CONTINUING DISCLOSURE REPORT Meritus Medical Center Obligated Group For the 12 Month Period Ended June 30, 2013 Name, Address and Telephone Number of Obligated Person: Meritus Medical Center Obligated Group c/o Meritus Medical Center 11116 Medical Campus Road Hagerstown, MD 21742 301-790-8102 Contact person: Raymond A. Grahe, CFO, SVP Strategic Ventures and Finance Bonds to Which Report Relates: $264,300,000 Maryland Health and Higher Education Facility Authorities Series 2008 MATURITY CUSIP NO. 2012 574217Q81 2013 574217Q99 2014 574217R31 2014 574217R23 2015 574217R49 2016 574217R64 2016 574217R56 2017 574217R72 2018 574217R80 2018 574217R98 2019 574217S22 2020 574217S30 2021 574217S48 2022 574217S55 2023 574217S63 2028 574217S71 2033 574217S89 2038 574217S97 2043 574217T21 1
Period to Which Report Relates: Twelve Months Ended June 30, 2013 Effective February 1, 2013, Meritus Health, Inc. completed a corporate reorganization. The goal of the reorganization was to Facilitate an improved governance structure Eliminate duplication of governance tasks Reduce the burden on executive leadership in its role as staff to governance Achieve administrative efficiencies in the corporate structure Increase executive and governance transparency Enhance the attractiveness of volunteer board service The sequence of the reorganization was as follows: Meritus Medical Center Endowment Development Company Inc. => Meritus Medical Center Endowment Fund Meritus Medical Center Endowment Fund => Meritus Health, Inc. Meritus Health, Inc. => Meritus Medical Center The surviving organization is Meritus Medical Center and is depicted below. Structure - Pre Reorganization Structure - Post Reorganization As a result, the Obligated Group remains relatively unchanged with the only modification being the addition of the Meritus Medical Center Endowment Development Company, Inc. The Obligated Group consists of the organizations listed on Exhibit A-1 attached hereto. As such, this Continuing Disclosure Report (this Report ) is provided on behalf of the Meritus Medical Center Obligated Group, (the Obligated Group ) by Meritus Medical Center ( MMC ), as Obligated Group Agent. MMC organizations excluded from the Obligated Group are listed on Exhibit A-2. The organizations that are directly or indirectly controlled by MMC (including 2
those within the Obligated Group) are referred to as Controlled Organizations and MMC and all of its Controlled Organizations are referred to collectively as the Consolidated Group. Organizations that are not members of the Obligated Group have no obligation with respect to the Bonds or under the Master Indenture and none of the assets or revenues of such organizations are available to make payments of principal or interest on the Bonds or the Notes. This Report is being filed with approved Nationally Recognized Municipal Securities Information Repositories ( Repositories ) pursuant to Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (the Rule ), and is pursuant to the Continuing Disclosure Agreement pertaining to certain Bonds which were issued concurrently with the formation of the Obligated Group. THIS REPORT IS INTENDED SOLELY TO PROVIDE CERTAIN LIMITED FINANCIAL AND OPERATING DATA IN ACCORDANCE WITH UNDERTAKINGS OF MMC AND THE OBLIGATED GROUP UNDER THE RULE (THE UNDERTAKING ) AND DOES NOT CONSTITUTE A REISSUANCE OF ANY OFFICIAL STATMENET RELATING TO THE BONDS OR A SUPPLEMENT OR AMENDMENT TO ANY SUCH OFFICIAL STATEMENT. THIS REPORT CONTAINS CERTAIN AUDITED FINANCIAL, OPERATING AND OTHER DATA AS OF JUNE 30, 2013 AND 2012 AND FOR THE TWELVE MONTH PERIODS ENDED JUNE 30, 2013 AND 2012. MMC AND THE OBLIGATED GROUP HAVE UNDERTAKEN NO RESPONSIBILITY TO UPDATE THIS REPORT SINCE THAT DATE AND DISCLAIM ANY OBLIGATION TO UPDATE THIS REPORT OR TO FILE ANY REPORTS OR OTHER INFORMATION WITH THE REPOSITORIES OR ANY OTHER PERSON EXCEPT AS SPECIFCALLY REQUIRED BY THE UNDERTAKING. This report may contain certain forward-looking statements which involve known and unknown risks and uncertainties inherent in the operation of healthcare facilities. All statements other than statements of historical information provided herein may be forward-looking statements. Without limiting the foregoing, the words believes, estimates, anticipates, plans, intends, scheduled, expects and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, competition from other healthcare facilities, federal and state regulation of healthcare providers, and reimbursement policies of state and federal governments and managed care organizations. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management s analysis, judgment, belief or expectation only as of the date hereof. MHI and the Obligated Group undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Overview SUMMARY AUDITED FINANCIAL INFORMATION The fiscal year ended June 30, 2012 represented the first full year of operations in the new facility. As expected, MMC incurred approximately $30 million in additional cost related to 3
