G Prime Healthcare Foundation Date: February 14, 2018 RE : Officers Certificate for Prime Healthcare Foundation, Inc., Relating to the 2017 4th Quarter Report Issues Including: Public Finance Authority, Revenue Bonds (Prime Healthcare Foundation, Inc.), Series 2018A, $133,755,000, Dated: January 24, 2018 CUSIPs: 74442PFS9, 74442PFT7, 74442PFU4 Prime Healthcare Foundation, Inc. Taxable Bonds, Series 201 8B, $133,275,000, Dated: January 24, 2018 CUSIP: 74166AAAO I hereby certify that the 2017 4th Quarter Report filed on February 14, 2018 constitutes the Quarterly Report required by the Continuing Disclosure Agreement. I further certify that the information complies with the Continuing Disclosure Agreement and the Rule as required. DAC sha ll be entitled to rely on this certificate. If you have further questions about this matter, please do not hesitate to ca ll me at 909-235- 4332. - Mike Heather Chief Financial Officer Prime Healthcare Foundation 13300 E. Guasti Road, Ontario, CA 91 761 I www.primehealthcare.com 909-235-4400
$133,775,000 PUBLIC FINANCE AUTHORITY REVENUE BONDS (PRIME HEALTHCARE FOUNDATION, INC.) SERIES 2018A CUSIP* 74442PFS9 74442PFT7 74442PFU4 and $133,275,000 PRIME HEALTHCARE FOUNDATION, INC. TAXABLE BONDS SERIES 2018B CUSIP* 74166AAA0 QUARTERLY REPORT FOR THE PERIOD ENDED December 31, 2017 Date filed: February 14, 2018 * CUSIP data are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only and are subject to change after the issuance of the Bonds. The Authority, the Borrower and the Underwriter do not assume any responsibility for the accuracy of the CUSIP data.
TABLE OF CONTENTS ITEM DESCRIPTION PAGE 1. Utilization 1 2. Sources of Revenue 2 3. Financial Ratios 3-4 4. Facility Acquisitions or Dispositions 5 5. Maximum Annual Debt Service Calculation 6 Exhibit A: Audited and unaudited Financial Statements for the period ended December 31, 2016 and 2017, respectively Consolidating Balance Sheet Consolidating Statement of Operations and Change in Net Assets Consolidating Statement of Cash Flows
UTILIZATION The following table illustrates utilization statistics for the Prime Foundation Hospitals for the twelve months ended December 31, 2016 and 2017: Hospitals Utilization 2016 2017 Hospitals 12 15 Total Patient Days 236,475 301,229 Adjusted Patient Days 392,577 521,735 Average Daily Census 680 825 Adjusted Discharges 93,489 125,098 Acute Average Length of Stay (ALOS) 3.6 3.6 Medicare Acute ALOS 4.1 4.0 Medicare Acute CMI 1.630 1.6285 Other Outpatient Visits 290,755 416,734 Surgical Cases - Inpatient 8,138 9,614 Surgical Cases - Outpatient 10,692 12,553 Emergency Visits 231,667 320,137 1
SOURCES OF REVENUE The following is a percentage breakdown of net patient service revenues before provision for doubtful accounts by primary source of payments to the Prime Foundation Hospitals for the twelve months ended December 31, 2016 and 2017: Sources of Revenue 2016 2017 Medicare 28.5% 27.2% Medicaid 11.6% 9.1% Managed Medicare 16.9% 18.1% Managed Medicaid 20.1% 23.0% Commercial 11.8% 12.4% Commercial - Non Contract 7.4% 6.8% Self-pay/Other 3.7% 3.4% Total 100.0% 100.0% 2
KEY FINANCIAL RATIOS The following tables, developed from information contained in the Financial Statements, shows for the 12 months ended December, 2017 the following key financial ratios: Debt Service Coverage Ratio Consolidated minus University Excess of revenues over expenses $20,054 Less: Unrealized Gains/(Losses) 306 Gain/(Loss) on acquisition of business and sale of assets 15,229 Contributions of Businesses 43,665 Plus: Depreciation and Amortization 61,363 Interest Expense, Net 4,762 Goodwill Impairment Net Available to Fund Debt Service $26,979 Maximum Annual Debt Service 17,092 Maximum Annual Debt Service Coverage 1.6x Debt to Capitalization Obligated Group Total Debt (includes Capital Leases) $180,269 Unrestricted Fund Balance 738,945 Capitalization 919,214 Debt to Capitalization 19.6% Days Cash on Hand Ratio Consolidated minus University Cash and Cash Equivalents $107,874 Current Portion of Investments 185,264 Total Unrestricted Cash & Investments $293,138 Total Expense $1,079,473 Less: Depreciation Expense 61,363 Net Operating Expense $1,018,110 Days Cash on Hand 105.1 3
