidated Balance Sheets September 30, 2015 and 2014 Assets Current Assets: Cash and cash equivalents $ 9,553,671 $ 5,676,602 Assets limited as to use 1,587,603 1,526,928 Patient accounts receivable, net of allowance for uncollectible accounts 2015 $3,080,498; 2014 $2,954,896 and contractual adjustments 2015 $6,107,601; 2014 $6,206,515 5,511,195 6,436,047 Other accounts receivable 455, ,205 Inventories 941, ,869 Estimated settlements due from third-party payors - 218,808 Prepaid expenses and other 656, ,509 Total current assets 18,705,666 15,838,968 Assets Limited as to Use: Internally designated 10,736,695 10,804,658 Under bond indentures, held by trustee 3,294,905 3,248,657 Externally restricted by donors 143, ,237 14,174,816 14,196,552 Less amounts required to meet current obligations 1,587,603 1,526,928 12,587,213 12,669,624 Property and Equipment: Land and improvements 979, ,525 Buildings 37,216,734 33,908,270 Furniture and equipment 12,858,006 11,945,745 Construction in progress - 288,214 51,054,265 47,121,754 Less accumulated depreciation 23,141,563 19,904,205 27,912,702 27,217,549 Other Assets: Deferred financing costs, net 401, ,975 Physician advances 334, , , ,417 $ 59,940,791 $ 56,609,558 See. 3

6 Liabilities and Net Assets Current Liabilities: Current maturities of long-term debt $ 1,663,190 $ 1,636,377 Accounts payable 1,448,165 1,049,849 Accrued expenses: Accrued payroll 664, ,693 Vacation 682, ,719 Health insurance 334, ,053 Interest 162, ,928 Other 50, ,099 Estimated settlements due to third-party payors 311,122 - Total current liabilities 5,317,634 4,362,718 Long-Term Debt, less current maturities 30,797,439 29,710,775 Deferred Compensation 696, ,958 Total long-term liabilities 31,493,786 30,308,733 Total liabilities 36,811,420 34,671,451 Commitments and Contingencies (Note 9) Net Assets: Unrestricted 22,986,155 21,794,870 Temporarily restricted 143, ,237 Total net assets 23,129,371 21,938,107 $ 59,940,791 $ 56,609,558 4

7 Consolidated Statements of Operations and Changes in Net Assets Years Ended September 30, 2015 and Revenue: Patient service revenue, net of contractual adjustments $ 39,827,294 $ 39,278,916 Less provision for uncollectible accounts 4,210,369 4,658,944 Net patient service revenue 35,616,925 34,619,972 Other operating revenue 744, ,405 Total revenue 36,361,910 35,413,377 Expenses: Salaries and contract labor 13,652,629 12,943,439 Physician compensation 3,319,515 3,488,796 Employee benefits 3,837,793 4,110,574 Supplies and other 4,561,724 4,561,579 Purchased services 5,124,785 5,020,182 Other expense 233, ,021 Depreciation and amortization 3,382,946 3,448,515 Insurance 321, ,044 Utilities 433, ,080 Interest 1,757,611 1,888,046 Loss on disposal of equipment 3,186 4,391 Total expenses 36,628,485 36,691,667 Operating (loss), before 340B program (266,575) (1,278,290) 340B Program, net 1,155,174 1,390,887 Income from operations 888, ,597 Nonoperating gains, net: Investment income 341, ,091 Contributions 29,818 59, , ,051 Excess of revenue over expenses 1,259, ,648 Change in unrealized gains/losses on investments (68,564) 435,231 Increase in unrestricted net assets 1,191,285 1,135,879 Temporarily restricted net assets, net assets released from restrictions (21) - Increase in net assets 1,191,264 1,135,879 Net assets: Beginning 21,938,107 20,802,228 Ending $ 23,129,371 $ 21,938,107 See. 5

8 Consolidated Statements of Cash Flows Years Ended September 30, 2015 and Cash Flows from Operating Activities: Increase in net assets $ 1,191,264 $ 1,135,879 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 3,312,693 3,376,423 Amortization 70,253 72,092 Forgiveness of physician advances 152, ,409 Change in unrealized gains/losses on investments 68,564 (435,231) Realized (gains) on investments (206,178) (394,102) Loss on disposal of property and equipment 3,186 4,391 (Increase) decrease in: Accounts receivable 959,585 (439,760) Inventories and prepaid expenses (107,347) (148,104) Increase (decrease) in: Accounts payable and accrued expenses 657,370 (131,884) Due to/from third-party payors 529,930 (582,413) Net cash provided by operating activities 6,631,642 2,580,700 Cash Flows from Investing Activities: Purchase of investments (3,155,690) (3,117,518) Proceeds from sale of investments 3,315,040 3,586,107 Purchase of property, plant and equipment (3,955,030) (1,498,450) Proceeds from sale of equipment 1,998 8,127 Physician advances (63,024) (104,129) Net cash (used in) investing activities (3,856,706) (1,125,863) Cash Flows from Financing Activities: Principal payments on long-term debt (1,677,867) (1,667,678) Proceeds from issuance of long-term debt 2,780, ,000 Net cash provided by (used in) financing activities 1,102,133 (1,072,678) Increase in cash and cash equivalents 3,877, ,159 Cash: Beginning 5,676,602 5,294,443 Ending $ 9,553,671 $ 5,676,602 Supplemental Disclosure of Cash Flow Information, cash payments for interest $ 1,766,936 $ 1,894,788 Supplemental Schedule of Noncash Investing Activities, increase in accounts payable related to acquisition of equipment $ 58,000 $ - See. 6

