cfp Premier Health Prem ier Health Center 110 N. Main St. Dayton, Oh io 45402 prem ierhealt h.co m May 14,2015 Enclosed are the unaudited Consolidated Financial Statements for MedAmerica Health Systems and Subsidiaries for March 31, 2015, along with our Management Discussion and Analysis, Debt Covenant Status, and Utilization Statistics. Also enclosed are the unaudited Consolidated Financial Statements of the other members of our joint operating company, Premier Health Partners (PHP), for which income sharing arrangements exist. If you have any questions or comments, please call me at (937) 499-9988. I will be happy to discuss in more detail any of the information that has been provided. Vice President & Chief Financial Officer
MedAmerica Health Systems and Subsidiaries Consolidated Balance Sheets At March 31, 2015 At December 31, 2014 Assets Current assets: Cash and short-term investments 32,946 67,752 Accounts receivable, net 165,997 153,179 Inventories 8,815 8,665 Prepaid expenses 21,807 15,322 Estimated receivable from third parties 9,905 9,860 Other current assets 11,936 12,726 Total current assets 251,406 267,504 Assets limited as to use Board-designated investments 625,970 611,635 Other investments 68,734 68,977 Assets limited as to use 694,704 680,612 Property and equipment, net 630,810 639,472 Intangible assets, net 11,938 12,243 Other assets 61,906 61,980 Total assets 1~650~764 1,661,811
MedAmerica Health Systems and Subsidiaries Consolidated Balance Sheets (continued) At March 31, 2015 At December 31, 2014 Liabilities and net assets Current liabilities: Accounts payable 24,997 33,169 Accrued expenses 35,088 47,629 Current portion of long-term debt 10,883 11,371 Estimated payable to third parties 272 280 Amounts due under Joint Operating Agreement 27,417 24,513 Due to affiliates 5,406 19,093 Other current liabilities 25 222 20,498 Total current liabilities 129,285 156,553 Long-term debt, less current portion 434,275 435,298 Pension liability 203,434 197,114 Reserve for professional liability 23,497 25,152 Interest rate swap liability 32,141 25,872 Other liabilities 32,708 32,690 Total liabilities 855,340 872,679 Net assets: Unrestricted 763,668 758,016 Temporarily restricted 11,386 11,126 Permanently restricted 20,370 19,990 Total net assets 795,424 789,132 Total liabilities and net assets 1l650l764 1,661,811
MedAmerica Health Systems and Subsidiaries Consolidated Statements of Operations Three Months Ended March 31, 2015 2014 Operating revenue Net patient revenue Provision for uncollectible accounts Net patient revenue less provision for uncollectible accounts Other operating revenue Joint venture profits Total operating revenue Operating expenses Salaries and wages Employee benefits Supplies Purchased services, insurance, and other Hospital franchise tax Depreciation and amortization Interest Total operating expenses Income from operations before asset impairment Impairment oflong-lived assets Income from operations Loss allocation from the Joint Operating Agreement Non-operating gains (losses), net Excess (deficiency) ofrevenues over expenses 237,146 221,596 2,376 3,272 234,770 218,324 12,455 11,595 273 515 247,498 230,434 103,264 94,326 28,583 25,091 40,423 36,496 42,308 43,602 3,323 3,069 19,708 19,196 2,366 2,599 239,975 224,379 7,523 6,055 {173} 7,523 5,882 (2,904) (4,723) 1,328 (3,481) 5~947 (2,322}
MedAmerica Health Systems and Subsidiaries Consolidated Statements of Changes in Net Assets Changes in net assets Excess (deficiency) of revenues over expenses Transfer to affiliates Net gains on temporarily restricted and permanently restricted net assets and other Increase (decrease) in net assets Three Months Ended March 31, 2015 2014 5,947 (2,322) (164) (2,372) 509 840 6,292 (3,854) Net assets at beginning of the period Net assets at end of the period 789 132 899,668 795l424 895,814
MedAmerica Health Systems and Subsidiaries Consolidated Statements of Cash Flows Operating activities Increase (decrease) in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization Bad debt expense Gain on disposal of assets Impairment oflong-lived assets Change in the valuation of swap agreement liability Unrealized (gains) losses on assets limited as to use Net change in assets and liabilities: Accounts receivable Assets limited as to use Other assets Accounts payable and accrued expenses Estimated payable to third parties Other liabilities Net cash provided by (used in) operating activities Investing activities Proceeds from the sale of assets, net of closing costs Purchases of property and equipment Net cash used in investing activities Financing activities Repayment of long-term debt and capital leases Net cash used in financing activities Increase (decrease) in cash and short-term investments Cash and short-term investments at beginning of the period Cash and short-term investments at end of the period Three Months Ended March 31, 2015 2014 6,292 (3,854) 19,708 19,196 2,376 3,272 (376) 173 6,269 5,483 (5,013) 59 (15,194) (1,253) (9,079) (8,910) (19,458) (14,586) (21,012) (22,099) (53) 13,699 12 347 21,422 (23,193) 12,602 640 734 (10,551) (7,653) (9,911) (6,919) (1,702) (5,205) (1,702) (5,205) (34,806) 478 67,752 66,958 32 946 67 436
