Philadelphia Home Care

Transcription

1 Consolidated Financial Statements and Supplementary Information

2 Table of Contents Page Independent Auditors Report 1 Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Operations 4 Consolidated Statement of Changes in Net Assets 5 Consolidated Statement of Cash Flows 6 7 Supplementary Information Schedules for 2016: Schedule of Consolidating Information, Balance Sheet 21 Schedule of Consolidating Information, Statement of Operations 23 Schedule of Consolidating Information, Statement of Changes in Net Assets 24

3 Baker Tilly Virchow Krause, LLP 1650 Market St, Ste 4500 Philadelphia, PA tel tel fax bakertilly.com Independent Auditors Report Board of Trustees Philadelphia Home Care Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Philadelphia Home Care, which comprise the balance sheet as of, and the related consolidated statements of operations, 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 Consolidated 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. Auditors 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 financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 An Affirmative Action Equal Opportunity Employer

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Philadelphia Home Care as of, and the results of its operations, changes in net assets, and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information presented on pages 21 to 24 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, and changes in net assets 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 information has been subjected to the auditing procedures applied in the audits 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 standard 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. Philadelphia, Pennsylvania October 4,

5 Consolidated Balance Sheet Assets Current Assets Cash and cash equivalents $ 1,553,425 $ 2,994,255 Accounts receivable, patients (net of estimated allowance for doubtful accounts of approximately $128,000 in 2016 and $135,000 in 2015) 3,638,005 3,560,485 Prepaid expenses and other current assets 556, ,527 Total current assets 5,747,904 7,083,267 Long-Term Investments 24,169,491 24,298,871 Property and Equipment, Net 303, ,886 Other Assets 685, ,197 Total assets $ 30,906,484 $ 32,481,221 Liabilities and Net Assets Current Liabilities Current maturities of long-term debt $ 630,072 $ 608,507 Accounts payable 1,083, ,811 Deferred revenues 693, ,154 Accrued payroll, payroll taxes, and withholdings 826,993 1,407,420 Accrued vacation and other benefits 990, ,734 Other accrued expenses 635, ,472 Total current liabilities 4,859,553 5,160,098 Long-Term Debt, Net 377,666 1,007,738 Estimated Third-Party Payor Settlement 42,743 66,081 Other Liabilities 679, ,197 Total liabilities 5,959,104 6,879,114 Net Assets Unrestricted 13,462,682 13,655,669 Temporarily restricted 9,135,235 9,596,975 Permanently restricted 2,349,463 2,349,463 Total net assets 24,947,380 25,602,107 Total liabilities and net assets $ 30,906,484 $ 32,481,221 See notes to consolidated financial statements 3

6 Consolidated Statement of Operations Years Ended Unrestricted Revenues, Gains, and Other Support Net patient service revenues $ 31,642,679 $ 30,806,570 Other revenues 12,905 13,704 Net assets released from restrictions used for operations 1,118,217 1,036,611 Total unrestricted revenues, gains, and other support 32,773,801 31,856,885 Expenses Salaries and wages 20,664,466 19,219,490 Supplies and other expenses 5,358,888 4,822,273 Employee benefits 4,577,799 4,177,943 Contract services 1,459,563 1,467,932 Occupancy 862, ,021 Insurance 197, ,648 Depreciation and amortization 110, ,004 Interest 44,904 74,641 Provision for bad debts 285, ,538 Total expenses 33,561,546 31,256,490 Operating (loss) income (787,745) 600,395 Other Income (Loss) Contributions 115, ,706 Interest and dividends 394, ,500 Net realized gains on sale of investments 153, ,915 Change in net unrealized losses on investments (110,303) (425,000) Revenues (less than) in excess of expenses (234,633) 1,371,516 Net Assets Released from Restrictions for Property and Equipment 41,646 - Loss from Discontinued Operations - (688,011) (Decrease) increase in unrestricted net assets $ (192,987) $ 683,505 See notes to consolidated financial statements 4

