Visiting Nurse Services of Connecticut, Inc. Independent Auditor s Report and Financial Statements

Transcription

1 Visiting Nurse Services of Connecticut, Inc. Independent Auditor s Report and Financial Statements

2 Contents Independent Auditor s Report... 1 Financial Statements Balance Sheets... 3 Statements of Operations... 4 Statements of Changes in Net Assets... 5 Statements of Cash Flows Supplementary Information Expenses... 25

3 Independent Auditor s Report Board of Directors Visiting Nurse Services of Connecticut, Inc. Bridgeport, Connecticut We have audited the accompanying financial statements of Visiting Nurse Services of Connecticut, Inc. (the Agency ), which comprise the balance sheets as of, and the related statements of operations, changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 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 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.

4 Board of Directors Visiting Nurse Services of Connecticut, Inc. Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visiting Nurse Services of Connecticut, Inc. as of, and the results of its operations, the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Supplementary Information Our audits were performed for the purpose of forming an opinion on the basic financial statements as a whole. The supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Springfield, Missouri October 31, 2014

5 Balance Sheets Assets Current Assets Cash $ 94,771 $ 92,521 Short-term investments 4,804,491 4,277,439 Patient accounts receivable, net of allowance; $899,155 and $920,661 3,549,165 3,034,426 Prepaid expenses and other 456, ,302 Estimated amounts due from third-party payers 121, ,246 Due from affiliates 25,525 36,535 Total current assets 9,051,181 8,008,469 Assets Limited As To Use Externally restricted by donors 502, ,277 Property and Equipment, At Cost Land, building and improvements 3,977,846 3,378,140 Furniture and equipment 3,674,361 3,687,224 Automobiles 62,944 62,944 7,715,151 7,128,308 Less accumulated depreciation 5,239,043 4,862,812 2,476,108 2,265,496 Total assets $ 12,029,567 $ 10,766,242 See

6 Liabilities and Net Assets Current Liabilities Note payable to bank $ 3,510,000 $ 2,700,000 Current maturities of long-term debt 898, ,393 Accounts payable 871, ,426 Accrued salaries and related expenses 1,474,808 1,515,998 Estimated amounts due to third-party payers 1,958,775 1,744,246 Other accrued liabilities 439, ,685 Total current liabilities 9,152,507 7,654,748 Long-Term Debt 3,009,898 1,154,249 Total liabilities 12,162,405 8,808,997 Net Assets Unrestricted (2,023,143) 216,637 Temporarily restricted 1,388,027 1,248,330 Permanently restricted 502, ,278 Total net assets (132,838) 1,957,245 Total liabilities and net assets $ 12,029,567 $ 10,766,242 3

7 Statements of Operations Years Ended Unrestricted Revenues, Gains and Other Support Net patient service revenue $ 28,355,590 $ 29,980,120 Other revenue 48,382 14,018 Net assets released from restrictions used for operations 341, ,744 Total unrestricted revenues, gains and other support 28,745,728 30,242,882 Expenses and Losses Professional care of patients 22,409,359 22,058,516 General and administrative 8,056,046 9,024,038 Occupancy 797, ,397 Interest 197, ,314 Depreciation 642, ,063 Provision for uncollectible accounts 6,199 45,177 (Gain) loss on disposal of property and equipment (22,204) 141 Total expenses and losses 32,086,864 32,536,646 Operating Loss (3,341,136) (2,293,764) Other Income (Expense) Gain on sale of investments 78,118 45,150 Trust and other contributions 52,012 49,100 Investment income 190,036 85,668 Trustee fees (20,209) (21,121) Change in unrealized gains and losses on trading securities 318, ,886 Other income (expense) 3,918 (21,526) Total other income (expense) 622, ,157 Deficiency of Revenues Over Expenses (2,718,465) (1,850,607) Transfer from affiliate 478, ,000 Decrease in Unrestricted Net Assets $ (2,239,780) $ (1,550,607) See 4

