Allegiance Health and Subsidiaries Consolidated December 31, 2012 Financial Statements

Transcription

1 Allegiance Health and Subsidiaries Consolidated December 31, 2012 Financial Statements

2 Allegiance Health and Subsidiaries Consolidated Balance Sheets (dollors inthousands) December-LZ,June-12 Assets Current assets: Cash and cash equivalents s 20,642 s 22,041 Accounts receivable, less allowance for uncollectible accounts of $21,496 and $19,767 at September 30,2012 and June 30,2012, respectively 41,122 46,198 Amounts due from third-party payors 6,245 6,591 Due from affiliates and otherreceivables 3,786 6,354 Inventories 6,193 6,465 Prepaid expenses and other current assets 6,615 6,726 Total current assets 84,603 94,375 Assets whose use is limited: Board appropriated investments: Funded depreciation 235, ,045 Funds held by trustee 8,414 9,522 Cash and investments related to professional liability insurance 14,261 13,741 Total assets whose use is limited 257, ,308 Land, buildings and equipment, llet 157,544 Other assets: Unamortized financing costs 2,381 2,477 Other assets 5,352 5,451 Other investments 8,203 3,256 Total other assets 15,936 11,184 Total assets $ 515,816 $ 490,259 See accompanying notes.

3 Allegiance Health and Subsidaries Consolidated Balance Sheets (dollars in tlionsno.ts) Liabilities and net assets Current liabilities: Accounts payable and other current liabilities Compensation, amounts withheld, and payroll taxes Short-term debt Accrued interest payable Current portion of long-term debt Total current liabilities December-Lz Junc-12 s 32,726 s 32,075 15,271 14,607 10,713 2, S03 4,054 63,962 54,152 Noncurrent liabilities: Amounts related to professional liability insurance Retirement plan liability Other liabilities Long-term debt, less current portion Total noncurrent liabilities Total liabilities Net assets: Unrestricted 12,794 44,331 24, , , , ,469 13,001 44,331 26, , , , ,472 Total liabilities and net assets See accompanying notes. 515, ,259

4 Allegiance Health and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets (dollars ill thousands) Year to date Ended December 31 Unrestricted revenue, gains, and other support Net patient service revenue Less: provision for bad debts Net patient service revenue after provision for bad debt Other revenue Insurance revenue Total unrestricted revenue, gains, and other support Expenses Routine nursing salaries Other patient care salaries General and administrative services salaries Professional and purchased services Supplies and other costs Fringe benefits Utilities Depreciation Insurance Interest Amortization Miscellaneous Total expenses Operating income Nonoperating revenue and expenses Investment income Net unrealized appreciation (depreciation) in fair value ofinvestments Change in fair value of interest rate swaps Miscellaneous nonoperating expenses Revenue, gains, and other support over (under) expense Other changes in unrestricted net assets Net assets released from restrictions - capital Transfers to parent and affiliates Increase (decrease) in unrestricted netassets $ 222,747 s 20, ,262 7, ,007 19,047 55,879 18,784 22,789 50,258 20,701 2;402 13,278 2,016 3, , ,235 (1,228) 7,513 7,415 1,599 (1,080) 14,219 (222) 13, ,220 18, ,746 5, ,980 19,634 54,059 16,996 19,913 51,420 17,755 2,291 12,883 2,450 3, , ,779 2,201 3,776 (10,329) (11,030) (1,349) (16,731) 1,058 (357) (16,030) Temporarily restricted net assets Change in restricted funds, net Increase (decrease) in net assets Net assets at beginning of year Net assets at end of quarter $ 13, , ,469 s (16,030) 201, ,931 See accompanying notes.

5 Allcgluuco Heulth and Subsidiaries Consolidated Statements of C:IS!I Flows DECEMBER 20]2 FY 2013 Opernting activities Increase in net assets Adjustments to reconcileincreasein net assets to net cash provided by operating activities: Depreciation expense Amortization expense Amortization of bond premium Change in fair valueof interestrate swap Net unrealized appreciationin fair valueof investments Provision for bad debts loss on sale of propertyand equipment Increase in cash and investments related to professional liability insurance (Increase) decrease in: Accounts receivable Amountsdue from third-party payers Inventories Other assets Increase (decrease) in: Accounts payable and other current liabilities Compensation, amounts withheld and payroll taxes Amounts related to professional liability insurance Other liabilities Net cash provided by operating activities Investing activities Property and equipmentadditions, net Increase in funded depreciation Decrease in funds held by trustee Increase in long-term investments Net cash used in investingactivities Financing activities Proceeds from issuance0 I' long-term debt Repaymentsof long-term borrowings Proceeds from short-termborrowings Repaymentsof short-term borrowings Net cash provided by financingactivities Decrease in cash and cash equivalents Cash and cash equivalents at beginningof period Cash and cash equivalents at end of period s 13,996,889 13,278, ,166 (89,498) (1,598,864) (7,4]5,676) 20,485,433 31,033 (520,703) (15,409,613) 346, ,354 2,595,260 1,239, ,958 (206,461) (952,230) 26,980,903 (1],460,440) (25,597,820) 1,108,215 (4,947,051) (40,897,096) 5,000,000 (282,741) 8,100,000 (300,000) 12,517,259 (l,398,934) 22,04n,857 $ 20,641,923

