40 W. Fourth Street Dayton, Ohio 45402 aldie MedAmerica ':!iijiiiif Health Systems Corporation M iami Valley Hospital Miami Va ll ey Hospital Fo undation Fideli ty Hea lth Care MVHE, Inc. May 14,2013 Enclosed are the unaudited Consolidated Financial Statements for MedAmerica Health Systems and Subsidiaries for March 31, 2013, 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 Patiners (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. Sincerely, Vice President & Chief Financial Officer
Consolidated Balance Sheets At March 31, At December 31, 2013 2012 Assets Current assets: Cash and short-term investments $ 57,316 $ 29,241 Accounts receivable, net 157,475 158,526 Inventories 6,486 6,432 Prepaid expenses 19,636 12,770 Estimated receivable from third parties 5,937 4,347 Amounts receivable under JOA 6,605 Due from affiliates - other 8,525 2,809 Other current assets 11,561 28,037 Total current assets 266,936 248,767 Assets limited as to use Board-designated investments 488,383 456,826 Other investments 67,198 63,935 Assets limited as to use 555,581 520,761 Property, plant, and equipment, net 697,816 703,648 Intangible assets, net 14,237 29,349 Other assets 48,325 47,016 Total assets $ 1~582~895 $ ll549l541
Consolidated Balance Sheets (continued) At March 31, At December 31, 2013 2012 Liabilities and net assets Current liabilities: Accounts payable $ 38,408 $ 37,586 Accrued expenses 47,063 55,087 Current portion of long-term debt 7,331 8,240 Estimated payable to third parties 336 Amounts due under Joint Operating Agreement 5,019 Other current liabilities 21,225 21,527 Total current liabilities 119,382 122,440 Long-term debt, less current portion 445,633 446,023 Pension liability 179,538 176,546 Reserve for professional liability 28,076 26,524 Interest rate swap liability 19,783 25,000 Other liabilities 29,595 29,072 Total liabilities 822,007 825,605 Net assets: Unrestricted 730,040 692,755 Temporarily restricted 12,809 13,736 Permanently restricted 18,039 17,445 Total net assets 760,888 723,936 Total liabilities and net assets $ 1~582~895 $ 125492541
Consolidated Statements of Operations and Changes in Net Assets Operating revenues Net patient revenues Other operating revenues Joint venture profits Total operating revenues Operating expenses Salaries and wages Employee benefits Supplies Purchased services, insurance, and other Hospital franchise tax Depreciation and amortization Interest Total operating expenses (Losses)/ Income from operations Income allocation relating to the Joint Operating Agreement Non-operating gains, net Excess of revenues over expenses Continued on next page. $ $ Three Months Ended March 31, 2013 2012 216,258 $ 217,345 13,446 12,443 484 1,028 230,188 230,816 98,387 94,543 28,085 25,527 38,912 35,050 45,327 41,931 2,924 2,694 19,915 18,357 2,676 3,485 236,226 221,587 (6,038) 9,229 3,394 1,815 19,242 27,080 16,598 $ 38,124
Consolidated Statements of Operations and Changes in Net Assets (continued) Three Months Ended March 31, 2013 2012 Net assets Excess of revenues over expenses $ 16,598 $ 38,124 Discontinued Operation - Dialysis centers 714 977 Gain on sale from discontinued operation 26,758 Joint Operating Agreement allocation for gain on sale of discontinued operation (8,056) Net gains on temporarily restricted and permanently restricted net assets and other 938 2,296 Increase in net assets 36,952 41,397 Net assets at beginning of period 723,936 708,590 Net assets at end of period $ 760~888 $ 749 987
Consolidated Statements of Cash Flows Three Months Ended March 31, 2012 2011 Operating activities Increase in net assets $ 36,952 $ 41,397 Earnings from discontinued operations (27,472) (977) Joint Operating Agreement allocation for gain on sale of discontinued operations 8 056 Increase in net assets from continuing operations 17,536 40,420 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 19,915 18,357 Bad debt expense 5,060 5,483 Change in the valuation of swap agreement liability (5,260) (7,147) Unrealized (gains) losses on assets limited as to use (7,315) (8,018) Net change in assets and liabilities: Accounts receivable (4,009) (14,539) Net change in assets limited as to use (27,505) 22,963 Other assets 9,410 (16,849) Accounts payable and accrued expenses (8,040) (16,045) Estimated payable to third parties (1,254) (2,648) Other liabilities 22913 {2722402 Net cash provided (used) by operating activities 1,451 (5,263) Investing activities Proceeds from the sale of assets, net of closing costs 43,276 Purchases of property, plant, and equipment {14 2 925} {23,1912 Net cash used for investing activities 28,351 (23,191) Financing activities Repayment of long-term debt and capital leases {1,7272 {1,3302 Net cash provided by financing activities (1,727) (1,330) Increase in cash and short-term investments 28,075 (29,784) Cash and short-term investments at beginning of period 29,241 42,459 Cash and short-term investments at end of period $ 57l316 $ 12l675