8 Statements of Changes in Net Assets Years Ended Unrestricted Net Assets Deficiency of revenues over expenses $ (2,718,465) $ (1,850,607) Transfer from affiliate 478, ,000 Decrease in unrestricted net assets (2,239,780) (1,550,607) Temporarily Restricted Net Assets Grants, trust and other contributions 167, ,672 Net assets released from restriction (341,756) (248,744) Gain on sale of investments 43,661 26,953 Net unrealized appreciation on investments 177, ,039 Investment income 104,066 47,182 Trustee fees (11,300) (11,766) Increase in temporarily restricted net assets 139, ,336 Permanently Restricted Net Assets Trust and other contributions 10,000 1,007 Increase in permanently restricted net assets 10,000 1,007 Change in Net Assets (2,090,083) (1,319,264) Net Assets, Beginning of Year 1,957,245 3,276,509 Net Assets, End of Year $ (132,838) $ 1,957,245 See 5

9 Statements of Cash Flows Years Ended Operating Activities Change in net assets $ (2,090,083) $ (1,319,264) Items not requiring (providing) operating cash flow Depreciation 642, ,063 Transfer from affiliate (478,685) (300,000) (Gain) loss on sale of property and equipment (22,204) 141 Net gain on investments (618,408) (547,028) Restricted trust and other contributions (177,193) (248,679) Changes in Patient accounts receivable, net (495,607) 215,171 Due from affiliate 11,010 (15,284) Prepaid expenses and other (177,053) 9,300 Accounts payable 156,958 (169,784) Accrued payroll and related expenses (41,190) 60,100 Estimated amounts due to and due from third-party payers 348,745 (161,250) Other accrued liabilities (25,235) 9,545 Net cash used in operating activities (2,966,149) (1,979,969) Investing Activities Purchase of marketable securities (2,962,628) (2,138,837) Proceeds from disposition of marketable securities 3,043,983 2,039,095 Purchase of property and equipment (323,745) (543,719) Proceeds from disposal of property and equipment 25,509 21,286 Net cash used in investing activities (216,881) (622,175) Financing Activities Advances on line of credit 4,885,000 5,650,000 Principal payments on line of credit (4,075,000) (3,235,000) Proceeds from issuance of long-term debt 2,558,473 - Principal payments on long-term debt (839,071) (275,225) Proceeds from restricted trust and other contributions 177, ,679 Transfer from affiliate 478, ,000 Net cash provided by financing activities 3,185,280 2,688,454 Increase in Cash 2,250 86,310 Cash, Beginning of Year 92,521 6,211 Cash, End of Year $ 94,771 $ 92,521 Supplemental Cash Flows Information Interest paid $ 194,745 $ 119,493 Capital lease obligation incurred for equipment $ 768,242 $ 95,337 Receivable for capital lease trade-in $ 19,132 $ - Accounts payable incurred for property and equipment $ - $ 249,298 See 6

10 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Visiting Nurse Services of Connecticut, Inc. (the Agency ) is a nonprofit, nonstock Connecticut corporation, which provides and administers comprehensive home health care throughout Connecticut. The Agency s sole corporate member is VNA Corporations, Inc. and it shares common control with VNA Management Corporation and Partners In Care, Inc., all nonprofit, nonstock Connecticut corporations. 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 At June 30, 2014, the Agency s cash accounts exceeded federally insured limits by approximately $16,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return 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. Other investment return is reflected in the 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. Assets Limited as to Use Assets limited as to use include assets restricted by donors. Amounts available to meet current liabilities of the Agency are included in current assets. Patient Accounts Receivable The Agency reports all patient accounts receivable for services rendered at the net realizable amounts from third-party payers, patients and others. The Agency provides an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions. As a service to the patient, the Agency bills third-party payers 7

