SARASOTA COUNTY PUBLIC HOSPITAL DISTRICT rpts/2014 sarasota county public...SARASOTA COUNTY PUBLIC...

SARASOTA COUNTY PUBLIC HOSPITAL DISTRICT

Financial Statements and Supplemental Information

September 30, 2014 and 2013

(With Independent Auditors’ Report Thereon)



Table of Contents

Page

Letter of Transmittal (Unaudited) 1

Independent Auditors’ Report 5

Management’s Discussion and Analysis (Unaudited) 7

Financial Statements:

Balance Sheets 19

Statements of Revenues, Expenses and Changes in Net Position 20

Statements of Cash Flows 21

Notes to Financial Statements 22

Supplemental Information

Combining Balance Sheet Information 54

Combining Statement of Revenues, Expenses and Changes in Net Position Information 56

Budgetary Comparison Schedule (Unaudited) 57

Other Report

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance

and Other Matters Based on an Audit of Financial Statements Performed in Accordance with

Government Auditing Standards 58


Letter of Transmittal


(Unaudited)

1 (Continued)

Introduction

This section of the annual financial report of the Sarasota County Public Hospital District (the District) provides

background about the Sarasota Memorial Health Care System (the System or SMHCS).

Background

The System, featuring an 819-bed regional medical center, is among the largest acute-care public health systems

in the nation. The full-service organization is a regional referral center offering inpatient, outpatient and extended

care services, with more than 800,000 patient visits a year. The System offers a complete continuum of care,

from an acute care hospital, freestanding emergency room, urgent care clinics, physician groups, laboratory and

imaging centers, to skilled nursing & rehabilitation. It is Sarasota County’s only provider of obstetrical services,

pediatrics, neonatal intensive care and psychiatric services to patients of all ages. With about 4,000 staff, 1,000

volunteers, and 800 medical staff members, the System is among the region’s largest employers.

The System is owned and operated by a special, independent taxing District. The District is governed by the

elected, unpaid Sarasota County Public Hospital Board, made up of nine residents who represent specific areas of

the community as well as the District as a whole. Charged with serving as a good steward of scarce financial

resources, the Board derives its authority to levy property taxes from a special law passed by the Florida

Legislature and ratified by voters. Tax revenues are invested in programs, services, facilities and equipment

based on the community’s evolving needs. The Board sets an annual property tax rate in a transparent process

that includes advertised public hearings that are open to the community.

The District consists of Sarasota Memorial Hospital (SMH, Sarasota Memorial or the Hospital) and a network of

outpatient services; Corporate Services, which consists of various support departments; Sarasota Memorial

Nursing and Rehabilitation Center (NRC); Charter Plan, which offers affordable health insurance for uninsured

workers in Sarasota County; SMH Health Care, Inc., a corporation providing leased personnel services to all

System entities; and SMH Physician Services, Inc., a provider of primary, obstetrical, gynecological,

dermatological, pain care, geriatric, hospitalist, cardiovascular surgery and psychiatric physician services. The

System also has established affiliations with Florida State University to train third and fourth-year medical

students and with Columbia Medical Center to enhance cardiac care.

Sarasota Memorial’s recent accomplishments include:

U.S. News Best Hospital

Sarasota Memorial was the only local hospital listed among U.S. News & World Report’s 2014-15 “Best

Hospitals,” earning the No. 30 spot for excellence in gynecological care. The publication also ranked SMH

among Florida’s top five hospitals and the top-performer for overall care in the Sarasota-Venice-North

Port-Bradenton region. Sarasota Memorial was one of just 3% of all hospitals to earn a national ranking. In this

year’s study, the hospital also was recognized as a “high performer” in eight specialties: cancer, diabetes &

endocrinology, gastroenterology & GI surgery, geriatrics, nephrology, orthopedics, pulmonology and urology.




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2 (Continued)

Ongoing Magnet Designation

Sarasota Memorial earned Magnet Nursing Services Recognition for the third time in 2014 – a challenge

accomplished by just 1% of the nation’s hospitals – after a rigorous application process that included detailed

documentation and an on-site visit by Magnet surveyors. Independently sponsored research projects suggest that

Magnet facilities have positive outcomes for patients, nurses and workplaces. The hospital is currently the only

provider in the region with Magnet Recognition, which is given by the American Nurses’ Credentialing Center.

SMH has been continuously designated since 2003.

A Leader in Avoiding Hospital Readmissions

Sarasota Memorial leads the nation in avoiding hospital readmissions, according to a study that ranked nearly

4,500 hospitals based on data from the federal Centers for Medicare and Medicaid Services. In 2014 rankings,

Sarasota Memorial had the lowest (best) readmission rate of hospitals with at least 500 beds.