7 Consolidated Statement of Changes in Net Assets Years Ended Unrestricted Net Assets Revenues (less than) in excess of expenses $ (234,633) $ 1,371,516 Net assets released from restrictions for property and equipment 41,646 - Loss from discontinued operations - (688,011) (Decrease) increase in unrestricted net assets (192,987) 683,505 Temporarily Restricted Net Assets Contributions 289, ,253 Net realized gains on sale of investments 85, ,533 Interest and dividends 389, ,770 Change in net unrealized losses on investments (66,115) (444,440) Net assets released from restrictions (1,159,863) (1,036,611) Decrease in temporarily restricted net assets (461,740) (207,495) Permanently Restricted Net Assets Contributions - 2,290 (Decrease) increase in net assets (654,727) 478,300 Net Assets, Beginning 25,602,107 25,123,807 Net Assets, Ending $ 24,947,380 $ 25,602,107 See notes to consolidated financial statements 5

8 Consolidated Statement of Cash Flows Years Ended Cash Flows from Operating Activities (Decrease) increase in net assets $ (654,727) $ 478,300 Adjustments to reconcile (decrease) increase in net assets to net cash (used in) provided by operating activities: Depreciation and amortization 110, ,527 Provision for bad debts 285, ,487 Loss on disposal of property and equipment 46,686 - Net realized gains on sale of investments (239,493) (1,218,448) Change in net unrealized gains and losses on investments 176, ,440 Restricted contributions (289,680) (191,543) Changes in assets and liabilities: Accounts receivable (362,598) (221,898) Prepaid expenses and other current assets (27,947) 178,093 Pledges receivable (6,000) 14,500 Accounts payable and accrued expenses (367,615) 86,907 Deferred revenues 45,505 68,014 Estimated third-party payor settlement (23,338) (29,675) Other liabilities 33,945 89,189 Net cash flows (used in) provided by operating activities (1,273,055) 645,893 Cash Flows from Investing Activities Net proceeds from sales of investments 192,455 22,945 Purchases of property and equipment (7,458) (164,869) Increase in other assets (33,945) (89,189) Net cash flows provided by (used in) investing activities 151,052 (231,113) Cash Flows from Financing Activities Repayment of long-term debt (608,507) (1,155,377) Restricted contributions 289, ,543 Net cash flows used in financing activities (318,827) (963,834) Net decrease in cash and cash equivalents (1,440,830) (549,054) Cash and Cash Equivalents, Beginning 2,994,255 3,543,309 Cash and Cash Equivalents, Ending $ 1,553,425 $ 2,994,255 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 44,904 $ 75,972 See notes to consolidated financial statements 6

9 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Philadelphia Home Care is the holding company and sole member of The Visiting Nurse Association of Greater Philadelphia ( The VNA ) and The Visiting Nurse Society of Philadelphia ( VNS ). VNA Physician Services, LLC, and VNA Rehab, which are dormant companies, are controlled entities of The VNA. The assets of VNS are shown combined with the assets of the Starr Centre Association ( Starr Centre ) as the Starr Centre is an affiliated entity under common control of VNS. The VNA and VNA Rehab provide home health care, including home health services, health promotion, hospice, psychosocial services, health maintenance, rehabilitation services and home physician services to individuals regardless of their ability to pay within the organization s financial means. VNS makes annual contributions to The VNA to provide charitable assistance to those unable to secure skilled services in time of illness. On July 1, 2015, The VNA entered into a Practice Transfer Agreement with a third party medical group to sell the operations related to House Calls, one of The VNA s divisions. The financial results relating to House Calls are reported as discontinued operations in the consolidated statement of operations. Philadelphia Home Care evaluated subsequent events for recognition or disclosure through October 4, 2016, the date the consolidated financial statements were available to be issued. Basis of Consolidation The consolidated financial statements include the accounts of Philadelphia Home Care, The VNA, VNA Physician Services, LLC, VNA Rehab, VNS and Starr Centre (collectively PHC ). All significant intercompany balances and transactions have been eliminated in consolidation. 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. Cash and Cash Equivalents Cash and cash equivalents include investments in highly liquid debt instruments purchased with original maturities of three months or less. 7