depreciation and interest while only receiving $20 million in offsetting revenue. MMC was able to absorb the additional $10 million in cost and the associated nonrecurring operating costs through many initiatives including the reduction of approximately 170 FTEs over three years. It has not only maintained positive performance from operations but improved performance in the fiscal year ended June 30, 2013. MMC continues to hold a dominant market position in its primary service area which has stable demographics. Corporate Changes Effective July 1, 2011, Meritus Enterprises, Inc., completed a structural realignment to include the formation of a new tax-exempt entity, Meritus Holdings, LLC. This realignment included converting the entities of Hagerstown Medical Lab, Inc., Meritus Urgent Care, LLC, and Health at Work, LLC, to tax-exempt status with a transfer of ownership in these entities to Meritus Holdings, LLC (which is not part of the obligated group). This is a change in form, not substance. As part of this corporate reorganization, a one-time conversion tax of $3.2 million, net of the application of available deferred tax assets, was incurred. The tax payments were made for tax year ended June 30, 2012, by Meritus Enterprises, Inc. This realignment generated approximately $1.0 million in tax savings for the period ended June 30, 2013. Consolidated Functions Meritus Medical Center has consolidated its overhead areas in order to standardize policies, procedures, processes, systems, and controls. It applied to all departments that provide administrative services across MMC and will included the following: Human Resources Finance Facilities Revenue Cycle Environmental Services Materials Management / Purchasing Information Services Distribution Clinical Engineering Communications This initiative resulted in effective and efficient delivery of services within the health system as well as reduced cost. These consolidated departments represent approximately 350 FTEs; 75% are Meritus Medical Center ( MMC ) and 25% are Meritus Enterprises. The number of FTEs has been adjusted, by organization, in order to provide an accurate comparison to prior periods. Total Patient Revenue ( TPR ) MMC completed the initial three year agreement with the Health Services Cost Review Commission ( HSCRC ) under a rate regulation concept called TPR. MMC was provided an incentive to enter into the agreement of which 75% was obtained in FY2011 and the remaining 25% was received in FY2012. MMC has entered into an agreement for an additional three years with the HSCRC. 4
TPR is a concept that is currently utilized by the HSCRC with other facilities. It is a revenue constraint methodology which provides for inflation, bad debt, payer differential, and other typical adjustments. However, it excludes case mix and volume changes while providing adjustments for population growth. The intent is to manage the escalation of healthcare costs on a more global basis which aligns with many of the healthcare reform initiatives and will complement MMC s current clinical integration strategy. It allows care to be pushed to the lowest common denominator of price and location through appropriate delivery of care. TPR does allow MMC to emphasize and manage the following: 1) Community health improvement 2) Chronic disease management 3) Case management of high cost conditions 4) Ability to contract with all payers to collaborate on value based purchasing programs and data integration 5) Quality performance measures TPR is in line with the Medicare ACO concept and the Medicare Shared Savings Plan ( MSSP ). MMC joined the Premier Pact collaborative and intends to file an application to participate in the MSSP program with an expected effective date of January 1, 2014. MMC will manage healthcare reform through its clinical integration strategy and TPR; healthcare reform will not manage MMC. Initiatives The Health System has implemented several clinical enhancements in order to improve its clinical outcomes. These include: 1) Implementation of Project RED initiatives to address readmissions, one day stays, and observation. 