i9?e] Postlethwaite MSSMM &Netterville

Transcription

1 / ^ ^ / HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA fd/b/a TERREBONNE GENERAL MEDICAL CENTER) MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL STATEMENTS MARCH Under provisions of Stare Icw ihis report is a puhiic docuneni. Acopy of me repon i^as boc-i sub; ;^ittecj to the entity and otiiei appropriaio piibli':; officials The report is avai^abie fo'" plibiic inspection a; the Baton Rouge oitice of 'he Legslative Aiiditoi and. wnere appropriate, at the office of ti'.9 parisn clerk of court. Release Date SEP i9?e] Postlethwaite MSSMM &Netterville A Professional Accounting Corporation

2 C O N T E N r S Independent Auditors' Report 1-2 Management's Discussion and Analysis 3-17 Financial Statements Page Balance Sheets Statements of Revenues, Expenses, and Changes in Net Assets 20 Statements of Cash Flows Notes to the 1-inancial Statements Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Audit ins Standards

3 tiglai Postlethwaite.^^41M ^ Netterville A PujleisitJncjl Acniu^'riny Corporcrici AjscK.itilcd Offices m Pririci:^<ai Cili«s ol l!(; Unired S'tilf's WWW. pncpa.com INDEPENDENT AUDT1ORS^ REPORT The Board of Commissioners Hospital Ser\'ice District No. I of Terrebonne Parish, State of Louisiana (d/b/a) Terrebonne General Medical Center We have audited the accompanying balance sheets of the Hospital Service District No. 1 of Terrebonne Parish, State of.louisiana (the Hospital) as of March 31, 2011 and 2010, and the related statements of revenues, expenses, and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Hospital'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 and the standards applicable to financial audits contained in Governjnent Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits included consideradon of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hospital's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Wc believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofthe Hospital as of March 31,2011 and 2010, and the results of its operations and its cash flows for the years then ended in confonnity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, wc have also issued our report dated August 22, 2011, on our consideration ofthe Hospital's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit United PlozaBJvd, Suite 1001 Baton Rouge, LA Tel: Fox:

4 Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 17 be presented to supplement the basic financial statements. Such information, although not a part ofthe basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit ofthe basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. ^cmlc^p^<>^:tx^ //1^5zi^<^^ Baton Rouge, Louisiana August 22, 2011 P&N

5 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Management's Discussion and Analysis March 31, 20M This section of the Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana (the Hospital), annual financial report presents background information and management's analysis of the Hospitafs financial performance during the fiscal year that ended on March 31, Please read it in conjuncfion with the financial statements in this report. Required Financial Statements The Basic Financial Statements of the Hospital report information about the Hospital using Governmental Accounting Standards Board (GASB) accounting principles. These statements offer short-term and long-term financial information about its activities. The Balance Sheets include all ofthe Hospital's assets and liabilities and provide information about the nature and amounts of investments in resources (assets) and the obligations to Hospital creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Hospital, and assessing the liquidity and financial flexibilit}^ ofthe Hospital. All ofthe reporting period's revenues and expenses are accounted for in the Statements of Revenue, Expenses, and Changes in Net Assets. These statements measure changes in the Hospital's operations over the past two years and can be used to determine whether the Hospital has been able to recover all of its costs through its net patient service revenue and other revenue sources. The final required financial statement is tlie Statement of Cash Flows. The primary purpose of this statement is to provide information about the Hospital's cash from operations, investing, and financing activities and to provide answers to such questions as where did cash come from, what was cash used for, and w'hat was the change in the cash balance during the reporting period. Financial Analysis ofthe Hospital The Balance Sheets and the Statements of Revenue, Expenses, and Changes in Net Assets report inlbrmafion about the Hospital's activities and financial position. These two statements report the net assets of the Hospital and changes in them. Increases or decreases in the Hospital's net assets are one indicator of whether its financial health is improving or deteriorating. However, other nonfinancial factors such as changes in the health care industry, changes in Medicare and Medicaid regulations, and changes in managed care contracfing should also be considered.

6 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Management's Discussion and Analysis Financial Highlights for the Year Ended March 31, 2011 The Hospital's assets increased by approximately S 5,069,000 or 2%. During the year, the Hospital's total operating revenues increased by $2,411,000 to $165,874,000 from prior year while operating expenses increased $2,326,000, or 1%, to $159,070,000. The Hospital has income from operations of $6,804,000, which is 4.1% of total operating revenue and represents a slight increase from the $6,719,000 prior year income from operations. Net revenue increased due to an increase in outpatient activity related to the new Cancer Program and emergency activity. Expenses increased at a lesser rate due also to the new Cancer Program which resulted in an overall increase in net operafing income of 1 % In June 2010, the Hospital began a Cancer Care program that includes comprehensive scr\''ices for cancer patients. This program generated $9,576,000 in net operating revenue and $6,669,000 in expenses to the hospital. Total impact to income from operations was an addifional $2,907,000. Investment income increased over prior year by $781,000 due to an unrealized loss on investments of $143,000. In the prior year, investments generated a $1,656,000 loss from market changes. During 2011, the Hospital issued 2010 Bonds to refund the 1998 Bonds and pay for the cost ofthe new issuance. The purpose for this transaction was to take advantage of lower interest rates and favorable market factors. This transaction was completed in October 2010 and resulted in $2,499,000 in present value net interest expense savings over the remaining life ofthe bonds. During the fiscal year, the Hospital made significant capital acquisitions totaling 531,671,000 including the following: Majority completion on Cancer Center building construction Continuation of various information technology projects including automated electronic medical record technology and its support systems Infrastructure of main facility Various renovation projects of exisung buildings Replacement of Cath Lab equipment due to improving technology The source ofthe fimding for these projects was derived from operations.

