The Rehabilitation Institute of Kansas City and The Rehabilitation Institute Industries, Inc.

Transcription

1 Accountants Report and Consolidated Financial Statements

2 Contents Independent Accountants Report... 1 Consolidated Financial Statements Balance Sheets... 2 Statements of Operations... 3 Statements of Changes in Net Assets... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6

3 Independent Accountants Report Boards of Directors and The Rehabilitation Institute Industries, Inc. Kansas City, Missouri We have audited the accompanying consolidated balance sheets of The Rehabilitation Institute of Kansas City (collectively referred to as the Institute) as of, and the related consolidated statements of operations, changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Institute 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Institute as of, and the results of its operations, 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. April 25, 2011

4 Consolidated Balance Sheets Assets Current Assets Cash and cash equivalents $ 50,583 $ 7,675 Patient accounts receivable, net of allowance; 2010 $86,130, 2009 $119, ,271 1,151,396 Vocational accounts receivable 768, ,561 Workshop accounts receivable 57,239 57,171 Contributions receivable, net of allowance; 2010 $12,145, 2009 $7, ,304 68,400 Due from affiliate 19,319 - Other receivables 106,951 89,222 Prepaid expenses and other 59,861 65,925 Total current assets 2,065,249 2,135,350 Assets Limited as to Use Internally designated 12, ,342 Externally restricted by donors 308,539 38,742 Total assets limited as to use 320, ,084 Property and Equipment, net 362, ,648 Total assets $ 2,748,559 $ 2,744,082 See

5 Liabilities and Net Assets Current Liabilities Accounts payable $ 395,926 $ 341,847 Accrued expenses 369, ,999 Current maturities of long-term debt 265, ,477 Total current liabilities 1,030,795 1,008,323 Long-term Debt 490, ,399 Net Assets Unrestricted 470, ,828 Temporarily restricted 684, ,032 Permanently restricted 73,000 72,500 Total net assets 1,227, ,360 Total liabilities and net assets $ 2,748,559 $ 2,744,082 2

6 Consolidated Statements of Operations Years Ended Unrestricted Revenues, Gains and Other Support Net patient service revenue $ 3,699,558 $ 3,652,293 Workshop sales 443, ,612 Vocational services 1,726,168 1,747,983 Government reimbursement sheltered workshop 1,089,480 1,109,695 Public support United Way 262, ,282 Grant income 15,220 14,855 Net assets released from restrictions used for operations 42,514 32,599 Other 169, ,992 7,448,382 7,460,311 Expenses Salaries and wages 5,067,490 5,222,415 Employee benefits 910, ,717 Supplies and other 1,167,140 1,188,336 Purchased services and professional fees 411, ,897 Depreciation and amortization 82,660 94,181 Interest 37,991 47,123 Provision for uncollectible accounts 158,999 34,948 7,836,261 7,981,617 Operating Loss (387,879) (521,306) Other Income Interest income Contributions 382, , , ,444 Excess of Revenues Under Expenses (5,351) (245,862) Contributions for acquisition of property and equipment 6,796 30,569 Increase (Decrease) in Unrestricted Net Assets $ 1,445 $ (215,293) See 3

7 Consolidated Statements of Changes in Net Assets Years Ended Unrestricted Net Assets Excess of revenues under expenses $ (5,351) $ (245,862) Contributions for acquisition of property and equipment 6,796 30,569 Increase (decrease) in unrestricted net assets 1,445 (215,293) Temporarily Restricted Net Assets Contributions 287, ,173 Net assets released from restriction (42,514) (32,599) Increase in temporarily restricted net assets 245, ,574 Permanently Restricted Net Assets Contributions Increase (Decrease) in Net Assets 247,233 (58,719) Net Assets, Beginning of Year 980,360 1,039,079 Net Assets, End of Year $ 1,227,593 $ 980,360 See 4