10 Accounts Receivable, Patients Accounts receivable, patients are reported at net realizable value. Accounts are written off when they are determined to be uncollectible based upon management s assessment of individual accounts. The allowance for doubtful accounts is estimated based upon a periodic review of the accounts receivable aging, payor classifications and application of historical write-off percentages. Investments and Investment Risk Investments in equity securities with readily determinable market values are stated at fair value. Investment income or loss (including realized and unrealized gains and losses on investments, interest and dividends) is included in the determination of revenues (less than) in excess of expenses unless the income or loss is restricted by donor or law. PHC s investments are comprised primarily of mutual funds and marketable equity securities and are managed by investment advisors. The fair values reported in the consolidated balance sheet are exposed to various risks including changes in the equity markets, the interest rate environment, and general economic conditions. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the fair value of investment securities, it is reasonably possible that the amounts reported in the accompanying consolidated financial statements could change materially in the near term. Property and Equipment Property and equipment acquisitions are recorded at cost. Depreciation including amortization of leasehold improvements and equipment under capital lease is computed on the straight-line method over the estimated useful life of each class of depreciable asset. Gifts of long-lived assets such as land, buildings or equipment are reported as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations as to the length of time long-lived assets must be maintained, expirations of donor restrictions are reported when the donated or acquired long-lived assets are placed in service. Deferred Revenues Deferred revenues represent net patient service revenues received in advance of performing services. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by PHC has been limited by donors to a specific purpose or time period. Permanently restricted net assets have been restricted by donors to be maintained by PHC in perpetuity. 8

11 Revenues (Less Than) in Excess of Expenses The consolidated statement of operations includes the determination of revenues (less than) in excess of expenses. Changes in unrestricted net assets which are excluded from the determination of revenues (less than) in excess of expenses, consistent with industry practice, include loss from discontinued operations, and contributions of long-lived assets (including assets acquired using contributions which by donor restriction were to be used for the purposes of acquiring such long-lived assets). Net Patient Service Revenues Net patient service revenues are reported at the net realizable amounts from patients, thirdparty payors and others for services rendered. It is reasonably possible that the estimates used could change in the near term. Charity Care PHC provides charity care to patients who meet certain criteria without charge or at amounts less than its published rates. Because PHC does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenues. PHC also subsidizes the treatment of certain patients who are covered by Medicaid, Medicaid HMOs, and Medicare HMOs where reimbursement by such payors is below the cost of treating such patients. Services provided under these government programs are reported as patient service revenues at the net realizable amounts. Donor-Restricted Gifts Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value at the date the gift 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 in the consolidated statement of operations as net assets released from restrictions. Spending Policy VNS maintains a total return (income plus changes in the capital value of investments) spending policy. The spending policy was designed to preserve the real value of the VNS investment portfolio over time. The Board of Managers (the Board ) approved a spending policy that makes available 4% of the average market value of VNS total investments to contribute annually to The VNA to fund its operations. The average market value is calculated based on the market value of investments for the previous twelve quarters. Any investment income in excess of the spending amount is retained to support operations of future years and to offset potential market declines and inflation. The Board has set the level of distribution and believes it is within the limitations imposed by Pennsylvania statute. 9