9 Note 1. Nature of operations: Nature of Operations and Significant Accounting Policies The accompanying consolidated financial statements include the accounts of Atchison Hospital Association, Inc. (the Hospital) and (the Foundation), collectively referred to as the Organization. Atchison Hospital Association, Inc.: The Hospital is a not-for-profit organization that primarily earns revenues by providing inpatient, outpatient, emergency care and physician services to patients in and around Atchison, Kansas. : The Foundation is a not-for-profit organization whose mission and principal activities are to support and assist, and make grants and gifts in support and assistance to the Hospital; to supervise investment of assets; to raise additional funds through gifts, bequests, public solicitations, private solicitations and similar sources; and to make gifts to or for the benefit of health-related, nonprofit charitable institutions in Northeast Kansas and Northwest Missouri. Significant accounting policies: Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Hospital and the Foundation. The significant intercompany accounts and transactions have been eliminated in consolidation. The Hospital and the Foundation have certain common management and certain common Board of Directors members. Additionally, the Foundation has guaranteed the payment of principal and interest by the Hospital on the Hospital Revenue Bonds, Series 1998, and has entered into a support agreement related to the Series 2008 and 2009 bonds (see Note 8). 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. Estimates that are particularly susceptible to significant changes in the near term and which require significant judgments by management include the allowance for uncollectible accounts, allowance for contractual adjustments, estimated third-party payor settlements, fair value of investments and self insurance reserves. Cash and cash equivalents: Cash and cash equivalents include temporary cash investments whose use is not limited or restricted. The Organization considers all liquid investments with original maturities of three months or less at the date of issuance to be cash equivalents. Patient accounts receivable and net patient service revenue: Patient receivables, where a third-party payor is responsible for paying the amount, are carried at a net amount determined by the original charge for the service provided, less an estimate made for contractual adjustments or discounts provided to third-party payors. Patient receivables due directly from the patients are carried at the original charge for the service provided less amounts covered by third-party payors and less an estimated allowance for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts, by historical experience applied to an aging of accounts and by considering the patient s financial history, credit history and current economic conditions. The Hospital does not charge interest on patient receivables. Patient receivables are written off as provision for bad debt when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of the provision for bad debt when received. 7

10 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Receivables or payables related to estimated settlements on various risk contracts that the Hospital participates in are reported as estimated settlements due to/from third-party payors. Net patient service revenue is reported at the estimated net realizable amounts from patients, thirdparty payors and others for services rendered including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments with third-party payors are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Net patient service revenue is reported net of the provision for uncollectible accounts. In evaluating the collectability of accounts receivable, the Hospital analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for uncollectible accounts and provision for uncollectible accounts. Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for uncollectible accounts. For receivables associated with services provided to patients who have thirdparty coverage, the Hospital analyzes contractually due amounts and provides an allowance for uncollectible accounts and a provision for uncollectible accounts, if necessary (for example, for expected uncollectible accounts for which the third-party payor has not yet paid, or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Hospital records a significant provision for uncollectible accounts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between the standard rates (or the discounted rates if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for uncollectible accounts. The Hospital s allowance for uncollectible accounts for self-pay patients decreased from approximately 71% of self-pay accounts receivable at September 30, 2014, to approximately 68% of self-pay accounts receivable at September 30, In addition, the Hospital s provision for uncollectible accounts decreased approximately $449,000 from approximately $4,659,000 to approximately $4,210,000 for the years ended September 30, 2014 and 2015, respectively. The changes in the allowance and write-offs were relatively consistent year over year as the Hospital has not experienced significant changes in collection of amounts from self-pay patients for the year ended September 30, The Hospital does not maintain a material allowance for uncollectible accounts from third-party payors, due to insignificant write-offs of uncollectible accounts from third-party payors. The Hospital recognizes patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered. For uninsured patients that do not qualify for charity care, the Hospital recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). On the basis of historical experience, a significant portion of the Hospital s uninsured patients will be unable or unwilling to pay for the services provided. Thus, the Hospital records a significant provision for uncollectible accounts related to uninsured patients in the period the services are provided. 8

11 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Patient service revenue at established rates less third-party payor contractual adjustments (but before the provision for uncollectible accounts), recognized in the years ended September 30, 2015 and 2014 is as follows: Third-party payors $ 34,462,542 $ 34,041,715 Self pay 5,364,752 5,237,201 $ 39,827,294 $ 39,278,916 Inventories: Inventories, which consist primarily of medical and pharmaceutical supplies, are stated at the lower of cost or market. The inventories are reported on the first-in, first-out basis. Assets limited as to use, investments and investment income: Assets limited as to use include assets held by trustee under bond indenture agreements, assets restricted by donors and assets set aside by the Board of Directors for future capital improvements over which the Board retains control and may, at its discretion, subsequently use for other purposes. Amounts required to meet current liabilities of the Organization are included in current assets. Investments in equity securities with readily determinable fair values, all investments in debt securities and alternative investments are measured at fair value in the balance sheets. The Organization reports the fair value of alternative investments, which primarily include investments in limited partnerships and limited liability companies, using the practical expedient. The practical expedient allows for the use of net asset value (NAV), either as reported by the investee fund or as adjusted by the Organization based on various factors. Annually, the net asset value from the respective funds audited financial statements as of December 31 is adjusted to fair value from the date of the respective funds audited financial statements through the Organization s September 30 reporting date, the Organization adjusts its investments and includes in its statement of operations cash paid for capital calls, cash proceeds received from distributions and investment gains and losses as determined from periodic, unaudited interim fund reporting. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment income includes dividend, interest and other investment income; realized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment income that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Investment income is reflected in the consolidated statements of operations and changes in net assets as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Changes in unrealized gains and losses on investments, which are considered temporary, are excluded from excess of revenue over expenses, but are included as a change in net assets. Property, equipment and depreciation: Property and equipment acquisitions are recorded at cost. Depreciation is provided over the estimated useful life of each class of depreciable asset and is computed using the straight-line method ranging from 3-40 years. Interest cost incurred during the period of construction of capital assets is capitalized as a component of the costs of acquiring those assets. The Organization capitalized no interest for the years ended September 30, 2015 and

