planned parenthood of northern new england, inc. and related entities · 2018. 7. 24. · board of...

PLANNED PARENTHOOD OF NORTHERN NEW ENGLAND, INC.AND RELATED ENTITIES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(with Comparative Totals for 2016)

With Independent Auditor's Report

INDEPENDENT AUDITOR'S REPORT

Board of TrusteesPlanned Parenthood of Northern New England, Inc. and Related Entities

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Planned Parenthood ofNorthern New England, Inc. and Related Entities (PPNNE), which comprise the consolidated statementof financial position as of December 31, 2017, and the related consolidated statements of activities,functional expenses and cash flows for the year then ended, and the related notes to the consolidatedfinancial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with U.S. generally accepted accounting principles; this includes the design,implementation and maintenance of internal control relevant to the preparation and fair presentation ofconsolidated financial statements that are free from material misstatement, whether due to fraud orerror.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudit. We conducted our audit in accordance with U.S. generally accepted auditing standards and thestandards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the consolidated financial statements are free ofmaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those assessments, the auditor considers internal controlrelevant to the entity's preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of PPNNE's internal control. Accordingly, we express nosuch opinion. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of the consolidated financialstatement presentation.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour opinion.

Board of TrusteesPlanned Parenthood of Northern New England, Inc. and Related EntitiesPage 2

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of PPNNE as of December 31, 2017, and the consolidatedresults of their operations, changes in their net assets and their cash flows for the year then ended, inconformity with U.S. generally accepted accounting principles.

Report on Summarized Comparative Information

We have previously audited PPNNE's 2016 consolidated financial statements, and we expressed anunmodified audit opinion on those audited consolidated financial statements in our report dated May 1,2017. In our opinion, the summarized comparative information presented herein as of and for the yearended December 31, 2016 is consistent, in all material respects, with the audited consolidated financialstatements from which it has been derived.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 24,2018 on our consideration of PPNNE's internal control over financial reporting and on our tests of itscompliance with certain provisions of laws, regulations, contracts and grant agreements and othermatters. The purpose of that report is solely to describe the scope of our testing of internal control overfinancial reporting and compliance and the results of that testing, and not to provide an opinion on theeffectiveness of PPNNE's internal control over financial reporting or on compliance. That report is anintegral part of an audit performed in accordance with Government Auditing Standards in consideringPPNNE's internal control over financial reporting and compliance.

Portland, MaineMay 24, 2018Registration No. 92-0000278

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PLANNED PARENTHOOD OF NORTHERN NEW ENGLAND, INC. AND RELATED ENTITIES

Consolidated Statement of Financial Position

December 31, 2017(With Comparative Totals for December 31, 2016)

ASSETS

UnrestrictedTemporarilyRestricted

PermanentlyRestricted

2017Total

2016Total

Current assetsCash $ 4,975,470 $ 1,790,217 $ 8,300 $ 6,773,987 $ 3,038,100Accounts receivable, net 1,709,090 - - 1,709,090 1,286,779Contributions receivable, net 834,300 196,921 - 1,031,221 1,090,172Other 1,012,490 - - 1,012,490 844,425

Total current assets 8,531,350 1,987,138 8,300 10,526,788 6,259,476

Property and equipmentLand 54,157 - - 54,157 54,157Buildings 3,030,500 - - 3,030,500 2,998,730Leasehold improvements 4,895,538 - - 4,895,538 4,818,408Furniture, fixtures and

equipment 3,305,532 - - 3,305,532 2,855,284Construction-in-progress 119,308 - - 119,308 218,555

11,405,035 - - 11,405,035 10,945,134Less accumulated depreciation

and amortization (7,119,176) - - (7,119,176) (6,365,503)

Property and equipment,net 4,285,859 - - 4,285,859 4,579,631

Other assetsContributions receivable, net of

current portion - 23,378 - 23,378 371,057Long-term investments 3,423,073 117,455 1,306,898 4,847,426 4,448,543Other 176,347 685,820 - 862,167 676,278

Total other assets 3,599,420 826,653 1,306,898 5,732,971 5,495,878

Total assets $16,416,629 $ 2,813,791 $ 1,315,198 $20,545,618 $16,334,985

The accompanying notes are an integral part of these consolidated financial statements.

