Consolidated Financial Statements For the nine months ended May 31, 2018 and May 31, 2017 (UNAUDITED)
For the nine months ended May 31, 2018 and May 31, 2017 Page Table Of Contents i- vi. Management Discussion & Analysis 1. Utilization and Payor Mix 2. Liquidity 3. Consolidated Statements Of Financial Position 4. Consolidated Statements Of Activities 5. Consolidated Statements Of Changes In Net Assets 6. Consolidated Statements Of Cash Flows 7.- 11. Notes To Financial Statements
Management Discussion and Analysis For the Nine Months ended May 31, 2018 and May 31, 2017 Management s Discussion of Recent Operations and Financial Position of NYU Winthrop Hospital and Subsidiaries ( NYU Winthrop ) Operations For the nine months ended May 31, 2018, excess of revenue and gains over expenses and losses was $46.8 million, as compared to $13.6 million for the nine months ended May 31, 2017; this is primarily attributable to an improvement in financial performance and an increase in market share. For the nine months ended May 31, 2018, NYU Winthrop recorded a gain from operations of $29.4 million or a 2.4% operating margin. Operating revenue was $1.2 billion; 98.1% from patient revenue and 1.9% from other sources. The operating margin includes one-time costs associated with the Epic implementation in ambulatory sites of $10.5 million. Excluding the one-time Epic costs, the operating margin would have been 3.3% for the nine months ended May 31, 2018. The following chart represents actual results for the nine months ended May 31, 2018 and May 31, 2017. $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $- $(5.0) Gain from Operations and Operating Margin ($ in millions) -0.2% $(1.8) 2.4% $29.4 5/31/17 Actual 5/31/18 Actual 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Gain from Operations Operating Margin * Excluding the one-time Epic costs, the operating margin would have been 3.3% for the nine months ended May 31, 2018. i
Net patient service revenue totaled $1.2 billion for the nine months ended May 31, 2018, 47.6% from inpatient operations and 52.4% from outpatient operations. This represents a $169.3 million or 16.5% increase over the nine months ending May 31, 2017, of which $73.3 million was attributable to inpatient services and $96.0 million was attributable to outpatient services. Management primarily attributes net patient service revenue growth to volume, increased patient acuity, and an overall improvement in managed care rates. Outpatient revenue experienced volume growth particularly in infusion/chemotherapy, outpatient surgeries, radiation therapy and cyberknife. On a combined basis, inpatient and outpatient surgical volume has increased 1.1%. Robotic surgery has been a major contributor to this increase. Operating expenses for the nine months ended May 31, 2018 increased $136.2 million, or 12.9%, as compared to the prior comparable period. Salaries and Benefits increased by $65.2 million, or 10.0%, as compared to the prior period due to an overall increase of 440 full time equivalent employees. Supplies and other expenses increased $35.5 million or by 10.9%. This increase correlates with the increase in net patient service revenue mentioned above, primarily in the area of pharmaceutical drug costs related to oncology infusion visits. Depreciation and amortization increased $9.6 million or 22.5%, primarily due to the asset valuation performed in connection with the affiliation with NYU Langone Health System (The System ), which increased the value of certain assets. In addition, operating expenses for the nine months ended May 31, 2018 include corporate allocations from the System in the amount of $15.8 million, of which approximately $10.5 million related to one-time Epic costs. The following non-operating gains and losses were recorded for the nine months ended May 31, 2018: $5.5 million of realized and unrealized gains on investments $11.8 million of other components of pension and postretirement costs. The results for the nine months ended May 31, 2017 include this benefit in the operating margin. The change is due to early adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires that in instances where an operating measure is included in the consolidated statement of operations, the service cost component of the net periodic cost be included as a component of the operating measure and other components of net periodic costs presented separately in the non-operating section of the consolidated statement of operations. Accordingly, $11.8 million of earnings on investments and other as described above was transferred from pension expense to the non-operating section. Had this pronouncement not been early adopted, the operating margin for the nine months ended May 31, 2018 would have been 3.4%. The following other changes in unrestricted net assets, after an excess of revenue and gains over expenses and losses of $46.9 million, were recorded for the nine months ended May 31, 2018, resulting in a $9.4 million increase in unrestricted net assets: $8.1 pension related changes other than net periodic benefit cost as a result of better performance on investments $1.3 million in net assets released from restrictions for capital purposes ii
