Outstanding Bond Issuances For Which Continuing Disclosure Is Required:

Transcription

1 Aurora Health Care Annual Financial Information Fiscal Year Ended December 31, 2010 Outstanding Bond Issuances For Which Continuing Disclosure Is Required: Wisconsin Health and Educational Facilities Authority Variable Rate Revenue Bonds (Aurora Health Care, Inc.), Series 2010C, $103,405,000, Dated: December 9, 2010 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.), Series 2010B, $148,135,000, Dated: December 9, 2010 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.), Series 2010A, $225,990,000, Dated: January 28, 2010 Wisconsin Health and Educational Facilities Authority Term Rate Revenue Bonds (Aurora Health Care, Inc.), Series 2009B, $132,475,000, Dated: September 10, 2009 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.), Series 2009A, $27,525,000, Dated: September 10, 2009 Wisconsin Health and Educational Facilities Authority Variable Rate Revenue Bonds (Aurora Health Care, Inc.), Series 2008A, $80,000,000, Dated: November 14, 2008 Wisconsin Health and Educational Facilities Authority Variable Rate Revenue Bonds (Aurora Health Care, Inc.), Series 2008B, $80,000,000, Dated: November 14, 2008 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.), Series 2003, $110,000,000, Dated: August 1, 2003 Wisconsin Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds (Aurora Health Care, Inc.), Series 1999C, $50,000,000, Dated: June 10, 1999 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.) Series 1999B, $50,000,000, Dated: May 1, 1999 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.) Series 1999A, $150,000,000, Dated: March 15, 1999 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Health Care, Inc.) Series 1997, $225,000,000, Dated: September 1, 1997 Wisconsin Health and Educational Facilities Authority Revenue Bonds (Aurora Medical Group, Inc. Project), Series 1996, $140,000,000, Dated: January 15, 1996 System Overview Management of the Aurora System's patient care operations is organized around three Patient Market Groups, comprising 11 individual Patient Service Markets ( PSM s ), as follows: Approx. Wisconsin Patient Market Group Patient Service Market Market Population (1) Mid Market Group Greater Milwaukee East 485,000 Greater Milwaukee West 410,000 Greater Milwaukee South 510,000 Sheboygan and Calumet 150,000 1,555,000 North Market Group Greater Green Bay 430,000 Manitowoc 75,000 Marinette 55,000 Oshkosh and Fond du Lac 495,000 1,055,000 South Market Group Burlington and Walworth 265,000 Racine, Kenosha and Northern Illinois 290,000 Waukesha and Jefferson 300, ,000 Service Area Totals 3,465,000 (1) Source: 2010 ESRI population projections, excluding Michigan and northern Illinois counties. Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 1 of 8

2 This patient care structure is designed to focus on the unique needs of the local communities in which the Aurora System operates. The structure and oversight of the Aurora System s support functions (e.g., accounting, business office, managed care contracting, human resources, information technology, etc.) are highly centralized to facilitate efficiency and consistency. Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 2 of 8