12 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Long-lived asset disposition and impairment: The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. There were no impairment charges for the years ended September 30, 2015 and Deferred financing costs: Deferred financing costs are being amortized over the term of the related debt using the interest method. Physician advances: Physician advances are primarily related to the recruitment of physicians to meet the community s needs. The advances are being forgiven over a period of one to five years, provided that the physicians have continued satisfactory service. Temporarily restricted net assets: Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Excess of revenues over expenses: The consolidated statements of operations and changes in net assets include excess of revenues over expenses. Excess of revenues over expenses, consistent with industry practice, excludes unrealized gains and losses on investments categorized as other than trading which are considered temporary and contributions of long-lived assets, including assets acquired using contributions which by donor restriction were to be used for the purpose of acquiring such assets. 340B Program: The 340B Program (Program) offers eligible health care providers access to low-cost medications, which allows them to expand the type and volume of care they provide to the most vulnerable patient populations. The Program requires drug manufacturers to provide outpatient drugs to eligible health care organizations or covered entities at significantly reduced prices. The Organization is an eligible health care organization and has been participating in the program since approximately June The revenue is earned and recorded upon the sale of the drugs to the patients. The revenue and expenses from the Program are netted and presented as a component of operating income on the accompanying statements of operations. The revenue from the Program was approximately $2,890,000 and $3,278,000 and the expenses associated with the administration of the Program and the sale of these drugs were approximately $1,735,000 and $1,887,000 for the years ending September 30, 2015 and 2014, respectively. Charity care: The Organization provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because the Organization does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Charity care, based on estimated costs, totaled approximately $198,000 and $100,000 for the years ended September 30, 2015 and 2014, respectively. The estimated cost of charity care is calculated by applying Organization specific cost to charge ratios to the total amount of charity care deductions from gross revenue. The cost to charge ratios are calculated by taking the hospital total expenses and gross charges and applying adjustments to offset nonpatient care activity revenue against expenses as well as eliminating bad debt expense. 10

13 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Fair value of financial instruments: Financial instruments are described as cash or contractual obligations or rights to pay or to receive cash. The fair value for certain financial instruments approximates the carrying value because of the short-term maturity of these instruments which include cash and cash equivalents, receivables, inventories, accounts payable, accrued expenses, estimated third-party payor settlements and other current assets and liabilities. A portion of the Organization s investments and assets limited as to use are carried at fair value on the balance sheets based on quoted market prices. Limited partnerships and limited liability companies include hedge funds invested in real estate and private equity funds. The carrying amount for limited partnerships and limited liability companies is based primarily on historical investment returns and nonfinancial data of the underlying investees or the net asset value (NAV) when appropriate. Based on borrowing rates currently available to the Organization with similar terms and maturities, the carrying amount of long-term debt approximates its fair value. Fair value measurements: The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements, which applies to all assets and liabilities that are measured and reported on a fair value basis. See Note 7 for additional information. Electronic health records incentive programs: The electronic health records incentive programs, enacted as part of the American Recovery and Reinvestment Act of 2009, provide for incentive payments under both the Medicare and Medicaid programs to eligible hospitals that demonstrate meaningful use of certified electronic health records (EHR) technology. As a critical access hospital, Medicare payments are made in lump-sum payments. The final Medicare amount for any payment year is determined based upon an audit by the fiscal intermediary and the Hospital s inability to continue to meet future escalating criteria may impact overall reimbursement the Hospital receives. Payments under the Medicaid program are generally made for up to four years based on a statutory formula. The Medicaid programs are determined on a state by state basis, which are approved by the Centers for Medicare and Medicaid Services. Payments under both programs are contingent on the Hospital initially attesting to being a meaningful user of the EHR technology and then continuing to meet escalating criteria, including other specific requirements that are applicable. These funds are paid to the Hospital to adopt, implement, upgrade and demonstrate meaningful use of certified EHR technology. Income from incentive payments is subject to retrospective adjustments as the incentive payments are calculated using Medicare cost report data that is subject to audit. Additionally, the Hospital s compliance with the meaningful use criteria is subject to audit by the federal government. Events could occur that would cause the final amounts to differ materially from the initial payments under the programs. As of September 30, 2014, the Hospital has not met the meaningful use objectives under the Medicare program and has not recognized any revenue related to this program. During the year ended September 30, 2015, the Hospital has attested to meaningful use under the Medicare program. The Hospital recognized no revenue from Medicare and Medicaid incentive payments in the years ending September 30, 2015 and Contributions: Unconditional promises to give cash and other assets are accrued at estimated fair value at the date each promise is received. The gifts are reported as either temporarily or permanently 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 as unrestricted net assets and reported as an increase in unrestricted net assets. Donor-restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions. Receipt of contributions, which are conditional, are reported as liabilities until the condition is eliminated or the contributed assets are returned to the donor. 11