Financial Position As of May 31, 2018, cash and cash equivalents totaled $110.3 million, an increase of $23.3 million as compared to August 31, 2017. Days cash on hand increased to 59 days, as compared to 54 in August 31, 2017. This is primarily due to an improvement in overall cash management, as well as an increase in market performance on investments. Days in accounts receivable increased to 49 days as of May 31, 2018, compared to 44 days as of August 31, 2017, primarily due to an intentional delay in billing to ensure optimal and efficient reimbursement. Days in current liabilities increased to 73 days as of May 31, 2018, as compared to 64 days at August 31, 2017; this increase is primarily related to the timing of payments. The following chart represents the total unrestricted cash and investments, in thousands, included in the days cash on hand calculations at August 31, 2017 and May 31, 2018. Total Unrestricted Cash and Investments and Days Cash on Hand ($ in thousands) $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 59 54 $241,086 $210,032 8/31/2017 5/31/2018 65 60 55 50 45 40 35 30 Unrestricted Cash and Investments Days Cash on Hand As of May 31, 2018, the defined benefit plan projected benefit obligation ( PBO ) was at 78% funded with a remaining gap of $170 million; on an accrued benefit obligation ( ABO ) basis, the plan is 83% funded with a remaining gap of $120 million. Comparatively, as of August 31, 2017, the PBO was at 74% funded with a remaining gap of $197 million; on an ABO basis, the plan was 80% funded with a remaining gap of $146 million. The improvement in the funding status can be attributed to continued strong investment performance and an increase in the discount rate of 8 basis points, from 4.15% to 4.23%. iii
Management s Discussion of Recent Utilization For the nine months ended May 31, 2018, NYU Winthrop experienced volume growth across multiple service lines, as shown in the graph below. Average length of stay at May 31, 2018 improved to 4.89 as compared to 5.04 for the prior comparable period. The Medicare case mix index adjusted length of stay improved to 2.80 for the nine months ended May 31, 2018; it was 3.07 for the nine months ended May 31, 2017. Total case mix for the nine months ended May 31, 2018 improved to 1.53 from 1.48 for the comparable prior year period. Commercial and Medicare/ Medicare HMO case mix improved for the nine months ended May 31, 2018 as compared to May 31, 2017; commercial case mix increased from 1.25 to 1.30, while Medicare / Medicare HMO case mix increased from 1.87 to 1.93. Medicaid / Medicaid HMO case mix showed a slight improvement to 1.25 from 1.24 for the nine months ended May 31, 2018 and May 31, 2017, respectively. Volume 70,000 60,000 61,204 57,192 50,000 40,000 30,000 20,000 10,000 25,65724,813 19,54118,860 19,30219,066 35,836 32,875 15,675 12,511 0 Inpatient Discharges Emergency Room Visits Infusion / Chemotherapy Ambulatory Surgery Clinic Visits Radiation Therapy Nine Months Ended 5/31/18 Nine Months Ended 5/31/17 Current Activities NYU Langone Health System affiliation On April 1, 2017, pursuant to an Affiliation Agreement between Winthrop-University Hospital Association and the System became the sole member of Winthrop-University Hospital Association and Winthrop- University Hospital Association s corporate name was changed to NYU Winthrop Hospital ( NYU Winthrop ). The System is not a member of the NYU Winthrop Obligated Group. The System has committed to expend at least $100 million through a subordinated, non-interest bearing loan to NYU Winthrop to improve the operations of NYU Winthrop and its affiliates and realize cost efficiencies. In the second phase of the affiliation, which is scheduled to occur no later than April 1, 2022, NYU Winthrop will merge with and into NYU Langone Hospitals ( NYULH ), an affiliate hospital of the System, and the loan will be forgiven. Until such time as NYU Winthrop merges with and into NYULH, none of the System, NYULH or any of their affiliates will have any obligation with respect to the NYU Winthrop Obligated Group s outstanding debt. iv