3 The Obligated Group For fiscal year ended December 31, 2010, total revenue of the Obligated Group was $3,108.7 million, representing approximately 74.5% of the consolidated total revenue of the Aurora System. Operating income of the Obligated Group was $47.9 million for the fiscal year ended December 31, 2010, representing approximately 46.0% of the consolidated operating income of the Aurora System. Excluding the pension liability of $319.8 million, net assets of the Obligated Group were $933.2 million as of December 31, 2010, representing approximately 74.7% of the consolidated net assets of the Aurora System. Hospital Facilities The following is a list of the hospital facilities and psychiatric facility operated by the Aurora System as of December 31, 2010, categorized by the Patient Market Group within the Aurora System in which they operate. Approved Beds Available Beds Medical Staff Facility Location Mid Market Group: Aurora St. Luke s Medical Center Milwaukee ,421 Aurora St. Luke s South Shore Cudahy ,421 Aurora Sinai Medical Center Milwaukee Aurora West Allis Medical Center West Allis ,173 Aurora Sheboygan Memorial Medical Center Sheboygan Aurora Medical Center Grafton Grafton Aurora Medical Center Hartford Hartford Aurora Psychiatric Hospital Wauwatosa Mid Market Group subtotal 2,410 1,409 6,001 North Market Group: Aurora BayCare Medical Center Green Bay Aurora Medical Center Oshkosh Oshkosh Aurora Medical Center Two Rivers Two Rivers North Market Group subtotal ,040 South Market Group: Aurora Memorial Hospital of Burlington Burlington Aurora Medical Center Summit Summit Aurora Lakeland Medical Center Elkhorn Aurora Medical Center Kenosha Kenosha South Market Group subtotal ,556 Clinic Facilities The following table summarizes the Aurora Medical Group and Aurora Advanced clinic facilities operated by the Aurora System as of December, 2010, categorized by the Patient Market Group within the Aurora System in which they operate. Patient Market Group Clinic Sites Physicians Mid Market Group: Greeter Milwaukee East Greater Milwaukee West Greater Milwaukee South Sheboygan and Calumet Mid Market Group subtotal North Market Group: Greater Green Bay Manitowoc Marinette Oshkosh and Fond du Lac North Market Group subtotal South Market Group: Burlington and Walworth Racine, Kenosha and Northern Illinois Waukesha and Jefferson South Market Group subtotal Other System Affiliates TOTALS 155 1,416 Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 3 of 8

4 The following table lists the specialties and average ages of the Aurora System s employed physicians as of December 31, Specialty Aurora Employed Physicians (1) Average Age Primary Care Family Practice General Internal Medicine Geriatrics 8 44 OB/GYN (includes GYN Oncology & Uro Gynecology) Pediatrics Primary Care Subtotal 601 Specialty Care: Anesthesiology Dermatology eicu (Critical Care) 4 48 Electrophysiology Emergency Medicine Endocrinology (includes Reproductive) Hospitalists Medicine: Allergy/ Immunology 9 48 Cardiology Gastroenterology Hyperbaric 3 43 Infectious Diseases 6 44 Nephrology 4 51 Occupational Medicine Oncology/Hematology Perinatology 6 44 Pulmonary Medicine Rheumatology 9 49 Neonatology 6 49 Neurology Ophthalmology Palliative Care 3 44 Physical Medicine and Rehabilitation Podiatry Psychiatry/Psychology Radiology Surgery: Ear, Nose and Throat General Orthopedic Plastic 5 43 Transplant (Abdominal & Hepatology) 5 40 Urology Walk-In/Urgent Care Specialty Care Subtotal 815 TOTALS 1,416 (1) Medical Staff Consists of 1,057 Aurora Medical Group employed physicians, 315 Aurora Advanced employed physicians, and 44 physicians employed/contracted by other Aurora System entities. Personnel As of December 31, 2010, the Aurora System had approximately 30,200 employees, representing approximately 24,400 full-time equivalent staff. The Aurora System is one of the largest private employers in the State of Wisconsin. Approximately 400 of its employees are members of collective bargaining units. Management considers its relationship with employees to be favorable. Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 4 of 8