14 Note 1. Nature of Operations and Significant Accounting Policies (Continued) Income tax status: The Hospital and Foundation are not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Code and are exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. The Hospital and Foundation each file a Form 990 (Return of Organization Exempt from Income Tax) annually. When this return is filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the tax position taken or the amount of the position that would ultimately be sustained. Examples of tax positions common to hospitals and foundations include such matters as the following: the tax exempt status of the entity, the continued tax exempt status of bonds issued by the obligated group, the nature, the characterization and taxability of joint venture income and various positions relative to potential sources of unrelated business income (UBI). UBI is reported on Form 990T, as appropriate. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes that it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely to be realized on settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for uncertain tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. As of September 30, 2015 and 2014, there were no uncertain tax benefits identified and recorded as a liability. Forms 990 and 990T filed by the Hospital and Foundation are generally subject to examination by the Internal Revenue Service (IRS) up to three years from the extended due date of each return. Subsequent events: The Organization has evaluated subsequent events through January 29, 2016, the date on which the consolidated financial statements were issued. New and pending accounting guidance: During the year ended September 30, 2015, the Organization adopted Accounting Standards Update (ASU) No , Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). While this ASU is not required to be adopted until annual periods beginning after December 15, 2015, early adoption is permitted. The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. However, sufficient information must be provided to permit reconciliation of the fair value of assets categorized within the fair value hierarchy to the amounts presented in the statement of financial position. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Disclosures of 2014 information have been revised to reflect the retrospective application of this ASU. The impact of adopting this ASU is reflected in Note 7. In May 2014, FASB issued ASU No , Revenue from Contracts with Customers, which provides a robust framework for addressing revenue recognition issues and replaces most of the existing revenue recognition guidance including industry-specific guidance, in current U.S. GAAP. The standard is effective for periods beginning after December 15, 2017 for public entities and periods beginning after December 15, 2018 for nonpublic entities. Management is currently evaluating the potential impact that the adoption of this update will have on its financial reporting. Management is currently evaluating the potential impact that the adoption of this ASU will have on the Organization s financial reporting. 12

15 Note 1. Nature of Operations and Significant Accounting Policies (Continued) In April 2015, the FASB issued , Interest Imputation of Interest (subtopic ); Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt. The standard is effective for periods beginning after December 15, Early adoption is permitted. Management is currently evaluating the potential impact that the adoption of this ASU will have on its financial reporting. Note 2. Net Patient Service Revenue The Hospital has agreements with third-party payors that provide for payments to the Hospital at amounts different from its established rates. A summary of the payment arrangements with major third-party payors follows: Medicare: The Hospital is designated as a critical access hospital. This designation provides for inpatient and outpatient services to be reimbursed on a cost basis methodology. The Hospital is reimbursed for certain services at a tentative rate with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicare fiscal intermediary. The Hospital s Medicare cost reports have been finalized by the Medicare fiscal intermediary through September 30, Estimated settlements have been reflected in the accompanying consolidated financial statements. Medicaid: Inpatient and outpatient services rendered to Medicaid Program beneficiaries are reimbursed under a cost reimbursement methodology for certain services and at prospectively determined rates for all other services. The Hospital is reimbursed for cost reimbursable services at tentative rates with final settlement determined after submission of annual cost reports by the Hospital and audits thereof by the Medicaid fiscal intermediary. The Hospital s Medicaid cost reports have been finalized by the Medicaid fiscal intermediary through September 30, Estimated settlements have been reflected in the accompanying consolidated financial statements. Other agreements: The Hospital has also entered into payment agreements with certain preferred provider organizations, health maintenance organizations and local employers. The basis for payment to the Hospital under these agreements includes discounts from established charges, prospectively determined per diem rates and prospectively determined rates per discharge. Approximately 72% and 71% of net patient service revenues are from participation in the Medicare, statesponsored Medicaid and Blue Cross programs for the years ended September 30, 2015 and 2014, respectively. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change materially in the near term. Net patient service revenue is composed of the following for the years ended September 30, 2015 and 2014: Gross patient service revenue $ 99,548,598 $ 89,161,025 Less discounts, allowances and estimated contractual adjustments under third-party reimbursement programs 59,721,304 49,882,109 Patient service revenue, net of contractual allowances 39,827,294 39,278,916 Less provision for uncollectible accounts 4,210,369 4,658,944 Net patient service revenue $ 35,616,925 $ 34,619,972

16 Note 2. Net Patient Service Revenue (Continued) Contractual adjustment expense for the years ended September 30, 2015 and 2014 includes the effect of a change in the amount of the estimated contractual adjustments under third-party reimbursement programs and retroactive adjustments based on final settlements of cost reports. The effect of this change in estimate is an increase (decrease) in contractual adjustment expense of approximately $(418,000) and $22,000 for the years ended September 30, 2015 and 2014, respectively. Note 3. Concentration of Credit Risk The Organization grants credit without collateral to its patients, most of whom are area residents and are insured under third-party payor agreements. The mix of gross receivable from patients and thirdparty payors as of September 30, 2015 and 2014 is as follows: Medicare 31% 29% Medicaid Blue Cross Other third-party payors Patients % 100% As of September 30, 2015, the Organization had deposits exceeding the federal depository insurance limits in financial institutions. Management believes the credit risk related to these deposits is minimal. Note 4. Functional Expenses The Organization provides general health care services to residents within its geographic location. Expenses, including expenses related to the 340B program, related to providing these services for the years ended September 30, 2015 and 2014 are as follows: Health care services $ 27,477,537 $ 27,465,303 General and administrative 10,832,264 11,020,860 Fundraising 53,747 92,446 $ 38,363,548 $ 38,578,609 Note 5. Temporarily Restricted Net Assets Temporarily restricted net assets as of September 30, 2015 and 2014 are available for the following purposes: For the years ended September 30, 2015 and 2014, net assets released from donor restrictions by incurring expenses satisfying the restricted purposes named above were $21 and none, respectively Nursing scholarships $ 29,861 $ 29,882 Indigent care 110, ,330 Resident funds and other 3,025 3,025 $ 143,216 $ 143,237