Cash as a Percentage of Total Debt Obligated Group Cash and Cash Equivalents $99,021 Current Portion of Investments 162,412 Debt Service Reserve Funds Total Cash & Investments $261,433 Total Debt (includes Capital Leases) 180,269 Cash to Debt Ratio 145.0% 4
FACILITY ACQUISITIONS OR DISPOSITIONS [NONE] 5
MAXIMUM ANNUAL DEBT SERVICE CALCULATION Debt Schedule for Calculating Maximum Annual Debt Service ( MADS ) Bond Year Series 2018A Series 2018B Series 2018 A&B Ending December 1 Debt Service Debt Schedule for Calculating MADS Total Debt Schedule for Calculating MADS 2018 $7,968,109 $7,744,782 $15,712,891 2019 9,345,095 7,744,782 17,089,877 2020 9,346,845 7,744,782 17,091,627 2021 9,347,345 7,744,782 17,092,127 2022 9,346,345 7,744,782 17,091,127 2023 9,343,595 7,744,782 17,088,377 2024 9,343,845 7,744,782 17,088,627 2025 9,346,595 7,744,782 17,091,377 2026 9,346,345 7,744,782 17,091,127 2027 9,342,845 7,744,782 17,087,627 2028 9,345,845 7,744,782 17,090,627 2029 9,346,945 7,744,782 17,091,727 2030 9,347,645 7,744,782 17,092,427 2031 9,347,425 7,744,782 17,092,207 2032 9,345,765 7,744,782 17,090,547 2033 9,347,145 7,744,782 17,091,927 2034 9,345,785 7,744,782 17,090,567 2035 9,346,165 7,744,782 17,090,947 2036 9,342,505 7,744,782 17,087,287 2037 9,344,285 7,744,782 17,089,067 2038 9,345,465 7,744,782 17,090,247 2039 9,345,740 7,744,782 17,090,522 2040 9,342,825 7,744,782 17,087,607 2041 9,345,918 7,744,782 17,090,700 2042 9,343,680 7,744,782 17,088,462 2043 9,345,310 7,744,782 17,090,092 2044 9,344,470 7,744,782 17,089,252 2045 3,940,090 7,744,782 11,684,872 BBRBI at the Period Ending 12/31/17: MADS: 4.04% $17,092,427 Note: Maximum Annual Debt Service is calculated by amortizing the Series 2018B Bonds over a 30-year period at a rate equal to the period-ending Bond Buyer Revenue Bond Index ( BBRBI ), in accordance with the Master Trust Indenture 6
EXHIBIT A Consolidated Balance Sheets (Dollars in Thousands) 2017 (Unaudited) December 31 2016 (Audited) Assets Current assets: Cash and cash equivalents $ 108,190 $ 88,734 Patient accounts receivable, less allowances of $122,861 and $133,849 at December 31, 2017 and 2016, respectively 158,430 156,870 Restricted cash 2,517 2,995 Assets limited as to use 2,726 1,956 Estimated third-party payor settlements 27,838 11,800 Provider fee receivable 42,532 49,655 Short-term investments 185,264 140,961 Supplies inventory 16,640 15,946 Prepaid expenses and other 24,700 24,005 Related-party receivables 18,575 Total current assets 568,837 511,497 Investments 36,215 36,210 Property and equipment, net of accumulated depreciation and amortization 528,149 485,139 Insurance claims and reserves recoverable 20,998 20,998 Goodwill 314 1,931 Intangible assets, net 19,898 21,486 Beneficial interest in net assets 12,521 10,072 Other assets 4,564 5,725 Total assets $ 1,191,496 $ 1,093,058 Liabilities and net assets Current liabilities: Accounts payable $ 53,700 $ 43,701 Accrued expenses 56,497 48,116 Lines of credit 779 Estimated third-party payor settlements 25,768 6,452 Provider fee payable 6,686 18,028 Related-party payables 10,398 5,574 Current portion of long-term debt Current portion of capital lease obligations 11,726 7,321 Total current liabilities 164,775 129,971 Long-term liabilities Long-term debt, net of current portion 9,584 Revolving credit facility 147,000 130,000 Capital lease obligations, net of current portion 20,643 20,522 Insurance claims liability and reserve 67,860 53,215 Other long-term liabilities 5,597 4,986 Total long-term liabilities 250,684 208,723 Net assets: Unrestricted 761,848 742,391 Temporarily restricted 14,189 11,973 Total net assets 776,037 754,364 Total liabilities and net assets $ 1,191,496 $ 1,093,058 7