Management Discussion and Analysis March 31, 2013 The table below represents the financial results of MedAmerica Health Systems Corporation and its subsidiaries ("MAHS") for the three months ended March 31, 2013 and 2012, respectively. Results of Operations (Dollars in thousands) Three Months Ended March 31, 2013 2012 Total Revenues Total Operating Expenses Income fi omoperations $ 230,188 236,226 (6,038) $ 230,816 221,587 9,229 Non-operating gain I (loss) '\cess (deficiency) of revenues over expenses $ 22,636 16,598 $ 28,895 38,124 Operating Margin Percentage -2.6% 4.0% Cash Flow Margin Percentage 7.2% 13.5% Admissions 10,619 10,128 Days of cash on hand 227 207 MAHS' results of operations are influenced by industry trends, key developments such as Healthcare Reform, State of Ohio initiatives, regional and local economic conditions, and patient volumes. For the three months ended March 31, 2013, MAHS' operating margin was below prior year and below management's expectations. The cash flow margin as a percentage of revenue for the three month period was lower than the same period in the prior year but MAHS continues to maintain a strong cash position with days of cash on hand at 227 days compared to 207 days for the same period in the prior year. MAHS experienced higher than anticipated investment income resulting from strong financial market performance during the first three months. In 2013 management is continuing various initiatives to manage costs in order to respond to the current economic environment and prepare MAHS for the impact of healthcare reform. These initiatives are designed to position MAHS financially and allow it to be strategically flexible so it can continue to provide the highest level of patient care and service to our community.
Management Discussion and Analysis March 31, 2013 Page 2 Total Operating Revenues For the three months ended March 31, 2013, operating revenue approximated prior year at $230.2 million. Inpatient admissions exceeded the same period of the prior year by 4.8%, while inpatient surgeries, outpatient surgeries and outpatient encounters were below the same period of the prior year by 0.2%, 5.6% and 3.6%, respectively. Management continues to focus, where applicable, on placement of patients in various government programs such as Medicare and Medicaid, and continues to improve collection effmts. Operating Expenses For the three months ended March 31, 2013, operating expenses of$236.2 million increased $14.6 million or 6.6% for the same period of the prior year. This increase was primarily due to increases in salary and benefit expense of$6.4 million, supply expense of$3.9 million and purchased services of$3.4 million. The increase in salary and benefit expense was mainly attributable to the increase in labor resulting from increased volumes. The increase in supply expense was primarily driven by higher surgery costs and higher utilization of specialty drugs relating to mix of procedures. Higher purchased services were primarily driven by increases in professional fees and outside se1vices. Management strives to control salmy 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, 2013, MAHS recorded a non-operating gain of $22.6 million compared to a $28.9 million non-operating gain for the same period in the prior year. The non-operating gain for the current quarter was comprised of $17.5 million of investment income relating to market performance, income allocation from the Joint Operating Agreement of $3.4 million and the mark to market adjustment and settlement cost for the interest rate swap of $5.3 million, pmtially offset by other non-operating expenses of $3.6 million. The prior year non-operating gain of $28.9 million was comprised of investment income of $22.5 million relating to market performance, income allocation from the Joint Operating Agreement of $1.8 million and a mark to market adjustment and settlement cost for the interest rate swap of $7.1 million, partially offset by other non-operating expenses of $2.5 million. Cash and Capital Requirements Cash and investments totaled $612.9 million at March 31, 2013 compared to $524.3 million at March 31, 2012, an increase of $88.6 million. This increase was primarily provided from operation, and $43.3 million of cash received from the sale of three dialysis centers in March, pmtially offset by capital asset additions. Days of cash on hand at March 31, 2013 and 2012 were 227 days and 207 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 finance planned capital expenditures, payments on the current portion of long-term debt and other presently known operating needs. Other Significant Items On March 1 2013, PHP and an outside third party signed an agreement to sell three ofmahs's outpatient dialysis facilities to Davita for $43.3 million. The net book value of the assets sold was approximately $15.4 million. As part of this agreement, the outside third party will manage two dialysis sites and a home hemodialysis program which will continue to be owned by MAHS.