In June 2018, the Board of Directors of NYU Winthrop voted to agree to begin planning to accelerate the timing of the proposed merger of NYU Winthrop with and into NYULH, with the goal of completing the merger by September 1, 2019. There can be no assurance that the merger will occur at all or on the proposed schedule. Completion of the proposed merger between NYU Winthrop and NYULH is subject to approval by New York University, the New York Attorney General, the New York State Department of Health, and other regulatory agencies. In the event the merger is completed, all of the assets and all of the liabilities of NYU Winthrop would become assets and liabilities of NYULH. LIHN Update On April 1, 2017, in conjunction with the System affiliation above, Winthrop-University Hospital Association exited Long Island Health Network under a withdrawal agreement. Loans with NYU Langone Hospitals NYU Winthrop and NYULH entered into two loans, in September 2017 and October 2017, in the amounts of $48.1 million and $45.0 million, respectively. The loans are primarily for IT integration and Epic implementation in addition to equipment purchases and various renovations. As of May 31, 2018, $47.3 million is outstanding. The terms of these loans allow for forgiveness of debt upon the planned full asset merger. Epic Ambulatory Implementation NYU Winthrop has embarked on a network integration strategy supported by enhanced clinical and financial information technology systems. A portion of the common platform is facilitated by Epic, a shared ambulatory IT platform that will leverage technology for clinical, quality and financial improvement. NYU Winthrop Medical Affiliates, which encompasses all of the outpatient practices owned by the Hospital, implemented Epic, a new Electronic Health Record system ( EHR ) and billing system. Epic is expected to facilitate rapid referrals and dialogue between NYU Winthrop physicians and NYULH physicians and provide physicians with immediate access to essential information for treatment while meeting all HIPAA requirements. In addition, the EHR technology is expected to transform the delivery and coordination of medical care, resulting in fewer errors, better coordinated care, and greater connectivity between patient and doctor. The Epic Ambulatory implementation occurred in fiscal year 2018 and included over 120 locations, affecting approximately 187,000 patients in the NYU Winthrop ambulatory network, 600 employed providers and 1,900 support staff and other users. It is anticipated that Epic will be installed enterprise wide by September 1, 2019. Merger with Lutheran Certified Home Health Agency NYU Winthrop received contingent approval in April 2018 from the New York State Department of Health to merge the Lutheran Certified Home Health Agency ( Lutheran CHHA ) into the NYU Winthrop Certified Home Health Agency ( NYU Winthrop CHHA ). Historically, NYULH did not have internal home health care capabilities. The service was provided primarily by the Visiting Nurse Service of New York. As a result of the relationship between the Lutheran CHHA and the NYU Winthrop CHHA, NYULH will have the ability v
to provide home health services. The merger of the CHHAs will offer complementary patient care covering the five boroughs of New York City and Nassau and Suffolk counties. Merging the two agencies is intended to enhance the provision of high quality, comprehensive services across all NYULH campuses, as well as expanded geographic coverage for both organizations. It is also intended to facilitate the development of new programs, reduce service limitations and improve the continuity of information flow across the continuum of care through the implementation of a standardized electronic medical record. Forbes Magazine ranking NYU Winthrop Hospital was selected by Forbes magazine as one of America s Best Employers for 2017. NYU Winthrop ranked #18 nationally and was the only employer on Long Island to appear in the top 100. The list included 500 employers across 25 industries ranging from hospitals, universities, government agencies and commercial for-profits. U.S. News & World Report rankings NYU Winthrop Hospital was named one of the Best Regional Hospitals in the New York Metro Area for 2018-2019 by U.S. News & World Report. NYU Winthrop ranked #6 in New York and #7 in the entire New York Metro area. In addition, NYU Winthrop was recognized for 14 high performing types of care, which include seven high performing specialties and seven procedures and conditions of common care. NYU Winthrop was also named to U.S. News & World Report s 2018-2019 Best Children s Hospitals rankings for demonstrating excellence in the specialties of pediatric diabetes and endocrinology. Healthgrades ranking NYU Winthrop Hospital was named a Distinguished Hospital for Clinical Excellence by Healthgrades, placing the Hospital in the top 5% of hospitals nationwide for the fourth consecutive year. vi