11 directly and bills the patient when the patient s liability is determined. Patient accounts receivable are due in full when billed. Accounts are considered delinquent and subsequently written off as bad debts based on individual credit evaluation and specific circumstances of the account. Property and Equipment Property and equipment acquisitions are recorded at cost and are depreciated on a straight-line basis over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. Long-Lived Asset Impairment The Agency 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. No asset impairment was recognized during the years ended. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Agency has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Agency in perpetuity. Net Patient Service Revenue The Agency has agreements with third-party payers that provide for payments to the Agency at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and includes estimated retroactive revenue adjustments. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods, as adjustments become known. Charity Care The Agency provides care without charge or at amounts less than its established rates to patients meeting certain criteria under its charity care policy. The amount of charity care is included in net patient service revenue and is not separately classified from the provision for uncollectible accounts. 8

12 Contributions Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows technique. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Gifts received with donor stipulations are reported as either temporarily or permanently restricted support. When a donor restriction expires, that is, when a time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified 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. Conditional contributions are reported as liabilities until the condition is eliminated or the contributed assets are returned to the donor. Professional Liability Claims The Agency recognizes an accrual for claim liabilities based on estimated ultimate losses and costs associated with settling claims and a receivable to reflect the estimated insurance recoveries, if any. The related receivables from the Agency s insurance providers have been included within other assets in the accompanying financial statements. Professional liability claims are described more fully in Note 13. Income Taxes The Agency has been recognized as exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, the Agency is subject to federal income tax on any unrelated business taxable income. The Agency files tax returns in the U.S. federal jurisdiction. With few exceptions, the Agency is no longer subject to U.S. federal examinations by tax authorities for years before Deficiency of Revenues Over Expenses The statements of operations include deficiency of revenues over expenses. Changes in unrestricted net assets which are excluded from deficiency of revenues over expenses, consistent with industry practice, include permanent transfers to and from affiliates for other than goods and services 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). 9

13 Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 financial statement presentation. These reclassifications had no effect on the change in net assets. Note 2: Net Patient Service Revenue The Agency has agreements with third-party payers that provide for payments to the Agency at amounts different from its established rates. These payment arrangements include: Medicare. Services rendered to Medicare program beneficiaries for home health services are reimbursed under a prospective methodology, and no additional settlement will be made on the difference between the interim prospective amounts paid and actual cost with the exception of influenza vaccination services which are reimbursed based on cost subject to Medicare limits. Hospice services provided by the Agency are reimbursed prospectively subject to certain limitations, and no additional settlement will be made on the difference between the interim per diem rates and actual costs. Hospice services are subject to an annual payment cap limit as calculated by Medicare. Medicaid. Home health services rendered to Medicaid program beneficiaries are reimbursed prospectively at rates established by the State of Connecticut Department of Social Services with no settlement made on the difference between these rates and actual costs. Private Insurance. Services rendered to private insurance subscribers are paid at the Agency s established rates or negotiated payment rates. Approximately 88% and 89% of net patient service revenues are from participation in the Medicare and state-sponsored Medicaid programs for the years ended, 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. 10

14 Note 3: Concentration of Credit Risk The Agency grants credit without collateral to its patients, most of who are area residents and are insured under third-party payer agreements. The mix of receivables from patients and third-party payers at, was: Medicare 68% 63% Medicaid 18% 24% Patients and other third-party payers 14% 13% 100% 100% Note 4: Investments and Investment Return The Agency uses independent outside services to manage its investments. These services have authority to buy and sell securities on behalf of the Agency with the resources under its control in accordance with the Agency s investment policies. Investments consist of unrestricted assets and assets externally restricted by donors. These investments include: Trading Money market accounts $ 5,768 $ 1,390,559 Fixed income mutual funds 2,062, ,663 Equity mutual funds 3,238,260 2,896,494 5,306,769 4,769,716 Less assets limited as to use 502, ,277 Short-term investments $ 4,804,491 $ 4,277,439 Total investment return is comprised of the following: Interest and dividend income $ 294,102 $ 132,850 Gain on sale of investments 121,779 72,103 Net unrealized appreciation on investments 496, ,925 $ 912,510 $ 679,878 11