12 Income Taxes Philadelphia Home Care, The VNA, VNS, and Starr Centre 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 their exempt income under Section 501(a) of the Internal Revenue Code. VNA Rehab is subject to federal income taxes. As a limited liability company, VNA Physician Services, LLC is treated as if it were a partnership for federal and state income tax purposes. Therefore, income earned by the VNA Physician Services, LLC is passed through to its member, and as such, no income taxes have been incurred or accrued by VNA Physician Services, LLC. PHC accounts for uncertainty in income taxes using a recognition threshold of more-likelythan-not to be sustained upon examination by the appropriate taxing authority. Measurement of the tax uncertainty occurs if the recognition threshold is met. Management determined there were no tax uncertainties that met the recognition threshold in 2016 and PHC does not perform any activities that would be subject to unrelated business income tax; therefore, it has not filed Form 990-T, Exempt Organization Business Income Tax Return. PHC s policy is to recognize interest and penalties related to unrecognized tax deficiencies in supplies and other expenses. New Accounting Standard Revenue Recognition In May 2014, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update ( ASU ) No , Revenue from Contracts with Customers (Topic 606). ASU No supercedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. Under the requirements of ASU No , the core principle is that entities should recognize revenue to depict the transfer of promised goods or services to customers (residents) in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. PHC will be required to retrospectively adopt the guidance in ASU No for years beginning after December 15, 2018; early application is not permitted. PHC has not yet determined the impact of adoption of ASU No on its consolidated financial statements. New Accounting Standard - Presentation of Financial Statements In August 2016, the FASB issued ASU No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new guidance is intended to improve and simplify the current net asset classification requirements and information presented in financial statements and notes that is useful in assessing a not-for-profit s liquidity, financial performance and cash flows. ASU No is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. ASU No is to be applied retroactively with transition provisions. PHC is assessing the impact this standard will have on its consolidated financial statements. 10

13 New Accounting Standard Leases In February 2016, the FASB issued ASU No , Leases (Topic 842). ASU No was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the provisions of ASU No , a lessee is required to recognize a right-to-use asset and lease liability, initially measured at the present value of the lease payments, in the balance sheet. In addition, lessees are required to provide qualitative and quantitative disclosures that enable users to understand more about the nature of the PHC s leasing activities. PHC will be required to retrospectively adopt the guidance in ASU No for years beginning after December 15, PHC has not yet determined the impact of adoption of ASU No on its consolidated financial statements. 2. Uncompensated Care and Community Service PHC maintains records to identify and monitor the level of charity care it provides. These records include the estimated cost to provide services rendered and supplies furnished under its charity care policy. PHC also provides visits under federal and state programs where actual patient care costs exceed federal or state reimbursement for the related services. In addition, PHC provides healthcare assessments and education in the Philadelphia community by The VNA Community Health Education and Outreach ( CHEO ) nurses. Charity care visits and the estimated related costs consist of the following in 2016 and 2015: Visits/Days Cost Visits/Days Cost Uncompensated care Home Health 1,359 $ 252,039 1,471 $ 239,933 Hospice - In Patient , ,618 Hospice - In Home 44 27, ,719 Medicare HMOs and Medicaid HMOs, net of revenue received 50,089 3,180,355 52,146 1,785,890 CHEO Assessments 3,132 60,788 9, ,709 Total 54,774 $ 3,545,098 63,710 $ 2,378,869 PHC also provides certain community health services to the public at rates that are below cost, such as adult programs to medically needy individuals and hospice caregiver services. Costs related to these services are included in operating expenses. 11

14 3. Net Patient Service Revenues PHC has agreements with third-party payors that provide for payments at amounts different from their established rates. A significant portion of PHC s net patient service revenues is derived from these third-party payor programs. A summary of the principal payment arrangements with major third-party payors is as follows: Medicare: Payments for home health services rendered to Medicare beneficiaries are paid based on prospectively determined rates. These rates vary according to a patient classification system that is based on clinical and other factors. PHC is reimbursed for hospice care services based on a published fee schedule. PHC is subject to examination by regulatory agencies. Medicaid: Home health and hospice services rendered to Medical Assistance program beneficiaries are paid based on a published fee schedule. Managed Care: Home health services related to managed care subscribers are paid based on contractually determined rates. PHC has also entered into payment arrangements with certain commercial insurance carriers, health maintenance organizations, preferred provider organizations, and other organizations. The basis for payment to PHC under these agreements includes prospectively determined rates per visit or discounts from published charges. 4. Fair Value Measurements and Long-Term Investments Fair Value Measurements PHC follows the provisions of authoritative guidance relating to fair value measurements. This guidance defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America, and enhances disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The framework that the authoritative guidance establishes for measuring fair value includes a hierarchy used to classify the inputs used in determining fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measure. The levels of the fair value hierarchy are as follows: Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to PHC for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. 12