7 Net Assets Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Management's Discussion and Analysis A summary ofthe Hospital's Balance Sheets are presented in Table 1 below. Condensed Balance Sheets TABLE 1 March Dollar Change Percentage Change Total current assets Capital assets Other assets, inlcuding board designated investments Total assets $39, , , ,397 $40, , , ,328 ($752) (2,896) 5,069-2% 6% -2% 2% Current liabilities Long-term debt outstanding and other long-term liabilities Total liabilities 17,167 57,651 74,818 19,890 58,303 78,193 (2,723) (652) (3,375) -14% -1% -4% Net Assets Invested in capital asset, net of related debt Restricted net assets Unrestricted net assets Total liabilifies and net assets 86,218 2, ,343 $336,397 76,230 3, ,866 $331,328 9,988 (1,021) (523) $5,069 13% -34% 0% 2% As can be seen in Table 1, total assets increased by $5,069,000 to $336,397,000 at March 31, 2011, tip from $331,328,000 at March 31, The change in total assets results primarily from the capital assets added during the year.

8 Hospital Service District No. 1 of I'errebonne Parish, State of Louisiana Summary of Revenues and Expenses Management's Discussion and Analysis The following table presents a summary ofthe Hospital's revenues and expenses for each ofthe years ended March 31, 2011 and TABLE 2 Condensed Statements of Revenues and Expenses 2011 March Dollar Change Percentage Change Net patient service revenue Other revenue, net Total operating revenue $160,191 5, ,874 $157,737 5, ,463 $2,454 (43) 2,411 2% -1% 1% Salaries and employee benefits Supplies and materials Purchased ser\''ices Professional fees Other operating Depreciation and amortization Total operating expense 77,636 39,262 16,981 3,288 7, ,070 77,974 40,221 15,035 2,207 6, (338) (959) 1,946 1, ,326 0% -2% 13% 49% 2% 3% 1% Income from operations 6,804 6, \% Investment income including not unrealized losses on investments Interest expense Other expenses Loss from bond refmancing Total nonoperating expenses 5,268 (2,647) (454) (527) L640 4,487 (3,220) (471) (527) % -18% -4% -100% 100% Change in Net Assets Net assets: Beginning of period 8, , , End of period $261,579 $253,135

9 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Sources of Revenue Operating Revenue Management's Discussion and Analysis During fiscal year 2011, the Hospital derived the majority of its operating revenue from patient revenues. Patient revenues include revenues from the Medicare and Medicaid programs and patients, or their third-party insurers, who pay for care in the Mospitafs facilities. Reimbursement for the Medicare and Medicaid programs and the third-party insurers is based upon established contracts. The difference between the covered charges and the expected payment is recognized as a contractual allowance. Table 3 presents the relative percentages of gross chiu^ges billed for patient services by payor for the fiscal vears ended March 31, 2011 and TABLE 3 Payor Mix Medicare Medicare Advantage Plan Managed Care Medicaid Self-pay and other Total patient revenues 20M 45% 7%> 31% 13% 4% 100% % 8% 30% 13% 5% 100% Other Ope?'ating Revenue The Hospital also generated other operating income of $5,683,000 in 2011 and $5,726,000 in This income does not relate to patient revenues and consists primarily of rental and retail income, reference lab income, cafeteria income, and other departmental income. Rental, retail, reference lab, cafeteria income account for $4,392,000 and $4,243,000 in 2011 and 2010, respectively. Non-operadng Income The Hospital holds designated and restricted funds in its balance sheets that are invested primarily in money market funds and securities issued by the U.S. Treasury and its agencies and other federal agencies. These investments earned $5,411,000 and $6,143,000 during fiscal year 2011 and 2010, respectively. An unrealized loss on investments decreased investments by $143,000 and $1,656,000 in 2011 and 2010, respectively. -7-