15 Total investment return is reflected in the statements of operations and changes in net assets as follows at : Unrestricted net assets Gain on sale of investments $ 78,118 $ 45,150 Investment income 190,036 85,668 Change in unrealized gains and losses on trading securities 318, ,886 Temporarily restricted net assets Gain on sale of investments 43,661 26,953 Net unrealized appreciation on investments 177, ,039 Investment income 104,066 47,182 $ 912,510 $ 679,878 Note 5: Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are available for the following purpose or periods: Health care for the indigent and medically underserved $ 1,388,027 $ 1,248,330 During 2014 and 2013, net assets were released from donor restrictions by incurring expenses, satisfying the restricted purpose of health care for the indigent and medically underserved in the amounts of $341,756 and $248,744, respectively. Permanently restricted net assets are restricted to: Investments to be held in perpetuity, the income is unrestricted $ 34,036 $ 34,036 Investments to be held in perpetuity, the income is restricted for health care for the indigent and medically underserved 468, ,242 $ 502,278 $ 492,278 12

16 Note 6: Endowment The Agency s endowment consists of three individual donor-restricted funds established for a variety of purposes. As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Agency s governing body has interpreted the State of Connecticut Prudent Management of Institutional Funds Act (SPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Agency classifies 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. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Agency in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Agency considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the Agency and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Agency 7. Investment policies of the Agency The composition of net assets by type of endowment fund at, was: Unrestricted Temporarily Restricted 2014 Permanently Restricted Total Donor-restricted endowment funds $ - $ 1,388,027 $ 502,278 $ 1,890,305 Board-designated endowment funds Total endowment funds $ - $ 1,388,027 $ 502,278 $ 1,890,305 13

17 Unrestricted Temporarily Restricted 2013 Permanently Restricted Total Donor-restricted endowment funds $ - $ 1,248,330 $ 492,278 $ 1,740,608 Board-designated endowment funds Total endowment funds $ - $ 1,248,330 $ 492,278 $ 1,740,608 Changes in endowment net assets for the years ended, were: Unrestricted Temporarily Restricted 2014 Permanently Restricted Total Endowment net assets, beginning of year $ - $ 1,248,330 $ 492,278 $ 1,740,608 Investment return Investment income - 147, ,727 Net appreciation - 177, ,833 Total investment return - 325, ,560 Contributions - 167,193 10, ,193 Appropriation of endowment assets for expenditure - (341,756) - (341,756) Other changes - trustee fees - (11,300) - (11,300) - (353,056) - (353,056) Endowment net assets, end of year $ - $ 1,388,027 $ 502,278 $ 1,890,305 14

18 Unrestricted Temporarily Restricted 2013 Permanently Restricted Total Endowment net assets, beginning of year $ - $ 1,017,894 $ 491,271 $ 1,509,165 Investment return Investment income - 74,136-74,136 Net appreciation - 169, ,039 Total investment return - 243, ,175 Contributions - 247,672 1, ,679 Appropriation of endowment assets for expenditure - (248,744) - (248,744) Other changes - trustee fees - (11,667) - (11,667) - (260,411) - (260,411) Endowment net assets, end of year $ - $ 1,248,330 $ 492,278 $ 1,740,608 Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at, consisted of: Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulation or SPMIFA Temporarily restricted net assets With purpose restrictions Without purpose restrictions $ 502,278 $ 492,278 $ 412,700 $ 311, , ,156 $ 1,388,027 $ 1,248,330 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the Agency is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in temporarily restricted net assets. As of, there were no deficiencies of this nature. 15

19 The Agency has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Agency must hold in perpetuity or for donorspecified periods, as well as those of board-designated endowment funds. Under the Agency s policies, endowment assets are invested in a manner that is intended to produce growth at a medium level of investment risk. The Agency expects its endowment funds to provide an average rate of return of approximately 5% annually over time. Actual returns in any given year may vary from this amount. To satisfy its long-term rate of return objectives, the Agency relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Agency targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Agency has a policy (the spending policy) of appropriating for expenditure each year based on need from its endowment funds. In establishing this policy, the Agency considered the long-term expected return on its endowment. Accordingly, over the long-term, the Agency expects the current spending policy to allow its endowment to grow at an average of 3% annually. This is consistent with the Agency s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. Note 7: Functional Expenses The Agency provides health care services primarily to residents within its geographic service area. Expenses related to providing these services are as follows: Health care services $ 22,415,558 $ 22,103,693 General and administrative 9,671,306 10,432,953 $ 32,086,864 $ 32,536,646 16