MEDAMERICA HEALTH SYSTEMS AND SUBSIDIARIES CALCULATIONS OF FINANCIAL COVENANTS AS OF MARCH 31, 2015 The following financial covenants have been prepared in accordance with Section 407 of the Amended and Restated Master Trust Indenture with Chase Manhattan Trust Company, N.A., dated February 1, 1998 as supplemented; and in accordance with the Standby Bond Purchase Agreements, Financing Agreements and Reimbursement Agreement in which MedAmerica Health System and its subsidiaries are obligated. Actual Results Most Restrictive Requirements FUNDS AVAILABLE FOR DEBT SERVICE See Schedule Attached Historical Debt Service Requirements Maximum Annual Debt Service Requirements Without Affiliate Guarantees With Affiliate Guarantees 7.75 Times Greater than 1.50 Times the Historical Debt Service Payment Greater than 1.10 Times 4.20 Times the Maximum Annual 3.96 Times Debt Service Payment DAYS CASH ON HAND Liquid Assets Cash and Short-Term Investments Assets Whose Use is Limited For Capital and Non-Capital Expenditures (Excluding Professional Liability Trust, Assets held by Trustee under Bond Indenture, and Restricted Assets) Cash and Investments Operating Expenses (Excluding Depreciation and Amortization) 32,946 625,970 658,916 220,267 DAYS CASH ON HAND 269 Days Greater than 150 DEBT TO CAPITALIZATION RATIO Current Portion of Long Term Debt Long Term Debt Debt Current Portion of Long Term Debt Long Term Debt Unrestricted Fund Balance Capital 10,883 434,275 445,158 10,883 434,275 763,668 1,208,826 DEBT TO CAPITALIZATION RATIO With Affiliate Guarantees 36.8% 45.0% Less than 65 % AGENCY RATINGS Moody's Investor Service Fitch Ratings Aa3 AA- Baa3 BBB-
MEDAMERICA HEALTH SYSTEMS AND SUBSIDIARIES CALCULATION OF INCOME AVAILABLE FOR DEBT SERVICE AND DEBT SERVICE COVERAGE RATIOS FOR 2015 AS OF MARCH 31, 2015 The following financial covenants have been prepared in accordance with Section 407 of the Amended and Restated Master Trust Indenture with Chase Manhattan Trust Company, N.A., dated February 1, 1998 as supplemented ; and in accordance with the Standby Bond Purchase Agreements, Financing Agreements and Reiumbursement Agreement in which MedAmerica Health System and its subsidiaries are obligated. Actual YTD March-15 Excess of Revenue over Expense Additions: Interest on Funded Indebtedness Depreciation and amortization Unrealized loss (gain) resulting from changes in the values of investment securities Impairment Loss (gain) on interest rate agreements Loss due to income allocation required by JOA Loss on the extinguishment of debt Loss (gain) on sale of assets other than in the ordinary course of business Income Available for Debt Service Historical Debt Service Requirements Historical Debt Service Coverage Ratio Maximum Annual Debt Service Requirements (without AMC debt guaranty) Maximum Annual Debt Service Coverage Ratio Maximum Annual Debt Service Requirements (with AMC debt guaranty at 20%) Maximum Annual Debt Service Coverage Ratio 7.75 Times 4.20 Times 3.96 Times 5,947 2,366 19,708 (5,233) 6,228 2,904 (376) 31,544 4,068 7,503 7,970
MedAmerica Health Systems and Subsidiaries Management Discussion and Analysis March 31, 2015 The table below represents the fmancial results of MedAmerica Health Systems Corporation and its subsidiaries ("MAHS") for the three months ended March 31, 2015 and 2014, respectively. Results of Operations Three Months Ended March31, (Dollars in thousands) 2015 2014 Total revenue 247,498 230,434 Total operating expenses 239,975 224,379 Income from operations before asset impairment 7,523 6,055 hnpainnent oflong-lived assets (173) Income from operations 7,523 5,882 Loss allocation relating to the Joint Operating Agreement (2,904) (4,723) Non-operating gains (losses) 1,328 (3,481) Excess (deficiency) of revenue over expenses 5,947 (2,322) Operating margin percentage 3.0% 2.6% Cash flow margin percentage 12.0% 12.1% Admissions 9,706 9,357 Admissions and Observation discharges 13,972 13,137 Days of cash on hand 269 285 MAHS' results of operations are influenced by industry trends, Healthcare Reform, State of Ohio initiatives, regional and local economic conditions, and patient volumes. For the three months ended March 31, 2015, MAHS' operating margin was better than the same period in the prior year while cash flow margin approximated the same period in prior year. These positive results came from revenue growth and the favorable impact of expense management initiatives. MAHS continues to maintain a strong cash position with days of cash on hand at 269 days compared to 285 days for the same period in the prior year. MAHS ' investment income was also positive compared to a loss in the prior year due to changes in the fmancial markets. In 2015 management is continuing various initiatives to manage costs in order to respond to the current economic environment and the impact of healthcare reform. These initiatives are designed to position MAHS fmancially and allow it to be strategically flexible so it can continue to provide the highest level of patient care and service to our community.