5 Competition in the Mid Market Group In fiscal year 2010, approximately 61% of the Aurora System s revenue was generated in the Mid Market Group. As of December 31, 2010, the Aurora System operated seven acute care hospital facilities with approximately 1,344 available beds, 63 clinic sites and 585 employed physicians in this Market Group. The Aurora System also operates an inpatient psychiatric facility within this Market Group and has various pharmacies and home care sites throughout this market. The Mid Market Group comprises four Patient Service Markets (PSM's), as follows: Greater Milwaukee East, Greater Milwaukee West, Greater Milwaukee South, and Sheboygan and Calumet. Within the three PSM s representing the Greater Milwaukee area (Greater Milwaukee East, Greater Milwaukee West, Greater Milwaukee South), management considers its primary competitors to be: Froedtert and Community Health System, Wheaton Franciscan Healthcare, Columbia - St. Mary s, and ProHealth Care, Inc. The Aurora System is the market leader among this competition, with a 35.8% share of adult inpatient admissions as December 31, 2010, as noted in the table below, which provides total adult, acute-care patient admissions for each of these competitors as compiled by the Wisconsin Hospital Association: Adult Acute Care Admissions (2) Fiscal Year Ended Available Beds (1) 12/31/ /31/2010 Aurora System: Aurora St. Luke s and Aurora St. Luke's South Shore , % 32, % Aurora West Allis Medical Center , % 12, % Aurora Sinai Medical Center 183 9, % 9, % Aurora Medical Center - Summit (3) 70 n/a n/a 1, % Aurora Medical Center - Grafton (4) 54 n/a n/a % Aurora Medical Center - Hartford 45 2, % 1, % Subtotal 1,283 59, % 58, % Froedtert & Community Health: Froedtert Memorial, Milwaukee , % 28, % Community Memorial, Menomonee Falls , % 9, % St. Joseph s, West Bend 78 3, % 3, % Subtotal , % 41, % Wheaton Franciscan Healthcare St. Joseph s, Milwaukee , % 11, % St. Francis, Milwaukee 194 8, % 7, % Elmbrook Memorial, Brookfield 88 5, % 4, % Franklin (5) % % Subtotal , % 24, % Columbia - St. Mary s: (6) Columbia, Milwaukee 177 6, % 4, % St. Mary s, Milwaukee 236 8, % 9, % St. Mary s, Ozaukee 152 7, % 7, % Subtotal , % 20, % ProHealth Care, Inc.: Waukesha Memorial, Waukesha , % 15, % Memorial Hospital of Oconomowoc 73 4, % 3, % Subtotal , % 18, % Grand Totals 3, , % 163, % (1) Source: Information is per the American Hospital Association Guide, 2011 (based on most recent data collected as of May 31, 2010). (2) Source: Wisconsin Health & Hospital Association, Inc., Milwaukee Area Hospital Utilization Statistics Report. (3) Aurora Medical Center - Summit opened in May Although Aurora Medical Center - Summit is housed in the South Market Group, admission statistics for Aurora Medical Center - Summit are included in the Wisconsin Health and Hospital Association, Inc.'s Milwaukee Area Hospital Utilization Statistics Report. (4) Aurora Medical Center - Grafton opened in November (5) The Wheaton Franciscan Healthcare Franklin facility opened in January (6) Columbia - St. Mary s is affiliated with the Ascension Health System. Within the Mid Market Group, the Aurora System also operates Aurora Sheboygan Memorial Medical Center (ASMMC), an acute care facility serving the Calumet and Sheboygan PSM. Management considers St. Nicholas Hospital, a member of the Hospital Sisters Health System, to be its main competition in this market. Through June 2010, the most recent data for which market share is available, ASMMC maintained a 63% share of adult inpatient admissions, with the remaining 37% going to St. Nicholas Hospital (Source: Wisconsin Hospital Association; Inpatient Admissions ). Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 5 of 8

