Upstate Affiliate Organization (d/b/a Greenville Health System) and Subsidiaries Consolidated Financial Statements As of December 31, 2017 and for the Three Months Ended December 31, 2017 and 2016 (UNAUDITED)
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES TABLE OF CONTENTS Page CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016: Balance Sheets (Unaudited) 1 Statements of Operations (Unaudited) 2 Statements of Changes in Net Assets (Unaudited) 3 Statements of Cash Flows (Unaudited) 4 5 Utilization Statistics (Unaudited) 6 Gross Patient Charges by Type of Third Party Payor (Unaudited) 7 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) 8 9 Consolidating Balance Sheet (Unaudited) 10 Consolidating Statement of Operations and Changes in Net Assets (Unaudited) 11
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES BALANCE SHEETS (UNAUDITED) DECEMBER 31, 2017 AND SEPTEMBER 30, 2017 (In thousands) 12/31/2017 9/30/2017 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 44,110 $ 103,039 Patient accounts receivable (less allowance for uncollectible accounts of $92,789 and $102,400) 289,356 278,485 Inventories of drugs and supplies 37,451 34,980 Other current assets 69,403 71,188 Estimated third party settlements 26,001 23,127 Current portion of assets with limited use 1,561 2,902 Total current assets 467,882 513,721 Assets with limited use 252,986 275,608 Less current portion (1,561) (2,902) 251,425 272,706 INVESTMENTS 591,724 589,504 PROPERTY, PLANT, AND EQUIPMENT Net 860,078 866,815 INVESTMENTS IN JOINT VENTURES 57,472 58,303 OTHER ASSETS 21,445 22,265 Total assets $ 2,250,026 $ 2,323,314 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 36,495 $ 43,450 Accrued liabilities 180,476 253,660 Current portion of obligations under capital leases 385 497 Current portion of long-term debt 18,159 18,159 Total current liabilities 235,515 315,766 LONG-TERM DEBT Less current portion 594,309 594,558 OBLIGATIONS UNDER CAPITAL LEASES Less current portion 2,354 2,512 OTHER LONG-TERM LIABILITIES 407,146 406,588 Total liabilities 1,239,324 1,319,424 NET ASSETS: Unrestricted 973,069 967,188 Temporarily Restricted 37,633 36,702 Total net assets 1,010,702 1,003,890 Total liabilities and net assets $ 2,250,026 $ 2,323,314-1-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (In thousands) Three Months Ended December 31, 2017 2016 UNRESTRICTED REVENUES AND OTHER SUPPORT: Net patient service revenues $ 563,045 $ 519,941 Other operating revenues 41,489 39,008 Net assets released from restrictions used for operations 1,033 1,212 Total revenues 605,567 560,161 EXPENSES: Salaries, wages, benefits, and contracted labor 373,298 336,316 Supplies and other costs 193,175 184,215 Depreciation 27,946 27,811 Interest 4,644 3,555 Total expenses 599,063 551,897 INCOME FROM OPERATIONS 6,504 8,264 NONOPERATING ACTIVITIES: Investment income (loss), net 26,634 (8,204) Change in fair value of interest rate swap instruments 723 4,965 Contributions, net (1,799) (54,609) Non-operating expenses (1,192) (825) NONOPERATING ACTIVITIES 24,366 (58,673) REVENUES AND GAINS OVER (UNDER) EXPENSES AND LOSSES $ 30,870 $ (50,409) -2-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (In thousands) Three Months Ended December 31, 2017 2016 UNRESTRICTED NET ASSETS: Revenues and gains over (under) expenses and losses $ 30,870 $ (50,409) Net assets transferred from GHA - 331,695 Conversion from GASB to FASB - (149,590) Net assets released from restrictions used for purchase of property, plant, and equipment 10 57 Net adjustment for defined benefit plan (4,525) - Tranfer to SC Health Company (20,000) - Other (474) 86 INCREASE IN UNRESTRICTED NET ASSETS $ 5,881 $ 131,839 TEMPORARILY RESTRICTED NET ASSETS: Net assets transferred from GHA $ - $ 38,619 Investment income, net 245 105 Contributions, net 1,733 522 Capital contributions 10 57 Transfers to related organizations - (867) Other (14) (2,621) Net assets released from restrictions used for purchase of property, plant, and equipment (10) (57) Net assets released from restrictions used for operations (1,033) (1,212) INCREASE IN TEMPORARILY RESTRICTED NET ASSETS 931 34,546 INCREASE IN NET ASSETS 6,812 166,385 NET ASSETS Beginning of period 1,003,890 782,189 NET ASSETS End of period $ 1,010,702 $ 948,574-3-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (In thousands) Three Months Ended December 31, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Increase in net assets $ 6,812 $ 166,385 Adjustments to reconcile increase in net assets to net cash used in operating activities: Provision for uncollectible accounts 85,295 68,942 Contribution payable to GHA - 52,341 Transfer from GHA under lease agreement - (359,231) Conversion from GASB to FASB - 149,590 Depreciation 27,946 27,811 Amortization (accretion), net (205) (176) Change in fair value of interest rate swap instruments (723) (4,965) Unrealized (gain) loss on investments (24,693) 8,164 Unrealized loss on joint ventures 841 821 (Gain) loss on disposal of property and equipment (30) 5 Monetization gain (1,193) (1,193) Restricted contributions - 2,621 Net adjustment for defined benefit plan 4,525 - Changes in operating assets and liabilities: Patient accounts receivable, net (96,166) (80,168) Inventories of drugs and supplies (2,470) (109) Other assets 9,720 1,045 Accounts payable (5,857) 4,446 Estimated third-party settlements (2,874) (5,418) Accrued liabilities (70,175) (67,976) Net cash used in operating activities (69,247) (37,065) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment (23,349) (20,250) Proceeds from sale of property, plant, and equipment 12 - Purchases of investments (247,657) (475,031) Sales of investments 285,346 450,273 Proceeds from sale of CCI - 5,600 Net cash provided by (used in) investing activities 14,352 (39,408) -4-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED), continued FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (In thousands) Three Months Ended December 31, 2017 2016 CASH FLOWS FROM FINANCING ACTIVITIES: Transfer from GHA, MyHealth First Network, and Auxiliary - 131,973 Contribution to GHA for community fund (4,000) (4,000) Principal payments on long-term debt - (650) Proceeds from long-term debt - 64 Payments on obligations under capital leases (270) (449) Net cash (used in) provided by financing activities (4,270) 126,938 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (59,165) 50,465 CASH AND CASH EQUIVALENTS: Beginning of period 103,275 37,739 End of period $ 44,110 $ 88,204-5-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES UTILIZATION STATISTICS (UNAUDITED) Three Months Ended December 31, 2017 2016 Licensed beds 1,518 1,518 Available beds 1,297 1,239 Average daily census 819 820 Percent occupancy - licensed beds 54.0% 54.0% Percent occupancy - available beds 63.2% 66.2% Patient days - system total 75,378 75,466 Discharges - system total 12,894 13,425 Average length of stay (in days) - system total 5.85 5.62 Patient days - acute (1) 54,004 54,677 Discharges - acute (1) 12,134 12,630 Average length of stay (in days) - acute (1) 4.45 4.33 Acute Medicare case mix index (1) 1.94 1.84 Newborn deliveries (including C-Sections) 1,830 1,761 Inpatient surgical procedures 4,186 4,314 Outpatient surgical procedures 8,964 8,818 Emergency department visits 67,171 63,673 Outpatient visits (including emergency department visits) 1,092,878 949,862 (1) Data includes only Greenville Memorial Hospital, Greer Memorial Hospital, Hillcrest Memorial Hospital, Patewood Memorial Hospital, Laurens County Memorial Hospital, and Oconee Memorial Hospital. -6-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES GROSS PATIENT CHARGES BY TYPE OF THIRD PARTY PAYOR (UNAUDITED) Three Months Ended December 31, 2017 2016 Medicare 39.6% 40.8% Medicaid 16.1% 16.3% Managed Care 33.2% 32.7% Self Pay 2.7% 2.1% Charity 4.6% 4.5% Commercial 2.2% 2.1% Other 1.6% 1.5% Total 100.0% 100.0% -7-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) Reporting Entity The consolidated financial