One of 150 Great Places to Work in Healthcare

Becker’s Healthcare named Sarasota Memorial one of the “150 Great Places to Work in Healthcare” for 2014.

Each year, the publication compiles a list of health care organizations that provide excellent work environments

and outstanding benefits to their employees. Sarasota Memorial also was named among Becker’s Hospital

Review’s “100 Hospitals with Great Women’s Health Programs” in 2013.

Courtyard Tower Celebrates First Anniversary

The Hospital’s nine-story Courtyard Tower fully opened in fall of 2013, with the latest patient-safe,

patient-centered services and amenities. The $186 million project, completed on time and on budget, was funded

by bonds, savings, and donor contributions. The Courtyard Tower is the new home for expanded Orthopedics,

Cardiac, Labor & Delivery, Mother-Baby and Neonatal Intensive Care units, and also includes a spacious new

lobby and customer support, patient registration and pre-admission testing areas. The overall campus

improvement project, which also encompassed a new entry road, patient drop-off area, surgical expansion,

pedestrian bridge, energy plant, chapel and other support areas, created more than 500 construction-related jobs.

New Urgent Care Centers

Sarasota Memorial opened two new Urgent Care Centers in Fiscal Year 2014, one in Venice and the other in

Sarasota on Bee Ridge Road. Staffed by board-certified emergency, internal medicine and family physicians, the

centers joined the organization’s existing three Urgent Care Centers in providing prompt medical services to the

community.

Innovations in Cardiac Care

Sarasota Memorial’s affiliation with Columbia University Medical Center’s Cardiac Surgery Division continues

to enhance cardiac care in the community. The hospital’s Valve Clinic performs a minimally invasive procedure,

transcatheter aortic valve replacement (TAVR), with outcomes comparable to those of experienced academic

medical centers. TAVR continues to demonstrate significant benefits in survival rates and improved quality of

life among a very ill and elderly patient group facing a high likelihood of mortality.




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3 (Continued)

The Community’s Health Care Safety Net

Sarasota Memorial serves as the community’s health care safety net, recognized for both its quality and its

mission-driven programs. Sarasota Memorial cares for nearly 90% of the county’s inpatient Medicaid cases and

more than 65% of the county’s inpatient self-pay cases and provides many vital services that other local hospitals

do not.

Sarasota Memorial is the sole provider of obstetrical services, Level III neonatal intensive care and

inpatient pediatric services in Sarasota County. SMH also is the only hospital in Sarasota County providing

psychiatric services to patients of all ages.

Including the freestanding Emergency Room and Health Care Center in the underserved community of

North Port, the System treats nearly 100,000 emergency patients annually in North Port and on the main

campus. In addition to the Emergency Room, the North Port center has physician offices and outpatient

programs including laboratory services, radiology services and rehabilitation services.

Sarasota Memorial’s Community Medical Clinic provides a wide range of free specialty care to

uninsured/underinsured residents who meet eligibility criteria.

The System’s Charter Plan offers affordable health insurance to small businesses that lack coverage.

The System has a sliding scale discount program that offers significantly reduced rates to lower-income,

uninsured patients. The program’s goal is to make health care more affordable for the uninsured and allow them

to pay what they can. Our discount plan treats patients with dignity and compassion, and encourages the

uninsured to take care of their health needs promptly, before conditions become catastrophic.

The System provides traditional charity care to those patients who meet certain criteria established by the State of

Florida. In addition, the District provides services to patients that meet other financial criteria which indicate an

economic hardship and inability to pay for their services, but who either do not meet the strict eligibility

requirements for traditional charity care or who do not complete all necessary paperwork to qualify for traditional

charity care. These services are referred to as community support.

Sarasota Memorial also has an array of preventive disease management programs that offer patients with chronic

health conditions cost-effective, high-quality alternatives to hospitalization and the ER. These programs include a

Heart Failure Treatment Center, Anti-Coagulation Clinics, Day Treatment Center and Outpatient Wound Care.

The System’s physician practice group also has a patient-centered medical home program, with many of the

group’s practices earning national certification as “Level 3 Patient Centered Medical Homes,” the highest

accreditation available.




(Unaudited)

4

Economic Driving Force

Among the largest employers in Sarasota County, the System is a significant economic engine for the region,

creating and sustaining jobs and income for approximately 4,000 staff and a large number of local businesses and

vendors. All of our earnings are re-invested into patient care, technology, and assets that benefit the community.

Examples of this community investment during the past year include:

$292 million in total payroll – supports local workforce

4,000 staff members, 800 medical staff members

$554 million in total operating expenses that help support a variety of local businesses and community

members

$624,000 investment in workforce development and staff training and education

Finance

Operational Improvements

Management has continued to make operational improvements focused both on improving revenue cycle

efficiency and decreasing the cost of providing high quality care to our community.