15 Level 2 - Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 - Fair value would be based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques. The following table summarizes long-term investments measured at fair value on a recurring basis for PHC at : Cash and cash equivalents $ 82,994 $ 456,786 Equity mutual funds: Stock market index 3,442,866 3,532,784 International stock index 1,517,812 1,621,564 Other 3,350,786 3,511,647 Fixed income mutual funds: Bond market index 3,583,918 3,556,446 Short-term bonds 1,410,379 1,442,581 Other 2,143,073 2,139,321 Marketable equity securities 8,637,663 8,037,742 Total $ 24,169,491 $ 24,298,871 PHC s long-term investments have fair values that were measured using Level 1 inputs on a recurring basis. At, PHC did not have any assets or liabilities whose fair values were measured using Level 2 or 3 inputs on a recurring basis. Valuation Methodologies The following is a description of the valuation methodologies used for financial assets measured at fair value. There have been no changes in the methodologies used at June 30, 2016 and Cash and cash equivalents include certain instruments in highly liquid debt instruments with original maturities of three months or less at date of purchase. Mutual funds are valued at the net asset value ( NAV ) of shares held by PHC at year end. Marketable equity securities are valued at closing price reported on the active market on which the individual securities are traded. The methods described above may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while PHC believes its valuation methods are appropriate, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

16 Unrestricted investment income and gains from long-term investments are included in other revenues and nonoperating items - investment income for the years June 30, 2016 and 2015, and are comprised of the following: Other revenues, Interest and dividends $ 3,441 $ 7,718 Investment income: Interest and dividends 394, ,500 Net realized gains on sale of investments 153, ,915 Change in net unrealized losses on investments (110,303) (425,000) Total investment income 437, ,415 Total return on investments $ 441,145 $ 617, Property and Equipment and Accumulated Depreciation and Amortization Property and equipment and accumulated depreciation at consist of the following: Computer equipment $ 1,632,308 $ 1,890,154 Furniture and fixtures 1,263,645 1,474,339 Leasehold improvements 89,971 72,468 Computer software 409, ,580 Total 3,395,504 3,846,541 Less accumulated depreciation and amortization (3,091,557) (3,392,655) Property and equipment, net $ 303,947 $ 453,886 14

17 6. Long-Term Debt Loan and Security Agreement PHC has a loan and security agreement (the Agreement ) with Santander Bank. The Agreement consists of a term loan (the Loan ) and a revolving line of credit (the Line ). The Loan, as amended on December 20, 2013, bears interest on the outstanding principal balance at a fixed rate of 3.42%. Payments of principal are to be in equal monthly installments of $54,592 with a final payment on the remaining principal balance due January 1, The Loan balance was $1,007,738 and $1,616,245 at June 30, 2016 and 2015, respectively. The Line permits borrowing of up to $1,000,000, expiring December 31, 2016, bearing interest at the Prime rate, as defined (3.50% at June 30, 2016). There was no outstanding balance on the Line at. Proceeds of the Loan and advances on the Line are to be used for working capital purposes and to fund certain capital expenditures. At June 30, 2016, the Loan and Line was collateralized by $3,869,414 of investments held by PHC. Scheduled principal repayments on the Loan at June 30, 2016 are as follows: Years ending June 30: 2017 $ 630, ,666 Total $ 1,007, Temporarily and Permanently Restricted Net Assets Temporarily Restricted Net Assets Temporarily restricted net assets at are available for the following purposes: Net gains on permanent endowment $ 9,093,733 $ 9,576,931 Hospice capital campaign 23,596 - Employee payroll deductions for free care 11,106 15,934 Germantown Relief Society Foundation 6,580 4,110 Food Drive Total $ 9,135,235 $ 9,596,975 15