6 Allegiance Health and Subsidiaries - Notes to Consolidated Financial Statements Basis of Presentation The accompanying consolidated financial statements include the accounts of Allegiance Health, assumed name for W. A Foote Memorial Hospital (the Hospital), Cascades Insurance Company, Ltd., Jackson Community Medical Record LLC, Foote Health Center Associates, Physicians Choice Network, LLC and Jackson Health Network, L3C. The Hospital is a not-for-profit hospital located in Jackson, Michigan providing health care services primarily to residents of the region. All significant intercompany accounts have been eliminated. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. Operating results for the year to date period ended December 31,2012 are not necessarily indicative of the results to be expected for the full year that ends June 30, For further information pertaining to annual financial statements with full footnote disclosures, refer to the audited financial statements for the most recent year ended June 30,2012. Accounting Policies - Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Retirement Plans The Hospital has a noncontributory defined benefit plan (the Plan) which covers substantially all employees. In connection with financial reporting under ASC 715 the company has recorded an adjustment to charge unrestricted net assets as of June 30,2012 in the amount of $12,635,000 for the net increase of unfunded projected benefit obligations over fair value of plan assets compared to the prior year. Pension expense amounted to $5,437,000 and $5,212,000 for the six months ended December 31,2012 and 2011, respectively. Recently Issued Accounting Standards not yet Effective In May 2011, the FASB issued ASU , Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, to improve and align fair value measurements and disclosure requirements, to ensure that "fair value" has a consistent meaning in both GAAP and IFRS. The amended guidance changes several aspects of the fair value measurement guidance in FASB ASC 820, Fair Value Measurement, including the following provisions: application of the concepts of the highest and best use and valuation premise, introduction of an option to measure groups of offsetting assets and liabilities on a net basis, incorporation of certain premiums and discounts in fair value measurements and measurement of the fair value of certain instruments classified in unrestricted net assets. In addition, the amended guidance includes several new fair value disclosure requirements, including, among other things, information about valuation techniques and unobservable inputs used in Level 3 fair value measurements and a narrative description of Level 3 measurements' sensitivity to changes in unobservable inputs. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, Management is in the process of assessing the impact of this guidance on the Hospital's financial statements. In September2011, the FASB issued ASU , Intangibles - Goodwill and Other. The objective of this ASU is to simplify how entities test goodwill for impairment. The amendments allow entities to assess qualitative factors to determine whether it is more-tikety-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test per Topic 350, Intangible - Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, Upon adoption, this ASU may impact the way the Hospital tests goodwill for impairment and the associated disclosures in future interim and annual financial statements.

7 long-term Debt Debt consists of the following obligations: Dec. 31, 2012 June 30, 2012 (Dollars in Thousands) County of Jackson Hospital Finance Authority Fixed Interest Rate Hospital Revenue Refunding Bonds Series 201OA County of Jackson Hospital Finance Authority Fixed Interest Rate Hospital Revenue Refunding Bonds Series 2006C County of Jackson Hospital Finance Authority Variable Rate Demand Hospital Revenue Bonds Series 2011A County of Jackson Hospital Finance Authority Variable Rate Demand Hospital Revenue Refunding Bonds Series 2011 B County of Jackson Hospital Finance Authority Fixed Interest Rate Hospital Revenue Refunding Bonds Series B-2 Bank Term Loan Unamortized Bond Premium Less current portion $ 46,380 47,100 36,500 28,875 8,745 4,717 1, ,238 4,679 s 169,559 s 46,380 47,100 36,500 28,875 8,745 2, ,610 4,054 $ 165,556 Principal maturities of long-term debt for the next five years amount to $4,501,000 in 2013, $4,712,000 in 2014, $4,883,000 in 2015, $5,048,000 in 2016 and $5,239,000 in Investments Investments in mutual and commingled funds, equity securities and debt securities are measured at fair value in the consolidated balance sheets. Fair values are based on quoted market prices, if available, or are estimated using quoted market prices for similar securities. Donated items are stated at fair value at the date of contribution. The Hospital has designated its entire investment portfolio as trading, with unrealized appreciation (depreciation) in fair value of investments included in nonoperating revenue and expenses. Investment income (realized gains and losses on investments, interest and dividends) is also reported as nonoperating revenue and expenses unless the income is restricted by donor or law. The cost of SUbstantially all securities sold is based on the average cost method. lease Commitments The Hospital has operating leases for certain of its premises and equipment that at inception had non-cancelable terms of more than one year. Rent expense incurred for operating leases for premises and equipment amounted to $3,275,000 and $3,109,000 for the six months ended December 31, 2012 and 2011, respectively,