2) Evaluation and modification to physician preference items 3) Continuation of the ppci and nppci program and expanded PICC services 4) ecare which provides telemedicine monitoring services for critical care patients 5) Continuation of the telemedicine program for the stroke patients 6) Implementation of an observation unit to enhance care and patient flow 7) Heightened focus on patient satisfaction (HCAHPS) 8) Reduction / elimination of hospital readmissions that occur within 30 days 9) Processes and programs to reduce hospital acquired conditions 10) Patient advocacy at all locations and levels of care Meaningful Use The American Recovery and Reinvestment Act of 2009 provides for Medicare and Medicaid incentive payments for eligible hospitals and professionals that implement and achieve meaningful use of certified electronic health record ( EHR ) technology. In fiscal year 2012, 5
MMC demonstrated that the phase I criteria was met and has elected to utilize the grant accounting model to recognize the associated incentive. Summary Audited Statement of Operations of Obligated Group Attached hereto as Exhibit B, is a Summary Audited Statement of Operations of the Obligated Group for the twelve months ended June 30, 2013 and 2012 which was derived by management from audited financial statements. The audited financial statements include all adjustments, consisting of normal recurring accruals, which MMC considers necessary for a fair presentation of the results of operations for these periods. The Summary Audited Statement of Operations should be read in conjunction with the Consolidated Financial Statements of the Consolidated Group for the twelve months ended June 30, 2013. Management s Discussion of Recent Financial Performance of Obligated Group MMC has elected to early adopt ASU 2011-07 which requires healthcare entities to present their provision for bad debts associated with patient service revenue as a deduction from patient service revenue. As such, bad debt expense is a component of net patient service revenue. These changes are reflected in the subsequent information and were reclassified for all time periods presented. MMC has taken several actions to be implemented in the 4 th quarter in order to mitigate the impact of sequestration which includes the 2% reduction in Medicare payments. The Obligated Group had an operating excess of $11.1 million excluding other one-time costs (representing 3.7% of total revenue) for the twelve months ended June 30, 2013 as compared to an operating excess of $8.2 million (representing 2.8% of total revenue) for the same period in 2012. MMC has received the final regulatory approval related to the termination of the cash balance pension plan. All distributions to participants have been made as of January 31, 2013. The noncash settlement cost of $11.3 million has been reflected. The final contribution to the plan was $3.6 million. The estimated settlement costs previously recognized in prior quarterly reports for FY 2012 have been reversed and only reflect actual settlement costs incurred during the year. 6
Fiscal Year-to-Date Jun-13 Jun-12 Unrestricted revenue, gains and other support Net patient service revenue $ 281,423,435 $ 276,163,513 Other revenue 12,776,152 9,321,855 Equity earnings in affiliates 2,649,009 5,207,544 Net assets released from restrictions for operations 102,223 1,320,116 Total 296,950,819 292,013,028 Expenses Salaries and wages 108,219,378 107,009,127 Employee Benefits 30,694,730 31,384,596 Professional fees 8,862,757 8,274,998 Supplies and other expenses 100,471,679 97,199,934 Interest expense 14,901,396 15,374,382 Depreciation and amortization 22,736,407 24,534,946 Total 285,886,347 283,777,983 Operating income before other items 11,064,472 8,235,045 Other items Demolition and transition costs - (620,907) Pension settlement costs (11,291,050) (689,896) Total (11,291,050) (1,310,803) Operating income (226,578) 6,924,242 Non-operating gains (losses), net Investment returns, net 9,867,533 1,332,084 Other, net (524,606) 249,208 Total 9,342,927 1,581,292 Excess of (deficiency in) revenue over expenses $ 9,116,349 $ 8,505,534 Net patient service revenue of the Obligated Group for the twelve months ended June 30, 2013 has increased 1.9% over net patient service revenue for the same period in 2012 resulting from: 1) MMC total regulated rate increase was approximately 0.3% effective July 1, 2012 as announced by the HSCRC. a. (1.25%) inpatient b. 2.59% outpatient 2) Decline in charity care and bad debt Total revenue of the Obligated Group for the period ended June 30, 2013 was $297.0 million, representing an increase of 1.7% above the same period in 2012. In addition to the increase in MMC net patient service revenue noted previously, this was related to: 1) Decline in the overall performance of Maryland Physicians Care 2) EHR meaningful use incentive 3) Washington County School Nursing Program 7
