FINANCIAL STATEMENTS (UNAUDITED) AS OF, AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2008
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 For the three months ended December 31, 2008, the operating results of the Sarasota County Public Hospital District (the System ) exceeded both budget and the comparative period last year. This positive result is due to the control of operating costs relative to the mixed volume results experienced during this fiscal year. Revenues: The System continued to see strong growth in outpatient volumes, while inpatient volumes have been lower for the three months year-to-date compared to the same period last year. Outpatient hospital registrations grew by 9.1% compared to the same three-month period in the prior year. Inpatient hospital admissions through December were off by 7.3% compared to budget and 5.4% compared to last year. Sarasota Memorial Hospital experienced strong rate performance as measured by net revenue per adjusted patient day, which was $1,868 for the three months compared to $1,856 budgeted and $1,819 last year. The System s total operating revenue grew by $2,193,000 or 2.0% compared to the same three month period last year. Important factors that are affecting net revenue include the following items: our year-to-date Medicare case mix index was 1.887 versus the 1.840 budgeted and 1.846 last year; our bad debt as a percent of gross revenue year-to-date was 3.8% compared to 4.5% budgeted and 4.6% last year; and we continue to see improved payment rates in our managed care contract renewals. These are contributing to our better than expected net revenue per adjusted patient day, and were significant factors in allowing the System to exceed its forecast operating margin target. We are continuing our efforts to achieve improvements in these areas. Expenses: As the System continues to stress the importance of our checkbook management approach, favorable results have been achieved in several expense areas: Salaries and fringes were under budget year-to-date by $2,241000 or 3.5%. Controlling labor costs relative to volume levels will continue to be a high priority for every operating unit of the System. Supplies were $1,618,000 or 6.5% under budget year-to-date, reflecting favorable performance as a percentage of net revenue. A continued focus on improving the utilization of the System s group purchasing organization, LeeSar, has contributed to this positive result. Purchased services were $876,000 or 4.4% under budget year-to-date, primarily due to favorable variances in maintenance costs and utilities expense. Professional fees were over budget by $199,000 or 6.8% related to physician fees. Other operating expenses were relatively close to budget. The System s cash position, including Board designated investments, has improved from $514.1 million as of December 31, 2007 to $559.9 million as of December 31, 2008. This represents a 10.7% improvement in days cash on hand from 384 days to 425 days. 1
MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 (continued) While changes in the value of the System s interest rate swap contracts were negative during this fiscal year due to the decline in market interest rates, particularly the LIBOR swap rates relative to the swap contracts, the System is positioned with relatively low risk related to these agreements. None of the swap contracts require collateral posting by the System, however, collateral postings are required of the counterparties when they are out-of-the-money at certain levels. The System holds termination rights on all the swap contracts, however, only one contract provides the counterparty termination options; these occur on five year anniversaries, the first of which is in September 2013. To address marketability problems with the Series 2003A and Series 2007A bonds which resulted from downgrades of the monoline bond insurers by their respective rating agencies, the District refunded both series of bonds on September 2, 2008. The refunding of the Series 2003A bonds was accomplished through the issuance of the $76,875,000 Variable Rate Hospital Revenue Refunding Bonds, Series 2008A, which are supported by a bank credit facility in the form of a direct pay letter of credit. The refunding of the Series 2007A bonds was accomplished through the issuance of the $81,725,000 Variable Rate Hospital Revenue Refunding Bonds, Series 2008B, also supported by a bank credit facility in the form of a direct pay letter of credit. Both series of bonds are now trading efficiently in the market. 2
Balance Sheets December 31, 2008 and 2007 Assets 2008 2007 Current assets: Cash and cash equivalents $ 40,600,616 24,332,333 Patient accounts receivable, less allowance for uncollectible accounts of approximately $22,300,733 in 2008 and $17,439,722 in 2007 45,551,302 52,764,459 Inventories of supplies 7,871,103 7,626,050 Prepaid expenses and other assets 32,691,384 22,728,109 Estimated Medicare and Medicaid settlements - 4,544,873 Due from related organizations 2,506,637 2,963,956 Total current assets 129,221,042 114,959,779 Restricted investments 31,839,750 54,618,444 Board designated investments 519,271,395 489,783,676 Capital assets, net 308,340,779 280,835,740 Other assets 11,542,924 16,514,650 Interest rate swaps - 3,033,490 Total assets $ 1,000,215,891 959,745,778 Liabilities and Net Assets Current liabilities: Accounts payable $ 22,862,236 17,940,517 Employee compensation and benefits payable 32,740,022 30,395,499 Other accrued expenses 53,958,877 61,197,089 Estimated Medicare and Medicaid settlements 2,710,522 6,029,362 Due to related organizations 30,309 126,060 Current portion of State of Florida medical assistance assessment 5,214,661 5,303,316 Current portion of long-term debt 7,300,564 6,348,364 Total current liabilities 124,817,190 127,340,208 Long-term debt, less current portion 357,203,627 370,590,866 State of Florida medical assistance assessment, less current portion 2,664,695 2,617,590 Deferred revenue and other long-term liabilities 4,119,241 5,064,100 Interest rate swaps 71,247,050 - Total liabilities 560,051,803 505,612,764 Net assets: Unrestricted 466,283,429 498,127,476 Invested in capital assets, net of related debt (30,719,834) (48,928,892) Restricted 4,600,492 4,934,430 Total net assets 440,164,088 454,133,015 Total liabilities and net assets $ 1,000,215,891 959,745,778 3