Utilization & Payor Mix Nine Months Ended May 31, 2018 and May 31, 2017 Utilization 2018 2017 Discharges (less Newborn) 25,657 24,813 Patient Days (less Newborn) 125,372 124,981 Average Length of Stay 4.89 5.04 % of Occupancy (based on available beds) 89.9% 89.6% Medicare CMI Adjusted Length of Stay 2.80 3.07 Normal Newborn Discharges 2,382 2,320 Emergency Room Visits 61,204 57,192 Emergency Room Treat and Release Visits 43,902 40,987 Observation Visits 635 529 Clinic Visits 35,836 32,875 Ambulatory Surgery Visits 19,302 19,066 Outpatient Visits 205,031 203,944 Certified Beds 591 591 Robotic Surgery 1,131 953 Cyberknife 2,085 2,041 Sleep Studies 2,459 2,326 Infusion/Chemotherapy 19,541 18,860 Radiation Therapy 15,675 12,511 Average Beds Available 511 511 Medicare Case Mix Index 1.98 1.92 Revenue Payor Mix 2018 2017 Medicare/Managed Medicare 32.76% 32.44% Medicaid/Managed Medicaid 7.25% 9.50% Blue Cross 25.86% 24.28% Managed Care 32.04% 30.75% Worker Comp/No Fault 0.96% 1.26% Self Pay/Other 1.13% 1.77% Total 100.00% 100.00% - 1 -
Liquidity Twelve Months Eight Months Ended Ended 5/31/2018 8/31/2017 Cash and cash equivalents (1) $ 110,290,581 $ 87,020,660 Marketable securities and Investments 130,795,046 123,011,029 Total cash and investments $ 241,085,627 $ 210,031,689 Operating Expenses (2) $ 1,578,122,982 $ 988,409,869 Less: Depreciation and amortization (2) 77,909,095 41,753,785 Adjusted operating expenses (2) $ 1,500,213,887 $ 946,656,084 Gross Days Cash on Hand 59 54 Net Days Cash on Hand (3) 53 47 (1) Cash and cash equivalents includes any outstanding amounts under lines of credit. (2) Calculated using twelve months ended May 31, 2018 and eight months ended August 31, 2017. NYU Winthrop Hospital changed its fiscal year end to August 31, 2017 to coincide with the fiscal year of the Health System. As such, the liquidity calculation for 8/31/17 represents the audited eight month period. (3) Net days cash on hand excludes any outstanding amounts under lines of credit. - 2 -
NYU WINTHROP HOSPITAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION May 31, 2018 August 31, 2017 Assets (Unaudited) (Audited) Current assets Cash and cash equivalents $ 110,290,581 $ 87,020,660 Investments 130,795,046 123,011,029 Current portion of assets limited as to use 20,049,344 16,607,217 Accounts receivable for services to patients, less estimated uncollectible accounts of 234,584,804 188,100,587 Other receivables, net 6,033,279 8,623,582 Inventories 23,802,054 21,539,171 Prepaid expenses 15,307,626 12,896,728 Estimated receivable from third-party payors 6,954,021 8,144,027 Total current assets 547,816,755 465,943,001 Assets limited as to use (net of current portion) 79,154,150 73,320,516 Long-term investments 16,065,619 14,957,058 Long-term receivables and other assets 115,005,036 88,665,099 Property, plant, and equipment, net 575,041,677 552,696,448 Intangible assets 37,780,201 40,685,786 Total assets $ 1,370,863,438 $ 1,236,267,908 Liabilities and Net Assets Current liabilities Current portion of long-term debt $ 10,444,338 $ 11,114,312 Line of credit 25,000,000 25,000,000 Accounts payable and accrued expenses 157,918,228 130,000,083 Estimated liabilities due to third-party payors 34,759,321 12,783,824 Accrued salaries and withholding taxes payable 40,929,719 37,050,117 Accrued vacation benefits 31,035,332 30,706,446 Current portion of estimated self-insurance liability 15,082,714 15,082,714 Due to affiliates 7,692,019 1,213,469 Total current liabilities 322,861,671 262,950,965 Accrued retirement liabilities 175,937,355 216,842,692 Estimated self-insurance liability net of current portion 63,675,130 72,281,602 Other long-term liabilities, net 155,847,624 127,603,295 Long-term debt, net of current portion 253,441,043 211,705,538 Due to affiliates, net of current portion - 4,011,224 Total liabilities 971,762,823 895,395,316 Commitments and contingencies Net assets Unrestricted 375,526,685 319,302,254 Temporarily restricted 14,713,229 12,750,265 Permanently restricted 8,860,701 8,820,073 Total net assets 399,100,615 340,872,592 Total liabilities and net assets $ 1,370,863,438 $ 1,236,267,908-3-