Expenses for the period were $285.9 million, which increased 0.7% as compared to the same period in 2012. Salaries and wages are 38.5% of net patient service revenue as compared to 38.7% for the same period in 2012. The increase in actual cost is due to: 1) Increases related to the merit program which was approximately 2.5% overall 2) Decrease in staffing related to productivity gains Employee Benefits for the period decreased $0.7 million over the same period in 2012 as a result of: 1) Reduced health claims period to period 2) Increase in retirement related expenses result of enhancements to the 403(b) program and normal pension costs Professional fees for the period increased $590,000 as compared to the same period in 2012 as a result of improvements to the hospitalist program. Supplies and Other expenses for the twelve month period increased $3.1 million or 3.2% and are 35.6% and 35.2% of net patient service revenue for the period ended June 30, 2013 and 2012, respectively. This increase is attributed to: 1) Supplies for the period decreased $4.5 million over the same period in 2012 as a result of: a. Increase in cancer related pharmaceuticals b. Decrease in medical supplies and other pharmaceuticals related to the decrease in length of stay c. Decrease in prosthesis and implant costs resulting from initiatives that have returned over $100,000 per month 2) Purchased services for the period have increased $6.0 million over the same period in 2012 as a result of: a. Telemedicine fees that provide 24/7 coverage for critical care patients b. Quality reporting and monitoring fees c. Self-pay and Medicaid eligibility programs d. Professional fees related to process improvement and quality initiatives 3) Repairs and maintenance for the period increased $1.3 million over the same period in 2012 due to a. Equipment warranty expiration resulting in the addition of maintenance contracts b. Investment in information technology increasing software and license costs Non-operating gains for the twelve month period ended June 30, 2013 were $9.3 million compared to gains of $1.6 million for the same period in 2012. 8
Non-Operating Gains (Losses), net - Obligated Group Fiscal Year-to-Date Jun-13 Jun-12 Investment income $ 1,981,871 $ 2,076,101 Realized gains (losses) 1,706,467 793,482 Unrealized gains (losses) 6,179,195 (1,537,499) Other, net (524,606) 249,208 Total $ 9,342,927 $ 1,581,292 Unrestricted net assets increased $22.1 million for the twelve month period ended June 30, 2013 compared to an increase of $9.4 million for the same period in 2012. The change from year to year is due to the following: 1) Positive operating performance after inclusion of MMC capital costs 2) Positive results from Maryland Physicians Care 3) Positive returns from the investment and capital markets 4) Meaningful use incentive revenue 5) Non-cash change in the retirement benefit obligation due to the pension termination Liquidity for the Obligated Group improved as unrestricted day s cash on hand increased from 129.4 days as of June 30, 2012 to 148.1 days as of June 30, 2013 related to cash provided by operations and the investment markets. Total day s cash on hand, including restricted cash, increased from 136.4 days as of June 30, 2012 to 155.3 days as of June 30, 2013 and are 180.9 days including the debt service reserve fund. Debt service coverage for the Obligated Group including the debt related Series 2008 bond issue was 2.40, excluding the non-cash pension settlement costs as of June 30, 2013 which exceeds the 1.15 as required in the debt covenant. Debt to capitalization for the Obligated Group decreased to 53.7% at June 30, 2013 from 56.6% at June 30, 2012. Management s Discussion of Recent Audited Financial Performance of Consolidated Group The Consolidated Group includes several organizations that are not members of the Obligated Group (such organizations that are members of the Consolidated Group but not members of the Obligated Group are referred to as Non-Obligated Group Members ). The Non-Obligated Group Members have no obligation with respect to the Bonds or under the Master Indenture and none of the assets or revenues of the Non-Obligated Group Members are pledged to support debt service on the Bonds or the Notes. Net patient service revenue of the Consolidated Group for the twelve month period ended June 30, 2013 decreased 0.3% over net patient service revenue for the same period in 2012. Total revenue of the Consolidated Group for the period ended June 30, 2013 was $374.5 million, representing a decrease of 1.5% below the same period in 2012. Expenses for the period were 9