8 Allegiance Health & Subsidiaries Consolidated Operating Statements as of six month to date December 31, 2012 and 2011 For the six months ended December 31, 2012, the Hospital reported net patient service revenue of$222,747,000, an increase of 2.1% over the prior year. The net revenue increase resulted from increased rates and higher outpatient volumes for emergency room, urgent care and outpatient surgical procedures. Outpatient revenue growth has resulted from the addition ofphysician clinic and specialty services, as well as from an industry trend toward providing more services in an outpatient setting, As such, inpatient volumes have declined. A significant portion of the Hospital's charges for patient care are reimbursed at discounted rates under the Medicare and Medicaid programs and through contractual agreements with managed care payers (consisting primarily of HMOs and PPOs). Collectively, Medicare, Medicaid, Blue Cross and managed care payors accounted for 89% and 88% ofthe Hospital's gross patient charges for the six months ended December 31, 2012 and 2011, respectively. The Hospital continues to experience high levels ofbad debt and charity care clue to the economic conditions in the local economy. Total operating expenses increased 3.7% for the six months ended December 31,2012 over the prior year. This increase reflects inflationary increases for labor and supplies as well as incremental costs from expansions of the primary and secondary market areas through the addition ofhospital employed physician practices that provide a greater integrated market for services under the Hospital's health system.

9 Allegiance Health- Hospital Only December 31,2012 Financial Statements

10 Allegiance Health (Hospital/Obligor Only) Balance Sheets (dollars ill 11101ISililds) December-Iz JUlle-12 Assets Current assets: Cash and cash equivalents s 19,857 s 21,455 Accounts receivable, less allowance for uncollectible accounts of$21,496 and $19,767 at September 30,2012 and June 30, 20] 2, respectively 41,122 46,198 Amounts due from third-party payors 6,245 6,591 Due from affiliates and other receivables 4,556 7,157 Inventories 6,193 6,465 Prepaid expenses and other current assets 7,461 7,252 Total current assets 85,434 95,118 Assets whose use is limited: Board appropriated investments: Funded depreciation 235, ,045 Funds held by trustee 8,414 9,522 Total assets whose use is limited 243, ,567 Land, buildings and equipment, net 153, ,897 Other assets: Loans receivable 2,021 1,735 Unamortized financing costs 2,381 2,477 Other assets 5,352 5,451 Other investments 6,561 1,247 Total other assets 16,315 10,910 Total assets $ 499,164 s 473,492 See accompanying notes.

11 Allegiance Health (Hospital/Obligor Only) Balance Sheets (dollars ill thousands) Liabilities and net assets Current liabilities: Accounts payable and other current liabilities Compensation, amounts withheld, and payroll taxes Short-term debt Accrued interest payable Current portion of long-term debt Total current liabilities Dccember-12 s 31,752 s 30,360 15,258 14,607 8, ,679 4,054 60,262 49,524 Noncurrent liabilities: Amounts related to professional liability insurance Retirement plan liability Other liabilities Long-term debt, less current portion Total noncurrent liabilities Total liabilities (1,103) 44,331 24, , , ,161 (14) 44,331 26, , , ,144 Net assets: Unrestricted 202, ,348 Total liabilities and net assets s s 473,492 See accompanying notes.