20 Note 8: Line of Credit The Agency has a $5,500,000 line-of-credit agreement, due on demand, which expires in November 2014 with interest at the Bank s prime rate or LIBOR plus 225 basis points with a minimum floor price of 2.25%. Included in the maximum borrowing margin calculation of this line is a $1,960,000 term loan (see Note 9 (J)). The interest rate ranged from 2.40% to 3.25% in 2014 and ranged from 2.45% to 3.25% in The line is collateralized by substantially all assets of the Agency and is guaranteed by a related party. The amount outstanding under the arrangement was $3,510,000 and $2,700,000 at, respectively. This line was amended subsequent to year end, see Note 18. Note 9: Long-Term Debt Note payable, bank (A) $ 430,209 $ 447,747 Capitalized lease obligations (B) 1,140 2,288 Capitalized lease obligations (C) 269, ,561 Note payable, landlord (D) 489,416 - Capital lease obligation (E) 2,695 5,635 Note payable, landlord (F) 409, ,587 Capitalized lease obligations (G) - 47,009 Capitalized lease obligations (H) 64,050 81,815 Note payable, AFCO (I) 72,517 - Note payable, bank (J) 1,960,000 - Capitalized lease obligations (K) 209,215-3,908,286 1,420,642 Less current maturities 898, ,393 $ 3,009,898 $ 1,154,249 (A) Due in monthly installments of $3,816 plus interest of 5.97% through May 2018, culminating in a balloon payment for the remaining balance. The note is secured by substantially all assets of the Agency. (B) Payable $108 monthly including interest at an imputed rate of 8.37% through May 2015; collateralized by property and equipment. (C) Payable $12,208 monthly including interest at an imputed rate of 4.00% through May 2016; collateralized by property and equipment. 17

21 (D) Due in monthly installments of $7,217 including interest at 4.00% through December The obligation is secured by related leasehold improvements. (E) (F) (G) (H) (I) (J) Noninterest bearing, payable $245 monthly through May 2015; collateralized by property and equipment. Due in monthly installments of $7,088 including interest at 6.75% through May The obligation is secured by related leasehold improvements. Payable $5,431 monthly including interest at an imputed rate, ranging from 7.18% to 12.08%, through March 2014; collateralized by property and equipment. The obligation was paid in full in March Payable $1,778 monthly including interest at an imputed rate of 4.85% through September 2017; collateralized by property and equipment. Insurance premium financing due in monthly installments of $14,601 including interest at 2.69% through December Due in monthly installments of $40,000 plus interest of 1.90% through July The note balance is included in the maximum borrowing margin calculation on a line-of-credit agreement (see Note 8). This note is collateralized by substantially all assets of the Agency and guaranteed by a related party. (K) Payable $4,045 monthly including interest at an imputed rate of 6.00% through June 2019; collateralized by property and equipment. Property and equipment includes the following under capital leases: Equipment $ 902,576 $ 930,834 Less accumulated depreciation 343, ,413 $ 559,184 $ 498,421 18

22 Aggregate annual maturities of long-term debt and payments on capital lease obligations at June 30, 2014, are: Long-Term Debt (Excluding Capital Lease Obligations) Capital Lease Obligations 2015 $ 700,706 $ 220, , , ,017 69, ,178 53, ,878 48,536 Thereafter 501,197 - $ 3,361, ,698 Less amount representing interest 49,751 Present value of future minimum lease payments 546,947 Less current maturities 197,682 Noncurrent portion $ 349,265 Note 10: Related Party Transactions The Agency is a member of a group of companies with common control. The Agency incurred fees of $109,926 in 2014 and $187,262 in 2013 to Partners In Care, Inc., an affiliate, for health services, of which $3,138 and $15,325 is included in accounts payable at, respectively. The Agency incurred management fees of $1,042,938 in 2014 and $1,058,497 in 2013 to VNA Management Corporation, an affiliate, for management services, of which $139,807 and $27,913 is included in accounts payable at, respectively. The Agency allocates equipment costs, insurance and related expenses to VNA Management Corporation and Partners In Care, Inc., based on their proportionate share. These charges amounted to $288,015 and $329,255 in 2014 and 2013, respectively. The Agency transferred funds to and from VNA Corporations, Inc., its sole corporate member, in the net amounts received of $478,685 and $300,000 for 2014 and 2013, respectively. The funds received were to help fund the Agency s operations. The Agency has received commitment from the sole corporate member to provide additional funding as needed through October 31,