Among the major revenue enhancement and cost reduction initiatives implemented or in process:

Completion of information system enhancements in order to qualify for additional phases of Medicare

“meaningful use” reimbursement

Expansion of outpatient services into locations that are highly visible and provide easier access for patients

Advanced preparation for implementation of ICD-10 coding protocol including implementation of

education software, clinical documentation improvement program, and a multidisciplinary team approach

to planning and coordination of system updates

Value analysis teams continue to evaluate products and product utilization in order to reduce overall

product spend

Purchasing real estate in order to reduce lease expense

Phased-in implementation of a new, integrated labor productivity management system

Implementation of a new managed care contract modeling system to improve monitoring of third party

payments.

5

Independent Auditors’ Report

The Board Members

Sarasota County Public Hospital District:

Report on the Financial Statements

We have audited the accompanying financial statements of the Sarasota County Public Hospital District

(the District), as of and for the years ended September 30, 2014 and 2013, and the related notes to the

financial statements, which collectively comprise the District’s basic financial statements as listed in the

table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with U.S. generally accepted accounting principles; this includes the design, implementation,

and maintenance of internal control relevant to the preparation and fair presentation of financial statements

that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted

our audit in accordance with auditing standards generally accepted in the United States of America and the

standards applicable to financial audits contained in Government Auditing Standards, issued by the

Comptroller General of the United States. Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditors’ judgment, including the assessment

of the risks of material misstatement of the financial statements, whether due to fraud or error. In making

those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair

presentation of the financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal

control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of significant accounting estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of the Sarasota County Public Hospital District, as of September 30, 2014 and 2013, and

the changes in its financial position, and its cash flows for the years then ended in accordance with

U.S. generally accepted accounting principles.

Emphasis of Matter

As discussed in note 1(d) to the financial statements, the Sarasota County Public Hospital District adopted

the provisions of Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously

Reported as Assets and Liabilities.

KPMG LLP Suite 1700 100 North Tampa Street Tampa, FL 33602

KPMG LLP, is Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

6

Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles require that the management’s discussion and analysis, and

the schedules of funding progress on pages 7 through 18, 47 and 49, respectively be presented to

supplement the basic financial statements. Such information, although not a part of the basic financial

statements, is required by the Governmental Accounting Standards Board who considers it to be an

essential part of financial reporting for placing the basic financial statements in an appropriate operational,

economic, or historical context. We have applied certain limited procedures to the required supplementary

information in accordance with auditing standards generally accepted in the United States of America,

which consisted of inquiries of management about the methods of preparing the information and

comparing the information for consistency with management’s responses to our inquiries, the basic

financial statements, and other knowledge we obtained during our audit of the basic financial statements.

We do not express an opinion or provide any assurance on the information because the limited procedures

do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively

comprise the District’s basic financial statements. The letter of transmittal, combining balance sheet

information, combining statement of revenues, expenses and changes in net position information, and

budgetary comparison schedule are presented for purposes of additional analysis and are not a required part

of the basic financial statements.

The combining balance sheet information and combining statement of revenues, expenses and changes in

net position information are the responsibility of management and were derived from and relate directly to

the underlying accounting and other records used to prepare the basic financial statements. Such

information has been subjected to the auditing procedures applied in the audit of the basic financial

statements and certain additional procedures, including comparing and reconciling such information

directly to the underlying accounting and other records used to prepare the basic financial statements or to

the basic financial statements themselves, and other additional procedures in accordance with auditing

standards generally accepted in the United States of America. In our opinion, the combining balance sheet

information and combining statement of revenues, expenses and changes in net position information are

fairly stated in all material respects in relation to the basic financial statements as a whole.

The letter of transmittal and budgetary comparison schedule have not been subjected to the auditing

procedures applied in the audit of the basic financial statements, and accordingly, we do not express an

opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated January 9, 2015

on our consideration of the District’s internal control over financial reporting and on our tests of its

compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

The purpose of that report is to describe the scope of our testing of internal control over financial reporting

and compliance and the results of that testing, and not to provide an opinion on internal control over

financial reporting or on compliance. That report is an integral part of an audit performed in accordance

with Government Auditing Standards in considering the District’s internal control over financial reporting

and compliance.

January 9, 2015

Certified Public Accountants


Management’s Discussion and Analysis


(Unaudited)

7 (Continued)

This section of the annual financial report of the District provides management’s discussion and analysis of the

organization for the fiscal years ended September 30, 2014 and 2013. This discussion has been prepared along

with the financial statements and related note disclosures, which should be read in conjunction with one another.

This narrative, the financial statements, and notes are the responsibility of the District’s management.