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LIABILITIES AND NET ASSETS



2017Total

2016Total

Current liabilitiesCurrent portion of long-term debt $ 10,000 $ - $ - $ 10,000 $ 88,000Accounts payable and accrued

expenses 997,307 - - 997,307 565,906Accrued salaries and benefits 768,663 - - 768,663 737,249Other 1,022,678 - - 1,022,678 879,603

Total current liabilities 2,798,648 - - 2,798,648 2,270,758

Long-term debt, net of currentportion 259,767 - - 259,767 592,830

Total liabilities 3,058,415 - - 3,058,415 2,863,588

Net assetsUndesignated 10,485,456 - - 10,485,456 6,434,884Board-designated for

long-term investment 2,872,758 - - 2,872,758 2,737,758Temporarily restricted - 2,813,791 - 2,813,791 2,998,637Permanently restricted - - 1,315,198 1,315,198 1,300,118

Total net assets 13,358,214 2,813,791 1,315,198 17,487,203 13,471,397

Total liabilities and netassets $16,416,629 $ 2,813,791 $ 1,315,198 $20,545,618 $16,334,985


Consolidated Statement of Activities

Year Ended December 31, 2017 (With Comparative Totals for Year Ended December 31, 2016)



2017Total

2016Total

Operating revenue and supportGross patient service revenue $ 38,236,910 $ - $ - $ 38,236,910 $ 36,758,580Less contractual allowances anddiscounts 23,211,638 - - 23,211,638 23,394,356

Patient service revenue (net ofcontractual allowances anddiscounts) 15,025,272 - - 15,025,272 13,364,224

Less provision for bad debts 704,552 - - 704,552 564,883

Net patient service revenue 14,320,720 - - 14,320,720 12,799,341

Grants and contracts 3,559,538 - - 3,559,538 3,824,916Contributions and bequests 6,441,909 886,150 - 7,328,059 5,610,420Other 494,935 53,323 - 548,258 634,952

24,817,102 939,473 - 25,756,575 22,869,629

Net assets released from restrictions 1,186,606 (1,186,606) - - -

Total operating revenueand support 26,003,708 (247,133) - 25,756,575 22,869,629

Operating expensesProgram services

Direct patient services 16,432,626 - - 16,432,626 16,260,795Education and outreach 132,052 - - 132,052 135,195Public policy 1,626,944 - - 1,626,944 2,080,060Marketing and communication 209,744 - - 209,744 270,103

Total program services 18,401,366 - - 18,401,366 18,746,153

Support servicesGeneral and administrative 2,585,306 - - 2,585,306 2,235,984Fundraising 1,165,984 - - 1,165,984 1,027,247PPFA program support - - - - 244,025

Total support services 3,751,290 - - 3,751,290 3,507,256

Total expenses 22,152,656 - - 22,152,656 22,253,409

Change in net assets from operations 3,851,052 (247,133) - 3,603,919 616,220

Other changesNon-operating investment

gain 285,060 111,747 - 396,807 230,739Contributions - - 15,080 15,080 20,304Net assets released from restrictions 49,460 (49,460) - - -

Total other changes 334,520 62,287 15,080 411,887 251,043

Change in net assets 4,185,572 (184,846) 15,080 4,015,806 867,263 Net assets, beginning of year 9,172,642 2,998,637 1,300,118 13,471,397 12,604,134

Net assets, end of year $ 13,358,214 $ 2,813,791 $ 1,315,198 $ 17,487,203 $ 13,471,397


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Consolidated Statement of Functional Expenses

Year Ended December 31, 2017(With Comparative Totals for Year Ended December 31, 2016)

DirectPatient

Services

Educationand

OutreachPublicPolicy

Marketingand

Communication

TotalProgramServices

General and

Administrative FundraisingTotal Support

Services2017Total

2016Total

Payroll and related costs $ 9,491,660 $ 103,160 $ 987,956 $ 85,889 $ 10,668,665 $ 1,613,217 $ 840,202 $ 2,453,419 $ 13,122,084 $12,500,079Contraceptive supplies 2,068,450 - - - 2,068,450 - - - 2,068,450 2,018,262Outside laboratory fees 516,341 - - - 516,341 - - - 516,341 496,510Occupancy costs 1,632,360 13,285 109,564 10,451 1,765,660 176,095 48,065 224,160 1,989,820 1,976,612Medical supplies 701,237 10 - - 701,247 - - - 701,247 682,300Professional services 526,993 58 166,299 - 693,350 286,216 16,176 302,392 995,742 1,024,562Advertising 10 - 118,425 71,041 189,476 23,806 500 24,306 213,782 555,197Insurance and taxes 215,303 609 4,504 253 220,669 11,421 1,894 13,315 233,984 210,342Printing and postage 58,757 1,939 26,285 34,427 121,408 5,936 62,873 68,809 190,217 177,524Dues and materials 61,869 1,854 98,297 - 162,020 10,888 2,775 13,663 175,683 156,237Interest expense 22,324 - 1,583 - 23,907 - 778 778 24,685 62,260Other 509,502 11,034 96,763 7,683 624,982 360,044 180,322 540,366 1,165,348 1,409,782

Total expenses beforedepreciation, amortizationand PPFA program support 15,804,806 131,949 1,609,676 209,744 17,756,175 2,487,623 1,153,585 3,641,208 21,397,383 21,269,667