40 W. Fourth Street Dayton, Ohio 45402 ~liif Miami Va lley Hospital Miami Va lley Hospital Foundation Fidelity Health Care MVHE, Inc. CERTIFICATE Pursuant to Section 5.l(iv) of the Standby Bond Purchase Agreements among MedAmerica Health Systems Corporation and Miami Valley Hospital with The Bank of New York Mellon Trust Company, N. A. as successor to JPMorgan Chase Bank and to Morgan Guaranty Trust Company of New York, the undersigned as an officer of the corporations of the Obligated Group, hereby certifies that as of March 31, 2013, all financial covenants have been satisfied as per the requirements of Section 5.2, 5.3, and 5.9 of the Agreements, and that to the undersigned officers' knowledge no Default or Event of Default hereunder or event of default under any other agreement to which the Parent, the Hospital or any other Member of the Obligated Group is a patty or by which it is bound, or by which any of the properties or assets of the Parent, the Hospital or any other Member of the Obligated Group may be affected, and which would have a material adverse effect on the financial position of the Parent, the Hospital or such other Member of the Obligated Group and no event which, with the giving of notice or the lapse of time, or both, would constitute such an event of default, has occurred. The attached Schedules provide reasonable detail to support the calculations of each test. MedAmerica Health Systems Corporation: '72:::--...,.=--- Thomas M. Duncan Date Vice President & Chief Financial Officer
MEDAMERICA HEALTH SYSTEMS AND SUBSIDIARIES CALCULATIONS OF FINANCIAL COVENANTS AS OF MARCH 31, 2013 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 Agreement- Section 5.1 (iv), dated February 1, 1998, as amended, with Morgan Guaranty Trust Company of New York. 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 5.8 Times Greater than 1.5 Times the Historical Debt Service Payment Greater than 1.1 Times 4.1 Times the Maximum Annual 3.8 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) $57,316 488,383 545,699 216,311 DAYS CASH ON HAND 227 Days Greater than 100 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 7,331 445,633 452,964 7,331 445,633 730,040 1,183,004 DEBT TO CAPITALIZATION RATIO With Affiliate Guarantees 38.3% 46.6% 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 2012 AS OF MARCH 31,2013 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 Agreement- Section 5.1 (iv), dated February 1, 1998, as amended, with Morgan Guaranty Trust Company of New York. March-13 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 $16,598 2,676 19,915 (6,915) (5,260) 343 $27,357 Historical Debt Service Requirements Historical Debt Service Coverage Ratio Historical Debt Service Coverage Ratio Requirements, per Section 407 of the Amended and Restated Master Trust Indenture with Chase Manhattan Trust Company, dated February 1, 1998 5.8 Times 1.1 Times $4,752 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 $6,605 4.1 Times $7,207 3.8 Times Maximum Annual Debt Service Coverage Ratio Requirements, per Section 407 of the Amended and Restated Master Trust Indenture with Chase Manhattan Trust Company, dated February 1, 1998, as supplemented by the First Supplemental Master Trust Indenture, dated November 1, 2003 1.1 Times
MIAMI VALLEY HOSPITAL UTILIZATION STATISTICS The following table summarizes utilization statistics for Miami Valley Hospital: Three Months Ended March 31 Licensed Beds 942 875 Beds in Service 942 823 Admissions 10,619 10,128 Patient Days 52,850 54,397 Average Length of Stay (in Days) 5.0 5.4 Average Occupancy 62.3% 72.6% Observation Days 3,843 4,530 Outpatient Encounters (excludes emergency) 40,832 41,737 Emergency Visits 29,521 31,277 Care flight Air Ambulance Program Total Patient Transports 277 313 Inpatient Surgeries 2,430 2,436 Outpatient Surgeries 3,307 3,504 Case Mix Index - Medicare 1.76 1.78 Case Mix Index - All Payors 1.46 1.47