NYU WINTHROP HOSPITAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ACTIVITIES (Unaudited) Nine months Nine months Ended Ended May 31, 2018 May 31, 2017 Operating revenue Patient service revenue (net of contractual allowances and discounts) $ 1,213,813,447 $ 1,055,381,362 Provision for bad debts, net (16,017,218) (26,857,544) Net patient service revenue 1,197,796,229 1,028,523,818 Other revenue 20,631,747 21,603,031 Net assets released from restrictions 2,468,799 3,292,988 Total operating revenue 1,220,896,775 1,053,419,837 Operating expenses Salaries 586,410,670 535,187,849 Employee benefits 128,282,918 114,342,381 Supplies and other expenses 359,991,489 324,502,105 Professional and general liability insurance 37,370,086 29,296,538 Research and other 4,471,833 2,627,778 Corporate allocations 15,751,619 - FGP Subsidy 341,981 - Interest expense 6,581,760 6,618,243 Depreciation and amortization 52,277,064 42,663,412 Total operating expenses 1,191,479,419 1,055,238,306 Gain (loss) from operations 29,417,356 (1,818,469) Nonoperating gains and losses Realized gains, net 3,306,094 2,932,073 Net change in unrealized gains on investments 2,187,255 13,330,641 Gain (loss) on investment in joint ventures 142,845 (859,831) Costs associated with NYU Affiliation Agreement - - Other components of pension and postretirement costs (Note 1f) 11,792,251 - Excess of revenue and gains over expenses and losses 46,845,801 13,584,414 Other changes Pension-related changes other than net periodic benefit cost 8,120,946 14,646,409 Net assets released from restrictions for capital asset acquisitions 1,255,155 2,180,229 Other 2,530 - Increase in unrestricted net assets $ 56,224,432 $ 30,411,052-4-
NYU WINTHROP HOSPITAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) Temporarily Permanently Total Unrestricted restricted restricted net assets Predecessor Balance, December 31, 2016 $154,606,264 $13,094,899 $7,772,757 $175,473,920 Excess of revenue and gains over expenses and losses 1,029,175 - - 1,029,175 Contributions - 653,777 5,812 659,589 Investment income - 34,333-34,333 Realized and unrealized gains and losses - 618,800-618,800 Net assets released from restrictions 234,063 (1,676,873) - (1,442,810) Net asset reclassification 2,187 (2,187) - - Pension-related changes other than net periodic benefit cost 20,571,956 - - 20,571,956 Total changes in net assets 21,837,381 (372,150) 5,812 21,471,043 Balance, March 31, 2017 176,443,645 12,722,749 7,778,569 196,944,963 Successor Balance, April 1, 2017 $274,926,481 $12,722,749 $7,778,569 $295,427,799 Excess of revenue and gains over expenses and losses 30,253,111 - - 30,253,111 Equity transfer - - - - Contributions - 738,163 1,041,504 1,779,667 Investment income - 78,045-78,045 Realized and unrealized gains and losses - 618,382-618,382 Net assets released from restrictions 510,829 (1,407,074) - (896,245) Net asset reclassification 14,133 - - 14,133 Pension-related changes other than net periodic benefit cost 13,597,700 - - 13,597,700 Total changes in net assets 44,375,773 27,516 1,041,504 45,444,793 Balance, August 31, 2017 319,302,254 12,750,265 8,820,073 340,872,592 Excess of revenue and gains over expenses and losses 46,845,801 - - 46,845,801 Equity transfer - - - - Contributions - 2,880,758 40,628 2,921,386 Investment income - 314,118-314,118 Realized and unrealized gains and losses - 794,442-794,442 Net assets released from restrictions 1,255,155 (2,026,354) - (771,199) Net asset reclassification 2,530 - - 2,530 Pension-related changes other than net periodic benefit cost 8,120,945 - - 8,120,945 Total changes in net assets 56,224,431 1,962,964 40,628 58,228,023 Balance, May 31, 2018 375,526,685 14,713,229 8,860,701 399,100,615 Reconciliation of net assets from March 31, 2017 to April 1, 2017 Ending Balance at March 31, 2017 $ 196,944,963 Pushdown accounting adjustments: Property, plant and equipment 58,930,502 Intangible assets 42,300,000 Long term debt (2,747,666) Total $ 98,482,836 Beginning Balance at April 1, 2017 $ 295,427,799-5 -
NYU WINTHROP HOSPITAL AND SUBSIDIARIES CONSOLIDATED CASH FLOW (Unaudited) Nine month Successor Predecessor Period from Period from Period from 9/1/17 to 5/31/18 4/1/17 to 8/31/17 1/1/17 to 3/31/17 Cash flows from operating activities Increase in net assets $ 58,228,023 $ 45,444,793 $ 21,471,043 Adjustments to reconcile increase in net assets to net cash provided by operating activities Depreciation and amortization 52,277,064 26,968,140 14,794,665 Restricted and temporarily restricted contributions/transfers (2,921,386) (1,779,667) (659,589) Amortization of bond premium and discount - (191,114) (70,327) Loss (gain) on sale of property, plant and equipment - - (9,020) Pension related changes other than net periodic benefit costs - (13,597,700) (20,571,956) Realized and unrealized gains and losses on investments (5,493,349) (7,159,141) (7,411,486) Change in Accounts receivable (46,484,217) (5,544,484) (5,227,852) Other receivables, inventories, and prepaid expenses (2,083,478) 2,848,998 (10,493,301) Due from/to affiliates, net 2,467,326 5,123,279 40,116 Intangibles - - Long-term receivables and other assets (26,339,937) (16,768,998) 85,831 Accounts payable and accrued