18 During 2016 and 2015, the following temporarily restricted net assets were released from donor restrictions by satisfying their restricted purpose: Program restrictions accomplished: Crystal Trust $ - $ 25,000 Independence Foundation 17,670 5,016 Employee payroll deductions for free care 11,010 8,446 Sarle Cohen Fund 14,803 14,873 Hospice Capital Campaign 41,646 - Butterfly Release & Tree Lighting 14,378 5,297 Schwerin Fund 5,000 - McLean - 67,560 Marie Solis 1,700 Dolan, Eiseman, Weaver, and Hubbard Funds 1,892 3,061 St. Christopher Foundation 2,500 2,500 Germantown Fund 2,531 4,451 Jewish Foundation 5,000 - Caring Awards 98,290 - EE Music/Massage 620 Time restriction met, Gains on permanent endowment 945, ,087 Total net assets released from restrictions $ 1,159,863 $ 1,036,611 Permanently Restricted Net Assets Permanently restricted net assets consist of endowments that have been established with PHC to be held in perpetuity. These funds are included in investments in the consolidated balance sheet. Generally, the donors of these assets permit PHC to use all or part of the income earned on related investments for unrestricted or specific purposes. 8. Endowment Funds VNS maintains an endowment that consists of fourteen individual funds established for a variety of purposes. This endowment includes donor restricted endowment funds. As required by generally accepted accounting principles, net assets associated with endowment funds are classified and reported based upon the existence or absence of donor imposed restrictions. VNS has classified as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. These original values of the donor restricted net assets are always maintained by the VNS. The remaining portion of the donor restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those assets are appropriated for expenditure by VNS in a manner consistent with the donor's expressed intent. There are no Board designated endowment funds. 16

19 VNS has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. The endowment assets are invested through professional investment managers in a manner that is intended to produce results that exceed the results of a weighted index, using four published indexes, assuming a moderate level of risk. Based upon historical performance of these indexes, the average annual rate of return is expected to be approximately 9.3 percent annually. Actual returns in any given year may vary from this amount. VNS uses a diversified asset allocation that places greater emphasis on equity based investments to achieve its long term return objectives within prudent risk constraints. The Board of Managers of VNS has adopted a spending policy that distributes quarterly to the VNA to fund its operations 1% of the average market value of the VNS' investment portfolio for the previous twelve quarters. Any investment income in excess of this spending amount is retained to support future distributions, potential market declines and inflation. Donor restricted endowment net assets totaling $2,349,463 at June 30, 2016 and June 30, 2015 are classified as permanently restricted net assets in the accompanying consolidated balance sheets. Donor restricted endowment net assets totaling $9,093,733 at June 30, 2016 and $9,576,931 at June 30, 2015 are classified as temporarily restricted net assets in the accompanying consolidated balance sheets. VNS does not have any Board designated endowment funds at either date. Changes in endowment net assets for the year ended June 30, 2016 are comprised of the following: Temporarily Restricted Permanently Restricted Endowment net assets, July 1, 2015 $ 9,576,931 $ 2,349,463 Investment return: Investment income 389,004 - Net appreciation (realized and unrealized) 19,439 - Total investment return 408,443 - Contributions 53,500 Appropriation of endowment assets for expenditures (945,141) Endowment net assets, June 30, 2016 $ 9,093,733 $ 2,349,463 17

20 Changes in endowment net assets for the year ended June 30, 2015 is comprised of the following: Temporarily Restricted Permanently Restricted Endowment net assets, July 1, 2014 $ 9,785,855 $ 2,347,173 Investment return: Investment income 461,770 - Net appreciation (realized and unrealized) 178,093 - Total investment return 639,863 - Contributions 49,300 2,290 Appropriation of endowment assets for expenditures (898,087) - Endowment net assets, June 30, 2015 $ 9,576,931 $ 2,349, Lease Commitments PHC is committed under the terms of operating leases for office facilities, office equipment, and other equipment, with initial terms in excess of one year. The minimum future lease payments under operating leases as of June 30, 2016 are as follows: Years ending June 30: 2017 $ 1,187, ,148, ,115, , ,425 Thereafter 378,037 Total $ 5,677,063 Rent expense on operating leases was $1,376,496 in 2016 and $1,361,339 in