12 Allegiance Health (Hospital/Obligor Only) Consolidated Statements ofoperations and Changes in Net Assets (do1101's in thousands) Year to date Ended December Unrestricted revenue, gains, and other support Net patient service revenue Less: provision for bad debts Net patient service revenue after provision for bad debt Other revenue Total unrestricted revenue, gains, and other support Expenses Routine nursing salaries Other patient care salaries General and administrative services salaries Professional and purchased services Supplies and other costs Fringe benefits Utilities Depreciation Insurance Interest Amortization Miscellaneous Total expenses Operating income Nonoperating revenue and expenses Investment income Net unrealized appreciation (depreciation) in fair value of investments Change in tail' value of interest rate swaps Miscellaneous nonoperating expenses Revenue, gains, and other support over (under) expense Other changes in unrestricted net assets Net assets released from restrictions - capital Transfers to parent and affiliates Increase (decrease) in unrestricted net assets s 222,747 s 20, ,262 6, ,068 19,047 55,879 18,122 22,609 50,119 20,650 2,301 12,909 1,165 3; , ,123 (55) 6,752 7,646 1,599 (1,0(5) 14,877 (222) 14, ,220 18, ,746 4, ,608 19,634 54,059 16,452 20,112 50,988 17,595 2,196 12,544 1,758 3, , ,655 2,953 3,711 (10,548) (11,030) (1,340) (16,254) 1,058 (357) (15,553) Temporarily restricted net assets Change in restricted funds, net Increase (decrease) in net assets Net assets at beginning of year Net assets at end ofquarter s 14, , ,003 $ (15,553) 201, ,137 See accompanying notes.

13 Table 15. Payor Sources - Gross Patient Service Revenue Medicare 43% 43% 46'Y~ 46% Medicaid 17'% 18% 16'Yo 16% Blue Cross (All Products) 20% 19% 18% 18'% Commercial Ins. 8 l1;) 7(!1;) 6% 7% Managed Care 10'% 10% 10'% 9% Self-Pay 2'Y{) '"10/.) 10 4% 4% Total 100% 100% 100% 100% *December 31,2012 reports six months then ended

14 Table 16. Utilization Statistics Staffed and available beds J 391 Medical/surgical patient days 66, ,925 32,495 Behavioral & other patient days J J,5l0 11,931 12,178 5,369 Medical/surgical inpatient admissions 18,468 18,553 17,530 8,061 Behavioral & other inpatient admissions 1,878 1,926 1, Medical/surgical average length ofstay JJ3 Behavioral & other average length ofstay Occupancy (Staffed beds) 55~,1] 61%, 56%, 53% Outpatient visits/registrations 421, , , ,496 Emergency room visits 70,392 74,943 79,191 40,868 Inpatient surgeries 4,364 4,596 4,341 2,023 Outpatient surgeries 9,946 9,764 10,404 5,008 *Deccmber 31, 2012 reports six months then ended

15 Table 21. Liquidity - Days Cash on Hand Obligor Olliv Cash and cash equivalents $27,713,398 $19, $21,455,25] 19,857,169 Investments 151,548, ,491, ,044, ,051\,071 Total Liquid Assets 179,261, ,330, ,499, ,915,240 Operating Expenses 401,467, ,660, ,036,4] 7 45],5]6,413 Less: Depreciation and Amortization 23231,881 24,367,537 25,462,533 25,791\,079 Net Opening Expense 378,235, ,293, ,573, ,718,334 Average Daily Expense $1,036,261 $1,085,736 $1,141,298 $1,166,352 Days Cash on Hand ]~ Cash to Debt Ratio L,O las I

16 [Series 2010A Bonds 1$ - s 49,905 s 46,380 I s 46,380 I lseries 2007A Bonds 1 12,200 - Series 2011A Bonds refunded 2006A in ,000 36,500 36, ,500 Series 201lB Bonds refunded 2006B in ,865 28,875 28, ,875 Series Bonds - 8,845T 8,745T 8,745 Series 2006e Bonds 47,400 47, ,1Oill, 47,100 Series 1997 Bonds Bank Term Loan -I - 1-4,717 Subtotal 159, ) ,317 Less: Current Portion oflong -Term Obligations 3,381 3, , , , ,817 IInrestricted Net Assets 154, , , ,002 Total Capitalization 313, , ,

17 Table 23 - Debt Service Coverage Oblisor Onlv Excess of Revenue over Expenses Increases (Decreases): Depreciation and amortization Imerest Unrealized (Appreciation) Depreciation in fair value ofinterest rate investments Change in fair value of interest rate swaps Loss on bond refinancing Realized Losses - Swap Termination" $11,311,080 23,231,881 6,S00,308 (6,657,03:2) 6,138,288 $33, ,367,537 7,161,755 (24,876,094) (11,407,357) 1,982,992 12,441,000 ($2,622,471) 25,46:2,533 7,658,834 6,384,13:2 9,286,393 $28, ,798,079 7,540,675 (11,SIO,677) (3,342,654) NET I{EVENliE $40,8:24,5:25 $42,940,584 $46,169,421 $46,708,271 MAXII"l lilvi ANNUAL DEBT SERVICII $11,82::;,580 $12,036,905 $12,036,905 $12,074,644 DEBT SERVICE COVERAGE RATIO "Pursuant to Mater Indenture this amount is excluded in calculating Dcbt Service