6 Competition in the North Market Group In 2010, approximately 17% of the Aurora System s revenue was generated in the North Market Group. As of December 31, 2010, the Aurora System operated three hospitals with 277 available beds, 43 clinic sites and 233 employed physicians in the North Market Group. The Aurora System also has various pharmacies and home care sites throughout this market. Aurora BayCare Medical Center primarily serves the Greater Green Bay and Marinette PSM's, and has a competitive position, capturing 27% of all inpatient admissions among its four identified competitors in the market (St. Vincent Hospital, Bellin Memorial Hospital and St. Mary's Hospital Medical Center) through September 2010, the most recent date for which market share data is available (Source: Wisconsin Hospital Association; Inpatient Admissions ). Aurora Medical Center - Oshkosh serves the Oshkosh and Fond du Lac PSM, and has a competitive position, capturing 36% of all inpatient admissions among its identified competitor in this market (Mercy Medical Center) through September 2010, the most recent date for which market share data is available (Source: Wisconsin Hospital Association; Inpatient Admissions ). Aurora Medical Center - Two Rivers serves the Manitowoc PSM, and has a competitive market position, capturing 42% of all inpatient admissions among its identified competitor in this market (Holy Family Memorial Medical Center) through September 2010, the most recent date for which market share data is available (Source: Wisconsin Hospital Association; Inpatient Admissions ). Competition in the South Market Group In fiscal year 2010, approximately 17% of the Aurora System s revenue was generated in the South Market Group. As of December 31, 2010, the Aurora System operated four hospitals with 283 available beds, 39 clinic sites and 269 employed physicians in the South Market Group. The Aurora System also has various pharmacies and home care sites throughout this market. Aurora Medical Center - Kenosha serves the Racine, Kenosha and Northern Illinois PSM, and captured 28% of all inpatient admissions in the Kenosha market during through September 2010, the most recent date for which market share data is available (Source: Wisconsin Hospital Association; Inpatient Admissions ), and 14.0% of all inpatient admissions in the broader Kenosha and Racine market through September 2010, the most recent date for which market share data is available (Source: Wisconsin Hospital Association; Inpatient Admissions ). Aurora Memorial Hospital of Burlington and Aurora Lakeland Medical Center serve the Burlington and Walworth PSM. There are no competing acute care hospitals in these communities. Utilization Statistics The following table summarizes selected utilization statistics for the Aurora System. December 31: Adult inpatient days 411, , ,835 Adult average daily census 1,125 1,113 1,098 Adult average length of stay Adult discharges 96,432 91,960 91,017 Physician clinic, hospital outpatient and other visits 5,325,156 5,762,213 5,999,438 Summary Financial Information The consolidated financial statements of Aurora Health Care, Inc. and Affiliates include the accounts of Affiliates, some of which are not members of the Obligated Group. For the year ended December 31, 2010, the Affiliates that are not members of the Obligated Group as of the date hereof had combined operating income of $56.3 million and accounted for a combined 25.5% of the total revenue of the Aurora System. As of December 31, 2010, the Affiliates that are not members of the Obligated Group had total assets of $528.5 million and net assets of $316.6 million. Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 6 of 8

7 December 31 (dollar amounts in millions): Long-Term Debt: Wisconsin Health and Educational Facilities Authority Bonds, net of unamortized discounts (1) $ 1,251.7 $ 1,257.5 $ 1,464.7 City and County General Obligation Bonds and Promissory Notes, net of unamortized discounts Senior Secured Term Notes Capital Lease and Direct Financing Arrangements Notes Payable Other Total Long-Term Debt 1, , ,787.1 Less: Current Installments Net Long-Term Debt 1, , ,722.3 Net Assets (2), (3) , ,249.7 Total Capitalization $ 2,376.5 $ 2,721.1 $ 2,972.0 Net Long-Term Debt as a percentage of Total Capitalization 62.4% 58.1% 58.0% (1) (2) (3) Excess of Revenue Over Expenses (1) $ 89.9 $ $ 72.5 Plus: Depreciation and amortization Interest expense (2) Income Available For Debt Service $ $ $ Actual Annual Debt Service (3) $ Actual Debt Service Coverage Ratio (x) Pro Forma Max Annual Debt Service $ $ $ Pro Forma Max Annual Debt Service Coverage Ratio (x) (1) (2) (3) Aurora System Historical Consolidated Capitalization Aurora is the sole corporate member of Aurora Receivables SPE, LLC (SPE), a Delaware limited liability company formed for the purpose of financing accounts receivable. Prior to 2010, under then current accounting guidance, the accounts of the SPE were not included in Aurora's consolidated financial statements. In accordance with the adoption of Accounting Standards Update (ASU) , the accounts of the SPE are included in the Aurora's audited consolidated financial statements for fiscal years 2009 and See Notes 1 and 2 of the audited financial statements for further details. For comparative purposes, previously presented figures have been restated to be consistent with the audited financial statements. In January 2010, FASB issued ASU No , which requires the presentation of noncontrolling interests in the net assets of consolidated subsidiaries be reported as a separate component of the appropriate class of net assets in the consolidated balance sheets. The Corporation adopted this guidance as of January 1, 2010, retrospectively to all periods presented. See Note 1 of the audited financial statements for further details. For comparative purposes, previously presented figures have been restated to be consistent with the audited financial statements. Net Assets at December 31, 200, 2009 and 2010, exclude a cumulative reduction of $347.8 million, $392.6 million, and $319.8 million respectively, for accrued pension liability. Aurora System Consolidated Coverage of Debt Service December 31 (dollar amounts in millions): Excess of Revenue Over Expenses excludes swap mark to market adjustments as well as the Corporation's unrestricted noncontrolling interest in consolidated subsidiaries. Aurora is the sole corporate member of Aurora Receivables SPE, LLC (SPE), a Delaware limited liability company formed for the purpose of financing accounts receivable. Prior to 2010, under then current accounting guidance, the accounts of the SPE were not included in Aurora's consolidated financial statements. In accordance with the adoption of Accounting Standards Update (ASU) , the accounts of the SPE are included in the Aurora's audited consolidated financial statements for fiscal years 2009 and See Notes 1 and 2 of the audited financial statements for further details. For comparative purposes, previously presented figures have been restated to be consistent with the audited financial statements. Actual Annual Debt Service represents repayments of long-term debt, capital leases and financing arrangements plus interest expense (as reported in the Corporation's most recently audited financial statements), adjusted as follows: Fiscal year 2008 figures exclude $101.8 million of variable rate bonds that were put to the letter of credit provider and subsequently successfully remarketed. Fiscal year 2009 figures exclude $138.0 million of principal paid in advance of maturity in connection with the refinancing of a portion of the 1997 bonds, $204.0 million of variable rate bonds that were put to the letter of credit provider and subsequently successfully remarketed, and $62.7 million of repayments of loans repaid in connection with certain sale and leaseback transactions that were deferred in late 2008 due to market conditions. Fiscal year 2010 figures exclude $301.9 million of variable rate bonds that were tendered and subsequently successfully remarketed in connection with the replacement of certain letter of credit providers and $342.4 million of principal paid in advance of maturity in connection with the refinancing of various series of bonds. Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 7 of 8

