Ozanam Hall of Queens Nursing Home, Inc. Financial Statements. December 31, 2011 and 2010

Transcription

1 Financial Statements

2 Financial Statements TABLE OF CONTENTS Page Independent Auditors Report FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Operations and Changes in Net Assets 4 Statements of Cash Flows SUPPLEMENTAL INFORMATION Detail to Select Financial Position Accounts 22 Schedules of Operating Revenue 23 Schedule of Expenses 24

3 Independent Auditors Report Board of Directors Ozanam Hall of Queens Nursing Home, Inc. We have audited the accompanying statements of financial position of Ozanam Hall of Queens Nursing Home, Inc. (the Home ) as of, and the related statements of operations and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Home s management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Home's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ozanam Hall of Queens Nursing Home, Inc. as of December 31, 2011 and 2010 and the results of its operations and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes 2 and 9 to the accompanying financial statements, in 2011, Ozanam Hall of Queens Nursing Home, Inc. changed its method of accounting for estimated insurance claims receivable and estimated insurance claims liabilities with the adoption of new accounting guidance. PKF O CONNOR DAVIES, a division of O CONNOR DAVIES, LLP 500 Mamaroneck Avenue, Suite 301, Harrison, NY I Tel: I Fax: I O Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

4 Board of Directors Ozanam Hall of Queens Nursing Home, Inc. Page 2 Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information on pages is presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 financial statements taken as a whole. Harrison, New York June 11, 2012

5 Statements of Financial Position December 31, ASSETS Current Assets Cash and cash equivalents $ 2,402,887 $ 7,555,703 Assets limited as to use 1,070,442 3,073,714 Accounts receivable, net 10,004,338 6,386,065 Inventory 122, ,629 Prepaid expenses 399, ,693 Other current assets 16,462 99,110 Residents' cash and cash equivalents 1,485,327 1,225,814 Total Current Assets 15,501,031 18,992,728 Assets limited as to use, net of current portion 8,215,375 7,703,932 Other third party payor receivable 5,770,495 2,423,096 Investments 10,686,022 11,669,057 Property, plant and equipment, net 56,545,063 59,109,499 Deferred refinancing costs, net 64, ,887 Deferred financing costs, net 1,689,243 1,774,415 Other assets 2,125,509 84,175 $ 100,597,221 $ 101,857,789 LIABILITIES AND NET ASSETS Current Liabilities Mortgage payable $ 1,090,000 $ 1,045,000 Accounts payable and accrued expenses 1,306,955 1,425,518 Accrued construction costs 517,456 2,091,170 Accrued payroll expenses 1,226, ,380 Accrued interest and other 315, ,162 Estimated third party payor liabilities, net 1,348,180 3,363,390 Residents' funds and security deposits 1,485,327 1,225,814 Total Current Liabilities 7,289,683 10,331,434 Bond issuance premium, net 1,538,724 1,623,884 Mortgage payable, net of current portion 34,320,000 35,410,000 Other liabilities 1,960,000 - Total Liabilities 45,108,407 47,365,318 Net Assets Unrestricted 53,693,880 53,592,374 Temporarily restricted 1,794, ,097 Total Net Assets 55,488,814 54,492,471 $ 100,597,221 $ 101,857, See notes to financial statements 3

6 Statements of Operations and Changes in Net Assets Year Ended December 31, UNRESTRICTED NET ASSETS Operating Revenue Net resident service revenue $ 52,976,242 $ 49,449,533 Other operating revenue 456, ,728 Net assets released from restrictions - 64,230 Total Operating Revenue 53,432,455 49,893,491 Operating Expenses Nursing services 19,887,141 19,989,668 Dietary and general services 8,015,842 8,166,936 Administrative and fiscal services 2,799,775 2,891,900 Nondepartmental 15,940,608 15,051,934 New York State assessment 2,322,091 2,150,027 Depreciation and amortization 4,429,898 3,809,044 Total Operating Expenses 53,395,355 52,059,509 Excess (Deficiency) of Operating Revenue Over Operating Expenses 37,100 (2,166,018) Nonoperating Revenue Unrestricted gifts and bequests - 918,130 Contributions received through the Family Circle of Ozanam Hall fund 20, ,165 Investment income 14,107 13,246 Net unrealized (loss) gain on investments (8,547) 718,042 Rental income 37,905 34,669 Total Nonoperating Revenue 64,406 1,807,252 Change in Unrestricted Net Assets 101,506 (358,766) TEMPORARILY RESTRICTED NET ASSETS Special events and contributions 894, ,723 Net assets released from restrictions - (64,230) Change in Temporarily Restricted Net Assets 894, ,493 Change in Net Assets 996,343 (214,273) NET ASSETS Beginning of year 54,492,471 54,706,744 End of year $ 55,488,814 $ 54,492,471 See notes to financial statements 4