10 Hospital Service District No. 1 of Teixebonne Parish, State of Louisiana (d/b/a 1 errebonnc General Medical Center) Management's Discussion and Analysis Operating and Financial Performance The following summarizes the Hospital's Statements of Revenues, Expenses, and Changes in Net Assets benveen 2011 and 2010: Overall activity at the Hospital, as measured by patient discharges, decreased by 7.0% to 10,018 in 2011 compared to 10,770 in Patient days decreased by 3.7%) over prior year from 51,957 in 2010 to 50,060 in As a result, the average length of stay for the Hospital increased by 4.2%» with the stay length at 5.0 days in 2011 compared to 4.8 days in Outpatient revenue increased in fiscal year 2011 due to an increase in emergency volume of 6.4% and the new cancer care program which is a new product line. Surgery volume decreased by about 11% for both inpatient and outpatient volume over 2010 levels. Net patient service revenue increased $2,454,000 or 2%) in 2011 as a result ofthe cancer program and a rate increase which occurred in October Contractual allowances, excluding bad debt, increased to 66.7% of charges in 2011 from 65.6% in Excluded from net patient sendee revenue are chtxrges forgone for patient services falling under the Hospital's charity care policy. Based on established rales, gross charges of $2,472,000 were forgone during 2011 compared to $1,898,000 in 2010, or a 30% increase over the prior fiscal year. Provision for bad debts increased by $2,790,000, or 28.6%o compared to the prior year. This increase occurred due to a continued increase in WTite offs and a reduction to recoveries experienced during the year. These increases are due to general economic conditions and increasing emergency usage for self pay patients. During fiscal year 2011, declining volume caused employee wages and benefits to remain flat and decrease slightly by $338,000 over the prior year. FTEs increased slightly from 1,208 in 2010 to 1,223 in Salaries and benefits were 46.8% and 47.7?/o of total operating revenue in 2011 and 2010, respectively. Professional fees increased over the prior year by 49%o or $1,081,000 as a result of the new cancer program, 'fhe cost of supplies and materials decreased by $959,000, or 2% due to decreased volume. Purchased services increased during the year by $1,946,000 due to increases in maintenance contracts for the year. Total operating expenses increased by 2,327,000, or 1%, for the year ended March 31, Non-operating revenue consists of interest earnings on funds designated by the Board of Commissioners tmd funds held by trustee under bond resolution. The changes in fair value of these investments is also included in this amount. Non-operating revenue increased over the prior year due to the fact that there was a higher yield in the current year than in the prior year. Unrealized losses decreased from the prior year by $1,513,000.

11 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Capital Assets Management's Discussion and Analysis During fiscal year 2011, the Hospital invested in a broad range of capital assets included in Table 4 below. TABLE 4 Capital Assets March Dollar Change Percentage Change Land and land improvements Building and fixed equipment Equipment Subtotal $22, , , ,544 $22, , , ,884 ($56) 3,459 4,257 7,660 0%) 3% 3% 3% Less: accumulated depreciation Construction-in progress Net capital assets 185,140 19,679 $144, , $135,366 11,053 12,110 $8,717 6%) 160% 6% Net capital assets have increased due to capital spending offset by depreciation of current capital assets and some equipment retirements. The Hospital continues to expand and enhance existing facilities and invest in information technology and other facility initiatives. During the fiscal year 2011, the hospital spent $1,245,000 of its 2011 capital budget and $22,218,000 on master facility plan spending. The Hospital also has a strategic plan that incorporates a master facility plan for future expansion. The timing and priorities of the plan are available as a separate document. -9-

12 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Management's Discussion and Analysis In Table 5, the Hospitafs fiscal year 2012 capital budget projects spending up to $7,817,000 for capital projects, of which 56% is for replacement or regulatory/maintenance items. These projects will be financed from operations. This budget below does not include the master facility spending plan that will be funded from operations and designated investments. More information about the Hospital's capital assets is presented in the notes to basic financial statements. TABLE 5 Fiscal Year 2012 Capital Budget (In Thousands) Replacement equipment $3,988 Contingency 1,177 New Technology 761 Other Total $7,817 Long-Term Debt and Bond Refunding During the year the Hospital issued 2010 Bonds which refunded the 1998 Bond Issuance in order to reduce the interest expense from the older bonds. At year-end, the Hospital had $57,015,000 in short-term and long-term debt, plus a premium of $1,180,000, less the deferred tmiount on refunding of $330,000 for a total debt figure of $57,865,000. More detailed information about the Hospital's long-tcmi liabilities is presented in the notes to basic financial statements. Total long temi debt outstanding represents 17.2% of the Hospital's total assets at March 31,