17 Note 6. Assets Limited as to Use and Investments Assets limited as to use as of September 30, 2015 and 2014 are as follows: Internally designated: Cash $ 428,614 $ 605,933 Mutual funds 517, ,379 Corporate equities 5,438,970 5,989,481 Corporate bonds 2,098,966 1,670,396 U.S. government obligations 1,298,616 1,147,162 Limited partnerships and limited liability companies 931, ,948 Accrued interest 23,169 23,359 10,736,695 10,804,658 Held by trustee under indenture: Cash 481,905 - Certificates of deposit 1,137,502 - U.S. government obligations 1,675,498 - Money market mutual funds - 3,248,657 3,294,905 3,248,657 Externally restricted by donors, cash 143, ,237 $ 14,174,816 $ 14,196,552 Investment income consisted of the following: Interest and dividend income $ 135,254 $ 133,989 Net realized gains on investments 206, ,102 $ 341,432 $ 528,091 Investment securities are regularly evaluated for impairment. The Organization considers factors affecting the investment, factors affecting the industry the investment operates within, and general debt and equity market trends. The Organization considers the length of time an investment s fair value has been below carrying value, the near term prospects for recovery to carrying value, and the intent and ability to hold the investment until maturity or market recovery is realized. When a determination is made that a decline in fair value below the cost basis is other than temporary, the related investment is written down to its estimated fair value and the other-than-temporary loss is included as a component of investment income (loss), similar to realized losses, which are included in excess of revenue over expenses. The Organization recognized no other-than-temporary impairment losses as a result of management s analysis for the years ended September 30, 2015 and 2014, respectively. 15

18 Note 6. Assets Limited as to Use and Investments (Continued) Unrealized losses and fair value, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, as of September 30, 2015 and 2014, as summarized as follows: Description of securities: Total Temporarily Impaired Securities Less than 12 Months 12 Months or More Total Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses Debt securities $ 1,445,069 $ 28,539 $ 850,689 $ 21,762 $ 2,295,758 $ 50,301 Equity securities 1,067, , ,067, ,894 $ 2,512,612 $ 137,433 $ 850,689 $ 21,762 $ 3,363,301 $ 159, Description of securities: Debt securities $ 1,192,440 $ 23,293 $ 865,154 $ 8,652 $ 2,057,594 $ 31,945 Equity securities 593,506 49, ,506 49,386 $ 1,785,946 $ 72,679 $ 865,154 $ 8,652 $ 2,651,100 $ 81, Note 7. Fair Value Measurements The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, this guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1: Level 2: Level 3: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Significant unobservable inputs that reflect a reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. The fair value of the investment is based on a combination of audited financial statements of the investees and monthly or quarterly statements received from the investees. 16

19 Note 7. Fair Value Measurements (Continued) A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below: Investments in certain mutual funds, equity securities and corporate bonds traded on a national securities exchange are valued at the last reported sales price on the day of valuation. These financial instruments are classified as level 1 in the fair value hierarchy. Certain investments in fixed income mutual funds and investments in U.S. Government obligations for which quotations are not readily available are valued using quoted prices of securities with similar characteristics. These financial instruments are classified as level 2 in the fair value hierarchy. Investments in limited partnerships are valued at fair value based on the applicable percentage ownership of the underlying funds net assets as of the measurement date. In determining fair value, the Organization utilizes valuations provided by the underlying investment fund. The underlying investment funds value securities and other financial instruments on a fair value basis of accounting. The estimated fair values of certain investments of the underlying investment funds, which may include private placements and other securities for which prices are not readily available, are determined by the managers of the respective other investment fund and may not reflect amounts that could be realized upon immediate sale, nor amounts that ultimately may be realized. Accordingly, the estimated fair values may differ significantly from the values that would have been used had a ready market existed for these investments. The fair value of the Hospital s investments in funds generally represents the amount the Hospital would expect to receive if it were to liquidate its investments in funds excluding any redemption charges that may apply. Investments in the limited partnerships are not classified according to the fair value hierarchy, in accordance with Accounting Standards Codification 820, as the net asset value is used as a practical expedient to value the investment. There have been no changes in valuation techniques used for any assets or liabilities measured at fair value during the year ended September 30,

20 Note 7. Fair Value Measurements (Continued) The following tables summarize assets measured at fair value on a recurring basis as of September 30, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: Fair Value Measurement Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) 2015 Mutual funds: Balanced $ 105,167 $ 105,167 $ - $ - Fixed income 277,854 58, ,174 - Equity 134, , Equities: - Large cap 2,882,202 2,882, Mid cap 1,641,708 1,641, Small cap 915, , Corporate bonds 2,098,966 2,098, U.S. government obligations 2,974,114-2,974,114 - Limited partnerships and limited liability companies, invested primarily in: Private equity funds 931,048 (A) (A) (A) 11,960,410 $ 7,836,074 $ 3,193,288 $ - Cash and cash equivalents and other $ 2,214,406 14,174,816 (A) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. 18

21 Note 7. Fair Value Measurements (Continued) Fair Value Measurement Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) 2014 Mutual funds: Balanced $ 82,804 $ 82,804 $ - $ - Fixed income 253,918 55, ,445 - Equity 119, , Equities: Large cap 3,033,931 3,033, Mid cap 2,269,819 2,269, Small cap 685, , Corporate bonds 1,670,396 1,670, U.S. government obligations 3,906,977-3,906,977 - Limited partnerships and limited liability companies, invested primarily in: Private equity funds 911,948 (A) (A) (A) Money market mutual fund 488, , ,424,023 $ 8,406,653 $ 4,105,422 $ - Cash and cash equivalents and other $ 772,529 14,196,552 (A) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. There were no transfers of assets or liabilities between levels 1, 2 or 3 of the fair value hierarchy during the years ended September 30, 2015 and The following table sets forth additional disclosure of the Organization s investment whose fair value is estimated using net asset value (NAV) per share (or its equivalent) as of September 30, 2015 and 2014: Redemption Fair Value Unfunded Commitments Redemption Notice Frequency Period Limited partnerships and limited liability companies, invested primarily in private equity funds (A) $ 931,048 $ 911,948 $ - $ 190,019 (A) (A) (A) This fund has minority ownership positions in growth, secondary and later-stage venture businesses primarily in the services sector. Distributions will be received as the underlying investments of the funds pay distributions. The fund can be redeemed through approval of the general partner at the net asset value per share based on the fair value of the underlying assets. The fair value of this investment has been estimated using the net asset value per share, as provided by the fund manager. 19