7 Statements of Cash Flows Year Ended December 31, CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 996,343 $ (214,273) Adjustments to reconcile change in net assets to net cash from operating activities Depreciation and amortization 4,429,898 3,809,044 Amortization of bond issuance premium (85,160) (65,957) Bad debt expense 188, ,526 Gain on disposal of assets (40) (1,400) Net realized and unrealized gain on investments (821) (703,227) Changes in operating assets and liabilities Accounts receivable (3,807,095) 198,562 Inventory 7,592 4,169 Prepaid expenses 123,155 37,576 Other current and long term assets 1, ,065 Other third party payor receivable (3,347,399) (2,423,096) Accounts payable and accrued expenses (118,563) 10,782 Accrued payroll expenses 350,042 (267,686) Accrued interest and other 11,181 (3,776) Estimated third party payor liabilities, net (2,015,210) 739,077 Net Cash from Operating Activities (3,265,941) 1,477,386 CASH FLOWS FROM INVESTING ACTIVITIES Transfers of assets limited as to use 1,491,829 7,052,526 Purchases of property, plant and equipment (955,707) (825,282) Construction costs (2,361,853) (6,599,702) Purchase of investments (1,800,434), (62,575) Proceeds from sale of investments 2,784,290 22,268 Net Cash from Investing Activities (841,875) (412,765) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt (1,045,000) (1,010,000) Net Change in Cash and Cash Equivalents (5,152,816) 54,621 CASH AND CASH EQUIVALENTS Beginning of year 7,555,703 7,501,082 End of year $ 2,402,887 $ 7,555,703 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest $ 1,787,100 $ 1,875,934 Non Cash Investing Activities Accrued construction costs 517,456 2,091,170 See notes to financial statements 5

8 1. Organization and Tax Status Ozanam Hall of Queens Nursing Home, Inc. Ozanam Hall of Queens Nursing Home, Inc. (the Home ) is a 432 bed not-for-profit corporation located in Queens, New York. The Home is licensed by the State of New York and sponsored by the Carmelite Sisters and the Roman Catholic Diocese of Brooklyn. It is primarily a rehabilitative and long term health care facility for the aged and infirm. The Home is qualified as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and, accordingly, is not subject to federal income taxes. The Internal Revenue Service has classified the Home as an organization that is not a private foundation as defined in Section 509(a) of the Internal Revenue Code. 2. Summary of Significant Accounting Policies 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 judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation The financial statements report amounts separately by class of net assets based on the presence or absence of donor restrictions. Unrestricted amounts are those currently available at the discretion of the Board for use in the Home's operations. Temporarily restricted amounts are those which are stipulated by donors for special operating purposes or for the acquisition of property, plant and equipment. When a donor restriction expires, that is, when a stipulated time restriction and/or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of operations and changes in net assets as net assets released from restrictions. Fair Value Measurements The Home follows Financial Accounting Standards Board ( FASB ) guidance on Fair Value Measurements which defines fair value and establishes a fair value hierarchy organized into three levels based upon the input assumptions used in pricing assets. Level 1 inputs have the highest reliability and are related to assets with unadjusted quoted prices in active markets. Level 2 inputs relate to assets with other than quoted prices in active markets which may include quoted prices for similar assets or liabilities or other inputs which can be corroborated by observable market data. Level 3 inputs are unobservable inputs and are used to the extent that observable inputs do not exist. 6