$363.1 million, representing a decrease of 2.1% below the same period in 2012. The Consolidated Group had an operating excess of $11.5 million excluding other one-time costs (representing 3.1% of total revenue) for the twelve months ended June 30, 2013 as compared to an operating excess of $9.2 million (representing 2.4% of total revenue) for the same period in 2012. Excess from Operations - Consolidated Fiscal Year-to-Date Jun-13 Jun-12 Operating revenue $ 374,534,594 $ 380,241,076 Operating expense 363,079,399 371,031,956 Operating income before other items $ 11,455,195 $ 9,209,120 Non-operating gains for the twelve month period ended June 30, 2013 were $7.8 million compared to gains of $5.1 million for the same period in 2012. Non-Operating Gains (Losses), net - Consolidated Fiscal Year-to-Date Jun-13 Jun-12 Investment income $ 2,748,243 $ 5,636,667 Realized gains (losses) 2,013,468 988,290 Unrealized gains (losses) 5,619,204 (1,665,904) Other, net (2,596,927) 123,240 Total $ 7,783,988 $ 5,082,293 Included within the Consolidated Group, is a wholly owned insurance captive that provides primary limits of insurance of $1 million per occurrence/$3 million aggregate for professional and general liability. The professional liability coverage is provided on a claims-made basis. In addition, the insurance captive purchased reinsurance from an A rated re-insurer, as rated by AM Best, in the amount of $15 million to cover any potential liabilities above the $1 million/$3 million primary limits, which were covered by the insurance captive. The reserves, including retrospective premium credits, were $11.9 million and $10.9 million as of June 30, 2013 and 2012, respectively. Attached hereto as Exhibit C, is a comparison of the audited financial performance of the Consolidated Group to the Obligated Group for the twelve months ended June 30, 2013 and 2012 which was derived by management from the unaudited financial statements. 10
Exhibit A-1 The Obligated Group consists of MMC: Members of the Obligated Group Meritus Medical Center ("MMC") 12
Exhibit A-2 Members Excluded From the Obligated Group MMC organizations excluded from the Obligated Group consist of the following organizations, each of which is directly or indirectly controlled by MMC: Meritus Holdings, LLC Meritus Enterprises Meritus Healthcare Foundation Meritus Insurance Company, LTD 13
Exhibit B Meritus Medical Center Obligated Group SUMMARY AUDITED STATEMENT OF OPERATIONS For the Twelve Month Period Ended June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Unrestricted revenue, gains and other support Net patient service revenue $ 281,423,435 $ 276,163,513 Other revenue 12,776,152 9,321,855 Equity earnings in affiliates 2,649,009 5,207,544 Net assets released from restrictions for operations 102,223 1,320,116 Total 296,950,819 292,013,028 Expenses Salaries and wages 108,219,378 107,009,127 Employee Benefits 30,694,730 31,384,596 Professional fees 8,862,757 8,274,998 Supplies and other expenses 100,471,679 97,199,934 Interest expense 14,901,396 15,374,382 Depreciation and amortization 22,736,407 24,534,946 Total 285,886,347 283,777,983 Operating income before other items 11,064,472 8,235,045 Other items Demolition and transition costs - (620,907) Pension settlement costs (11,291,050) (689,896) Total (11,291,050) (1,310,803) Operating income (226,578) 6,924,242 Non-operating gains (losses), net Investment returns, net 9,867,533 1,332,084 Other, net (524,606) 249,208 Total 9,342,927 1,581,292 Excess of (deficiency in) revenue over expenses $ 9,116,349 $ 8,505,534 14