13 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Management's Discussion and Analysis Financial Highlights for (he Year Ended March 31, 2010 The Hospital's assets increased by approximately $ 6,121,000 or 2 %o. During the year, the Hospital's total operating revenues increased by $10,193,000 to 5163,463,000 from prior year w-hile operating expenses increased $6,308,000, or 4.1%, to $156,744,000. The Hospital has income from operations of $6,719,000, which is 4.1%) of total operating revenue and represents an increase of approximately $3,886,000 from the $2,833,000 prior year income from operations. Net revenue increased due to an increase in patient day volume and a larger increase in outpatient activity related to higher Cardiology and Emergency activity. Expenses decreased at a lesser rate than revenues causing an overall increase in net operating income. Investment income decreased over prior year by $4,072,000 due to an unrealized loss on investments of $1,656,000. In the prior year, investments generated a $1,034,000 gain from market changes. Investcment income also decreased from $7,525,000 in 2009 to $6,143,000 in FY 2010 due to interest rate changes. The hospital received additional reimbursement related to special Gustav distributions and indigency payments from State programs during the year totaling $1,409,000. During the fiscal year, the Hospital made significant capital acquisitions totaling $18,201,000 including the following: Ground breaking on Cancer Center building construction Continuation of Various Information 1 echnology Projects including Electronic Medical Record post discharge which was completed in January of 2010 Various Renovation Projects of existing buildings IV Pumps were purchased and subsequently returned and refunded in FY 2011 due to performance issues Replacement of Cath Lab equipment due to improving technology The source ofthe funding for these projects was derived from operations. 11

14 Net Assets Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana (d/b/a Ten-ebonne General Medical Center) Management's Discussion and Analysis A summary ofthe Hospital's Balance Sheets are presented in Table 1 below. Condensed Balance Sheets TABLE I March Dollar Change Percentage Change Total current assets Capital assets Other assets, inlcuding board designated investments Total assets $40, , , ,328 $40, , , ,207 $227 3,849 2,045 6,121 1% 3% 1%) 2% Current liabilities Long-term debt outstanding and other long-tcnn liabilities Total liabilities 19,890 58,303 78,193 19,829 59,758 79, (1,455) (L394) -% -2% -2% Net Assets Invested in capital asset, net of related debt Restricted net assets Unrestricted net assets Toial liabilities and net assets 76,230 3, $331,328 71,469 3, $325,207 4, $6,121 7%o 1% 2%, 2%) As can be seen in Table 1, total assets increased by $6,121,000 to $331,328,000 at March 31, 2010, up from $325,207,000 at March 31, The change in total assets results primarily from the increase in capital assets and investments during the year. -12

15 I I I I I I Hospital Sei-vice District No. 1 of Terrebonne Parish, State of Louisiana Summary of Revenues and Expenses Management's Discussion and Analysis The follow'ing table presents a summary ofthe HospitaFs revenues and expenses for each of vears ended March 31, 2010 and TABLE TABLE 2 March Dollar Change th. Percentage Change jnet patient service revenue Other revenue, net Total operating revenue $157,737 5, ,463 $147,820 5, ,270 $9, ,193 7% 5% 7% Salaries and employee benefits Supplies and materials Purchased services Professional fees Other operating Depreciation and amortization on Discontinued Product ILoss Line Total operating expense I Income from operations I Investment Income: bond resolution I Funds held by trustee under Other, including net unrealized gains/losses on investments Emerest expense )ther expenses Loss from bond tender I Total nonoperating expenses _ 77,974 40,221 15,035 2,207 6,930 14, ,744 74,455 38,114 13, ,523 14, ,519 2,107 1, (593) (321) (529) 6,307 6, ,886 4,487 (3,220) (471) 7% 8,559 (3,743) (505) (19) (5) (4,072) (3,501) 5% 6% 13%, 22% -8% -2% -100% 4% 137%) 00% -48% -14% -7% 100% -81% IChange in Net Assets: Net assets: Beginning of period I End of period 7, S253,135 7, ,490 $245, I

16 Hospital Service District No. 1 of Teixebonne Parish, State of Louisiana (d/b/a TeiTebonne General Medical Center) Management's Discussion and Analysis Sources of Revenue Condensed Statements of Revenues and Expenses Operating Revenue During fiscal year 2010, the Hospital derived the majority of its operating revenue from patient revenues. Patient revenues include revenues from the Medicare and Medicaid programs and patients, or their third-paily insurers, who pay for care in the Hospital's facilities. Reimbursement for the Medicare and Medicaid programs and the third-party insurers is based upon established contracts. l"he difference between the covered charges and the expected payment is recognized as a contractual allowance. Table 3 presents the relative percentages of gross charges billed for patient services by payor for the fiscal years ended March 31, 2010 and TABLE 3 Payor Mix Medicare Medicare Advantage Plan Managed Care Medicaid Self-pay and other 7 otaj patient revenues 44% 8% WA 13% 5% 100% 45% 7% 31% 13% 4% 100% Other Operating Revenue The Hospital also generated other operating income of $5,726,000 in 2010 and $5,450,000 in This income does not relate to patient revenues and consists primarily of rental income, reference lab income, cafeteria and vending income, and other departmental income. Rental, reference lab, cafeteria and vending income account for S 4,243,000 and $3,909,000 in 2010 and 2009, respectively. - 14