9 2. Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents Cash and cash equivalents include certain investments in highly liquid debt instruments with a maturity date of three months or less at the time of purchase. Cash and cash equivalents do not include cash and investments whose use is limited or considered part of the Home s investment portfolio. Assets Limited as to Use Assets set aside under regulatory requirements and board designated funds are classified as limited use assets as follows: The bond proceeds fund represents funds received from the tax exempt debt issued through the Dormitory Authority of the State of New York and the balance of the Home s 25% equity contribution required by the Department of Health. The construction project fund represents funds provided from the bond proceeds fund through approved requisitions which were not paid out to vendors at year end. Funds are held in a non-interest bearing checking account. The debt service fund represents deposits that are used to meet interest and amortization payments on long-term debt. A board designated depreciation fund was approved by the board of directors for the purpose of funding depreciation expense. The restricted renovation fund represents contributions with donor-imposed restrictions relating to the renovation of the building and funds designated by the board of directors to fund future renovation costs. The Family Circle of Ozanam Hall was formed by the friends and relatives of the residents for the purpose of enriching the lives of the residents by active participation in fundraising and social functions. Allowance for Doubtful Accounts Accounts receivable are stated net of an allowance for doubtful accounts. The Home provides an allowance for doubtful accounts based upon prior experience and management s assessment of the collectability of specific accounts. The allowance for doubtful accounts totaled $629,947 and $491,822 at. Delinquent receivables are written off based on individual evaluation and specific circumstances of the resident. Investments Investments are carried at fair value. 7

10 2. Summary of Significant Accounting Policies (continued) Investment Income Recognition Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses are included in the determination of the change in net assets. Inventories Inventories of food and supplies are valued at cost using the first-in, first-out method. Property, Plant and Equipment The Home follows the practice of capitalizing all expenditures for property, plant and equipment which exceed $500 and have a useful life of at least five years. Property, plant and equipment are stated at cost. The Home provides for depreciation using the straight-line method over the estimated useful lives of assets as follows: Land improvements Building and improvements Equipment Motor vehicles Computers years years years 5 years 5 years Construction in Progress Construction in progress is stated at cost, which includes the cost of construction and other costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and placed in service. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Home records impairment losses on long-lived assets used in operations when the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No impairment charges were recognized as of. Deferred Refinancing and Financing Costs Costs associated with the refinancing of the Home s mortgage (Note 6) have been capitalized and reflected as deferred refinancing costs in the statement of financial position. The refinancing costs are being amortized over approximately 7 years. Amortization of deferred refinancing costs charged to operations was $36,404 for 2011 and 2010 and accumulated amortization was $185,796 and $149,392 at December 31, 2011 and

11 2. Summary of Significant Accounting Policies (continued) Deferred Refinancing and Financing Costs (continued) Costs relating to the Home obtaining the mortgage debt and the bond financing have been capitalized and are being amortized over the term of the related debt of approximately 22 years. Amortization expense totaled $85,172 and $63,879 for 2011 for 2010 and accumulated amortization was $149,051 and $63,879 at December 31, 2011 and Bond Issuance Premium Bond issuance premium is being amortized over the term of the related debt of approximately 22 years. Amortization of the bond issuance premium during the construction period was recorded as a reduction to capitalized interest expense. At the construction project completion date and going forward amortization has been charged to operations and recorded with nondepartmental expenses in the statements of operations and changes in net assets. Operating Measure The statements of operations and changes in net assets include excess (deficiency) of operating revenue over operating expenses. Changes in unrestricted net assets which are excluded from excess (deficiency) of operating revenue over operating expenses, consistent with industry practice, include contributions, gifts and bequests either temporarily restricted for long-term investment or designated by the Home for nonoperating purposes, unrealized (loss) gain on investments and investment income generated from restricted assets. Peripheral or incidental transactions are reported as non-operating revenue and expenses. Net Patient Service Revenue The Home has agreements with third-party payors that provide for payments to the Home at amounts different from its established rates. Payments are generally prospectively determined per-diem amounts. Net patient service revenue is reported at the estimated net realizable amounts from patients and third-party payors for services rendered, including retroactive adjustments under reimbursement agreements with thirdparty payors. Pledges The Home discounts pledges with a collection period of more than one year using a risk adjusted discount rate determined in the year in which the pledge is received. The discounted value is amortized over the term of the pledge and is recorded as contribution revenue. 9