Depreciation and amortization 627,820 103 17,268 - 645,191 97,683 12,399 110,082 755,273 739,717

Total expenses before PPFAprogram support 16,432,626 132,052 1,626,944 209,744 18,401,366 2,585,306 1,165,984 3,751,290 22,152,656 22,009,384

PPFA program support - - - - - - - - - 244,025

Total expenses $ 16,432,626 $ 132,052 $ 1,626,944 $ 209,744 $ 18,401,366 $ 2,585,306 $ 1,165,984 $ 3,751,290 $ 22,152,656 $22,253,409


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Consolidated Statement of Cash Flows

Year Ended December 31, 2017 (With Comparative Totals for Year Ended December 31, 2016)

2017 2016

Cash flows from operating activitiesChange in net assets $ 4,015,806 $ 867,263Adjustments to reconcile change in net assets to net cash provided

by operating activitiesDepreciation and amortization 755,273 739,717Provision for bad debts 704,552 564,883Revenue from contributed securities (1,457,623) (444,188)Proceeds of contributed securities 1,457,623 444,188Unrealized/realized gain on investments (433,390) (260,291)Contributions restricted to long-term purposes (15,080) (20,304)Change in value of beneficial interest in trusts (241,753) (37,635)Gain on disposal of property - (60,677)(Increase) decrease in

Accounts receivable (1,126,863) (609,605)Contributions receivable 373,508 638,326Other current assets (168,065) 130,712Other long-term assets 55,864 11,566

Increase (decrease) inAccounts payable and accrued expenses 431,401 (92,367)Accrued salaries and benefits 31,414 46,406Other current liabilities 143,075 (612,741)

Net cash provided by operating activities 4,525,742 1,305,253

Cash flows from investing activitiesPurchases of property and equipment (461,501) (1,146,754)Proceeds from sale of property - 390,401Proceeds from sale of investments 1,122,100 384,003Purchases of investments (1,087,593) (336,817)

Net cash used by investing activities (426,994) (709,167)

Cash flows from financing activitiesContributions received for long-term purposes 48,202 53,882Principal payments on long-term debt (411,063) (288,464)

Net cash used by financing activities (362,861) (234,582)

Net increase in cash 3,735,887 361,504

Cash, beginning of year 3,038,100 2,676,596

Cash, end of year $ 6,773,987 $ 3,038,100


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Notes to the Consolidated Financial Statements


Nature of Activities

Planned Parenthood of Northern New England, Inc. (PPNNE) is a Vermont nonprofit corporationorganized for the purpose of providing reproductive health and education services. PPNNE is also anadvocacy organization working for public policies which guarantee reproductive rights and ensureaccess to services. PPNNE is registered to conduct business in Maine, New Hampshire and Vermont.

In 1990, PPNNE established Planned Parenthood of Northern New England Action Fund, Inc., anonprofit corporation, for the purpose of expanding lobbying activities for the states of Vermont, Maineand New Hampshire. During 2014, PPNNE amended the operating documents of Planned Parenthoodof Northern New England Action Fund, Inc. to include activities for only the state of Vermont andrenamed the corporation Planned Parenthood Vermont Action Fund, Inc. Also during 2014, PPNNEestablished Planned Parenthood Maine Action Fund, Inc. and Planned Parenthood New HampshireAction Fund, Inc., both nonprofit corporations, for the purpose of expanding lobbying activities for thestates of Maine and New Hampshire, respectively.

Operations and balances of Planned Parenthood Vermont Action Fund, Inc., Planned ParenthoodMaine Action Fund, Inc. and Planned Parenthood New Hampshire Action Fund, Inc. (collectively knownas the Action Funds) are considered immaterial to PPNNE, but are included in the accompanyingconsolidated financial statements.

1. Summary of Significant Accounting Policies

New Accounting Pronouncement

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting StandardsUpdate (ASU) No. 2016-02, Leases (Topic 842). The ASU was issued to increase transparencyand comparability among organizations by recognizing lease assets and lease liabilities in thestatement of financial position and disclosing key information about leasing arrangements. TheASU is effective for annual periods beginning after December 15, 2019. Management is reviewingthe guidance in the ASU to determine whether it will have a material effect on PPNNE's financialposition or changes in its net assets.

Principles of Consolidation

The consolidated financial statements include the accounts of PPNNE and the Action Funds. TheAction Funds are consolidated since PPNNE has both an economic interest in the Action Fundsand control of the Action Funds through a majority voting interest in their governing boards. Allmaterial interorganizational transactions have been eliminated.

Comparative Financial Information

The consolidated financial statements include certain prior-year summarized comparativeinformation in total, but not by net asset class. Such information does not include sufficient detail toconstitute a presentation in conformity with U.S. generally accepted accounting principles (U.S.GAAP). Accordingly, such information should be read in conjunction with PPNNE's consolidatedfinancial statements for the year ended December 31, 2016, from which the summarizedinformation was derived.