17 Hospital Service District No. 1 of Terrebonne Parish, State of Louisiana Non-operating Income Management's Discussion and Analysis The Hospital holds designated and restricted funds in its balance sheets that are invested primarily in money market funds and securities issued by the U.S. Treasury and its agencies and other federal agencies. These investments earned $6,143,000 and $7,525,000 during fiscal year 2010 and 2009, respectively. An unrealized loss/gain on investments decreased investments by $1,656,000 in 2010 and increased investments by $1,034,000 in Operating and Financial Performance The following summarizes the ilospitafs Statements of Revenues, Expenses, and Changes in Net Assets between 2010 and 2009: Overall activity at the Hosphal, as measured by patient discharges, decreased by 1.0% to 10,770 in 2010 compared to 10,841 in Patient days increased by 3.2%o over prior year from 50,345 in 2009 to 51,957 in As a result, the average length of stay for the Hospital increased by 3.9% with the stay length at 4.8 days in 2010 compared to 4.6 days in Outpatient revenue increased in fiscal year 2010 due to an increase in emergency and cadiology outpatient volume by 10.2% and 12.8%), respectively. Outpatient surgeries decreased by 9.6% over 2009 levels. Net patient service revenue increased $9,917,000, or 6.7% in 2010 as a result of changes in Hospital volume and reimbursement changes such as payor mix changes, and a rate increase which occurred in October Contractual allowances, excluding bad debt, increased to 65.8% of charges in 2010 from 64% in Excluded from net patient scr\'ice revenue arc charges forgone for patient services falling under the Hospital's charity care policy. Based on established rates, gross charges of $1,898,000 were forgone during 2010 compared to $1,651,000 in 2009, or a 15.0% increase over the prior fiscal year. Provision for bad debts increased by $825,000, or 9.2% compared to the prior year. This increase occurred due to a continued increase in wtite offs and a reduction to recoveries experienced during the year which resulted from general economic conditions and increasing emergency usage for self pay patients. Write offs from self pay discounts increased from $2,85^,000 in 2009 to S3,859,600 in During fiscal year 2010, increases in patient activity caused an increase in overall staffing. As a result, employee wages and compensation increased by 4.9% or $2,986,000 over the prior year. FTEs increased from 1,179 in 2009 to 1,208 in Increases in FTE's and changes in employee benefits caused a 3.8% increase in benefits expense. Salaries and benefits were 41.1% and 48.6% of total operating revenue in 2010 and 2009, respectively. 15

18 Hospital Semce District No. I of TeiTebonne Parish, State of Louisiana Management's Discussion and Analysis The cost of supplies and materials increased by $2,107,000, or 5.5%. The increase in supplies expense occurred due to increases in patient activity and revenue for the year. Purchased services increased during the year by $1,720,000 due to increases in maintenance contracts for the year. Total operating expenses increased by $6,307,000, or 4.1%, for the year ended March 31,2010. Non-operating revenue consists of interest earnings on funds designated by the Board of Commissioners and funds held by trustee under bond resolution. The changes in fair value of these investments is also included in this amount. Non-operating revenue decreased over the prior year due to the fact that there was a higher yield in the previous year than in the current year. Unrealized gains decreased from the prior year by $2,690,000. Capital Assets During fiscal year 2010, the Hospital invested in a broad range of capital assets included in Table 4 below. TABLE 4 Capital Assets Mart 2010 h Dollar Change Percentage Change Land and land improvements Building and fixed equipment Equipment Subtotal $22, , , , , , , ,716 $361 2,634 10,173 13,168 2% 2%) 8%) 5% Less: accumulated depreciation Construction-in progress Net capital assets 174,087 7,569 $135, ,230 4,031 $131,517 12,857 3,538 $3,849 8% 88% 3% Net capital assets have increased due to capital spending offset by depreciation of current capital assets and some equipment retirements. The Hospital continues to expand and enhance existing facilities and invest in information teclinology and other facilit)^ initiatives. During the fiscal year 2010, the hospital spent $7,407,000 of its 2010 capital budget and $10,794,000 on master facility plan spending. The Hospital also has a strategic plan that incorporates a master facility plan for future expansion. The timing and priorities of the plan are available as a separate document. 16

19 Hospital Service District No. 1 ofterrebonne Parish, State of Louisiana Management's Discussion and Analysis In Table 5, the Hospital's fiscal year 2011 capital budget projects spending up to $7,357,000 for capital projects, of which 56%) is for replacement or regulatory/maintenance items. These projects will be financed from operations. This budget below does not include the master facility spending plan that will be funded from operations and designated investments. More information about the Hospital's capital assets is presented in the notes to basic financial statements. TABLE 5 Fiscal Year 2011 Capital Budget (In Thousands) Replacement equipment $4,097 Contingency 1,181 New Technology 1,258 Other 821 Total $7,357 Long-Term Debt and Bond Tender At year-end, the Hospital had $59,137,000 in short-term and long-term debt, net of a discount of 5543,000. More detailed information about the Hospital's long-term liabilities is presented in the notes to basic financial statements. Total long term debt outstanding represents 17.6%) ofthe Hospital's total assets at March 31,