Required Financial Statements

The basic financial statements of the District report information about the District using accounting methods

prescribed by the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards

Board (GASB), and the American Institute of Certified Public Accountants’ Audit and Accounting Guide for

Health Care Organizations. These statements provide current and long-term financial information about the

District’s activities. The following statements are included in this package:

The Balance Sheets, which list all of the District’s assets, deferred outflows of resources, liabilities,

deferred inflows of resources, and information about the nature and amounts of investments in resources

(assets) and obligations to creditors (liabilities). The Balance Sheets also include information to help

compute the rate of return on investments, evaluate the capital structure of the organization, and assess the

liquidity and financial flexibility of the District.

The Statements of Revenues, Expenses and Changes in Net Position include all of the current and prior

year’s revenues and expenses. This statement measures changes in the District’s operations over the past

two years and can be used to determine whether the District has been able to recover all of its costs through

patient service revenue and other revenue sources.

The Statements of Cash Flows provide information about the District’s cash from operating, investing, and

financing activities. It explains the sources of cash, how it was spent, and the change in the cash and cash

equivalents balance during the current and prior fiscal years.




(Unaudited)

8 (Continued)

Summary of Financial Highlights and Trends

The District’s cash and board designated investments increased in fiscal year 2014 as compared to 2013, but

decreased in fiscal year 2013 from the previous year by $41.0 million and ($96.4) million in the fiscal years

ended September 30, 2014 and 2013, respectively. Long-term debt (including current portion) decreased by

$21.4 million and $8.4 million in the years ended September 30, 2014 and 2013, respectively. The excess of

revenue over expenses in the year ended September 30, 2014, of $83.6 million, compares to last year’s deficit of

revenue over expense of $8.7 million. Net position increased by $84.0 million in fiscal 2014, and decreased by

$5.7 million in fiscal 2013. Hospital payor mix reflected an increase in Medicare in 2014 and a decrease in

Medicaid and in managed care and commercial payors. In 2013, payor mix reflected an increase in Medicare and

a decrease in managed care and commercial payors.

2014 2013 2012

Medicare 56.5% 55.5% 54.0%Managed care and commercial 26.1 26.5 28.4Self-pay and other 7.1 7.1 7.1Medicaid 10.3 10.9 10.5

100.0% 100.0% 100.0%

Operating Statistics

Based on the most recent data available from the Health Planning Council of Southwest Florida, Inc, for the nine

months ended June 30, 2014, admissions volume increased across the Sarasota county area compared to the same

period in the prior year. The Hospital’s admissions increased 7.3% during the year ended September 30, 2014,

compared to an increase of 5.7% during the year ended September 30, 2013. Sarasota Memorial Hospital

inpatient market share in the Sarasota County area for the nine months ended June 30, 2014 was 56.6%. The

Hospital outpatient volume, excluding emergency room visits, increased by 3.2% and 0.1% during the years that

ended September 30, 2014 and 2013, respectively. Emergency Care Center visits increased 5.4% and 4.2%

during the years that ended September 30, 2014 and 2013, respectively.

The following tables represent utilization statistics for Sarasota Memorial for the fiscal years indicated:

Fiscal year ended September 30

2014 2013 2012 2011 2010

Average number of beds in service:

Medical/surgical intensive care 42 42 42 52 52

Cardiac telemetry, acute, and

intensive care 108 119 121 127 127

Other medical/surgical 336 285 275 269 269

Total medical/surgical 486 446 438 448 448




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9 (Continued)


2014 2013 2012 2011 2010

Obstetrics 35 49 66 66 66

Psychiatric and substance abuse 60 60 60 62 62

Rehabilitation 34 34 34 34 34

Pediatrics 18 18 18 18 18

Total hospital 633 607 616 628 628

Admissions:

Total medical/surgical 20,858 19,459 17,929 18,656 18,905

Obstetrics 3,328 3,006 3,125 3,139 3,078

Psychiatric and substance abuse 2,206 1,880 1,891 1,921 1,702

Rehabilitation 655 718 683 698 676

Pediatrics 441 513 559 577 592

Total hospital 27,488 25,576 24,187 24,991 24,953

Average length of stay:

Total medical/surgical 4.75 4.73 5.01 4.98 4.89

Obstetrics 2.61 2.57 2.61 2.70 2.61

Psychiatric and substance abuse 5.17 5.27 5.49 5.55 6.17

Rehabilitation 12.68 12.33 12.64 12.31 12.14

Pediatrics 3.44 3.53 3.18 3.43 3.35

Total hospital 4.69 4.70 4.91 4.91 4.88

Number of patient days:

Medical/surgical intensive care 9,657 8,933 8,564 9,047 9,331


intensive care 24,325 23,264 24,167 25,992 27,346

Other medical/surgical 65,083 59,838 57,082 57,951 56,271

Total medical/surgical 99,065 92,035 89,813 92,990 92,948

Obstetrics 8,672 7,716 8,162 8,483 8,048

Psychiatric and substance abuse 11,406 9,904 10,379 10,658 10,493

Rehabilitation 8,304 8,855 8,633 8,589 8,207

Pediatrics 1,519 1,810 1,779 1,977 1,983

Total hospital 128,966 120,320 118,766 122,697 121,679




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10 (Continued)


2014 2013 2012 2011 2010

Percentage occupancy:

Medical/surgical intensive care 63.0% 58.1% 55.7% 47.7% 49.2%


intensive care 61.7 53.4 54.6 56.1 59.0

Other medical/surgical 53.1 57.4 56.7 59.0 57.3

Total medical/surgical 55.8 56.4 56.0 56.9 56.8

Obstetrics 67.9 43.0 33.8 35.2 33.4

Psychiatric and substance abuse 52.1 45.1 47.3 47.1 46.4

Rehabilitation 66.9 71.2 69.4 69.2 66.1

Pediatrics 23.1 27.5 27.0 30.1 30.2

Total hospital 55.8% 54.2% 52.7% 53.5% 53.1%

The following table represents ancillary department activity for the System for the fiscal years indicated:


2014 2013 2012 2011 2010

Radiology:

I/P 63,047 59,401 58,441 64,413 67,697

O/P 215,615 205,197 206,527 211,016 212,644

Total 278,662 264,598 264,968 275,429 280,341

Nuclear medicine:

I/P 991 989 993 1,014 1,375

O/P 3,458 3,463 3,778 3,842 4,139

Total 4,449 4,452 4,771 4,856 5,514

Laboratory units:

I/P 983,480 828,933 823,752 872,262 868,845

O/P 1,366,435 1,305,721 1,261,107 1,228,155 1,114,600

Total 2,349,915 2,134,654 2,084,859 2,100,417 1,983,445

Respiratory therapy:

I/P 77,430 77,585 71,091 76,704 76,120

O/P 15,448 15,292 11,874 11,002 9,710

Total 92,878 92,877 82,965 87,706 85,830




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11 (Continued)


2014 2013 2012 2011 2010

Total hospital outpatient cases

(excluding emergencies) 411,963 399,225 398,649 384,121 359,613

Electrocardiograms 51,043 48,747 46,992 46,837 45,609

Cardiac catheterization procedures 11,955 11,117 12,321 * 13,385 22,114

Physical therapy units 167,498 152,202 144,143 139,264 140,057

Occupational therapy units 60,576 55,908 57,123 60,073 53,953

Hemodialysis treatments 1,873 2,104 2,383 2,469 2,135

Emergency room visits/registrations 108,462 102,949 98,789 95,188 94,300

Surgery cases 19,313 18,963 18,947 20,124 16,386

* Note: Accumulation methodology for the count of cardiac catheterization procedures changed effective 2011.

Statements of Revenues, Expenses and Changes in Net Position

A summary of the District’s Statements of Revenues, Expenses and Changes in Net Position for fiscal years

2014, 2013, and 2012 is presented below (in thousands):

2014 2013 Change 2012 Change

Net patient service revenue $ 573,611 491,358 82,253 472,486 18,872

Other revenue 20,543 21,111 (568) 20,970 141

Total operating

revenues 594,154 512,469 81,685 493,456 19,013

Total operating expenses 553,864 513,053 40,811 495,601 17,452

Operating (loss) income 40,290 (584) 40,874 (2,145) 1,561

Total nonoperating items 43,283 (8,132) 51,415 62,483 (70,615)

(Deficit) excess of revenues

over expenses 83,573 (8,716) 92,289 60,338 (69,054)

Other changes in net position 466 3,034 (2,568) 2,161 873

Net position, beginning of year, as restated 734,669 740,351 (5,682) 677,852 62,499

Net position, end of year $ 818,708 734,669 84,039 740,351 (5,682)

Discussion of Statements of Revenues, Expenses and Changes in Net Position

Net patient service revenue increased by $82.3 million, or 16.7%, during fiscal year 2014. The increase in net

revenues is attributed to increased volume and increased reimbursement rate per case. Hospital admissions

increased 7.3% from fiscal year 2013. Factors driving the increase in inpatient activity included a 6.5% increase

in inpatient surgery cases, including an 8.6% increase in open heart surgery cases. In addition to the increase in

inpatient volumes, registrations at the Hospital’s urgent care centers increased 48.3% compared to fiscal year

2013. This includes the additional volumes from two new centers that opened in fiscal year 2014. Also volumes

seen at the emergency care centers increased 5.4% during fiscal year 2014. In addition to volume increases, the




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12 (Continued)

net revenue per adjusted admission for the Hospital increased 13.2% from fiscal year 2013. The increased rate of

reimbursement is related in part to a 4.6% increase in total case mix and a 3.1% increase in the Medicare case

mix index. In addition, bad debt and charity allowances decreased $1.1 million compared to fiscal year 2013.