8 Consolidated Statements of Cash Flows Years Ended Operating Activities Change in net assets $ 247,233 $ (58,719) Items not requiring (providing) operating cash flow Depreciation and amortization 82,660 94,181 Contributions for acquisition of property and equipment (6,796) (30,569) Changes in Patient, vocational, workshop, contribution and other accounts receivable, net 106, ,847 Prepaid expenses and other 6,064 38,893 Accounts payable 54,079 (41,323) Accrued expenses (47,483) 71,039 Net cash provided by operating activities 442, ,349 Investing Activities Increase in assets limited as to use (124,806) (7,258) Purchase of property and equipment (32,432) (44,735) Net cash used in investing activities (157,238) (51,993) Financing Activities Contributions for acquisition of property and equipment 6,796 30,569 Principal payments on long-term debt (249,352) (261,776) Net cash used in financing activities (242,556) (231,207) Increase (Decrease) in Cash and Cash Equivalents 42,908 (48,851) Cash and Cash Equivalents, Beginning of Year 7,675 56,526 Cash and Cash Equivalents, End of Year $ 50,583 $ 7,675 Supplemental Cash Flows Information Interest paid $ 37,991 $ 47,943 See 5

9 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Principles of Consolidation The accompanying consolidated financial statements include the accounts of The Rehabilitation Institute of Kansas City (collectively referred to as the Institute), both of which are Missouri nonprofit corporations. Consolidated financial statements are presented as is the sole member of The Rehabilitation Institute Industries, Inc. and the organizations have the same Board of Directors. All significant intercompany accounts and transactions have been eliminated in consolidation. provides outpatient rehabilitation services and operates a vocational center for the purposes of rehabilitating persons with physical disabilities. The Rehabilitation Institute Industries, Inc. operates a sheltered workshop program to provide employment opportunities to persons with physical disabilities. Use of Estimates The preparation of consolidated 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 The Institute considers all liquid investments, other than those limited as to use, with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted primarily of money market accounts with brokers. One or more of the financial institutions holding the Institute s cash accounts are participating in the FDIC s Transaction Account Guarantee Program. Under that program, through December 31, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions. For financial institutions opting out of the FDIC s Transaction Account Guarantee Program or interest-bearing cash accounts, the FDIC s insurance limits were permanently increased to $250,000, effective July 21, At December 31, 2010, the Institute s cash accounts exceeded federally insured limits by approximately $58,800. 6

10 Investments and Interest Income Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Interest income that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other interest income is reflected in the consolidated statements of operations and changes in net assets as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Assets Limited as to Use Assets limited as to use include (1) assets restricted by donors and (2) assets set aside by the Board of Directors for various designated projects and future capital improvements over which the Board retains control and may at its discretion subsequently use for other purposes. Patient Service Revenue and Accounts Receivable The Institute reports patient accounts receivable for services rendered at net realizable amounts from third-party payers, patients and others. The Institute 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 Institute bills third-party payers 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 using the straight-line method over the estimated useful life of each asset. Leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. Donations of property and equipment are reported at fair value as an increase in unrestricted net assets unless use of the assets is restricted by the donor. Monetary gifts that must be used to acquire property and equipment are reported as restricted support. The expiration of such restrictions is reported as an increase in unrestricted net assets when the donated asset is placed in service. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Institute 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 Institute in perpetuity. 7

11 Excess of Revenues Under Expenses The consolidated statements of operations include excess of revenues under expenses. Changes in unrestricted net assets which are excluded from excess of revenues under expenses, consistent with industry practice, include unrealized gains and losses on investments other than trading securities, permanent transfers to and from affiliates for other than goods and services and contributions of long-lived assets, including assets acquired using contributions that, by donor restriction, were to be used for the purpose of acquiring such assets. Charity Care The Institute provides care without charge or at amounts less than its established rates to patients meeting certain criteria under its charity care policy. Charity care is not reported as revenue. Charges excluded from revenue under the Institute s charity care policy were $122,919 and $55,955 in 2010 and 2009, respectively. 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. Contributed Rent The Institute operates a sheltered workshop at 1020 East 12 th Street in a building owned by Empowering Individuals Through Advocacy and Support (EITAS). EITAS charges the Institute a nominal rate for the lease of this space. In addition, EITAS provides for the repairs and maintenance of this building. The estimated value of the contributed rent was approximately $125,000 for both the years ended. Repairs and maintenance expense for the building paid by EITAS was $2,616 and $11,547 for the years ended December 31, 2010 and 2009, respectively. 8