MedArnerica Health Systems and Subsidiaries Management Discussion and Analysis March 31, 2015 Page 2 Total Operating Revenues For the three months ended March 31, 2015, operating revenue of 247.5 million increased 17.1 million or 7.4% from the same period of the prior year. This increase was primarily driven by growth in patient volumes. Key contributors to this growth were surgery, cardiology, emergency room, imaging and revenues related to observations. Inpatient admissions in the current quarter went up by 3.7% and observation discharges were up by 12.9% compared to the same periods in the prior year. Management continues to focus, where applicable, on placement of patients in various government programs and continues to improve collection efforts. Operating Expenses For the three months ended March 31, 2015, operating expenses of 240.0 million increased 15.6 million or 7.0% for the same period of the prior year. This increase was primarily due to increases in salaries and benefits of 12.4 million and supply expenses of 3.9 million, partially offset by 1.3 million decrease in purchased services. The higher salaries were primarily driven by increased volume and pension expenses. Supply expenses were higher driven by volume and mix of procedures. The lower purchased services expense was primarily driven by lower legal costs and physician fees. Management strives to control salary expenses by effectively managing to patient volume fluctuations and manages supply expense through product standardization, bulk purchases, contract compliance, and improved utilization. Non-Operating gains I (loss) For the three months ended March 31, 2015, MAHS recorded a non-operating gain of 1.3 million compared to a 3.5 million non-operating loss for the same period in the prior year. The non-operating gain for the three months ended March 31, 2015 was comprised of 10.8 million investment income, partially offset by 7.2 million loss relating to mark to market adjustment and settlement cost for the interest rate swap, and 2.3 million for community benefits and other expense. The prior year non-operating loss of 3.5 million was comprised of 6.5 million mark to market adjustment and settlement cost for the interest rate swap and 2.7 million for community benefits and other expense, partially offset by investment income of 5.7 million. Cash and Capital Requirements Cash and investments totaled 658.9 million at March 31,2015 compared to 679.4 million at December 31, 2014, a decrease of 20.5 million. This decrease was primarily driven by higher observations and capital expenditure. Days of cash on hand at March 31, 2015 and December 31, 2014 were 269 days and 293 days, respectively. MAHS' capital requirements are primarily related to medical equipment and construction projects. Management believes that existing cash and cash equivalents, investments, and future cash provided by operating activities should be adequate to meet current cash needs. These sources of liquidity should also be adequate to fmance planned capital expenditures, payments on the current portion of long-term debt and other presently known operating needs.