Net patient service revenue increased by $18.9 million, or 4.0%, during fiscal year 2013. The increase in net

revenues is attributed to increased volume and increased reimbursement rate per case. Hospital admissions

increased 5.7% from fiscal year 2012. Factors driving the increase in inpatient activity included a 4.9% increase

in inpatient surgery cases, including a 1.2% increase in open heart surgery cases, and a 5.3% increase in inpatient

cardiac catheterization lab procedures. The increase in open heart cases is related to the increasing positive

impact of the affiliation with Columbia University Medical Center’s cardiac surgery division. The growth in

inpatient catheterization lab procedures has occurred as the Hospital opened a new hybrid cardiac catheterization

lab-operating room to allow interventional cardiologists and cardiac and vascular surgeons to perform advanced

hybrid procedures – combinations of catheter-based, conventional, and less invasive surgical treatments – and

improve care for patients who need multiple procedures as part of their treatment. Sarasota Memorial also

opened a Valve Clinic and has added Trans Aortic Valve Replacement (TAVR) cases. In addition to the increase

in inpatient volumes, registrations at the Hospital’s urgent care centers increased 36.9% compared to fiscal year

2012. Also volumes seen at the emergency care centers increased 4.2% during fiscal year 2013. In addition to

volume increases, the net revenue per adjusted admission for the Hospital increased 3.1% from fiscal year 2012.

The increased rate of reimbursement is related to a 1.4% increase in total case mix and a 2.3% increase in the

Medicare case mix index. Bad debt and charity allowances increased $21.6 million compared to fiscal year 2012,

partially offsetting the increases previously noted.

Operating expenses increased in fiscal 2014 by $40.8 million, or 8.0%. Salaries and wages increased by

$16.4 million, fringe benefits decreased by $0.4 million, supplies increased by $15.2 million, purchased services

increased $6.6 million, professional fees decreased by $0.5 million, the State of Florida Medical Assistance

Assessment increased by $1.0 million, and depreciation and amortization increased $2.6 million.

Operating expenses increased in fiscal 2013 by $17.5 million, or 3.5%. Salaries and wages increased by

$4.1 million, fringe benefits increased by $1.2 million, supplies increased by $7.0 million, purchased services

decreased $1.2 million, professional fees increased by $0.4 million, the State of Florida Medical Assistance

Assessment increased by $0.4 million, and depreciation and amortization increased $5.6 million.

Salaries and wages increased $16.4 million, or 7.5%, in 2014 as a result of a 2.0% rise in the hospital average

hourly wage and a 2.0% increase in the number of hospital Full Time Equivalents (FTEs) per adjusted occupied

bed, compounded by a 3.0% increase in hospital adjusted occupied beds. Hospital FTEs increased from 2,964 in

fiscal year 2013 to 3,116 in fiscal year 2014. Total System FTEs increased from 3,511 in fiscal year 2013 to

3,676 in fiscal year 2014. Also contributing to the overall increase in salaries and wages was a $3.7 million

increase in SMH Physicians Services, Inc. related to expanded services, including primary care services,

cardiovascular services and the hospitalist program, and the functioning of the performance-based provider pay

model.

Salaries and wages increased $4.1 million, or 1.9%, in 2013 as a result of a 0.9% rise in the hospital average

hourly wage and a 3.4% increase in the number of hospital Full Time Equivalents (FTEs) per adjusted occupied

bed, partially offset by a 2.9% decrease in hospital adjusted occupied beds. Hospital FTEs increased from 2,952

in fiscal year 2012 to 2,964 in fiscal year 2013. Total System FTEs increased from 3,497 in fiscal year 2012 to




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13 (Continued)

3,511 in fiscal year 2013. Also contributing to the overall increase in salaries and wages was a $3.1 million

increase in SMH Physicians Services, Inc. related to expanded services, including cardiovascular services and the

hospitalist program, and the functioning of the performance-based provider pay model.

Fringe benefits decreased $0.4 million in 2014 compared to 2013. Fringe benefits as a percentage of salaries and

wages decreased from 26.5% in 2013 to 24.3% in 2014. The decrease in overall benefit cost was due to a

$5.9 million decrease in retirement plan expense, partially offset by a $3.1 million increase in self-insured health

and dental plan costs and increases in workers compensation costs and wage-related employer employment tax

costs.

Fringe benefits increased $1.2 million in 2013 compared to 2012. Fringe benefits as a percentage of salaries and

wages increased from 26.4% in 2012 to 26.5% in 2013. The increase in overall benefit cost was due to a

$0.8 million increase in retirement plan expense, a $0.4 million increase in self-insured health and dental plan

costs and other salary and wage-related increases, partially offset by a $0.2 million decrease in unemployment

compensation costs and various other benefit costs.