23 From time to time, the Agency will make payments on behalf of other related entities for various expenses based on operational needs and are expected to be collected in the near term. At June 30, 2014 and 2013, these amounts are included in due from affiliates on the balance sheet and consisted of the following: Partners In Care, Inc. $ 1,129 $ 36,033 VNA Management Corporation 24, VNA Corporations, Inc $ 25,525 $ 36,535 Note 11: Net Patient Service Revenue The detail of net patient service revenue is a follows: Net Net Revenue Revenue Government fees Medicare $ 18,234,300 $ 19,771,463 Medicaid 6,391,941 7,060,199 Other 150,172 16,905 Retroactive settlements - (18,456) Total government fees 24,776,413 26,830,111 Nongovernment fees Private-pay insurance and other 3,579,177 3,150,009 Total net patient service revenue $ 28,355,590 $ 29,980,120 Note 12: Pension Plan The Agency maintains a noncontributory defined contribution pension plan covering substantially all of its employees. Contributions are made at the rate of 4% of the employees salaries up to the Social Security limit with an additional 4% on wages in excess of that limit through December 31, Effective January 1, 2013, contributions are made at the rate of 3% of the employees salaries up to the Social Security limit with an additional 3% on wages in excess of that limit. The Agency s policy is to fund pension cost as accrued. Pension expense for the years ended June 30, 2014 and 2013, was $432,755 and $574,806, respectively. 20

24 Note 13: Professional Liability Claims The Agency purchases medical malpractice insurance under an occurrence basis policy on a fixed premium basis. Based upon the Agency s claims experience, no accrual has been made for the Agency s medical malpractice costs as of. It is reasonably possible that this estimate could change materially in the near term. Note 14: Operating Leases The Agency leases several operating facilities and certain equipment under operating leases expiring through December The facilities leases generally require that the Agency pay for utilities, insurance and internal maintenance. The equipment leased is secured by the underlying equipment. Future minimum lease payments at June 30, 2014, were: Facilities Equipment Total 2015 $ 336,730 $ 4,044 $ 340, ,971 3, , ,601 1, , ,601 1, , ,601 1, ,813 Thereafter 304, ,397 $ 1,714,598 $ 12,135 $ 1,726,733 Rent expense for all operating leases was $504,975 and $563,895 in 2014 and 2013, respectively. Note 15: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value. Level 1 Level 2 Quoted prices in active markets for identical assets or liabilities. 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 for substantially the full term of the assets or liabilities. 21

25 Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Recurring Measurements The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at : Fair Value Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Level 1) (Level 2) (Level 3) June 30, 2014 Money market funds $ 5,768 $ 5,768 $ - $ - Fixed income mutual funds 2,062,741 2,062, Equity mutual funds 3,238,260 3,238, June 30, 2013 Money market funds $ 1,390,559 $ 1,390,559 $ - $ - Fixed income mutual funds 482, , Equity mutual funds 2,896,494 2,896, Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include publicly traded money market funds and equity and fixed income mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Agency has no securities classified as Level 2 or Level 3. 22