22 Note 8. Long-Term Debt Long-term debt as of September 30, 2015 and 2014 are as follows: Hospital Revenue Bonds, Series 1998 (A) $ 945,000 $ 1,150,000 Hospital Revenue Bonds, Series 2008A (B) 10,000,000 10,000,000 Hospital Revenue Bonds, Series 2008B (C) 4,620,000 5,140,000 Hospital Revenue Bonds, Series 2009 (D) 14,235,000 14,865,000 Note payable (E) - 281,377 Note payable (F) 2,738,510-32,538,510 31,436,377 Less unamortized original issue discount 77,881 89,225 Less current maturities 1,663,190 1,636,377 $ 30,797,439 $ 29,710,775 (A) Hospital Revenue Bonds, Series 1998, $3,290,000. Bond proceeds were used by the Hospital to finance building improvements. The Series 1998 bonds include one remaining term bond. The term bond in the amount of $945,000 is due November 15, 2018, with mandatory redemption at varying amounts beginning November 15, 2015 through Interest coupons are payable at May 15 and November 15 at annual rates ranging from 5.5% to 5.7%. (B) Hospital Revenue Bonds, Series 2008A, $10,000,000. Bond proceeds were used by the Hospital to provide funds to construct and equip a replacement hospital. A portion of the Series 2008A bonds ($2,260,000) mature at varying amounts on September 1, 2022 through The remainder of the Series 2008A bonds includes two term bonds totaling $1,800,000, due September 1, 2026, and $5,940,000, due September 1, Interest coupons are payable at March 1 and September 1 at annual rates ranging from 5.05% to 6.75%. (C) Hospital Revenue Bonds, Series 2008B, $7,500,000. Bond proceeds were used by the Hospital to provide funds to construct and equip a replacement hospital. The bonds mature serially at varying annual amounts through September 1, Interest coupons are payable at March 1 and September 1 at annual rates ranging from 4.05% to 5.4%. (D) Hospital Revenue Bonds, Series 2009, $17,620,000. Bond proceeds were used by the Hospital to provide additional funding to construct and equip a replacement hospital. A portion of the Series 2009 bonds (remaining due of $5,230,000) mature at varying amounts through September The remainder of the bonds includes two term bonds in the amount of $3,555,000, due September 1, 2026, and $5,450,000, due September 1, Interest coupons are payable at March 1 and September 1 at annual rates ranging from 4.4% to 7.0%. (E) Note payable, unsecured, paid in full on February 28, 2015 and June 24, 2015, bearing interest at 2.75% and 4.75%. (F) Note payable, secured by equipment and a building, due July 15, 2025, bearing interest at 3.25%, payable in monthly installments of $27,

23 Note 8. Long-Term Debt (Continued) The Master Trust Indenture related to Series 1998, 2008A, 2008B and 2009 Bonds includes a financial covenant with which the Hospital is to comply each year. The "historical debt service coverage ratio" covenant requires adjusted earnings equal or greater than 1.25 times the historical annual debt service for the year. The Hospital revenue bonds are collateralized by the Hospital s receivables, inventory, land, buildings, equipment, furnishings and other assets. The Foundation has guaranteed the Hospital s payment of principal and interest of the Hospital Revenue Bonds, Series Under the terms of the guaranty agreement, the Foundation is required to maintain its unrestricted net assets in an amount that is not less than the principal amount of the Series 1998 bonds outstanding. The Foundation has also entered into a support agreement related to the Series 2008 and 2009 bonds. Under this agreement, the Foundation will provide $2.5 million to fund the required bond reserve accounts under the related bond issuances. In addition, the Foundation has agreed to provide funding, if needed, to the Hospital in amounts not to exceed $9.5 million. This agreement is in effect while any of the Series 2008 or 2009 bonds are outstanding. Aggregate annual maturities of long-term debt as of September 30, 2015 are as follows: 2016 $ 1,663, ,738, ,821, ,910, ,993,829 Thereafter 23,411,259 $ 32,538,510 Note 9. Self Insurance and Contingent Liabilities Medical malpractice insurance: The Organization purchases medical malpractice insurance under a claims-made policy on a fixed premium basis. Accounting principles generally accepted in the United States of America require a health care provider to accrue the expense of its share of malpractice claim costs, if any, for any reported and unreported incidents of potential improper professional service occurring during the year by estimating the probable ultimate costs of the incidents. Based upon the Organization s claims experience, management has recorded a reserve of approximately none and $48,000 as of September 30, 2015 and 2014, respectively. Under Kansas law, the Kansas Insurance Department provides excess liability insurance through the Kansas Healthcare Stabilization Fund. Self-insured employee health insurance: The Organization is self-insured for its employee health insurance. The Organization maintains insurance coverage for individual claims which exceed $125,000 per person per year and an aggregate of $192,500. As of September 30, 2015 and 2014, the Organization has recorded a liability of approximately $334,000 and $301,000, respectively, for estimated self-insured employee health insurance claims which is included as health insurance accruals on the accompanying consolidated balance sheet. There are no amounts receivable under the stop-loss insurance coverage as of September 30, 2015 and Expenses related to this plan were approximately $2,153,000 and $2,478,000 for the years ended September 30, 2015 and 2014, respectively. 21