12 2. Summary of Significant Accounting Policies (continued) Contributions All contributions are considered available for unrestricted use, unless specifically restricted by the donor or subject to legal restrictions. The Home's policy is to report as unrestricted support, contributions with donor-imposed restrictions when these restrictions are met in the same year that the contributions are received. Advertising Advertising costs are expensed as incurred. Advertising expense was $6,101 and $33,151 for 2011 and Functional Allocations of Expenses The costs of providing the Home s programs and other activities have been summarized on a functional basis. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Accounting for Uncertainty in Income Taxes The Home recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Management has determined that the Home had no uncertain tax positions that would require financial statement recognition or disclosure. The Home is no longer subject to examinations by the applicable taxing jurisdictions for periods prior to New Accounting Pronouncements In September 2011, the FASB issued new disclosure guidance about an employer s participation in a multiemployer plan that does not operate as a local plan administered by a national organization, which requires employers to provide additional quantitative and qualitative disclosures about an employer s involvement in such plans. The new disclosure requirements were not included in the Home s financial statements as of December 31, 2011, since the Home did not participate in such a plan during In July 2011, the FASB issued guidance about the presentation and disclosure of patient service revenue, the provision for bad debts, and the allowance for doubtful accounts for certain health care entities. The new guidance requires the Home to change the presentation of its statement of operations and changes in net assets by reclassifying the provision for bad debts associated with patient service revenue (net of contractual allowances). Additionally, the Home is required to provide enhanced disclosures about its policies for recognizing revenue and assessing bad debts, as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. The guidance is effective for fiscal years beginning after December 15, 2011 for entities with public debt. The Home adopted this guidance as of January 1, The adoption of this guidance is not expected to affect the Home s financial condition, net result of operations or cash flows. 10

13 2. Summary of Significant Accounting Policies (continued) Change in Accounting Principle In August 2010, the FASB issued new guidance on the Presentation of Insurance Claims and Related Insurance Recoveries, which provides clarification to companies in the health care industry on the accounting for and presentation of professional and similar contingent liabilities. Under the new guidance, these liabilities should be presented on a gross basis, rather than net of insurance recoveries, and any estimated insurance recovery should be reflected as a receivable on the same basis as the liabilities, subject to the need for a valuation allowance for uncollectible accounts. The new guidance became effective for the Home as of January 1, As permitted, the Home s statement of financial position for 2010 has not been restated to reflect the accounting change. The adoption of this guidance did not affect the Home s net result of operations or cash flows (Note 9). Subsequent Events Evaluation by Management Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued, which date is June 11, Assets Limited as to Use Assets limited as to use at December 31, consist of the following: Bond proceeds fund $ 593,115 $ 2,436,683 Construction project fund ,106 Debt service fund 477, ,925 Board designated depreciation fund 5,538,946 5,891,039 Restricted renovation fund 2,394,252 1,522,866 Family Circle of Ozanam Hall fund 282, ,027 $ 9,285,817 $ 10,777,646 11

14 3. Assets Limited as to Use (continued) Ozanam Hall of Queens Nursing Home, Inc. The following are the major categories of assets limited to use categorized by the fair value hierarchy for those assets measured at fair value at December 31: Level 1 (Quoted Prices in Active Markets) United States Treasury Bills $ 6,245,566 $ 6,852,755 United States Treasury Notes 91, ,686 6,336,747 7,323,441 Cash and cash equivalents 2,803,849 3,310,167 Certificates of deposit 104, ,881 Accrued interest 1, Promises to give 39,417 39,417 2,949,070 3,454,205 Bond Proceeds Fund $ 9,285,817 $ 10,777,646 The balance in the bond proceeds fund at December 31, consists of the following: Cash and cash equivalents $ 279 $ 1,473,919 United States Treasury Bills 592, ,764 Construction Project Fund $ 593,115 $ 2,436,683 The balance in the construction project fund at consists exclusively of cash. Debt Services Fund The balance in debt service fund at December 31, consists of the following: Custodial cash account $ 146,977 $ 1,164 United States Treasury Bills 239,035 3,335 United States Treasury Notes 91, ,686 Accrued interest $ 477,252 $ 475,925 12

15 3. Assets Limited as to Use (continued) Ozanam Hall of Queens Nursing Home, Inc. Board Designated Depreciation Fund The Home made no deposits into the Board designated depreciation fund during 2011 and Interest earned on investments for the years ended December 31, 2011 and 2010, was $5,678 and $4,833. The balance in the Board designated depreciation fund at December 31, consists of the following: Money market account $ 123,836 $ 4,383 United States Treasury Bills 5,413,695 5,886,656 Accrued interest 1,415 - Restricted Renovation Fund $ 5,538,946 $ 5,891,039 The balance in the restricted renovation fund at December 31, consists of the following: Cash and cash equivalents $ 2,354,835 $ 1,483,449 Promises to give - building renovation project 39,417 39,417 Family Circle of Ozanam Hall Fund $ 2,394,252 $ 1,522,866 The balance in the Family Circle of Ozanam Hall fund, consists of the following: Cash $ 177,847 $ 186,146 Certificates of Deposit 104, ,881 $ 282,177 $ 290,027 13