26 Note 16: Commitments and Contingencies The Agency has issued a financial guarantee bond in the amount of $506,950 which expired on December 31, 2013, payable to the State of Connecticut Department of Unemployment Compensation. The bond guarantees payment of unemployment compensation claims it may be obligated to pay within the State of Connecticut. The State of Connecticut did not renew the bond as of June 30, 2014, and is in the process of reviewing and updating bonding procedures. The Agency expects the bond will be renewed at a similar amount during the year ending June 30, 2015, once the new bonding procedures are issued. Note 17: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerability due to certain concentrations. Those matters include the following: Labor Agreements Less than 3% of the Agency s workforce is subject to a union contract expiring on December 31, Allowance for Net Patient Service Revenue Adjustments Estimates of allowances for adjustments included in net patient service revenue are described in Notes 1 and 2. Malpractice Claims Estimates related to the accrual for medical malpractice claims are described in Note 13. Litigation In the normal course of business, the Agency is, from time to time, subject to allegations that may or do result in litigation. Some of these allegations are in areas not covered by commercial insurance; for example, allegations regarding employment practices or performance of contracts. The Agency evaluates such allegations by conducting investigations to determine the validity of each potential claim. Based upon the advice of counsel, management records an estimate of the amount of ultimate expected loss, if any, for each of these matters. Events could occur that would cause the estimate of the ultimate loss to differ materially in the near term. 23

27 Investments The Agency invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying balance sheets. Current Economic Conditions Due to the current regulatory environment, economic uncertainties and the growing pressures on the budgets of both the state and federal governments, it is possible that Medicare and Medicaid reimbursement could change in the near term which could impact the financial results and cash flows of the Agency. The values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments. The Agency has taken steps to address the historical impacts of the economic conditions and the possible future negative impacts on their financial position. These steps include plans to review, monitor and discontinue certain payer contracts, review and monitor allowances for uncollectible accounts, and evaluate financing needs and liquidity plans. Health Care Reform Health care reform was passed through the Patient Protection and Affordable Care Act of 2010 (PPACA). While the ultimate impact of these legislative changes is impossible to determine at this time, it is clear that home health and hospice will be affected by these changes. Medicare home health rates have been decreased by nearly 10% from 2011 to Additionally, PPACA required the rebasing of the home health payments to more closely reflect the cost of services delivered in the average home health episode for Medicare. The rebasing began in 2014 and will likely decrease the Medicare home health payment rates by approximately 1% per year from 2014 through Any changes resulting from the health care reform efforts could have an adverse impact on the Agency s net patient service revenue. The Agency has taken steps to address the historical impacts of health care reform and the possible future adverse impacts on their financial position. These steps include plans to align staffing to current revenue trends, monitor all costs and negotiate more favorable pricing where possible, improve efficiencies in its service delivery, and meet any temporary working capital needs with Agency and VNA Corporations, Inc. investments if necessary. Note 18: Subsequent Events In July 2014, the Agency entered into a debt agreement with a bank that increased the existing line of credit from $5,500,000 to $6,000,000, expiring in November All other terms and conditions for the line of credit remain the same (see Note 8). 24

28 Supplementary Information

29 Expenses Years Ended Professional Care of Patients Payroll $ 17,133,141 $ 16,554,816 Payroll taxes and benefits 3,490,306 3,459,175 Contracted services 555, ,511 Travel 677, ,625 Medical supplies 313, ,536 Hospice benefit expense 239, ,853 22,409,359 22,058,516 General and Administrative Expenses Payroll 3,896,624 4,423,447 Management fees 1,042,938 1,058,497 Payroll taxes and benefits 898, ,225 Office expense 686, ,539 Professional fees 415, ,326 Telephone 325, ,076 Publications and subscriptions 101, ,724 Insurance 172, ,636 Recruitment 140, ,689 Conference and meetings 91,886 87,557 Equipment maintenance 124,144 94,557 Public health education 28,043 44,523 Travel 54,511 56,719 Dues 34,211 33,672 Education 25,589 22,759 Equipment rental 17,391 19,092 8,056,046 9,024,038 Occupancy Costs Rent 499, ,624 Utilities 146, ,244 Repairs and maintenance 123,732 85,263 Insurance 27,395 24, , ,397 Interest 197, ,314 Depreciation 642, ,063 Provision for Uncollectible Accounts 6,199 45,177 (Gain) Loss on Disposal of Property and Equipment (22,204) 141 $ 32,086,864 $ 32,536,646 25