expenses 32,126,633 (14,628,808) 8,589,426 Other current liabilities, net 23,165,503 8,476,207 606,429 Other long-term liabilities, net 28,244,329 16,955,412 1,901,383 Accrued retirement liabilities (40,905,337) (3,398,064) 8,931,609 Estimated self-insurance liability (8,606,472) (2,140,577) 627,390 Net cash provided by operating activities 63,674,701 40,608,276 12,604,361 Cash flows from investing activities Purchases of property, plant, and equipment (71,716,708) (25,163,626) (5,642,276) Purchases (sales) of investments, net (12,674,990) 5,942,878 (3,070,578) Net cash used in investing activities (84,391,698) (19,220,748) (8,712,854) Cash flows from financing activities Repayment of long-term debt (6,275,657) (4,882,816) (2,428,704) Proceeds from NYU Loans 47,341,188 - - Proceeds from line of credit 25,000,000 25,000,000 - Repayment of line of credit (25,000,000) (25,000,000) - Restricted contributions 2,921,386 1,779,667 659,589 Net cash used in financing activities 43,986,917 (3,103,149) (1,769,115) Net increase in cash and cash equivalents 23,269,921 18,284,379 2,122,392 Cash and cash equivalents Beginning of year 87,020,660 68,736,281 66,613,889 End of year $ 110,290,581 $ 87,020,660 $ 68,736,281-6-
Notes to Financial Statements May 31, 2018 (1) Summary of Significant Accounting Policies and Other Information (a) Financial Information The financial information furnished herein is unaudited and thus is subject to change; however, in the opinion of management, the information reflects all adjustments that are necessary to fairly state the financial position of ( NYU Winthrop ), and the results of its operations and changes in its unrestricted net assets for the interim periods indicated. NYU Winthrop presumes that users of this interim financial information have read or have access to the Winthrop s audited financial statements and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The Financial Statements of Winthrop for the fiscal year ended August 31, 2017 are on file at www.emma.msrb.org as Appendix B to the Official Statement dated October 4, 2012, relating to the Nassau County Local Economic Assistance and Financing Corporation $130,180,000 Revenue Bonds, Series 2012 and the information contained therein are hereby incorporated in this Quarterly Report. Accordingly, footnotes and other disclosures that would substantially duplicate the disclosures contained in the Winthrop s most recent audited financial statements have been omitted. Patient volumes and net operating revenues are subject to seasonal variations caused by a number of factors, including, but not necessarily limited to, seasonal cycles of illness, climate and weather conditions, vacation patterns of both hospital patients and admitting physicians and other factors relating to the timing of elective hospital procedures. Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including levels of occupancy and other patient volumes, interest rates, unusual or non-recurring items and other seasonal fluctuations. These same considerations apply to all year-to-year comparisons. (b) Organization Winthrop-University Hospital Association ( WUH ), located in Mineola, New York, is a not-forprofit, acute care teaching hospital that provides a full range of inpatient and outpatients services to the community. Effective April 1, 2017, NYU Langone Health System ( NYUHS ) formally acquired WUH and became the parent or controlling company to the entities listed below. As a result of the acquisition, WUH changed its name to NYU Winthrop Hospital ( NYU Winthrop ). Prior to the acquisition by NYUHS, WUH s sole corporate member was Winthrop South Nassau University Health System, Inc. ( WSNUHS ). Additionally, WUH (through its parent company of WSNUHS) entered into a joint agreement with a number of other healthcare providers on Long Island, which operates as Long Island Health Network ( LIHN ). Prior to completion of the acquisition, WUH exercised its election to disaffiliate from WSNUHS, and also entered into a withdrawal agreement with LIHN. Both the disaffiliation from WSNUHS and the withdrawal from LIHN became effective on April 1, 2017. The accompanying consolidated financial statements include the accounts of the Hospital and its wholly owned, for-profit and not-for-profit subsidiaries, and affiliated professional corporations: - 7 -