16 4. Investments Investments, at fair value, were valued exclusively using level 1 inputs and consist of the following at December 31: % 2011 % 2010 Money market funds 44 $ 4,741,604 1 $ 59,325 Equities and equity funds Consumer 515, ,209 Energy 265, ,442 Financial 218, ,319 Healthcare 128, ,586 Industrials 291, ,862 Technology 414, ,591 Other 110, ,981 Mutual funds - 2,669, ,944, ,714,915 US Government obligations Treasury bills 3,999,760 5,897,351 Treasury notes - 997, ,999, ,894,817 Total Investments 100 $ 10,686, $ 11,669,057 The composition of the investment return as reported in the statement of operations and changes in net assets for the years ended December 31, is as follows: Interest and dividends $ 54,008 $ 63,671 Realized and unrealized gains, net ,227 $ 54,829 $ 766,898 Allocated investment income Operating investment income $ 49,269 $ 35,610 Nonoperating investment income 5, ,288 $ 54,829 $ 766,898 14

17 5. Property, Plant and Equipment Ozanam Hall of Queens Nursing Home, Inc. Property, plant and equipment consist of the following at December 31: Land $ 1,092,991 $ 1,092,991 Land improvements 219, ,245 Building 17,684,847 17,570,804 Building improvements 54,873,863 53,988,807 Building equipment 8,916,509 6,919,421 Moveable equipment 1,683,822 4,221,955 Motor vehicles 114, ,142 Construction in progress 831, ,849 85,417,079 84,284,214 Accumulated depreciation and amortization (28,872,016) (25,174,715) $ 56,545,063 $ 59,109,499 Construction in progress is for various renovation projects at the Home. The total estimated additional cost to complete the projects is $11,500,000 and the expected date of the completion of all projects is Mortgage Payable The mortgage payable is associated with the fixed rate tax exempt debt issued as Dormitory Authority of the State of New York Ozanam Hall of Queens Nursing Home, Inc. Revenue Bonds, Series 2006, dated December 19, The bonds are a combination of serial bonds and term bonds, with a coupon rate ranging from 3.75% to 5.00%. Security for the bonds is a 10 year letter of credit with Allied Irish Bank renewable annually. Proceeds from the mortgage were used to repay the bridge loan and to fund the Home s major modernization project. Interest expense related to the refinanced debt is expensed and the interest expense associated with the capital renovation project was capitalized during the construction term. Interest expense capitalized in 2010 was $434,515 and the total interest capitalized during construction was $5,707,366. The capitalized interest has been recorded as a component of the cost of building improvements and is being amortized accordingly. The Home s major modernization project was completed as of March 31, 2010, with subsequent interest payments charged to expense as incurred. Interest expense for the years ended of $1,773,821 and $1,390,459 is reported on the schedule of expenses net of bond issuance premium amortization of $85,160 and $65,957, respectively. By the provisions of the documents associated with the Home s mortgage payable, the Home is required to meet certain covenants including a debt service coverage ratio covenant. Interest expense for the years ended was $1,773,821 and $1,390,

18 6. Mortgage Payable (continued) Ozanam Hall of Queens Nursing Home, Inc. Maturities of debt relating to the capital renovation project began with the first payment of principal paid on November 1, 2010 and will continue each November 1, thereafter as follows: Refinanced Renovation Debt Project Total 2012 $ 405,000 $ 685,000 $ 1,090, ,000 1,060,000 1,145, ,190,000 1,190, ,250,000 1,250, ,310,000 1,310, ,425,000 29,425, Estimated Third Party Payor Liabilities, Net $ 490,000 $ 34,920,000 $ 35,410,000 The Home has estimated the amount due to third party payors to be $1,348,180 and the Home has reflected this liability net of estimated third party payor receivables of $402, Net Resident Service Revenue The Home has agreements with third-party payors that provide for payments for services rendered by the Home. A summary of the payment arrangements with the major thirdparty payors follows: Medicaid Inpatient services rendered to Medicaid program beneficiaries are at prospectively determined per-diem rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. In addition a portion of the reimbursement rate is based on the actual capital-related costs of the Home. Medicare Inpatient services rendered to Medicare program beneficiaries are paid at prospectively determined per-diem rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. The Home has also entered into payment agreements with commercial insurance carriers. The basis for payment to the Home under these agreements generally is prospectively determined per-diem rates. 16