8 Aurora System Consolidated Liquidity Information (1) December 31 (dollar amounts in thousands): Cash and Cash Equivalents (2) $ 328,592 $ 534,270 $ 545,905 Investments 198, , ,919 Assets Whose Use Is Limited or Restricted (3) 213, , ,896 Total $ 740,950 $ 1,033,020 $ 1,132,720 Cash Expenses per Day (4) $ 8,551 $ 9,479 $ 9,875 Days Cash on Hand (5) The assumptions used in the calculation of liquidity set forth above do not reflect those required under the Master Indenture. Cash and Cash Equivalents as of December 31, 2008 includes approximately $44.8 million of cash posted to Merrill Lynch & Co. as collateral related to certain total return structure interest rate swap arrangements. No collateral was posted as of December 31, 2009 or December 31, Assets Whose Use is Limited or Restricted includes the following funds for fiscal years 2008, 2009 and 2010, respectively: $27.2, $34.6 and $43.3 million of restricted funds held in the Aurora Foundation; $56.0, $75.0 and $94.0 million of self insured and other funds held by trustees; and $5.7, $21.3 and $36.6 million of debt service reserve funds. Cash Expenses per Day represent total operating expenses of the Aurora System, less the following non-cash expenses: depreciation and amortization, provision for bad debts, pension expense and the gross up of internally funded health and dental expenses. Days cash on hand were uncharacteristically low as of December 31, 2008 due to the fact that the Aurora System was not able to successfully execute, prior to fiscal year end 2008, several planned sale and leaseback transactions of properties acquired with cash in 2008 in connection with the Advanced Healthcare acquisition. Although Aurora had executed signed purchase and sale agreements, given the state of the credit markets at that time, the purchasers were ultimately not able to obtain the necessary financing to close the transaction. As such, liquidity as of December 31, 2008 was suppressed by approximately 10 days. The planned sale and leaseback transactions were fully executed in fiscal year Total Revenue by Market Group (dollar amounts in millions) Hospitals Clinics Other Total % Mid Market Group $ 1,634.0 $ $ $ 2, % North Market Group % South Market Group % Other System Affiliates % Totals $ 2,389.7 $ 1,347.3 $ $ 4, % Aurora System's Payor Mix as a Percentage of Gross Patient Service Revenue Year Ended December 31, Medicare 40% 40% 41% Medicaid 5% 6% 7% Medicaid-HMO 5% 5% 5% Commercial (including HMO/PPO) 45% 44% 43% Self pay and other 5% 5% 4% Totals 100% 100% 100% Aurora Health Care Annual Financial Information Filing - Fiscal Year 2010.xls 8 of 8