21 10. Defined Contribution Plan PHC sponsors a tax-sheltered annuity under Section 403(b) of the Internal Revenue Code (the TSA Plan ). Under the TSA Plan, eligible employees can elect to invest a pretax contribution up to 20% of their salary to a maximum of $18,000 in 2016 and Investments are participant-directed and accumulate on a tax-deferred basis with interest until withdrawn. Effective July 1, 2011, the TSA Plan was amended and restated to allow for non-discretionary employer contributions amounts to 3.5% of each participant's compensation, as defined. PHC made contributions to the TSA Plan of $696,237 in 2016 and $659,727 in PHC also sponsors a deferred compensation plan under Section 457 of the Internal Revenue Code. Under this plan, eligible employees can elect to invest a pretax contribution up to 20% of their salary to a maximum of $18,000 in 2016 and This plan carried a balance of $679,142 and $645,197 at, respectively, and is reported as other assets and other liabilities on the consolidated balance sheet. 11. Workers Compensation PHC has a retrospective plan for workers compensation coverage. The premiums for this type of plan are adjustable based on actual payroll expense recorded by category. Upon annual settlements, PHC may be required to pay additional premiums or may be refunded excess premiums paid. PHC does not anticipate these settlement amounts to materially affect PHC s financial position or results of operations. 12. Significant Concentrations of Credit Risk PHC s primary operations and service area include most communities of Philadelphia County, Pennsylvania. PHC grants credit without collateral to its patients, who are insured under thirdparty arrangements, primarily with Medicare, Medical Assistance, Blue Cross and various commercial insurance companies. Revenue earned and net receivable balances under Medicare amounted to approximately 72% and 65% of net patient service revenues and receivables in 2016, and 71% and 75% of patient service revenues in 2015, respectively. The discontinuation of involvement with Medicare would have a material adverse effect on the future operations of PHC. PHC maintains its cash and cash equivalents with several financial institutions. Cash and cash equivalents on deposit with any one financial institution are insured to $250,

22 13. Contingencies The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. Compliance with these laws and regulations is subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. Government activity continues to increase with respect to investigations and allegations concerning possible violations by healthcare providers of fraud and abuse statutes and regulations, which could result in the imposition of significant fines and penalties as well as significant repayments for patient services previously billed. Management is not aware of any material incidents of noncompliance; however, the possible future financial effects of this matter on PHC, if any, are not presently determinable. 14. Functional Expenses PHC provides home health and supportive services to individuals within its geographic location. The classification of expenses related to providing its program services approximates the following (in thousands): Program services $ 25, % $ 23, % General and administrative 7, , Total expenses $ 33, % $ 31, % 20

23 Schedule of Consolidating Information, Balance Sheet June 30, 2016 (See Independent Auditors' Report on Supplementary Information) The VNA (Consolidated) VNS Eliminations Consolidated Assets Current Assets Cash and cash equivalents $ 1,531,769 $ 21,656 $ - $ 1,553,425 Accounts receivable, patients (net of estimated allowance for doubtful collections of $128,000) 3,638, ,638,005 Prepaid expenses and other current assets 540,976 15, ,474 Amounts due from affiliates 289,613 - (289,613) - Total current assets 6,000,363 37,154 (289,613) 5,747,904 Long-Term Investments - 24,169,491-24,169,491 Property and Equipment, Net 303, ,947 Other Assets 685, ,142 Total assets $ 6,989,452 $ 24,206,645 $ (289,613) $ 30,906,484 21