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Use of Estimates

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requiresmanagement to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the consolidated financialstatements. Estimates also affect the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

Basis of Presentation

Net assets and revenues, expenses, gains and losses are classified as follows based on existenceor absence of donor-imposed restrictions:

Unrestricted net assets: Net assets that are not subject to donor-imposed stipulations.

Temporarily restricted net assets: Net assets subject to donor-imposed stipulations that may orwill be met by actions of PPNNE and/or the passage of time. When a donor restriction expires, thatis, when a stipulated time restriction ends or purpose restriction is accomplished, temporarilyrestricted net assets are reclassified to unrestricted net assets and reported in the statement ofactivities as net assets released from restrictions. Net assets subject to donor-imposed stipulationsthat are met in the same reporting period are reported as unrestricted support.

Permanently restricted net assets: Net assets subject to donor-imposed stipulations that they bemaintained permanently by PPNNE. Generally, the donors of these assets permit PPNNE to useall or part of the income earned on related investments for general or specific purposes.

Promises to Give

Unconditional promises to give cash and other assets are reported at fair value at the date thepromise is received. The gifts are reported as either temporarily or permanently restricted support ifthey are received with donor stipulations that limit the use of the donated assets.

Income Taxes

The Internal Revenue Service has determined that PPNNE and its subsidiaries, the Action Funds,are exempt from taxation under Internal Revenue Code Sections 501(c)(3) and 501(c)(4),respectively. Accordingly, no provision for income taxes has been reflected in these consolidatedfinancial statements.

Cash

PPNNE maintains its cash in bank deposit accounts which, at times, may exceed federally insuredlimits. PPNNE has not experienced any losses in such accounts. Management believes it is notexposed to any significant risk on cash.

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Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstandingbalances. Management provides for probable uncollectible amounts through a charge to earningsand a credit to a valuation allowance based on its assessment of the current status of individualaccounts. Balances that are still outstanding after management has used reasonable collectionefforts are written off through a charge to the valuation allowance and a credit to accountsreceivable.

In evaluating the collectibility of patient accounts receivable, PPNNE analyzes past results andidentifies trends for each of its major payor sources of revenue to estimate the appropriateallowance for doubtful accounts and provision for bad debts. Data for each major source isregularly reviewed to evaluate the allowance for doubtful accounts. For receivables relating toservices provided to patients having third-party coverage, PPNNE analyzes contractually dueamounts and provides an allowance for doubtful accounts and a corresponding provision for baddebts. For receivables relating to self-pay patients (which includes both patients without insuranceand patients with deductible and copayment balances for which third-party coverage exists for partof the bill), PPNNE records a provision for bad debts in the period of service based on pastexperience, which indicates that many patients are unable to pay amounts for which they arefinancially responsible. The difference between the standard rates and the amounts actuallycollected after all reasonable collection efforts have been exhausted is charged against theallowance for doubtful accounts.

The allowance for doubtful accounts was $758,000 and $605,000 at December 31, 2017 and 2016,respectively. During 2017 and 2016, net write-offs of self-pay accounts were approximately$552,000 and $510,000, respectively.

Property and Equipment

Property and equipment is stated at cost at the date of acquisition or fair market value at the dateof the gift. Donated property and equipment is reported as unrestricted support unless the donorhas restricted the donated asset to a specific purpose. Assets donated with explicit restrictionsregarding their use and contributions of cash that must be used to acquire property and equipmentare reported as restricted support. Absent donor stipulations regarding how long those donatedassets must be maintained, PPNNE reports expirations when the donated or acquired assets areplaced in service as instructed by the donor. PPNNE reclassifies temporarily restricted net assetsto unrestricted net assets at that time. Depreciation is computed using the straight-line methodover the estimated useful lives of the underlying assets. Amortization of leasehold improvements iscomputed using the straight-line method over the lesser of the useful lives or the term of theunderlying leases. The cost of maintenance and repairs is charged to expense as incurred;renewals and betterments greater than $1,000 are capitalized.

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Investments

PPNNE is required to report covered investments in the statement of financial position at fair valuewith any realized or unrealized gains and losses reported in the consolidated statement ofactivities. Covered investments include all equity securities with readily determinable fair valuesand all investments in debt securities. All of PPNNE's investments are held in cash and cashequivalents, exchange traded funds or mutual funds.

Gifts of securities are reported at fair value on the date of the gift. PPNNE's policy is to liquidate alldonated securities as soon as possible. Any resulting gain or loss is recognized in the unrestrictedcategory.

An amount equal to investment income appropriated for operating purposes is included inoperating revenue and support in the consolidated statement of activities. The remainder ofinvestment income is excluded from the consolidated change in net assets from operations.