20 HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, SlATE OF LOUISIANA (d/b/a TERREBONNE GENERAL MEDICAL CKN PER) BALANCE SHEETS MARCH 3L 2011 AND 2010 ASSETS (in thousands) m\ 2010 CURRENT ASSETS Cash and cash equivalents Patient accounts receivable, net of allowances for uncollectible accounts of $18,821 in 2011 and $21,393 in 2010 Estimated net receivables under government programs Inventories Prepaid expenses Other current assets Funds held by trustee under bond resolution Total current assets 6,361 7,427 14,124 9,436 3,485 3, ,783 12,705 8,466 3,579 3,829 1,490 3,039 40,535 CAPITAL ASSETS Land and land improvements Buildings Equipment Construction-in-progress Less: accumulated depreciation and amoilization Net capital assets INVESTMENTS AND ACCRUED INTEREST Funds designated by boiu-d of commissioners for plant replacement and expansion, including accrued interest of $220 in 2011 and $435 in 2010 Total investments and accrued interest OTHER ASSETS Other assets Total other assets 22, , ,180 19, , , , , , ,923 7, , , , , , ,257 TOTAL ASSETS 336, ,328 The accompanying notes are an integral part of these statements. 18-

21 L I A BIL I T I ES AND NETASSETS (in thousands) CURRENT LIABILITIES Accounts payable and accrued liabilities Salaries and employee benefit liabilities Accrued interest payable Self-insnrance reser\''es Current maturities of long-term debt Total current liabilities LONG-TERM LIABILITIES Hospital revenue bonds, less current portion (net of premium and deferred amounts of $850 in 2011 and discount of $543 in 2010) Other accrued liabilities, less current portion Total long-term debt Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted net assets for debt ser\^ice L^nrestricted net assets Total net assets $ 6,350 4, , ,167 57, ,651 74, , , ,579 $ 7,284 5, , ,890 57, ,303 78,193 76,230 3, , ,135 TOTAL LIABILITIES AND NET ASSETS j j 6, ,328 19

22 HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH. STATE OF LOUISIANA (d/b/a TERREBONNE GENERAL MEDICAL CENTER) STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS YEARS ENDED MARCH 3L 2011 AND 2010 (in thousands) OPERATING REVENUES Net patient serv'ice revenue Other operating revenue, net Total operating revenues $ 160,191 5, ,874 S 157, ,463 OPERATING EXPENSES Salaries and employee benefits Supplies and materials Purchased services Professional fees Other operating expenses Depreciation and amortization Total operating expenses 77,636 39,262 16,981 3,288 7,076 14, ,070 77,974 40,221 15,035 2,207 6, INCOME FROM OPERATIONS 6, NONOPERATING REVENUES (EXPENSES) Investment revenue including unrealized losses of $143 in 201 land $1,656 in 2010 Interest expense Other expenses Loss on bond refinancing Total nonoperating revenues (expenses) 5,268 (2,647) (454) (527) ,487 (3.220) (471) CHANGE IN NET ASSETS 8, Net assets - beginning of year 253, NET ASSETS - END OF YEAR ,135 The accompanying notes are an integral part of these statements. -20-

23 HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA (d/b/a TERREBOiNNE GENEI^AL MEDICAL CENTER) STATKIVIENTS OF CASH FLOWS VEARS ENDED MARCH 31, 2011 AND 2010 (in thousands) Operating activities Cash collected from patients and third-party payors Cash payments to employees and for employee-related costs Cash payments for operating expenses Net cash provided by operating activities s 157,802 $ (78,187) (60,985) 18, ,754 (77,387) (60,373) 20,994 Capital and related financing activities Purchases of capital as.sets Principal payments on bonds Payments to retire bonds Proceeds from the issuance of bonds Bond issuance cost paid Interest payments on debt Net cash used in capital and related financing activities (23,497) (1,551) (41,858) 42,062 (204) (3,213) (28,261) (18,201) (1,488) (3T96) (22,885) Investing activities Interest received on investments Purchases of investments Proceeds on disposal or maturity of investments Net cash provided by investing activities 5,793 (97,200) 99,972 8,565 5,911 (112,597) 108,369 1,683 Net change in cash and cash equivalents (L066) (208) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 7, $ 7,635 7,427 The accompanying notes are an integral part of these statements

24 HOSPITAL SERVICE DISTRICT NO. 1 OF TERREBONNE PARISH, STATE OF LOUISIANA (d/b/a TERREBONNE GENERAL MEDICAL CENTER) STATEMENTS OF CASH FLOWS (continued) YEARS ENDED MARCH 31, 2011 AND 2010 (ifj thousands) Reconciliation of operating income to net cash provided bv operating activities Income from operations $ 6,804 $ 6,719 Adjustments to reconcile income from operations to net cash provided by operating activities: Depreciation and amortization Provision for bad debts and indigent (Gain) loss on sale of equipment Changes in operating assets and liabilities: Patient accounts receivable Government program receivables Other assets Accounts payable and accrued liabilities 14,827 14, ,377 11, (16,005) (970) 1,017 (1,667) (12,335) 2,100 (1,235) 68 Net cash provided by operating activities $ 18,630 $ 20,994 The accompanying notes are an integral part of these statements.