Notes to Financial Statements May 31, 2018 Winthrop University Hospital Services Corporation ( WUHSC ) (formerly known as Nassau Hospital Office Corporation), Winthrop Clinical Partners, Inc. ( WCPI ) and various faculty, community and hospital-based physician services. Winthrop PHO, Inc. is a New York corporation that was formed during 2012. The purpose of the corporation is to advise, consult, and provide administrative and management services to the Hospital and its physicians and other healthcare providers in order to design and implement programs to achieve the lawful objective of offering healthcare services to the public in an efficient and cost effective manner. The entity is not a subsidiary of the hospital, and the hospital accounts for the investment under the equity method of accounting as of May 31, 2018. Since the Hospital agreed to affiliate with NYU Langone Medical Center ( NYU ) and has since consummated the affiliation transaction; and as a result of the Hospital s affiliation with NYU, the PHO has ceased its efforts. On December 12, 2017 Legal counsel to the Winthrop PHO submitted a petition for the Attorney General s approval of the Plan for Dissolution and Distribution of Assets which was marked received on January 9, 2018 by the state of New York Attorney General. For purposes of disclosure within these consolidated financial statements, the consolidated entities listed above are collectively referred to as NYU Winthrop unless explicitly referred to as the Hospital entity only, or as WUH for the collective consolidated entities for the period of January 1, 2017 to March 31, 2017. (c) Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Amounts due from or due to the entities of the Hospital, WUHSC, WCPI or the others consolidated entities as of May 31, 2018, as well as the transactions between those entities recorded during the nine months ended May 31, 2018 have been eliminated in consolidation. Amounts due from or to NYU Winthrop and NYUHS (or other non-consolidated NYU affiliates) are included as due to affiliates on the consolidated balance sheet as of May 31, 2018 and August 31, 2017 and transactions between those entities for nine months ended May 31, 2018 are included in operating revenue or operating expense in the consolidated statements of operations. (d) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, including estimated uncollectibles for accounts receivable for services to patients, and liabilities, including estimated payables to third party payors, malpractice insurance liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. There is at least a reasonable possibility that certain estimates will change by material amounts in the near term. Actual results could differ from those estimates. - 8 -
(e) Tax Status Notes to Financial Statements May 31, 2018 NYU Winthrop is exempt from income taxes under Internal Revenue Code Section 501(c) (3). WUHSC is exempt under Internal Revenue Code Section 501(c) (2). Their income is generally not subject to Federal or New York State income taxes. Various faculty and network practices are taxable entities. The tax accounts related to these entities are not material to the consolidated financial statements. The taxable faculty, community, and hospital based physician services have generated net operating loss carryforwards for which the related deferred tax asset has been fully reserved due to the uncertainty of the entities abilities to use these loss carryforwards in the future. Management annually reviews its tax positions and has determined that there are no material uncertain tax positions that require recognition in the consolidated financial statements. (f) New Authoritative Pronouncements In May 2014, the FASB issued Accounting Standard Update ( ASU ) 2014-9, Revenue from Contracts with Customers. This standard implements a single framework for recognition of all revenue earned from customers. This framework ensures that entities appropriately reflect the consideration to which they expect to be entitled in exchange for goods and services by allocating transaction price to identified performance obligations and recognizing revenue as performance obligations are satisfied. Qualitative and quantitative disclosures are required to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for fiscal years beginning after December 15, 2017. NYU Winthrop is evaluating the impact this will have on the consolidated financial statements beginning in fiscal year 2019. In January 2016, the FASB issued ASU 2016-1, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Certain financial institutions and companies with large equity investment portfolios that are not currently being measured at fair value through the income statement are most affected by the new standard. The new standard also allows entities that are not public business entities and do not carry financial instruments at fair value in the consolidated balance sheet to no longer be required to disclose the fair value and significant assumptions used to estimate the fair value of such financial instruments. The standard is effective for fiscal year beginning after December 15, 2018 for nonpublic business entities. In the prior year, NYU Winthrop early adopted the portion of the standard that eliminates the disclosure requirement for financial instruments that are not recorded at fair value. As such, NYU Winthrop has not disclosed the fair value of its debt as of August 31, 2017. In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of leases with a term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely - 9 -