Changes in Net Assets from Operations

The statement of activities report changes in net assets from operations. The changes in netassets which are excluded from this measurement include investment income greater thanamounts eligible to be distributed pursuant to PPNNE's spending policy, contributions which arepermanently restricted by the donor or which are donor-restricted to be used for the purpose ofacquiring long-term assets and the release thereof when PPNNE has complied with the donativerestrictions.

Net Patient Service Revenue

PPNNE has agreements with third-party payors that provide for payments at amounts differentfrom their established rates. Net patient service revenue is reported at the estimated net realizableamounts from patients, third-party payors and others for services rendered. For the years endedDecember 31, 2017 and 2016, net patient service revenue was reduced by $14,392,653 and$14,261,243, respectively, as a result of third-party contractual allowances and other adjustments.

The net patient service revenue percentage by third-party payors and patients for the years endedDecember 31 was as follows:

2017 2016

Commercial 74% 72%Medicare and Medicaid 15 17Private pay 11 11

100% 100%

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Charity Care

PPNNE also provides patient services under sliding fee arrangements. These discounts fromcharges are available for eligible patients whose income and family size meet the criteria outlinedin the federal poverty guidelines updated each year. Because PPNNE does not pursue collectionof amounts determined to qualify as charity care as described above, they are not reported aspatient service revenue. PPNNE maintains records to identify the amount of charges foregone forservices and supplies furnished under its sliding fee/charity care policy, as well as the estimatedcost of those services and supplies and equivalent service statistics.

The following information measures the level of charity care provided during the years endedDecember 31:

2017 2016

Charges foregone, based on established rates $ 8,070,504 $ 8,173,636

Estimated costs and expenses incurred to provide charity care $ 4,692,000 $ 4,895,000

Equivalent percentage of charity care charges to patientcharges 21.18% 22.24%

Cost of providing charity care services has been estimated based on an overall financial statementratio of costs (excluding Planned Parenthood Federal of America, Inc. (PPFA) program support) tocharges applied to charity charges forgone.

Functional Allocation of Expenses

PPNNE's expenses are presented on a functional basis, showing basic program activities andsupport services. PPNNE allocates expenses based on the organizational cost centers (functionalunits) in which expenses are incurred. In certain instances, expenses are allocated betweensupport functions and program services based on an analysis of personnel time and space utilizedfor the related services.

Subsequent Events

For purposes of the preparation of these consolidated financial statements in conformity with U.S.GAAP, PPNNE has considered transactions or events occurring through May 24, 2018, which wasthe date that the consolidated financial statements were available to be issued. Management hasnot evaluated subsequent events after that date for inclusion in the consolidated financialstatements.

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2. Accounts Receivable

Accounts receivable consisted of the following:

2017 2016

Patient accounts receivable $ 3,339,090 $ 2,796,779Less allowance for contractual adjustments (872,000) (905,000)Less allowance for uncollectible accounts (758,000) (605,000)

$ 1,709,090 $ 1,286,779

3. Contributions Receivable

Contributions receivable consisted of the following:

2017 2016Contributions for

Unrestricted purposes $ 834,300 $ 758,524Unrestricted purposes, time restriction 170,000 652,462Capital projects 32,000 65,862Other operating purposes 27,550 27,521

Contributions receivable, gross 1,063,850 1,504,369

Less allowance for uncollectible contributions and unamortizeddiscounts of 2% at December 31, 2017 and 2016 (9,251) (43,140)

Contributions receivable, net 1,054,599 1,461,229

Less contributions receivable, current portion 1,031,221 1,090,172

Contributions receivable, net of current portion $ 23,378 $ 371,057

Contributions are due as follows at December 31:

2017 2016

Less than one year $ 1,038,846 $ 1,106,369One to five years 25,004 398,000

Contributions receivable, gross $ 1,063,850 $ 1,504,369

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4. Beneficial Interest in Trusts

PPFA administers various charitable gift annuity and pooled income fund gift programs and acharitable remainder annuity trust in which PPNNE is designated to receive any remaining assetsat the end of the program's term. PPNNE's interest in these trusts is reported as a contribution inthe year in which it is notified of its interest.

Several donors have established trusts naming PPNNE as the beneficiary of charitable remaindertrusts, which are administered by a third-party. The charitable remainder trusts provide for thepayment of distributions to the grantor or other designated beneficiaries over the trust's term(usually the designated beneficiary's lifetime).

The beneficial interest in these trusts is calculated based on the present value of the underlyingassets using the beneficiaries' life expectancies and a 2.16% and 1.60% discount rate in 2017 and2016, respectively.