19 8. Net Resident Service Revenue (continued) Third-party payors retain the right to review and propose adjustments to reimbursement amounts received by the Home. Provision is made in the financial statements for anticipated adjustments that may vary from such revisions. In the normal course of business, the Home requests revisions to reimbursement amounts received under third-party payor agreements. No amounts are recorded unless the Home is reasonably assured that such revision will be granted. The New York State Department of Health ( NYSDOH ) revised its Medicaid reimbursement methodology effective April 1, 2009 based on 2002 statewide financial and patient acuity level data that is adjusted using 2009 facility specific patient acuity levels. As required under Federal Law, NYSDOH requested and received final approval of the revised methodology from the Centers for Medicare and Medicaid Services in Revenue from the Medicaid program accounted for approximately 61% and 59% of the Home s net patient service revenue for the years ended 2011 and Additionally, revenue from the Medicare program accounted for approximately 15% and 16% for the years ended 2011 and The current Medicaid and Medicare programs are based upon extremely complex laws and regulations that are subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The New York State Department of Health revised its Medicaid reimbursement methodology effective April 1, 2009 based on 2002 statewide financial and patient acuity level data that is adjusted using 2009 facility specific patient acuity levels. The estimated decrease in Medicaid revenue to the Home under this new system approximated $2,536,000 and $1,294,000 for 2010 and In 2011, revised Medicaid rates were issued for the period April 1, 2009 to December 31, 2011 and the estimated liabilities recorded in 2010 and 2009 were recouped. To mitigate the effect of imposing this new reimbursement methodology, Medicaid provided a one-time mitigation relief of $1,948,614 covering the same period as the revised rates. Of this mitigation relief, $780,229 related to 2010 and $573,701 related to As disclosed in Note 2 under Net Patient Service Revenue, retroactive rate adjustments are included in net patient service revenue in the year received. As such, the results of operations of $37,100 on the statement of operations and changes in net assets for the year ended December 31, 2011 was affected by prior year mitigation relief of $1,353, Insurance Claims The Home s estimates of professional liabilities are based upon historical claims experience for the Home and estimates for the payment patterns of future claims. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. Revisions to estimated amounts resulting from actual experience differing from projected expectations are recorded in the period the information becomes known or when changes are anticipated. 17

20 9. Insurance Claims (continued) Ozanam Hall of Queens Nursing Home, Inc. As discussed in Note 2, in 2011, the Home changed the presentation of its statement of financial position to present on a gross basis its professional liabilities and insurance recoveries receivable. The undiscounted estimate of professional liabilities and the estimate for incidents that have been incurred but not reported are included in other long-term liabilities in the accompanying statement of financial position and approximated $1,960,000 at December 31, In consideration of expected insurance recoveries the Home has recorded a receivable of approximately $1,960,000, in other long-term assets on the statement of financial position at December 31, Pension The Home participates in a multi-employer pension plan administered by the Diocese of Brooklyn (the Plan ). Pension expense for the years ended December 31, 2011 and 2010 was $1,444,301 and $1,507,792. The Plan is currently underfunded by an undetermined amount. The Home has not evaluated the effect of such under funding on future contributions but believes that any increased contributions will not materially affect its financial condition or liquidity in the near term. 11. Temporarily Restricted Net Assets Temporarily restricted net assets are restricted for the Home s building renovation project. The activity for the years ended is as follows: Balance at Balance at December 31, Net Assets December 31, Purpose 2010 Additions Released 2011 Facility renovations $ 900,097 $ 894,837 $ - $ 1,794,934 Balance at Balance at December 31, Net Assets December 31, Purpose 2009 Additions Released 2010 Facility renovations $ 755,604 $ 208,723 $ (64,230) $ 900, Functional Expenses The Home provides general health care services to residents within its geographic location. The following represents the expenses relating to providing these services for the years ended December 31: 18 Patient care $ 49,727,232 $ 48,320,676 Administrative and general 3,545,715 3,636,812 Fundraising 122, ,021 $ 53,395,355 $ 52,059,509