Notes to Financial Statements May 31, 2018 unchanged. The guidance requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expire before the earliest comparative period presented. A full retrospective transition approach is not permitted. This guidance will be effective for NYU Winthrop beginning in fiscal year 2020. Early application is permitted. NYU Winthrop is currently assessing the impact this standard will have on their consolidated financial statements in future years. In August 2016, the FASB issued ASU 2016-14, Presentation of Financial Statements for Not for Profit Entities. This standard marks the completion of the first phase of a larger project aimed at improving not for profit financial reporting. Under the new guidance, net asset reporting will be streamlined and clarified. The existing three category classification of net assets (i.e., unrestricted, temporarily restricted, and permanently restricted) will be replaced with a simplified model that combines temporarily restricted and permanently restricted into a single category called net assets with donor restrictions. There will be new requirements to reporting expenses and additional disclosures to highlight restrictions on the use of resources that make otherwise liquid assets unavailable for meeting near term financial requirements. The standard is effective for NYU Winthrop beginning in fiscal year 2019 with early adoption permitted. In the year of application, not for profit entities are required to disclose the nature of any reclassifications or restatements resulting from the adoption and their effect, if any, on the change in the net asset classes for each year presented. The requirements must be applied retrospectively; however, entities can elect not to provide certain comparative disclosures in the year of adoption. NYU Winthrop is currently assessing the impact this standard will have on their consolidated financial statements in future years. In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires that in instances where an operating measure is included in the consolidated statement of operations, the service cost component of the net periodic cost be included as a component of the operating measure and other components of net periodic costs be presented separately in the nonoperating section of the consolidated statement of operations. The ASU is effective for fiscal years beginning after December 15, 2017 with early adoption permissible. NYU Winthrop early adopted the standard and as a result, recorded the non-service cost components of the net periodic costs for its pension and postretirement benefit plans within the nonoperating section of the statements of operations as other component of pension and postretirement costs for period January 1, 2017 to March 31, 2017 and April 1, 2017 to August 31, 2017. - 10 -
(2) Contingencies Notes to Financial Statements May 31, 2018 NYU Winthrop has been named as defendant in legal actions involving alleged professional liability, regulatory compliance, and other claims arising from the normal conduct of their affairs, certain of which seek damages in unstated amounts or in amounts in excess of applicable insurance limits. It is the opinion of the NYU Winthrop s management, based on a review of the aforementioned claims by defense attorneys, that insurance coverage and self insurance reserves are adequate and that the final disposition of such claims will not have a material adverse effect on the NYU Winthrop s consolidated balance sheet, results of operations, or liquidity. In addition, there are known, and possibly unknown, incidents occurring through May 31, 2018 that may result in the assertion of additional claims. In management s opinion, any liability that may arise from settlement of such claims will be settled either within insurance coverage or self insured liability estimates or otherwise will not have any material adverse effect on the NYU Winthrop s consolidated balance sheet, results of operations, or liquidity. (3) Pension Plans The Hospital contributed $46,433,402 to its retirement plans for the nine months ended May 31, 2018. The Hospital has pension expense of 28,695,534 for the same interim period. - 11 -