Beneficial interest in trusts, included in other long-term assets on the consolidated statement offinancial position, consisted of the following:

2017 2016

Charitable gift annuities $ 112,553 $ 89,843Charitable remainder unitrusts 573,268 354,225

$ 685,821 $ 444,068

5. Investments

The market value of the investments is as follows:

2017 2016

Cash and cash equivalents $ 94,371 $ 171,362Mutual funds

Short-term bonds 448,819 387,380Bond funds 714,581 743,715U.S. stocks 1,169,392 1,094,215Non-U.S. stocks 1,178,570 1,106,956Real estate securities 226,537 213,753Commodity-linked securities 344,218 314,519Insurance-linked securities 333,292 -

Exchange traded funds:Bond funds - 82,727Real estate securities 337,646 333,916

$ 4,847,426 $ 4,448,543

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Investment income is summarized as follows:

2017 2016

Interest and dividend income $ 170,639 $ 181,030Realized gain (loss) 16,778 (1,102)Unrealized gain 416,612 261,393Investment fees (25,222) (23,582)

$ 578,807 $ 417,739

Net investment income is reported in the statement of activities as follows:

2017 2016

Operating investment income $ 182,000 $ 187,000Non-operating investment income 396,807 230,739

$ 578,807 $ 417,739

Investments in general are exposed to various risks, such as interest rates, credit and overallmarket volatility. As such, it is reasonably possible that changes could materially affect theamounts reported in the statement of financial position.

6. Line of Credit

PPNNE has a $1,500,000 line of credit agreement at People's United Bank. The line of credit bearsinterest at the Wall Street Journal prime rate, subject to a floor (4.50% at December 31, 2017). Theagreement expires August 1, 2018. Under the terms of the agreement, unrestricted investmentsnot to exceed $2,300,000, margined at 70% and subject to securities mix and bond rates, as wellas 70% of PPNNE's pledged endowment account plus eligible accounts receivable aged 90 daysand less, are pledged as collateral. There was no outstanding balance on the line of credit as ofDecember 31, 2017 and 2016.

In connection with the line of credit agreement, PPNNE is required to maintain a debt servicecoverage ratio of 1.2-to-1. PPNNE was in compliance with this ratio for the year endedDecember 31, 2017.

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7. Long-Term Debt

Long-term debt consisted of the following:2017 2016

Mortgage note payable to People's United Bank, withmonthly installments due of $1,904, including interest at4.87%, through September 2025, with a balloonpayment for the remaining balance due at maturity,collateralized by buildings. $ 269,767 $ 279,048

Tenant improvement loan payable to CLAPP BuildingPartners, LLC, paid in 2017. - 401,782

269,767 680,830

Less current portion 10,000 88,000

Long-term debt, excluding current portion $ 259,767 $ 592,830

Future maturities of long-term debt are approximately as follows:

2018 $ 10,0002019 10,0002020 11,0002021 11,0002022 12,000Thereafter 215,767

$ 269,767

Cash paid for interest approximates interest expense for the years ended December 31, 2017 and2016.

Under the terms of People's United mortgage note agreement, PPNNE is required to maintainfinancial covenants, which were met as of December 31, 2017 and 2016.

8. Operating Leases

PPNNE rents certain facilities and leases office equipment from third-parties under agreementsreflected as operating leases. The total facility rent expense was $1,120,768 and $1,114,801 in2017 and 2016, respectively. Total equipment lease expense was $48,010 and $44,055 in 2017and 2016, respectively.

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Future minimum lease commitments are as follows:

2018 $ 928,0002019 808,0002020 823,0002021 650,0002022 392,000Thereafter 944,000

$ 4,545,000

Rental income relating to subleases under these leases was $17,100 and $18,900 in 2017 and2016, respectively.

9. Commitments and Contingencies

Grants and Contracts

Grants and contracts require the fulfillment of certain conditions as set forth in the instrument of thegrant or contract. Failure to fulfill the conditions could result in the return of funds to the grantor.Although that is a possibility, management deems the contingency remote.

Risk Management

PPNNE maintains medical malpractice insurance coverage on a claims-made basis. PPNNE issubject to complaints, claims and litigation due to potential claims which arise in the normal courseof business. U.S. GAAP requires PPNNE to accrue the ultimate cost of malpractice claims whenthe indicant that gives rise to the claim occurs, without consideration of insurance recoveries.Expected recoveries are presented as a separate asset. PPNNE has evaluated its exposure tolosses arising from potential claims and determined no such accrual is necessary for the yearsended December 31, 2017 and 2016. PPNNE intends to renew coverage on a claims-made basisand anticipates coverage will be available in future periods.

Litigation

PPNNE is involved in legal matters arising from the ordinary course of business. In the opinion ofmanagement, these matters will not materially affect PPNNE's financial position.