12 Income Tax Status are notfor-profit organizations as described in Section 501(c)(3) of the Internal Revenue Code, and are exempt from income taxes on related income under Section 501(a) of the Code and a similar provision of state law. The Institute files tax returns in the U.S federal jurisdiction. With a few exceptions, the Institute is no longer subject to U.S. federal examinations by tax authorities for years before Subsequent Events Subsequent events have been evaluated through April 25, 2011, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 financial statement presentation. These reclassifications had no effect on the change in net assets. Note 2: Property and Equipment Property and equipment at consisted of the following: Equipment $ 1,059,220 $ 1,936,246 Leasehold improvements 2,268,208 2,257,983 3,327,428 4,194,229 Less accumulated depreciation and amortization 2,965,008 3,781,581 $ 362,420 $ 412,648 Note 3: Net Patient Service Revenue The Institute has agreements with third-party payers that provide for payments to the Institute at amounts different from its established rates. Services rendered to Medicare and Medicaid beneficiaries are paid based on fee schedules. The Institute has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Institute under these agreements includes prospectively determined rates per discharge, discounts from established charges and prospectively determined daily rates. 9

13 Note 4: Concentration of Credit Risk The Institute grants credit without collateral to its patients, most of whom are area residents and are insured under third-party payer agreements. The mix of patient accounts receivable at were: Medicare 17% 13% Medicaid 9% 12% Other third-party payers 62% 66% Patients 12% 9% 100% 100% Substantially all of the vocational accounts receivable are due from the State of Missouri. Note 5: Assets Limited as to Use Assets limited as to use, at December 31, include: Internally designated for various designated projects and future capital improvements Cash and cash equivalents $ 12,351 $ 157,342 Externally restricted by donors Cash and cash equivalents $ 308,539 $ 38,742 10

14 Note 6: Contributions Receivable Contributions receivable consisted of the following at December 31: Temporarily Restricted Due within one year $ 55,000 $ 38,000 Due in one to five years 71,000 38, ,000 76,000 Less Allowance for uncollectible contributions (12,145) (7,600) Unamortized discount at 2% (4,551) - $ 109,304 $ 68,400 Note 7: Functional Expenses The Institute provides health care and vocational rehabilitation services to persons with physical disabilities within its geographic location. Expenses related to providing these services are as follows: Health care and vocational rehabilitation services $ 5,638,948 $ 5,608,250 General and administrative 2,197,313 2,373,367 $ 7,836,261 $ 7,981,617 Note 8: Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets amounting to $684,320 and $439,032 at December 31, 2010 and 2009, respectively, are available for specific program and department activities. Permanently restricted net assets at are restricted by donors to be invested in perpetuity, the income of which is unrestricted. During 2010 and 2009, net assets were released from donor restrictions by incurring expenses, satisfying the restricted purposes of program and department activities in the amounts of $42,514 and $32,599, respectively. At, the Institute did not have enough cash and investments to cover the amount of total restricted net assets. 11

15 Note 9: Endowment The Institute s endowment consists of several 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 Institute s governing body has interpreted the State of Missouri 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 Institute 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 Institute in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Institute 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 Institute 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 Institute 7. Investment policies of the Institute The Institute s endowment assets include those assets of donor-restricted endowment funds that must be held in perpetuity. The Institute invests its endowments in low risk assets such as FDICinsured bank deposits and money market mutual funds to maintain the corpus amounts. As there are no donor-restrictions on earnings from these assets, all income earned on the endowments is spent on operations as it is earned. A summary of the endowment follows: Endowment Funds - Permanently Restricted $ 73,000 $ 72,500 Endowment Income - Unrestricted Interest $ 41 $