statements include the accounts and transactions of the Strategic Coordinating Organization ( SCO ), Upstate Affiliate Organization d/b/a Greenville Health System ( GHS ), GHS Partners in Health, Inc. ( Partners ), Greenville Health Corporation and Affiliates, MyHealth First Network, and the Auxiliary (collectively, "GHS and Subsidiaries"). Members of the Obligated Group include SCO, GHS, Partners, and Greenville Health System (hereinafter referred to as the Greenville Health Authority or GHA ). During the prior year, the majority of operations of GHA were transferred to GHS under a lease and contribution agreement. Through the lease agreement, GHS, Partners, Greenville Health Corporation and Affiliates, MyHealth First Network, and the Auxiliary became part of SCO. On November 21, 2017, the SCO and Palmetto Health and Subsidiaries finalized their agreement to create a new, not-for-profit, locally governed health company, which became the parent organization of GHS and Subsidiaries and of Palmetto Health and Subsidiaries. The new health company, referred to as SC Health Company now provides the strategic direction, financial oversight and corporate support services for GHS and other subsidiaries that were previously provided to them by SCO. As part of this transaction, SCO was merged into GHS with GHS being the surviving entity. Financial Analysis for the Three Months ending December 31, 2017 and 2016 GHS and Subsidiaries generated operating income of $6.5 million for the three months ended December 31, 2017 compared to operating income of $8.3 million for the three months ended December 31, 2016. Net patient service revenues for the three months ended December 31, 2017 increased 8.3% compared to the three months ended December 31, 2016. This increase was primarily due to a more favorable payor mix. Discharges were 4.0% lower than the prior year, and outpatient visits were 15.1% higher. The impact of GHS' population management efforts is contributing to this shift. Inpatient and outpatient surgical volumes were comparable to the prior year. Bad debt and charity write-offs were 10.3% and 8.9% of gross patient service revenue at December 31, 2017 and 2016, respectively. Other revenue increased 6.4% primarily due to retail pharmacy revenue. Total operating expenses increased $47.2 million, or 8.5%, compared to the three months ended December 31, 2016. Salaries, wages, benefits, and contracted labor increased $37.0 million, or 11.0% primarily due to a 7.3% increase in full time equivalents ("FTEs") and increased temporary and contract labor costs. Supplies and other costs increased 4.9% primarily due to higher outpatient volumes, software support, and subscription and license fees. Depreciation was comparable to the prior year. Interest expense increased $1.1 million or 30.6% primarily due to capitalized interest in the prior year. Projects funded by 2014B revenue bonds are complete; therefore, interest associated with those projects is no longer capitalized and is now included within interest expense. GHS and Subsidiaries generated a gain from non-operating activities of $24.4 million for the three months ended December 31, 2017 compared to a loss of $58.7 million for the three months ended -8-
December 31, 2016. The gain from non-operating activities for the three months ended December 31, 2017 is primarily due to investment income. The transition of GHS and Subsidiaries to a private nonprofit entity has allowed for a more diversified portfolio of investments consistent with asset allocations utilized by industry peers. This transition, along with more favorable market conditions, resulted in a $34.8 million increase in investment income for the three months ended December 31, 2017 as compared to the three months ended December 31, 2016. The loss from non-operating activities for the three months ended December 31, 2016 is primarily due to contribution expense recognized of $80.0 million, net of a $27.7 million present value discount, for the community