Exhibit C Meritus Medical Center SUMMARY AUDITED FINANCIAL INFORMATION As of and For the Twelve Month Periods Ended June 30, 2013 and 2012 Consolidated Group Obligated Group Year-to-date Jun 30, Year-to-date Jun 30, 2013 2012 2013 2012 Income Statement Net patient service revenue 356,447,133 357,567,435 281,423,435 276,163,513 Total revenue 374,534,594 380,241,076 296,950,819 292,013,028 Total expense 363,079,399 371,031,956 285,886,347 283,777,983 Operating income before other items 11,455,195 9,209,120 11,064,472 8,235,045 Non-operating gains (losses) 7,783,988 5,082,293 9,342,927 1,581,292 Excess of (deficiency in) revenue over expenses 9,192,531 6,887,202 9,116,349 8,505,534 Interest expense 14,959,202 15,336,562 14,901,396 15,374,382 Depreciation and amortization 24,171,012 26,048,473 22,736,407 24,534,946 Income tax expense (1,116,333) 4,644,531 - - Debt Services Excess available for debt service (EBITDA) 12.6% 13.9% 15.7% 16.6% Balance Sheet Unrestricted cash and investments 123,264,293 109,934,170 106,809,805 91,932,948 Total assets 550,059,914 542,547,281 520,485,670 506,040,509 Current portion of long-term debt 6,444,712 7,650,229 5,477,486 6,307,045 Long-term debt 254,747,107 261,446,958 253,889,197 259,087,896 Unrestricted net assets 221,188,743 200,690,854 215,146,450 193,960,883 Profitability Operating margin 3.1% 2.4% 3.7% 2.8% Excess margin 2.4% 1.8% 3.0% 2.9% Excess margin (excl. unrealized gains/losses & pension) 3.9% 2.2% 4.7% 3.4% Liquidity Days cash on hand unrestricted 132.8 116.3 148.1 129.4 Days cash on hand including restricted 147.2 129.8 155.3 136.4 Leverage Debt service coverage 2.15 2.01 2.40 2.12 Debt to capitalization 52.7% 55.3% 53.7% 56.6% Debt service coverage Days cash on hand after construction Days cash on hand after construction (incl. restricted cash) Bond Covenants Obligated Group 2.40 148.1 155.3 Required 1.15 70.0 70.0 15
Exhibit D Meritus Medical Center Obligated Group AUDITED HOSPITAL UTILIZATION STATISTICS For the Twelve Month Period Ended June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Meritus Health Licensed Beds 265 272 Patient Days 73,475 72,977 Admissions 17,801 17,509 Length of Stay 4.1 4.2 Average Daily Census 201.3 199.9 Outpatient Visits 189,058 204,459 FTE Paid 1,762 1,815 Admissions Summary MSGA 8,901 8,441 Pediatric 417 425 Obstetric 2,007 2,026 Intensive Care 2,899 3,283 Psychiatric 1,005 811 Rehabilitation 598 547 Total Acute 15,827 15,533 Newborns 1,974 1,976 Total Acute + Newborns 17,801 17,509 Emergency Department Visits Emergency Room 77,611 77,151 Total Emergency Department Visits 77,611 77,151 Surgeries Inpatient 3,904 4,059 Outpatient 3,947 4,740 Total Surgeries 7,851 8,799 Other One Day Stays 2,226 2,175 Observation 4,376 4,165 Readmission Index 0.97 0.91 16
Exhibit E Meritus Medical Center Obligated Group AUDITED THIRD PARTY PAYER INFORMATION For the Twelve Month Period Ended June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Meritus Health (As a % of Gross Revenue) Medicare 47.72% 48.53% Medicaid 12.72% 11.32% Blue Cross 12.74% 13.22% Commercial 13.64% 13.92% Managed Care 4.52% 4.47% Self Pay 6.64% 6.40% Other 2.02% 2.14% Total 100.00% 100.00% 17
Exhibit F Meritus Medical Center AUDITED CONSOLIDATED BALANCE SHEET As of June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Assets Current assets: Cash and cash equivalents $ 18,808,563 $ 27,253,943 Restricted cash 2,747,487 2,746,240 Short-term investments 10,259,473 3,422,557 Current portion of assets whose use is limited 11,648,408 11,649,864 Accounts receivable, net 63,030,783 51,109,894 Supplies 9,165,678 9,417,836 Prepaid and other current assets 6,969,973 5,956,777 Total current assets 122,630,365 111,557,111 Equity investments in affiliates 22,551,905 24,172,098 Assets whose use is limited Board designated funds 94,196,257 79,257,670 Supplemental retirement benefit investments 4,094,548 3,910,091 Temporarily and permanently restricted donor funds 1,159,895 1,164,123 99,450,700 84,331,884 Assets held by trustee for debt service and construction 18,346,435 18,470,251 Funds designated for insurance purposes 9,460,701 8,801,838 Total assets whose use is limited 127,257,836 111,603,973 Property, plant, and equipment, net 269,270,634 286,424,041 Pledges receivable, net 2,862,307 3,070,167 Deferred financing costs, net 2,515,084 2,663,577 Other assets 2,971,783 3,056,314 Total other assets 277,619,808 295,214,099 Total assets 550,059,914 542,547,281 Liabilities and Net Assets Current liabilities: Accounts payable and accrued expenses 13,761,319 14,125,014 Construction and retainage payable - 183,885 Accrued salaries, wages, and withholdings 8,138,663 4,959,925 Accrued compensation benefit 12,092,642 16,751,028 Advances from third-party payors 7,510,014 7,620,630 Accrued interest payable 7,642,631 7,764,019 Current portion of long-term debt 6,444,712 7,650,229 Total current liabilities 55,589,981 59,054,730 Long-term debt, net of current portion 254,747,107 261,446,958 Accrued retirement benefits 4,480,453 4,210,694 Other long-term liabilities 6,733,140 6,885,711 Total liabilities 321,550,681 331,598,093 Net assets Unrestricted Unrestricted - System 220,287,217 198,081,263 Non-controlling interest 901,526 2,609,591 Total unrestricted net assets 221,188,743 200,690,854 Temporarily restricted 6,291,872 9,229,716 Permanently restricted 1,028,618 1,028,618 Total net assets 228,509,233 210,949,188 Total liabilities and net assets $ 550,059,914 $ 542,547,281 18