16 Note 10: Related Party Transactions The Institute and The Rehabilitation Institute Foundation (Foundation) are related parties. The Institute authorizes the Foundation to solicit contributions on its behalf. In the absence of donor restrictions, the Foundation s Board of Directors has discretionary control over the amounts, timing and recipient of any distributions. The Foundation s contributions to the Institute during the years ended December 31, 2010 and 2009 were $192,187 and $79,618, respectively, and are reported in the Institute s consolidated financial statements as other income unrestricted contributions. At, $19,319 and $0, respectively, of the committed support was outstanding. The Foundation has also agreed to lease its building to the Institute at a nominal rate through 2089, provided the Institute continues to use the property in accordance with terms specified in the lease agreement, which includes using the property to further the mission for which it was formed. As a result of the agreement, the Institute recorded rent expense of $50,868 and a corresponding amount as a contribution from the Foundation in 2010 and During 2009, the Foundation provided an unsecured revolving line of credit to the Institute. Advances under the line of credit were repayable in 90 days, but were renewable for 90-day periods. Interest at 4% was repayable monthly. The outstanding balance under the line of credit as of December 31, 2009 was $695,114 (see Note 11). During 2007, the Foundation established a promissory note with the Institute due December 2012 with principal and accrued interest payable quarterly. At December 31, 2009, the balance on this note was $309,762 (see Note 11). In March 2010, the Institute and Foundation consolidated the line of credit and note payable into a new note due February 2015 with principal and accrued interest payable monthly. At December 31, 2010, the balance on this note was $755,524 (see Note 11). 13

17 Note 11: Long-term Debt Long-term debt at consisted of the following: Line of credit to the Foundation, a related party, principal to be paid quarterly, interest at 4% to be paid monthly $ - $ 695,114 Note payable to the Foundation, a related party, principal and accrued interest to be paid quarterly, due December 2012, interest rate is 4% - 309,762 Note payable to the Foundation, a related party, principal and accrued interest to be paid monthly, due February 2015, interest rate is 4% 755, ,524 1,004,876 Less current maturities 265, ,477 $ 490,171 $ 755,399 In March 2010, the Institute and Foundation consolidated the line of credit and note payable into a new note. The revised note is due February 28, 2015 with monthly payments of $18,122, including interest at 4%. In addition, principal payments of $75,000 are due at the end of each year and 50% of any unrestricted contributions over $100,000 from a single source the Institute receives must be used to reduce the outstanding principal balance. The note is secured by accounts receivable, equipment, fixtures and supplies. Aggregate annual maturities of long-term debt at December 31, 2010 are: 2011 $ 265, , ,908 $ 755,524 14

18 Note 12: Pension Plan The Institute established a defined-contribution pension plan covering substantially all employees effective July 1, The Board of Directors annually determines the amount, if any, of the Institute s contributions to the plan. There were no contributions to the plan during 2010 and Note 13: Operating Leases Noncancellable operating leases for office space expire through 2011 and require the Institute to pay all executory costs (property taxes, maintenance and insurance). Rental expense for all operating leases was $264,928 and $275,809 for the years ended, respectively. Note 14: Disclosures About Fair Value of Assets and Liabilities ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 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 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities 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 consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. 15

19 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 money market mutual funds totaling $18,131 and $163,122 at, respectively. Note 15: Current Economic Conditions The current protracted economic decline continues to present healthcare organizations with difficult circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair value of investments and other assets, large declines in contributions, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Institute. Current economic conditions, including the rising unemployment rate, have made it difficult for certain patients to pay for services rendered and many donors to continue to contribute to not-forprofit organizations. As employers make adjustments to health insurance plans or more patients become unemployed, services provided to self-pay and other payers may significantly impact net patient service revenue, which could have an adverse impact on the Institute s future operating results. Further, the effect of economic conditions on the federal and state governments may have an adverse effect on cash flows related to the Medicare and Medicaid programs. Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in investment values and allowances for accounts receivable and contributions receivable that could negatively impact the Institute s ability to maintain sufficient liquidity. 16