24 Schedule of Consolidating Information, Balance Sheet June 30, 2016 (See Independent Auditors' Report on Supplementary Information) The VNA (Consolidated) VNS Eliminations Consolidated Liabilities and Net Assets Current Liabilities Current maturities of long-term debt $ 630,072 $ - $ - $ 630,072 Accounts payable 1,083, ,083,292 Deferred revenues 693, ,659 Accrued payroll, payroll taxes and withholdings 826, ,993 Accrued vacation and other benefits 990, ,424 Other accrued expenses 597,640 37, ,113 Amounts due to affiliates - 289,613 (289,613) - Total current liabilities 4,822, ,086 (289,613) 4,859,553 Long-Term Debt, Net 377, ,666 Estimated Third-Party Payor Settlement 42, ,743 Other Liabilities 679, ,142 Total liabilities 5,921, ,086 (289,613) 5,959,104 Net Assets Unrestricted 1,026,319 12,436,363-13,462,682 Temporarily restricted 41,502 9,093,733-9,135,235 Permanently restricted - 2,349,463-2,349,463 Total net assets 1,067,821 23,879,559-24,947,380 Total liabilities and net assets (deficit) $ 6,989,452 $ 24,206,645 $ (289,613) $ 30,906,484 22

25 Schedule of Consolidating Information, Statement of Operations Year Ended June 30, 2016 (See Independent Auditors' Report on Supplementary Information) The VNA Consolidation (Consolidated) VNS Eliminations Consolidated Unrestricted Revenues, Gains, and Other Support Net patient service revenues $ 31,642,679 $ - $ - $ 31,642,679 Other revenues 12, ,905 Net assets released from restrictions used for operations 173, ,143-1,118,217 Total unrestricted revenues, gains, and other support 31,828, ,143-32,773,801 Expenses Salaries and wages 20,664, ,990 (637,990) 20,664,466 Supplies and other expenses 5,255, ,831 (174,217) 5,358,888 Employee benefits 4,577, ,278 (139,278) 4,577,799 Contract services 1,459,563 46,561 (46,561) 1,459,563 Occupancy 862,967 26,638 (26,638) 862,967 Insurance 197, ,170 Depreciation and amortization 110, ,711 Interest 44,904 1,386 (1,386) 44,904 Provision for doubtful collections 285, ,078 Total expenses 33,457,932 1,129,684 (1,026,070) 33,561,546 Operating (loss) income (1,629,274) (184,541) 1,026,070 (787,745) Other Income (Loss) Contributions 1,069,963 71,515 (1,026,070) 115,408 Interest and dividends - 394, ,068 Net realized gains on sale of investments - 153, ,939 Change in net unrealized losses on investments - (110,303) - (110,303) Revenues (less than) in excess of expenses (559,311) 324,678 - (234,633) Net Assets Released from Restrictions for Property and Equipment 41, ,646 (Decrease) increase in unrestricted net assets $ (517,665) $ 324,678 $ - $ (192,987) 23

26 Schedule of Consolidating Information, Statement of Changes in Net Assets Year Ended June 30, 2016 (See Independent Auditors' Report on Supplementary Information) The VNA (Consolidated) VNS Eliminations Consolidated Unrestricted Net Assets Revenues (less than) in excess of expenses and $ (559,311) $ 324,678 $ - $ (234,633) Net assets released from restrictions for property and equipment 41, ,646 (Decrease) increase in unrestricted net assets (517,665) 324,678 - (192,987) Temporarily Restricted Net Assets Contributions 236,180 53, ,680 Net realized gains on sale of investments - 85,554-85,554 Interest and dividends - 389, ,004 Change in net unrealized losses on investments - (66,115) - (66,115) Net assets released from restrictions (214,720) (945,143) - (1,159,863) Increase (decrease) in temporarily restricted net assets 21,460 (483,200) - (461,740) Decerease in net assets (496,205) (158,522) - (654,727) Net Assets, Beginning 1,564,026 24,038,081-25,602,107 Net Assets, Ending $ 1,067,821 $ 23,879,559 $ - $ 24,947,380 24