Supplies expenses increased in fiscal 2014 by $15.2 million. The increase was largely a result of increased

volume and mix of services. Supplies expense as a percentage of net patient revenue decreased in fiscal 2014 to

20.2%, compared to 20.4% in fiscal 2013. Bone/tissue, cardiac, ENT and neurological, and orthopedic implants

increased a combined $6.7 million; drug costs increased $1.9 million; and medical supplies increased

$3.8 million.

Supplies expenses increased in fiscal 2013 by $7.0 million. Supplies expense as a percentage of net patient

revenue increased in fiscal 2013 to 20.4%, compared to 19.8% in fiscal 2012. Bone/tissue, cardiac and

orthopedic implants increased a combined $4.0 million; drug costs increased $1.4 million, largely as a result of

specialty medications and high-tech drugs; and medical supplies increased $1.6 million.

Purchased services increased by $6.6 million in fiscal 2014. The increase in fiscal 2014 was primarily a result of

a $3.6 million increase in contracted labor, including traveling nurse costs, a $1.8 million increase in repairs and

maintenance and maintenance contract costs, a $1.3 million increase in utility costs, and a $0.3 million increase

in rent and lease expense, partially offset by a $0.7 million decrease in fees and license costs.

Purchased services decreased by $1.2 million in fiscal 2013. The decrease in fiscal 2013 was primarily a result of

a $0.5 million decrease in transcription costs, a $1.9 million decrease in rent and lease expense, a $0.7 million

decrease in professional liability expense, a $0.6 million decrease in blood bank costs, a $0.4 million decrease in

repairs and maintenance costs, and a $0.7 million decrease in contracted labor, partially offset by an increase in

purchased services related to BayCare Health System management fees and reimbursements.

Depreciation and amortization expense increased $2.6 million in fiscal 2014 due to a full year of depreciation on

the new Courtyard Tower and completion of other construction and renovation projects, including two new

urgent care centers, and on various information technology projects and new equipment purchases.

Depreciation and amortization expense increased $5.6 million in fiscal 2013 due to the completion of

construction of the new Courtyard Tower and other construction and renovation projects, as well as a full year’s




(Unaudited)

14 (Continued)

depreciation on the University Parkway urgent care center which was completed in late 2012, and on various

information technology projects and new equipment purchases.

As a result of the above-noted changes in operating costs, operating cost per adjusted admission, adjusted for the

change in case mix index, increased 0.1% in fiscal year 2014 and increased 0.8% in fiscal year 2013.

Nonoperating items increased by $51.4 million in fiscal year 2014. The increase is primarily due to three noncash

items: $5.3 million in unrealized gains in the fair value of investments in 2014 compared to $26.3 million in

unrealized losses in the fair value of investments in 2013; $1.2 million increase in the fair value of ineffective

interest rate swaps compared to a $5.2 million decrease in 2013; and a $26.8 million accounting loss in fiscal

2013 on the termination of two interest rate swaps which were novated in 2013. Further discussion of the interest

rate swaps and the swap novations is included in note 5 to the financial statements. The impact of the noncash

items noted above were partially offset by a $5.0 million grant to Community Health Corporation, an increase in

interest expense of $4.6 million and a reduction of investment income of $9.8 million. Interest expense increased

primarily due to a $5.0 million reduction in capitalized interest expense as a result of the completion of the

Courtyard Tower. Investment income decreased primarily due to lower average interest rates on the investment

portfolio.

Nonoperating items decreased by $70.6 million in fiscal year 2013. The decrease is primarily due to three

noncash items: $26.3 million in unrealized losses in the fair value of investments in 2013 compared to

$4.5 million in unrealized gains in the fair value of investments in 2012; $5.2 million decline in the fair value of

ineffective interest rate swaps compared to a $5.6 million increase in 2012; and a $26.8 million accounting loss

on the termination of two interest rate swaps which were novated in 2013. Further discussion of the interest rate

swaps and the swap novations is included in note 5 to the financial statements.

Excess of revenues over expenses for fiscal year 2014 was $83.6 million, compared to a deficit of revenues over

expenses in fiscal year 2013 of $8.7 million. The $92.3 million increase is a result of operating revenues

increasing by $81.7 million, operating expenses increasing by $40.8 million, and nonoperating items increasing

by $51.4 million.

Deficit of revenues over expenses for fiscal year 2013 was $8.7 million, compared to an excess of revenues over

expenses in fiscal year 2012 of $60.3 million. The $69.1 million decrease is a result of operating revenues

decreasing by $19.0 million, operating expenses increasing by $17.5 million, and nonoperating items decreasing

by $70.6 million.