25 Hospital Sei-vice District No. 1 of TeiTebonne Parish, State of Louisiana 1. Summar}^ of Significant Accounting Policies Organization Notes to Basic Financial Statements March 31, 2011 Hospital Service District No. 1 of Terreboime Parish, State of Louisiana, a political subdivision of the state of Louisiana, owns and operates Terreboime General Medical Center (the Hospital). The Hospital is a 321-bed aeute care facility providing comprehensive medical services in southeast Louisiana. Basis of Accounting The Hospital uses the accrual basis of accounting for proprietary funds. Under Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Activities That Use Proprietary Fund Accounting, the Hospital has elected not to apply Financial Accounting Standards Board pronouncements issued after November 30, Cash and Cash Equivalents Cash and cash equivalents include investments in money market funds and highly liquid investments with maturities of tliree months or less when purchased, excluding amounts whose use is limited by board of commissioners' designation or under trust agreements. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Investments Investments are stated at fair value. Investments and the associated accrued interest are classified as noncurrent due to these funds being designated by the board of commissioners for funded reserves and expenditure in the acquisition or construction of capital assets. Investment income is reported as nonoperating revenues. Other Assets Other assets include deferred financing costs, various investments held in connection with a former employee's retirement plan, investment in purchasing group, and certificates of deposit that are pledged as security under various insurance plans. The deferred financing costs are amortized over the life of the bonds usini^ the interest method.

26 Hospital Service District No. 1 ofterrebonne Parish, State of Louisiana Notes to Basic Financial Statements 1. Sumniar)' of Significant Accounting Policies (continued) Capital Assets Property is recorded at acquisition cost. Depreciation is provided using the straight-line method based on the esfimated useful lives of the assets, which range from 5 to 39 years. Depreciation expense was $14,748,000 and 514,306,000 for the years ended March 31, 2011 and 2010, respectively. Net Assets The Hospital classifies net assets into tliree components: invested in capital assets, net of related debt; restricted; and unrestricted. These components are defined as follows: Invested in capital assets, net of related debt - This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds that are attributable to the acquisition, construction or improvement of those assets. Restricted - This component reports those net assets with externally imposed constraints placed on their use by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law^ through constitutional provisions or enabling legislation. Unrestricted - This component of net assets consists of net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt." Revenue and Expenses For purposes of display, transactions deemed by management to be ongoing, major, or central to the provision of health care services are included in operating income; all peripheral transactions are reported as nonoperating revenues and expenses. Operating expenses are all expenses incurred to provide health services, other than financing costs. Net Patient Senice Revenue The Hospital has entered into agreements with third-party payors, including government programs, health insurance companies, and managed care health plans, under which the Hospital is paid based upon established charges, the cost of providing sen^ices, predetermined rates per diagnosis, fixed per diem rates, or discounts from established charges. Net patient service revenue is reported at the estimated net realizable amotints from patients and thirdparty payors for the hospital services provided. Settlements under reimbursement agreements with thirdparty payors are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. -24-

27 Hospital Service District No. 1 ofterrebonne Parish, State of Louisiana Notes to Basic Financial Statements 1. Summarj' of Significant Accounting Policies (continued) Accounts Receivable The Hospital provides credit in the normal course of operations to patients located primarily in southeast Louisiana and to insurance companies conducting operations in this area. The Hospital maintains allowances for contractual adjustments, doubtful accounts, and charity care based on management's assessment of collectability, current economic conditions, and prior experience. The Hospital determines if patient accounts receivable are past-due based on the discharge date; however, the Hospital does not charge interest on past-due accounts. The Hospital charges off patient accounts receivable if management considers the collection ofthe outstanding balances to be doubtful. Charity Care The Hospital provides care to patients who meet certain criteria under its charity care policy w-ithout charge or at amounts less thim its established rates. Because the Hospital does not pursue collecfion of amounts determined to qualify as charity care, they are not reported as revenue. Records of charges foregone for serx'ices and supplies furnished under the charity care policy are maintained to identify and monitor the level of charity care provided (see footnote #10). Income Taxes The Hospital is exempt from federal income taxafion as a political subdivision of the state of Louisiana and, accordingly, the accompanying financial statements do not include any provision for income taxes. Professional Liability' Claims The provision for estimated malpractice claims includes estimates ofthe ulumate cost for both reported claims and claims incurred but not reported. The Hospital has not experienced material losses from professional liability claims in the past. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make esfimales and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilifies at the dale of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

28 Hospital Service District No. 1 ofterrebonne Parish, State of Louisiana Notes to Basic Financial Statements 1. Summary of Significant Accounting Policies (continued) Compensated Absences The Hospital's employees earn vacation days at varying rates depending on years of service. Generally, on the employee's anniversary date, any unused days greater than one year accrual would be paid out to the employee. Employees also earn sick leave benefits; however, sick leave does not vest and is not accrued. Reclassifications Certain amounts on the March 31, 2010 financial statements have been reclassified to conform with the March 31, 2011 financial statement prcsentafion. -26