Exhibit G Meritus Medical Center AUDITED CONSOLIDATED STATEMENT OF OPERATIONS For the Twelve Month Period Ended June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Unrestricted revenue, gains and other support Net patient service revenue $ 356,447,133 $ 357,567,435 Other revenue 13,001,011 13,763,772 Equity earnings in affiliates 2,911,678 7,368,120 Net assets released from restrictions for operations 2,174,772 1,541,749 Total 374,534,594 380,241,076 Expenses Salaries and wages 145,051,579 146,629,910 Employee Benefits 38,101,662 40,916,311 Professional fees 8,862,757 8,274,998 Supplies and other expenses 131,933,187 133,825,702 Interest expense 14,959,202 15,336,562 Depreciation and amortization 24,171,012 26,048,473 Total 363,079,399 371,031,956 Operating income before other items 11,455,195 9,209,120 Other items Demolition and transition costs - (620,907) Pension settlement costs (11,291,050) (689,896) Total (11,291,050) (1,310,803) Operating income 164,145 7,898,317 Non-operating gains (losses), net Investment returns, net 10,380,915 4,959,053 Other, net (2,596,927) 123,240 Income tax benefit(expense) 1,116,333 (4,644,531) Total 8,900,321 437,762 Excessof (deficiency in) revenue over expenses 9,064,466 8,336,079 Excess of revenue attributable to non-controlling interest 128,065 (1,448,877) Excess of (deficiency in) revenue over expenses, System $ 9,192,531 $ 6,887,202 19
Exhibit H Meritus Medical Center AUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS For the Twelve Month Period Ended June 30, 2013 and 2012 Fiscal Year-to-Date Jun-13 Jun-12 Unrestricted net assets (Deficiency) excess of revenue over expenses $ 9,192,531 $ 6,887,202 Net assets released from restriction for PPE 1,722,373 950,000 Change in retirement benefit obligation 11,291,050 (88,260) Change in non-controlling interests (1,708,065) 1,168,878 Increase (decrease) in unrestricted net assets 20,497,889 8,917,820 Temporarily Restricted Net Assets Contributions 959,301 1,083,675 Net realized and unrealized gains (losses) on investments - - Net assets released from restriction for PPE (1,722,373) (950,000) Net assets released from restrictions for operations (2,174,772) (1,541,749) (Decrease) increase in temporarily restricted net assets (2,937,844) (1,408,074) Increase (decrease) in net assets 17,560,045 7,509,746 Net assets Beginning of year 210,949,188 203,439,442 End of year $ 228,509,233 $ 210,949,188 20
Exhibit I On December 11, 2010, Meritus Medical Center opened with the transfer of 170 patients from the old hospital thus completing the largest construction project in its 100-year history. The completed project was on time and within budget. Many of the design features and accommodations at Meritus Medical Center have changed to include increased security features, enhanced privacy and comfort, and improved synergy between related services. These services include a special care nursery, a level III trauma program, a primary stroke center, and a wound center, as well as a cardiac diagnostic laboratory. Other hospital services that address outpatient needs will continue to be available such as the John R. Marsh Cancer Center, Total Rehab Care, the Center for Clinical Research, and the Center for Bariatric Surgery. State-of-the-art medical technologies at Meritus Medical Center will include the new technologies such as 3T magnetic resonance imaging (MRI), single-photo-emission computed tomography (SPECT) scanners, and cardiac interventions. All of these services will allow MMC to further enhance the patient s experience as well as to continue the focus on quality patient care in a safe and comfortable environment. Meritus Medical Center Meritus Health contracted with Brandenburg for the demolition of the old facility. Demolition is 100% complete at a net cost of $1.6 million. Meritus has engaged Morris, Ritchey, and Associates ( MRA ) to assess options for potential development of the downtown site. MRA has held several public meeting and engaged a number of potential developers. MH does not intend to develop this site for its corporate use. 21