24 Note 9. Laws and regulations: Self Insurance and Contingent Liabilities (Continued) The health care industry is subject to numerous laws and regulations of federal, state and local governments. Compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as regulatory actions unknown or unasserted at this time. These laws and regulations include, but are not limited to, accreditation, licensure, government health care program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these laws and regulations could result in exclusion from government health care program participation, together with the imposition of significant fines and penalties, as well as significant repayment for past reimbursement for patient services received. While the Organization is subject to similar regulatory reviews, management believes that the outcome of such regulatory reviews will not have a material adverse effect on the Organization s financial position. CMS RAC Program: Congress passed the Medicare Modernization Act in 2003, which among other things established a demonstration of The Medicare Recovery Audit Contractor (RAC) program. The RAC identified and corrected a significant amount of improper overpayments to providers. In 2006, Congress passed the Tax Relief and Health Care Act of 2006 which authorized the expansion of the RAC program to all 50 states. The Organization has been subject to such audits and may continue to be subject to additional audits at some time in the future. Current economic conditions: Current economic conditions have made it difficult for certain of the Organization s patients to pay for services rendered. As employers make adjustments to health insurance plans or more patients become unemployed, services provided to self-pay and other payers may significantly impact net patient service revenue, which could have an adverse impact on the Organization s future operating results. Further, the effect of economic conditions on the state may have an adverse effect on cash flows related to the Medicaid program. Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in investment values and allowances for accounts and contributions receivable that could negatively impact Organization s ability to meet debt covenants or maintain sufficient liquidity. Health care reform: As a result of recently added enacted federal health care reform legislation, substantial changes are anticipated in the United States health care system. Such legislation includes numerous provisions affecting the delivery of health care services, the financing of health care costs, reimbursement of health care providers and the legal obligations of health insurers, providers and employers. These provisions are currently slated to take effect at specified times over approximately the next decade. Litigation: The Organization is party to litigation matters and claims arising in the normal course of its operations. In the opinion of management, disposition of these matters will not have a material adverse effect on the Organization s consolidated financial position or results of operations. 22

25 Note 10. Employee Benefit Plans The Organization sponsors a defined contribution pension plan and a profit sharing plan covering substantially all employees. The plans allow for employee contributions equal to 100% of the employee's annual compensation up to IRS limits; in addition, the employer will match 50% of the employee's contributions up to a maximum contribution of 3% of the employee's annual compensation. Contributions to the profit sharing plan are determined annually by the Board. Expense under these plans was approximately $251,000 and $247,000 during the years ended September 30, 2015 and 2014, respectively. The Organization sponsors a 457(b) retirement plan that covers certain members of management. The plan has no required contributions and no expense was recognized during the years ended September 30, 2015 and 2014, related to the plan. The Organization also maintains a deferred compensation plan that covers one member of management. The expense related to the plan was approximately $38,000 and $20,000 during the years ended September 30, 2015 and 2014, respectively. 23

26 Consolidating Balance Sheet September 30, 2015 Atchison Hospital Riverbend Regional Healthcare Assets Association Foundation Eliminations Total Current Assets: Cash and cash equivalents $ 9,337,776 $ 215,895 $ - $ 9,553,671 Assets limited as to use 1,587, ,587,603 Patient accounts receivable, net 5,511, ,511,195 Other accounts receivable 455, ,472 Due from affiliates - 439,791 (439,791) - Inventories 941, ,136 Prepaid expenses and other 656, ,589 Total current assets 18,489, ,686 (439,791) 18,705,666 Assets Limited as to Use: Internally designated 517,311 10,219,384-10,736,695 Under bond indentures, held by trustee 3,294, ,294,905 Externally restricted by donors 143, ,216 3,955,432 10,219,384-14,174,816 Less amounts required to meet current obligations 1,587, ,587,603 2,367,829 10,219,384-12,587,213 Property and Equipment: Land and improvements 979, ,525 Buildings 37,216, ,216,734 Furniture and equipment 12,858, ,858,006 51,054, ,054,265 Less accumulated depreciation 23,141,563 23,141,563 27,912, ,912,702 Other Assets: Deferred financing costs, net 401, ,066 Physician advances 334, , , ,210 $ 49,505,512 $ 10,875,070 $ (439,791) $ 59,940,791 24

27 Atchison Hospital Riverbend Regional Healthcare Liabilities and Net Assets Association Foundation Eliminations Total Current Liabilities: Current maturities of long-term debt $ 1,663,190 $ - $ - $ 1,663,190 Accounts payable 1,447, ,448,165 Accrued expenses: Accrued payroll 664, ,280 Vacation 682, ,999 Health insurance 334, ,383 Interest 162, ,603 Other 50, ,892 Estimated settlements due to third-party payors 311, ,122 Due to affiliates 446,079 - (446,079) - Total current liabilities 5,763, (446,079) 5,317,634 Long-Term Debt, less current maturities 30,797, ,797,439 Deferred Compensation 696, ,347 Total long-term liabilities 31,493, ,493,786 Total liabilities 37,257, (446,079) 36,811,420 Net Assets: Unrestricted 12,105,213 10,874,654 6,288 22,986,155 Temporarily restricted 143, ,216 Total net assets 12,248,429 10,874,654 6,288 23,129,371 $ 49,505,512 $ 10,875,070 $ (439,791) $ 59,940,791 25