fund established by the lease and contribution agreement. GHS will pay GHA $4.0 million a year for 20 years to establish this fund. Liquidity Cash and cash equivalents, including those held in assets with limited use, decreased from $103.3 million at September 30, 2017 to $44.1 million at December 31, 2017. This decrease is primarily due to cash transferred to the SC Health Company, payments paid for employee incentives, contributions to employees' retirement savings plan accounts, and purchases of property, plant, and equipment. At December 31, 2017, days cash on hand for GHS and Subsidiaries were 137.1 days, and days cash on hand for the Obligated Group were 144.3 days. Days cash on hand for the Obligated Group includes cash and cash equivalents from GHA of $40.6 million. At December 31, 2016, days cash on hand for GHS and Subsidiaries were 145.5 days, and days cash on hand for the Obligated Group were 148.1 days. Days cash on hand for the Obligated Group includes cash and cash equivalents from GHA of $18.6 million. At December 31, 2017, the investment base consisted of $808.1 million in long-term investments and $17.7 million in short-term investments compared to $690.1 million in long-term investments and $64.1 million in short-term investments at December 31, 2016. The combined actual rate of return was 3.0% for the three months ended December 31, 2017 compared to (1.1%) for the three months ended December 31, 2016. Capital Expenditures GHS and Subsidiaries committed $122.2 million for capital projects in Fiscal Year 2018. These projects include capital expenditures for the Greenville Memorial campus as well as capital for the physician practices and routine capital purchases. As of December 31, 2017, approximately $23.3 million has been expended in fiscal year 2018. Consolidating Schedules The consolidating Balance Sheet and Statement of Operations and Changes in Net Assets included on pages 10 through 11 include the accounts and transactions of GHA so that the total accounts and transactions of the Obligated Group can be shown. The accounts and transactions of GHA are then subtracted back out of the Obligated Group total before adding in the accounts and transactions of Greenville Health Corporation and Affiliates, MyHealth First Network, and the Auxiliary to arrive at the consolidated GHS and Subsidiaries balances. -9-
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET FOR THE YEAR TO DATE ENDED DECEMBER 31, 2017 (In Thousands) SCO GHS OBLIGATED ENTITIES GHA ELIMINATIONS OBLIGATED GROUP ELIMINATE GHA GHS NON-OBLIGATED ENTITIES ELIMINATIONS CONSOLIDATED 12/31/2017 ASSETS Current Assets: Cash and Cash Equivalents Patient Accounts Receivable, Net Inventories of Drugs and Supplies Other Current Assets Due from GHS, current portion Due from Affiliates Estimated Third Party Settlements Current Portion of Assets with Limited Use Total Current Assets Assets with Limited Use Less Current Portion Assets with Limited Use, Net Investments Property, Plant and Equipment, Net Investments in Joint Ventures Other Assets Due from GHS, net of current portion Deferred Outflow - Loss on Refunding of Debt, Net Total Assets - 27,293 41,620-68,913 (41,620) 16,817-44,110-283,683 - - 283,683-5,673-289,356-32,860 - - 32,860-4,591-37,451-42,007 4,000 (4,000) 42,007-973 - 42,980 - - 20,793 (20,793) - - - - - - 33,958 - (27,247) 6,711 27,247 (7,535) - 26,423-26,001 - - 26,001 - - - 26,001-1,561 - - 1,561 - - - 1,561-447,363 66,413 (52,040) 461,736 (14,373) 20,519-467,882-233,929 5,031-238,960 (5,031) 19,057-252,986 - (1,561) - - (1,561) - - - (1,561) - 232,368 5,031-237,399 (5,031) 19,057-251,425-591,724 - - 591,724 - - - 591,724-858,800 - - 858,800-1,278-860,078-5,778 - - 5,778-51,694-57,472-19,597 43,343 (43,343) 19,597-1,848-21,445 - - 594,309 (594,309) - - - - - - - 3,987-3,987 (3,987) - - - - 2,155,630 713,083 (689,692) 2,179,021 (23,391) 94,396-2,250,026 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Accrued Liabilities Due to Affiliates Estimated Third