Consolidated Statements of Operations (Dollars in Thousands) Twelve Months Ended December 31 2017 2016 (Unaudited) (Audited) Revenues Net patient service revenue (net of contractual allowances and discounts) $ 1,249,131 $ 984,749 Provision for doubtful accounts 251,472 198,281 Net patient service revenue, less provision for doubtful accounts 997,659 786,468 Contribution revenue 7,117 4,001 Contribution of businesses 43,665 72,242 Inherent contributions 306 64,698 Investment income (loss), net 23,752 8,812 Other 33,842 21,768 Total revenues 1,106,341 957,989 Expenses Salaries and wages 534,035 411,083 Professional services 191,949 149,948 General and administrative 173,974 137,289 Supplies 118,605 96,029 Depreciation and amortization 61,966 47,148 Goodwill impairment 1,616 Interest expense, net 4,762 3,365 Total expenses 1,086,907 844,862 Excess of revenues over expenses $ 19,434 $ 113,127 8
Consolidated Statements of Changes in Net Assets (Dollars in Thousands) Unrestricted Temporarily Restricted Total Net assets at December 31, 2015 $ 629,264 $ 10,757 $ 640,021 Excess of revenue over expenses 113,127 113,127 Restricted net assets associated with acquisition 271 271 Change in beneficial interest 447 447 Contribution of land 498 498 Change in net assets 113,127 1,216 114,343 Net assets at December 31, 2016 742,391 11,973 754,364 Excess of revenue over expenses 19,434 19,434 Change in beneficial interest 2,449 2,449 Other 23 (233) (210) Change in net assets 19,457 2,216 21,673 Net assets at December 31, 2017 761,848 14,189 776,037 9
Consolidated Statements of Cash Flows (Dollars in Thousands) Twelve Months Ended December 31 2017 2016 Operating activities Change in net assets $ 21,673 $ 114,343 Adjustments to reconcile change in net assets to net cash provided by operating activities: Net realized and unrealized losses (gains) on investments (19,713) (5,035) Depreciation and amortization 61,966 47,148 Gain on sale of assets (4,896) Goodwill impairment 1,616 Inherent contribution (306) (64,698) Change in fair value of interest rate swap 177 672 Provision for doubtful accounts 251,472 198,281 Contribution of businesses (43,665) (72,242) Change in beneficial interest 350 (447) Changes in operating assets and liabilities, net of acquisitions and donations: Patient accounts receivable, net (239,368) (223,316) Supplies inventory 845 739 Restricted cash 478 234 Assets limited to use (770) (379) Prepaid expenses and other 5,197 6,989 Related party receivables/payables 23,399 11,954 Other assets 1,162 1,561 Accounts payable 5,950 16,723 Accrued expenses, insurance claims liabilities and reserves and other long-term liabilities 16,258 11,512 Estimated third-party payor settlements and provider fee (10,849) (6,790) Net cash provided by operating activities 70,976 37,249 Investing activities Acquired cash from donation of hospitals 55 5,270 Purchases of property and equipment (27,724) (20,945) Proceeds from sale of equipment 5,875 Proceeds from sale of investments 39,465 89,858 Purchases of investments (64,055) (74,190) Cash paid for acquisition of hospitals, net of cash acquired 7,147 (11,323) Net cash used in investing activities (39,237) (11,330) Financing activities Borrowings (payments) on lines of credit, net (779) (61,919) Payment of loan issuance costs (5,383) Payments on long-term debt (19,042) (72,684) Borrowings on revolving credit facility 17,000 130,000 Payments on capital lease obligation (9,845) (3,631) Proceeds from notes payable 383 279 Net cash (used in) provided by financing activities (12,283) (13,338) Net change in cash and cash equivalents 19,456 12,581 Cash and cash equivalents, beginning of year 88,734 76,153 Cash and cash equivalents, end of year $ 108,190 $ 88,734 Supplemental cash flow information Cash paid during the year for: Interest $ 6,365 $ 4,906 Supplemental disclosure of non-cash investing and financing activities Capital lease obligations incurred for the acquisition of property and equipment $ 14,371 $ 17,371 Property, plant, and equipment included in accounts payable $ 706 $ 726 Debt incurred related to acquisition of hospital facilities $ 8,490 $ 28,500 Notes incurred for acquisition of property, plant and equipment $ 1,825 $ 2,289 10