28 Consolidating Balance Sheet September 30, 2014 Atchison Hospital Riverbend Regional Healthcare Assets Association Foundation Eliminations Total Current Assets: Cash and cash equivalents $ 5,478,209 $ 198,393 $ - $ 5,676,602 Assets limited as to use 1,526, ,526,928 Patient accounts receivable, net 6,436, ,436,047 Other accounts receivable 490, ,205 Due from affiliates - 649,791 (649,791) - Inventories 902, ,869 Estimated settlements due from third-party payors 218, ,808 Prepaid expenses and other 587, ,509 Total current assets 15,640, ,184 (649,791) 15,838,968 Assets Limited as to Use: Internally designated 456,463 10,348,195-10,804,658 Under bond indentures, held by trustee 3,248, ,248,657 Externally restricted by donors 143, ,237 3,848,357 10,348,195-14,196,552 Less amounts required to meet current obligations 1,526, ,526,928 2,321,429 10,348,195-12,669,624 Property and Equipment: Land and improvements 979, ,525 Buildings 33,908, ,908,270 Furniture and equipment 11,945, ,945,745 Construction in progress 288, ,214 47,121, ,121,754 Less accumulated depreciation 19,904, ,904,205 27,217, ,217,549 Other Assets: Deferred financing costs, net 459, ,975 Physician advances 423, , , ,417 $ 46,062,970 $ 11,196,379 $ (649,791) $ 56,609,558 26

29 Atchison Hospital Riverbend Regional Healthcare Liabilities and Net Assets Association Foundation Eliminations Total Current Liabilities: Current maturities of long-term debt $ 1,636,377 $ - $ - $ 1,636,377 Accounts payable 1,049, ,049,849 Accrued expenses: Accrued payroll 478, ,693 Vacation 621, ,719 Health insurance 301, ,053 Interest 171, ,928 Other 103, ,099 Due to affiliates 653,649 - (653,649) - Total current liabilities 5,015, (653,649) 4,362,718 Long-Term Debt, less current maturities 29,710, ,710,775 Deferred Compensation 597, ,958 Total long-term liabilities 30,308, ,308,733 Total liabilities 35,324, (653,649) 34,671,451 Net Assets: Unrestricted 10,595,049 11,195,963 3,858 21,794,870 Temporarily restricted 143, ,237 Total net assets 10,738,286 11,195,963 3,858 21,938,107 $ 46,062,970 $ 11,196,379 $ (649,791) $ 56,609,558 27

30 Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2015 Riverbend Atchison Regional Hospital Healthcare Association Foundation Eliminations Total Revenue: Patient service revenue, net of contractual adjustments $ 39,827,294 $ - $ - $ 39,827,294 Less provision for uncollectible accounts 4,210, ,210,369 Net patient service revenue 35,616, ,616,925 Other operating revenue 744, ,985 Total revenue 36,361, ,361,910 Expenses: Salaries and contract labor 13,652, ,652,629 Physician compensation 3,319, ,319,515 Employee benefits 3,837, ,837,793 Supplies and other 4,561, ,561,724 Purchased services 5,124, ,124,785 Other expense 179,529 53, ,276 Depreciation and amortization 3,382, ,382,946 Insurance 321, ,835 Utilities 433, ,185 Interest 1,778,145 - (20,534) 1,757,611 Loss on disposal of equipment 3, ,186 Total expenses 36,595,272 53,747 (20,534) 36,628,485 Operating (loss), before 340B program (233,362) (53,747) 20,534 (266,575) 340B Program, net 1,155, ,155,174 Income (loss) from operations 921,812 (53,747) 20, ,599 Nonoperating gains, net: Investment income 48, ,002 (18,104) 341,432 Contributions 29, ,818 78, ,002 (18,104) 371,250 Excess of revenue over expenses 1,000, ,255 2,430 1,259,849 Change in unrealized gains/losses on investments - (68,564) - (68,564) Contributions (to) from affiliate 510,000 (510,000) - - Increase (decrease) in unrestricted net assets 1,510,164 (321,309) 2,430 1,191,285 Temporarily restricted net assets, net assets released from restrictions (21) - - (21) Increase (decrease) in net assets 1,510,143 (321,309) 2,430 1,191,264 Net assets: Beginning 10,738,286 11,195,963 3,858 21,938,107 Ending $ 12,248,429 $ 10,874,654 $ 6,288 $ 23,129,371 28

31 Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2014 Riverbend Atchison Regional Hospital Healthcare Association Foundation Eliminations Total Revenue: Patient service revenue, net of contractual adjustments $ 39,278,916 $ - $ - $ 39,278,916 Less provision for uncollectible accounts 4,658, ,658,944 Net patient service revenue 34,619, ,619,972 Other operating revenue 793, ,405 Total revenue 35,413, ,413,377 Expenses: Salaries and contract labor 12,943, ,943,439 Physician compensation 3,488, ,488,796 Employee benefits 4,110, ,110,574 Supplies and other 4,561, ,561,579 Purchased services 5,020, ,020,182 Other expense 322,575 92, ,021 Depreciation and amortization 3,448, ,448,515 Insurance 356, ,044 Utilities 455, ,080 Interest 1,909,190 - (21,144) 1,888,046 Loss on disposal of equipment 4, ,391 Total expenses 36,620,365 92,446 (21,144) 36,691,667 Operating (loss), before 340B program (1,206,988) (92,446) 21,144 (1,278,290) 340B Program, net 1,390, ,390,887 Income (loss) from operations 183,899 (92,446) 21, ,597 Nonoperating gains, net: Investment income 20, ,456 (22,778) 528,091 Contributions 59, ,960 80, ,456 (22,778) 588,051 Excess of revenue over expenses 264, ,010 (1,634) 700,648 Changes in unrealized gains/losses on investments - 435, ,231 Contributions (to) from affiliate 475,000 (475,000) - - Increase in unrestricted net assets 739, ,241 (1,634) 1,135,879 Temporarily restricted net assets, net assets released from restrictions Increase in net assets 739, ,241 (1,634) 1,135,879 Net assets: Beginning 9,999,014 10,797,722 5,492 20,802,228 Ending $ 10,738,286 $ 11,195,963 $ 3,858 $ 21,938,107 29

32

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