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10. Restrictions on Net Assets

Temporarily restricted net assets consisted of donor contributions to the following programs orfuture periods not expended at year-end:

2017 2016

Planned Gifts $ 685,821 $ 444,068Laura Fund 80,014 65,303Restricted to other programs 550,030 296,432Time restriction 220,299 730,587Restricted for capital projects 1,277,627 1,462,247

$ 2,813,791 $ 2,998,637

Net assets released from restrictions consisted of the following:

2017 2016

Operating purpose or time restrictions accomplishedPPFA - planned gifts $ - $ 63,793Laura Fund 35,341 38,568Cancer Screening Access Fund 19,079 17,359CAPS Grant 58,826 134,430Restricted to other programs 9,120 2,304Time restrictions met 1,064,240 701,700

$ 1,186,606 $ 958,154

Nonoperating purpose restrictions accomplishedAcquisition of long-term assets $ 49,460 $ 812,055

Permanently restricted net assets consisted of endowment fund assets to be held in perpetuity.Permanently restricted net assets consisted of the following:

2017 2016

Key to the Future Fund, income unrestricted $ 944,717 $ 940,197Laura Fund, income unrestricted 130,429 128,169The David Wagner Fund, income restricted 50,559 50,559Maine endowment, income unrestricted 76,209 76,209Other endowment funds, income unrestricted 113,284 104,984

$ 1,315,198 $ 1,300,118

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11. Endowment

PPNNE's endowment includes both donor-restricted endowment funds and funds designated bythe Board of Trustees to function as endowments. As required by U.S. GAAP, net assetsassociated with endowment funds, including funds designated by the Board of Trustees to functionas endowments, are classified and reported based on the existence or absence of donor-imposedrestrictions.

Interpretation of Relevant Law

PPNNE has interpreted the State of Vermont Uniform Prudent Management of Institutional FundsAct (the Act) as requiring the preservation of the contributed value of the donor-restrictedendowment funds absent explicit donor stipulations to the contrary. As a result of thisinterpretation, PPNNE classifies as permanently restricted net assets (1) the original value of giftsdonated to the permanent endowment, (2) the original value of subsequent gifts to the permanentendowment, and (3) accumulations to the permanent endowment made in accordance with thedirection of the applicable donor gift instrument at the time the accumulation is added to the fund. Ifthe donor-restricted endowment assets earn investment returns beyond the amount necessary tomaintain the endowment assets’ corpus value, the excess is available for appropriation and,therefore, classified as temporarily restricted net assets until appropriated by the Board of Directorsfor expenditure. Funds designated by the Board of Directors to function as endowments areclassified as unrestricted net assets.

In accordance with the Act, PPNNE considers the following factors in making a determination toappropriate or accumulate donor-restricted endowment funds:

(1) The duration and preservation of the fund(2) The purposes of the organization and the donor-restricted endowment fund(3) General economic conditions(4) The possible effect of inflation and deflation(5) The expected total return from income and the appreciation of investments(6) Other resources of the organization(7) The investment policies of the organization

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Endowment Composition and Changes in Endowment

The endowment net assets composition by type of fund as of December 31, 2017 is as follows:

BoardDesignated

TemporarilyRestricted

PermanentlyRestricted Total

Donor-restricted endowment funds $ - $ 117,455 $ 1,315,198 $ 1,432,653

Board-designated endowment funds 2,872,758 - - 2,872,758

Total funds $ 2,872,758 $ 117,455 $ 1,315,198 $ 4,305,411

The changes in endowment net assets for the year ended December 31, 2017 were as follows:

BoardDesignated



Endowment net assets,December 31, 2016 $ 2,737,758 $ 559 $ 1,300,118 $ 4,038,435

Investment returnInvestment income 30,162 40,429 - 70,591Net appreciation 98,515 129,790 - 228,305

Total investment return 128,677 170,219 - 298,896

Contributions 135,000 - 15,080 150,080

Endowment assetsappropriated for expenditure (128,677) (53,323) - (182,000)

Endowment net assets,December 31, 2017 $ 2,872,758 $ 117,455 $ 1,315,198 $ 4,305,411

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The endowment net assets composition by type of fund as of December 31, 2016 was as follows:

BoardDesignated



Donor-restricted endowment funds $ - $ 559 $ 1,300,118 $ 1,300,677

Board-designated endowment funds 2,737,758 - - 2,737,758

Total funds $ 2,737,758 $ 559 $ 1,300,118 $ 4,038,435

The changes in endowment net assets for the year ended December 31, 2016 were as follows:

BoardDesignated




Investment returnInvestment income 42,392 41,031 - 83,423Net appreciation 91,068 12,258 - 103,326

Total investment return 133,460 53,289 - 186,749

Contributions 107,336 - 20,304 127,640

Endowment assetsappropriated for expenditure (133,460) (53,540) - (187,000)


Return Objectives and Risk Parameters

PPNNE has adopted investment and spending policies for endowment assets that attempt toprovide for equal treatment of present and future needs, with neither group favored at the expenseof the other. To meet these objectives, the Board seeks to provide reasonably stable andpredictable funds from the endowment for PPNNE’s operating budget, to grow capital and topreserve and grow the real (inflation-adjusted) purchasing power of assets as indicated by theaggregate value of appreciation and income. PPNNE seeks to generate a long-term target rate ofreturn in excess of five percent above the rate of inflation plus costs of managing the investments.