21 13. Related Party Transactions Ozanam Hall of Queens Nursing Home, Inc. The Home has entered into an affiliation agreement with the Carmelite System (the System ). The System is a New York not-for-profit corporation through which its affiliates strengthen and enhance their ability to participate in the long-term health care apostolate of the Roman Catholic Church in accordance with the mission and philosophy of the Carmelite Sisters. Total dues paid to the System for 2011 and 2010 were approximately $400,000 and $388,000. In addition, the System procures insurance coverage for its members and charges the Home for their share of the cost. The amount charged was approximately $89,000 and $90,000 in 2011 and The System acquired shares of stock in Preferred Professional Insurance Company ( PPIC ). The acquisition of PPIC stock was accomplished through a contribution of $50,000 to the Carmelite System by each of the system affiliates, including the Home. In accordance with the PPIC shareholders agreement, the shares of stock may be repurchased by PPIC upon request of the shareholder and subject to approval by the appropriate state insurance regulators. In connection with this investment, the System established a centralized insurance program on behalf of the system affiliates. Insurance coverage for various lines of insurance is available through the program under arrangements with PPIC and other carriers. During 2011 and 2010 the Home paid approximately $1,200,000 and $1,040,000 to the System for health and dental insurance coverage for certain employees of the Home. Certain members of the board of directors are members of the Order of Carmelite Sisters for the Aged and Infirm (the Carmelite Sisters ). Through a contract with the Home, the Carmelite Sisters provide certain administrative, nursing and other direct services to the Home. The total paid for Carmelite Sisters' services for the years ended was approximately $569,000 and $580,000. The Home provides living quarters for the Carmelite Sisters for which the Carmelite Sisters paid the Home approximately $231,000 and $144,000 for the years ended December 31, 2011 and During 2010, the Home received a grant of $350,000, from the Ozanam Hall Geriatric Foundation to support a dementia program. The Diocese of Brooklyn sponsors other entities which provide various services to affiliated organizations to aid them in carrying out their stated purposes. The Home has availed itself of certain of these services provided by these organizations, including pension and short-term disability insurance. 14. Concentration of Credit Risk Financial instruments that potentially subject the Home to concentrations of credit risk consist principally of cash, investments and accounts receivable. The Home places its cash with various financial institutions and limits the amount of credit exposure by any one financial institution. At times, the cash balance may be in excess of the Federal Deposit Insurance Corporation s insurance limit. 19

22 14. Concentration of Credit Risk (continued) The investment portfolio is diversified by type of investments and industry concentrations so that no individual investment or groups of investments represent a significant concentration of market risk. The Home grants credit without collateral to its residents, most of whom are from the local area and are insured under third-party agreements. Accounts receivable from residents and third-party payors at December 31, were approximately as follows: Medicaid 64 % 51 % Medicare Private Other insurance Contingencies Legal 100 % 100 % The Home is involved in litigation arising in the normal course of business. Management estimates that such matters will be resolved without material adverse effect on the Home s future financial position, liquidity and results from operations. Health Care Revenue and Regulatory Compliance The health care industry is subject to numerous laws and regulations imposed by federal, state, and local governments. Compliance with these laws and regulations, specifically those relating to the Medicare and Medicaid programs, can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. In addition, certain cost reports, which serve as the basis for final settlement with the Medicare program, remain open for audit and settlement, as are New York State Medicaid cost reports for prior years. Federal government activity has increased with respect to investigations and allegations concerning possible violations by health care providers of regulations, which could result in the imposition of significant fines and penalties, as well as significant repayments of previously billed and collected revenue from patient services. Furthermore, noncompliance with such laws and regulations could result in fines, penalties and exclusion from such programs. Accordingly, there is at least a reasonable possibility that recorded estimates for health care revenue will change in the near term and the change could be material to the Home s financial condition, results of operations and cash flows. 20

23 15. Contingencies (continued) Ozanam Hall of Queens Nursing Home, Inc. Healthcare revenue and Regulatory Compliance (continued) The Home is not aware of any allegations of noncompliance that could have a material adverse effect on the amounts recorded in the financial statements. In addition, management believes that the Home has an effective compliance program in place to assist in complying with current laws and regulations and is in compliance, in all material respects, with applicable laws and regulations. Reimbursement Audits The books and records of the Home have been examined by representatives of New York State for all years through March 31, Collective Bargaining Agreement Approximately 90% of the Home's employees are covered by various collective bargaining agreements. A summary of the various labor contracts is as follows at : % of Employees Contract Union Covered Expiration date New York State Nurses Association 9% March 31, 2013 United Food and Commercial Workers Union Local % March 31, 2010 * * Currently in negotiations 16. New York State Cash Assessment An assessment was imposed on substantially all nursing home cash receipts effective April 1, 2002 as part of the New York State Health Care Work Force Recruitment and Retention Act of In April 2011, the assessment was adjusted to 7.2% from 6%. The assessment rate was 6% for all of Medicaid rates were increased to reimburse nursing homes the portion of the assessment related to Medicaid cash receipts up to the 6% assessment rate with the increased portion of the rate nonreimbursable. Revenue recognized by the Home approximated $1,818,000 and $1,709,000 for 2011 and * * * * * 21