MIAMI VALLEY HOSPITAL UTILIZATION STATISTICS The following table summarizes utilization statistics for Miami Valley Hospital: Three Months Ended March 31, Licensed Beds 970 954 Beds in Service 795 869 Admissions 9,706 9,357 Patient Days 47,782 45,484 Average Length of Stay (in Days) 5.00 4.83 Average Occupancy 67.8% 57.8% Observation Days 9,917 7,710 Outpatient Encounters (excludes emergency) 49,739 37,999 Emergency Visits (*) 23,335 22,005 Careflight Air Ambulance Program Total Patient Transports 270 295 Inpatient Surgeries 2,379 2,195 Outpatient Surgeries 3,540 3,431 Case Mix Index - Medicare 1.93 1.81 Case Mix Index - All Payors 1.54 1.51 (*) Treated and released
Premier Health Partners and Affiliates Combined Balance Sheets Assets Current assets: Cash and short-term investments Accounts receivable, net Inventories Prepaid expenses Estimated receivable from third parties Other current assets Total current assets Assets limited as to use Board-designated investments Other investments Assets limited as to use Property and equipment, net Prepaid pension asset Intangible assets, net Interest rate swap assets March 31, December 31, 2015 2014 107,240 134,014 276,722 251,883 18,336 18,334 41,704 30,450 20,918 19,400 20,062 19,324 484,982 473,405 1,090,127 1,069,940 137,203 164,337 1,227,330 1,234,277 1,141,537 1,148,512 43,819 43,193 24,744 25,066 334 236 Other assets Total assets 93,674 93,239 3l016l420 3l017l928
Premier Health Partners and Affiliates Combined Balance Sheets (continued) March 31, 2015 December 31, 2014 Liabilities and net assets Current liabilities: Accounts payable 60,410 68,836 Accrued expenses 74,443 95,430 Current portion of long-term debt 29,113 30,163 Estimated payable to third parties 7,846 7,868 Other current liabilities 47,049 36,595 Total current liabilities 218,861 238,892 Long-term debt, less current portion 763,116 767,065 Pension obligation 235,204 225,619 Reserve for professional liability 40,983 42,167 Interest rate swap liability 52,765 46,289 Other liabilities 80,127 79,079 Total liabilities 1,391,056 1,399,111 Net assets: Unrestricted 1,571,663 1,566,229 Temporarily restricted 24,255 23,596 Permanently restricted 29 446 28,992 Total net assets 1,625,364 1,618,817 Total liabilities and net assets 320162420 3l017l928
Premier Health Partners and Affiliates Combined Statement of Operations Three Months Ended March 31, 2015 2014 Operating revenue Net patient revenue 435,270 406,811 Provision for uncollectible accounts 5,116 6,127 Net patient revenue less provision for uncollectible accounts 430,154 400,684 Other operating revenue 40,757 23,189 Joint venture profits 385 628 Total operating revenue 471,296 424,501 Operating expenses Salaries and wages 194,528 180,033 Employee benefits 51,438 47,599 Supplies 77,947 72,541 Purchased services, insurance, and other 99,877 80,051 Hospital franchise tax 6,327 5,932 Depreciation and amortization 35,231 34,825 Interest 5,410 5,963 Total operating expenses 470,758 426,944 Income (loss) from operations before asset impairment 538 (2,443) Impairment of long-lived assets (173) Income (loss) from operations 538 (2,616) Non-operating gains (losses), net 5,349 (3,271) Excess (deficiency) of revenue over expenses 52887 (52887) (
Premier Health Partners and Affiliates Combined Statement of Changes in Net Assets Net assets Excess (deficiency) of revenues over expenses Net gains on temporarily restricted and permanently restricted net assets and other Increase (decrease) in net assets Three Months Ended March 31, 2015 2014 5,887 (5,887) 660 1,624 6,547 (4,263) Net assets at beginning of the period Net assets at end of the period 1,618,817 1,715,029 1,625,364 1,710,766
Premier Health Partners and Affiliates Combined Statements of Cash Flows Operating activities Increase (decrease) in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization Bad debt expense Unrealized loss (gain) on assets limited as to use Change in the valuation of swap agreement liability Asset impairment Gain on sale of assets Net change in assets and liabilities: Accounts receivable Net change in assets limited as to use Other assets Accounts payable and other accruals Estimated payable to third parties Other liabilities Net cash provided by operating activities Three Months Ended March 31, 2015 2014 6,547 35,231 5,116 (11,016) 9,077 (274) (29,955) 17,963 (12,411) (23,702) (1,540) 19 010 14,046 ( 4,263) 34,825 6,127 (3,184) 10,142 173 2,110 (20,290) (21,133) (22,633) 22,475 18,398 22,747 Investing activities Proceeds from the sale of assets, net of closing costs Purchases of property, plant, and equipment Net cash used in investing activities 817 (33,804) (32,987) 734 (18,330) (17,596) Financing activities Interest rate swap collateral Repayment of debt and capital leases Net cash used in financing activities (2,700) (5,133) (7,833) (12,546) (12,546) Decrease in cash and short-term investments Cash and short-term investments at beginning of the period Cash and short-term investments at end of the period (26,774) 134 014 107,240 (7,395) 125,908 118,513