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Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, PPNNE relies on a total return strategy in whichinvestment returns are achieved through both capital appreciation (realized and unrealized) andcurrent yield (interest and dividends). PPNNE targets an asset allocation strategy wherein assetsare diversified among several asset classes. The pursuit of maximizing total return is tempered bythe need to minimize the volatility of returns and preserve capital. As such, PPNNE seeks broaddiversification among assets having different characteristics with the intent to endure lower relativeperformance in strong markets in exchange for greater downside protection in weak markets.

Spending Policy

PPNNE's investment policy states that spendable investment income will be calculated as 4% ofthe average endowment portfolio value based on the portfolio market value at the end of the mostrecent 12 quarters. Appropriations and withdrawals in excess of this policy must be approved bythe Board of Trustees. Under this policy, PPNNE appropriated for distribution $182,000 and$187,000 for operating purposes for the years ended December 31, 2017 and 2016, respectively,which are included in other operating revenue and support in the consolidated statement ofactivities. Earnings on board designated endowment funds in excess of appropriations areavailable for operations and are reported as unrestricted investment return.

12. Fair Value Measurements

FASB Accounting Standards Codification (ASC) Topic 820-10-20, Fair Value Measurement,defines fair value as the exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for the asset or liability in anorderly transaction between market participants on the measurement date. FASB ASC Topic 820-10-20 also establishes a fair value hierarchy which requires an entity to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuring fair value. Thestandard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that theentity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices forsimilar assets or liabilities, quoted prices in markets that are not active and other inputsthat are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect PPNNE’s own assumptions about theassumptions that market participants would use in pricing an asset or liability.

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Assets measured at fair value on a recurring basis were as follows:

Fair Value Measurements at December 31, 2017Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 94,371 $ 94,371 $ - $ -Mutual funds

Short-term bonds 448,819 448,819 - -Bond funds 714,581 714,581 - -U.S. stocks 1,169,392 1,169,392 - -Non-U.S. stocks 1,178,570 1,178,570 - -Real estate securities 226,537 226,537 - -Commodity-linked securities 344,218 344,218 - -Insurance-linked securities 333,292 333,292 - -

Exchange traded fundsReal estate securities 337,646 337,646 - -

Investments $ 4,847,426 $ 4,847,426 $ - $ -

Contributions receivable $ 1,054,599 $ - $ - $ 1,054,599

Charitable gift annuities $ 112,553 $ - $ 112,553 $ -Charitable remainder unitrusts 573,268 - 573,268 -

Beneficial interest in trusts $ 685,821 $ - $ 685,821 $ -

Fair Value Measurements at December 31, 2016Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 171,362 $ 171,362 $ - $ -Mutual funds

Short-term bonds 387,380 387,380 - -Bond funds 743,715 743,715 - -U.S. stocks 1,094,215 1,094,215 - -Non-U.S. stocks 1,106,956 1,106,956 - -Real estate securities 213,753 213,753 - -Commodity-linked securities 314,519 314,519 - -

Exchange traded fundsBond funds 82,727 82,727 - -Real estate securities 333,916 333,916 - -

Investments $ 4,448,543 $ 4,448,543 $ - $ -

Contributions receivable $ 1,461,229 $ - $ - $ 1,461,229

Charitable gift annuities $ 89,843 $ - $ 89,843 $ -Charitable remainder unitrusts 354,225 - 354,225 -

Beneficial interest in trusts $ 444,068 $ - $ 444,068 $ -

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The fair value of a financial instrument is the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants at the measurement date.Fair value is best determined based upon quoted market prices. However, in certain instances,there are no quoted market prices for PPNNE's various financial instruments included in Level 2and Level 3.

The fair value for the beneficial interest in trusts is primarily based on an estimate of the fair valueof underlying securities invested in by the trusts, discounted to their present value. Thosetechniques are significantly affected by the assumptions used, including the discount rate andestimates of future cash flows. Accordingly, the fair value estimates may not be realized in animmediate settlement of the instrument.

The fair value for Level 3 assets is based upon the present value of expected cash flows usingcurrent market interest rates.

Significant activity for assets measured at fair value on a recurring basis using significantunobservable inputs is as follows:

ContributionsReceivable

December 31, 2015 $ 2,133,133

Contributions/additions 1,103,890Contribution written off (151,612)Receipts (1,624,182)

December 31, 2016 1,461,229

Contributions/additions 1,236,932Receipts (1,643,562)

December 31, 2017 $ 1,054,599

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