24 Supplemental Information Years Ended

25 Detail to Select Financial Position Accounts December 31, CASH AND CASH EQUIVALENTS Operating account $ 481,973 $ 238,429 Payroll account 380, ,324 Money market accounts 1,533,070 7,050,682 Petty cash 7,138 7,268 $ 2,402,887 $ 7,555,703 ACCOUNTS RECEIVABLE, NET Private $ 2,088,110 $ 1,679,172 Medicaid 6,808,371 3,499,753 Medicare 1,512,479 1,446,161 Other insurance 225, ,801 10,634,285 6,877,887 Allowance for doubtful accounts (629,947) (491,822) $ 10,004,338 $ 6,386,065 ACCRUED PAYROLL EXPENSES Accrued salaries $ 377,091 $ 297,187 Accrued compensated absences 461, ,984 Accrued fringe benefits and payroll related expenses 387,687 91,209 $ 1,226,422 $ 876,380 See independent auditors' report 22

26 Schedules of Operating Revenue Year Ended December 31, NET RESIDENT SERVICE REVENUE Medicaid $ 32,314,452 $ 29,220,315 Medicare 8,096,309 7,908,508 Private 11,439,582 10,801,190 Private insurance 1,125,899 1,519,520 $ 52,976,242 $ 49,449,533 OTHER OPERATING REVENUE Gift shop income, net of direct expenses $ 13,149 $ 14,540 Coffee shop income, net of direct expenses 39,230 18,680 Beauty shop loss, net of direct expenses (22,232) (4,566) Investment income 39,901 50,425 Net realized gain (loss) on investments 9,368 (14,815) Vending machine revenue 6,145 8,562 Employee maintenance refunds 230, ,499 Contracted services 8,887 53,980 Nursing aide training reimbursement 5,080 5,400 Gain on sale of equipment 40 1,400 Collection fees 120,048 98,608 Other operating income 5,771 3,015 $ 456,213 $ 379,728 See independent auditors' report 23

27 Schedule of Expenses Year Ended December 31, 2011 (with summarized totals for the year ended December 31, 2010) 2011 Other 2010 Salaries Expenses Total Total NURSING SERVICES Nursing $ 15,713,386 $ 272,272 $ 15,985,658 $ 16,147,603 Medical director 388,654 15, , ,098 Education 119,575 8, , ,620 Pharmacy 25, , , ,660 Central supplies - 229, , ,112 Social services 331,357 1, , ,083 Admissions 164,045 1, , ,532 Pastoral care 69, , , ,726 Recreational therapy 437,832 24, , ,525 Physical therapy 501, , , ,682 Occupational therapy 189, , , ,951 Speech therapy 109, , ,285 Laboratory fees - 107, , ,415 Radiology fees - 75,528 75,528 68,848 Enternal nutrition 29,245 63,982 93,227 91,495 Dental clinic - 50,800 50,800 54,033 $ 18,081,092 $ 1,806,049 $ 19,887,141 $ 19,989,668 DIETARY AND GENERAL SERVICES Dietary $ 2,431,337 $ 1,686,757 $ 4,118,094 $ 4,154,263 Employee cafeteria 27,928-27,928 48,723 Housekeeping 1,513, ,329 1,797,107 1,886,951 Laundry and linen 195, , , ,172 Maintenance 432, , , ,309 Security 466, , ,518 $ 5,067,648 $ 2,948,194 $ 8,015,842 $ 8,166,936 ADMINISTRATIVE AND FISCAL SERVICES Administration $ 562,627 $ 623,384 $ 1,186,011 $ 1,287,348 Fiscal 614, , , ,184 Purchasing 85,435 42, , ,221 Human resources 271,301 17, , ,750 Communications 177,008 74, , ,588 Volunteers 62,329 4,711 67,040 68,331 Fundraising 62,329 30,593 92,922 73,478 $ 1,835,537 $ 964,238 $ 2,799,775 $ 2,891,900 NONDEPARTMENTAL Employee benefits $ 11,819,455 $ 11,819,455 $ 11,594,230 Utilities 1,360,215 1,360,215 1,249,436 Interest expense, net of amortization of bond issuance premium 1,688, ,688, ,324,502 Letter of credit fees 309, , ,778 Insurance 557, , ,257 Bad debt expense 188, ,822 74,526 Real estate and other taxes 16,330 16,330 12,205 $ 15,940,608 $ 15,940,608 $ 15,051,934 See independent auditors' report 24