29 Hospital Service District No. 1 of 1 errebonne Parish, Slate of Louisiana 2. Designated Cash and Investments Notes to Basic Financial Statements The composition of designated cash and investments at March 31, 2011 and 2010, is set forth below Board-designated March 31, 2011 Cash and Cash Fixed Equivalents Income Total (in thousands) $8,474 S140,565 $ 149, bond issue: Interest expense fund Principal fund Total 2010 bond issue , supplemental bond issue: Interest expense fund Principal fund Total 2003 supplemental bond issue Total designated cash and investments $ $140, $151,057 Board-designated March 31,2010 Cash and Cash Fixed Equivalents income (in thousands) S9,928 $142,242 Total $ 152, bond issue: Interest expense ftmd Principal fund Total 1998 bond issue 1,146 1,146 1,380 1,380! supplemental bond issue: Interest expense ftmd Principal fund Total 2003 supplemental bond issue Total designated cash and investments 4-^ -* $ 12, $142, $155,209 27

30 Hospital Sendee District No. 1 of TeiTebonne Parish, State of Louisiana 2. Designated Cash and Investments (continued) Notes to Basic Financial Statements Louisiana state statutes authorize the Hospital to invest in obligations of the U.S. Treasury and other federal agencies, time deposits with state banks and national banks having their principal offices in the state of Louisiana, guaranteed investment contracts issued by highly rated financial institutions, and certain investments with qualifying mutual or trust fund institutions. Due to these restrictions, the Hospital does not have a formal policy that limits the types of investments. During the years ended March 31, 2011 and 2010, the Hospital invested primarily in securities issued by the U.S. Treasury and other federal agencies. The Hospital has a $15,000,000 named wind storm deductible on its insurance policy and has designated a portion of these ftinds to cover any outlay that may result from such an event. Credit Risk - Investments Credit risk is defined as the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The standardized ratings systems are a good tool with w'hich to assess credit risk on debt obligations. The following table can be used in determining the level of exposure to credit risk as of March and 2010:^ Moodv Ratine =: is^ AAA Other Fair Value at March 31, ,290,000 63,275, Fair Value at March ,929,000 62,313, ,000 Obligations ofthe U.S. govermrent are explicitly guaranteed by the U.S. government arc not considered to have credit risk. The investments qualifying for this classification total $58,531,000 in fair market value. The Hospital had investments in obligations that are implicitly guaranteed by the U.S. government and therefore have credit risk exposure, with a fair value of $82,034,000 at March 31, Concentration of Credit Risk Per GASB 40, concentration of credit risk is defined as the risk of loss attributed to the magnitude of a government's investment in a single issuer. GASB 40 further defines an at-risk investment to be one that represents more than five percent (5%) of the fair value of (he total investment portfolio and requires disclosure of such at-risk investments. GASB 40 specifically excludes investments issued or explicitly gtiaranteed by the U.S. government and investments in mutual ftinds, external investment pools, and other pooled investments from the disclosure requirement. The Hospital has investments in Federal Farm Credit Banks, Federal Home Loan Bank. Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association that represented 8.3%, 10.5%, 11.2%, and 18.3%, respectively, ofthe total investments at March

31 Hospital Service District No. 1 ofterrebonne Parish, State of Louisiana Notes to Basic Financial Statements 2. Designated Cash and Investments (continued) Custodial Credit Risk - Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the Hospital's deposits may not be returned to it. Louisiana state statutes require that all ofthe deposits ofthe Hospital be protected by insurance or collateral. The fair value ofthe collateral pledged must equal 100% ofthe deposits not covered by insurance. In December of 2010, the Federal Deposit Insurance Act was adjusted to include all noninterest bearing transaction accounts and accordingly collateral on these accounts has been dropped. As of March , $6,013,000 ofthe HospitaFs baiik balance of $13,424,000 was exposed to credit risk as uninsured and collateralized with securities held by the pledging financial institufion. Custodial Credit Risk - Investments Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the Hospital will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. As of March 31, 2011, the Hospital was not exposed to custodial credit risk for its investments as all were registered in the name ofthe Hospital. Interest Rate Risk - Investments Interest rate risk is the risk that chtmges in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensidvity of its fair value to changes in market interest rates. The Hospital does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from changing interest rates. Interest rate risk inherent in the portfolio is measured by monitoring the segmented time distribution of the investments in the portfolio. The table below summarizes the Hospital's segmented time distribution investment maturities in years by investment type as of March 31,2011. Years Investment Type Fair Value <1 1-5 >5 U.S. Treasuries Federal National Mortgage Association Federal I lomc Loan Bank Federal Home Loan Mortgage Corporation Federal Farm Credit Banks Government National Mortgage Association Small Business Association U.S. Department of Housing and Urban Development opnient Securities guaranteed by the U.S. Government $ 29 $ 32,356 27,265 15,576 16,643 12,418 10,249 13,657 2, ,565 $ $ (In Thousands) $ 1,758 5, , ,446 $ 17,865 5,513 8,452 4,232 5, ,751 $ J_ 12,032 19, , , ,368