Party Settlements Current Portion of Obligations Under Capital Leases Current Portion of Long Term Debt Total Current Liabilities - 36,474 - - 36,474-21 - 36,495-177,706 3,012 (6,634) 174,084 3,622 2,770-180,476 - - 27,260 (27,247) 13 (13) - - - - - 15,806-15,806 (15,806) - - - - 385 - - 385 - - - 385-18,159 18,159 (18,159) 18,159 - - - 18,159-232,724 64,237 (52,040) 244,921 (12,197) 2,791-235,515 Long Term Debt - Less Current Portion Obligations Under Capital Leases - Less Current Portion Other Long Term Liabilities Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets - 594,309 594,309 (594,309) 594,309 - - - 594,309-2,354 - - 2,354 - - - 2,354-407,147 11 (43,343) 363,815 43,332 (1) - 407,146-1,236,534 658,557 (689,692) 1,205,399 31,135 2,790-1,239,324-896,990 49,495-946,485 (49,495) 76,079-973,069-22,106 5,031-27,137 (5,031) 15,527-37,633-919,096 54,526-973,622 (54,526) 91,606-1,010,702-2,155,630 713,083 (689,692) 2,179,021 (23,391) 94,396-2,250,026-10 -
UPSTATE AFFILIATE ORGANIZATION (d/b/a GREENVILLE HEALTH SYSTEM) AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR TO DATE ENDED DECEMBER 31, 2017 (In Thousands) SCO GHS OBLIGATED ENTITIES GHA ELIMINATIONS OBLIGATED GROUP ELIMINATE GHA GHS NON-OBLIGATED ENTITIES ELIMINATIONS CONSOLIDATED 12/31/2017 Unrestricted Revenues and Other Support: Net Patient Service Revenues Other Operating Revenues Net Assets Released from Restrictions Used for Operations Total Operating Revenues Operating Expenses: Salaries, Wages, Benefits, and Contracted Labor Supplies and Other Costs Depreciation Interest Total Operating Expenses Gain (Loss) from Operations before SCO Allocation SCO Allocation Income (Loss) From Operations - 563,046 2,074-565,120 (2,074) (1) - 563,045 575 23,148 - (2,206) 21,517 2,206 20,245 (2,479) 41,489-1,033 - - 1,033 - - - 1,033 575 587,227 2,074 (2,206) 587,670 132 20,244 (2,479) 605,567 3,041 367,593 - - 370,634-2,664-373,298 1,814 175,926 227 (235) 177,732 8 17,914 (2,479) 193,175 1 27,880 - - 27,881-65 - 27,946-4,644 157-4,801 (157) - - 4,644 4,856 576,043 384 (235) 581,048 (149) 20,643 (2,479) 599,063 (4,281) 11,184 1,690 (1,971) 6,622 281 (399) - 6,504 (4,304) 4,304 - - - - - - - 23 6,880 1,690 (1,971) 6,622 281 (399) - 6,504 Non-Operating Activities: Investment Income, net 19,881 6,016 123-26,020 (123) 737-26,634 Change in Fair Value of Interest Rate Swap Instruments - 723 - - 723 - - - 723 Contributions, net - (1,799) (1,386) 1,971 (1,214) (585) - - (1,799) Non-Operating Expenses (969) (223) (6) - (1,198) 6 - - (1,192) Total Non-Operating Activities 18,912 4,717 (1,269) 1,971 24,331 (702) 737-24,366 Revenues & Gains Over Expenses & Losses 18,935 11,597 421-30,953 (421) 338-30,870 Net Assets Released from Restrictions Used for Purchase of Property, Plant, and Equipment - 10 - - 10 - - - 10 Net Adjustment for Defined Benefit Plan - (4,525) - - (4,525) - - - (4,525) Transfer to SC Health Company - (20,000) - - (20,000) - - - (20,000) Transfers to related organizations (880,358) 880,358 (4,000) - (4,000) 4,000 - - - Other (45) (264) - - (309) - (165) - (474) Increase (Decrease) in Unrestricted Net Assets (861,468) 867,176 (3,579) - 2,129 3,579 173-5,881 Temporarily Restricted Net Assets: Investment Income, net 46 69 15-130 (15) 130-245 Contributions, net - 1,182 4,000-5,182 (4,000) 551-1,733 Capital Contributions - 10 - - 10 - - - 10 Transfers to related organizations (2,937) 3,027 - - 90 - (90) - - Other - (14) - - (14) - - - (14) Net Assets Released from Restrictions Used for Purchase of Property, Plant, and Equipment - (10) - - (10) - - - (10) Net Assets Released from Restrictions Used for Operations - (1,033) - - (1,033) - - - (1,033) Increase (Decrease) in Temporarily Restricted Net Assets (2,891) 3,231 4,015-4,355 (4,015) 591-931 Increase (decrease) in net assets (864,359) 870,407 436-6,484 (436) 764-6,812 Net assets at beginning of year 864,385 48,663 54,090-967,138 (54,090) 90,842-1,003,890 Net assets at end of year 26 919,070 54,526-973,622 (54,526) 91,606-1,010,702-11 -