Statement Of Operations and Changes in Net Assets For the three months ended December 31, 2008 and 2007 2008 2007 Operating revenues: Net patient service revenue, net of provision for bad debts of $13,547,065 in 2008 and $15,472,160 in 2007 $ 108,292,581 106,616,392 Other revenue 4,901,156 4,384,454 Total operating revenues 113,193,737 111,000,846 Operating expenses: Salaries, wages and fringe benefits 61,186,300 60,758,375 Supplies 23,115,978 23,681,956 Purchased services 18,949,682 19,306,472 Professional fees 3,120,794 2,537,146 State of Florida medical assistance assessment 1,310,346 1,285,135 Depreciation 8,987,519 8,201,577 Total operating expenses 116,670,619 115,770,661 Operating loss (3,476,882) (4,769,815) Nonoperating realized items: Ad valorem tax 12,611,741 14,701,641 Interest expense (3,666,498) (2,943,487) Investment income 4,753,857 6,136,547 Other nonoperating expense (198,159) (83,256) Total nonoperating realized items 13,500,941 17,811,445 Excess of revenues over expenses before nonperating unrealized items 10,024,059 13,041,630 Nonoperating unrealized items: Unrealized gains on investments 16,210,108 2,122,580 Change in value of interest rate swaps (46,879,511) (7,164,387) Total nonoperating unrealized items (30,669,403) (5,041,807) (Deficit) excess of revenues over expenses (20,645,344) 7,999,823 Other changes in net assets: Contributions restricted for capital purposes 1,389 15,036 (Decrease) increase in net assets (20,643,955) 8,014,859 Net assets, beginning of year 460,808,043 446,118,155 Net assets, end of period $ 440,164,088 454,133,014 4
Statements of Cash Flows For the three months ended December 31, 2008 and 2007 2008 2007 Cash flows from operating activities: Received from patient care services $ 111,132,655 104,573,895 Received from non-patient sources 4,257,909 4,928,446 Payments to employees (56,991,716) (57,482,257) Payments to suppliers (40,200,141) (48,717,663) Net cash provided by operating activities 18,198,707 3,302,421 Cash flows from non-capital financing activities: Ad valorem taxes 27,666,318 42,256,754 Net proceeds from donations received (non-capital) 110,605 79,521 Grants and other non-capital items (209,000) (224,149) Net cash provided by non-capital financing activities 27,567,923 42,112,126 Cash flows from capital and related financing activities: Proceeds from donations restricted for capital purposes 94,239 - Interest rate swap payment received 1,152,204 4,053,373 Interest received on bond funds held by trustee 371,292 - Purchases of capital assets (29,460,081) (8,570,251) Interest payments (3,287,452) (3,186,422) Repayment of long-term debt (1,062,933) (1,399,697) Net cash used in capital and related financing activities (32,192,731) (9,102,997) Cash flows from investing activities: Investment income received 5,114,754 6,707,504 Purchase of investments (3,033,987,953) (5,664,404,823) Proceeds from sales and maturities of investments 3,020,305,393 5,619,253,355 Net cash used by investing activities (8,567,806) (38,443,964) Increase (decrease) in cash and cash equivalents 5,006,093 (2,132,414) Cash and cash equivalents, beginning of year 38,329,117 28,191,670 Cash and cash equivalents, end of year $ 43,335,210 26,059,256 Reconciliation of cash and cash equivalents to the combined balance sheets: Cash and cash equivalents in current assets $ 40,600,616 24,332,333 Cash and cash equivalents in restricted investments 2,734,594 1,726,923 Total cash and cash equivalents $ 43,335,210 26,059,256 Reconciliation of operating loss to net cash provided by operating activities: Operating loss $ (3,476,882) (4,769,815) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 8,987,519 8,201,577 Provision for bad debts 13,547,065 15,472,160 Changes in: Patient accounts receivable (10,115,799) (19,574,825) Other current assets and noncurrent assets (573,622) (5,404) Current liabilities and other liabilities 9,830,426 3,978,728 Net cash provided by operating activities $ 18,198,707 3,302,421 5
SARASOTA MEMORIAL HOSPITAL Utilization Statistics For the Three months ended December 31, 2008 and 2007 2008 2007 Licensed beds 806 806 Available beds 613 618 Admissions 6,167 6,517 Adjusted admissions 10,744 10,773 Patient days 30,024 31,992 Adjusted patient days 52,307 52,883 Outpatient registrations (excluding Emergency care center visits) 77,555 71,060 Emergency care center visits 18,482 19,070 Average daily census 326 348 Average length of stay 4.87 4.91 Medicare case mix index 1.887 1.846 Gross revenue percentage by payor class: Medicare 53.8% 53.2% Managed care and commercial 31.7% 32.8% Self-pay and other 7.1% 7.1% Medicaid 7.4% 6.9% 100.0% 100.0% 6
Ratios December 31, 2008 Debt service coverage ratio - System (12 months) 4.32 Debt service coverage ratio - The Obligated Group (12 months) 4.29 Current ratio 1.04 Cash to debt 154% Days cash on hand 425 7