(Unaudited)

15 (Continued)

Balance Sheets

The following table is a summary of the balance sheets as of September 30, 2014, 2013, and 2012 (in thousands):

2013 2012

2014 (as restated) Change (as restated) Change

Cash and cash equivalents $ 51,860 32,327 19,533 56,083 (23,756)

Patient accounts receivable, net 63,083 45,656 17,427 43,130 2,526

Other current assets 25,087 24,182 905 20,189 3,993

Total current assets 140,030 102,165 37,865 119,402 (17,237)

Restricted and board designated

investments 605,979 584,682 21,297 659,390 (74,708)

Capital assets, net 532,506 540,971 (8,465) 478,225 62,746

Other assets 95,976 94,432 1,544 16,902 77,530

Interest rate swaps 18,809 14,132 4,677 27,141 (13,009)

Noncurrent assets 1,253,270 1,234,217 19,053 1,181,658 52,559

Deferred outflows 27,121 22,613 4,508 71,138 (48,525)

Total assets and deferred

outflows $ 1,420,421 1,358,995 61,426 1,372,198 (13,203)

Current liabilities $ 121,703 132,212 (10,509) 109,985 22,227

Noncurrent liabilities 465,400 481,757 (16,357) 502,925 (21,168)

Total liabilities 587,103 613,969 (26,866) 612,910 1,059

Deferred inflows 14,610 10,357 4,253 18,937 (8,580)

Net position:

Net investment in capital assets 129,703 117,287 12,416 46,668 70,619

Restricted for specific purposes 1,748 1,765 (17) 1,965 (200)

Unrestricted 687,257 615,617 71,640 691,718 (76,101)

Total net position 818,708 734,669 84,039 740,351 (5,682)

Total liabilities, deferred

inflows and net position $ 1,420,421 1,358,995 61,426 1,372,198 (13,203)

At September 30, 2014, the District’s cash and board designated investments totaled $655.5 million, compared to

long-term debt of $411.5 million. The number of days cash on hand was 452 which exceeds the median of

227 days cash on hand for Moody’s Investor Services (Moody’s) “A1” rated, freestanding hospitals and single

and multi-state healthcare systems (2014 median, based on 2013 data).

At September 30, 2013, the District’s cash and board designated investments totaled $614.4 million, compared to

long-term debt of $433.0 million. The number of days cash on hand was 460 which exceeds the median of

219 days cash on hand for Moody’s Investor Services (Moody’s) “A1” rated, freestanding hospitals and single

and multi-state healthcare systems (2013 median, based on 2012 data).




(Unaudited)

16 (Continued)

In fiscal 2014, current assets increased by $37.9 million. Cash and cash equivalents increased by $19.5 million

and patient accounts receivable increased by $17.4 million. Other current assets increased $0.9 million.

In fiscal 2013, current assets decreased by $17.2 million. Cash and cash equivalents decreased by $23.8 million

and patient accounts receivable increased by $2.5 million. Other current assets increased $4.0 million primarily

related to a receivable for meaningful use revenue at the end of 2013.

In fiscal 2014, restricted investments and board designated investments increased $21.3 million. As of

September 30, 2014, the Moody’s ratings of the District’s investments are A rated or better, except for one

corporate bond which is rated at Baa1.

In fiscal 2013, restricted investments and board designated investments decreased $74.7 million as a result of the

$75.0 million additional optional contribution to the defined benefit retirement plan and $98.4 million in capital

acquisitions including the Courtyard Tower. As of September 30, 2013, the Moody’s ratings of the District’s

investments are A rated or better, except for one corporate bond which is rated at Baa1.

Capital assets decreased by $8.5 million in fiscal 2014. $28.9 million of capital additions occurred during fiscal

year 2014. The additions were more than offset by annual depreciation of $37.4 million. Of the $28.9 million in

fiscal 2014 additions, the largest projects accounted for about $24.2 million of expenditures: $5.1 million for

main campus renovations; $3.8 million for two new urgent care centers; $2.0 million for a new interventional

radiology suite; $3.4 million for new pharmacy, laboratory and surgery systems; $2.7 million for smart

intravenous infusion pumps; $2.7 million for upgrades to information systems infrastructure and various clinical

systems; and $4.5 million for various other medical equipment. Additional information on the District’s capital

assets can be found in note 4 to the financial statements.

Capital assets increased by $62.7 million in fiscal 2013. $98.4 million of capital additions occurred during fiscal

year 2013. The additions were partially offset by annual depreciation of $34.6 million. Of the $98.4 million in

fiscal 2013 additions, the largest projects accounted for about $82.9 million of expenditures: $46.4 million of

costs for the new courtyard tower; $9.0 million for clinical equipment; $7.4 million for real property acquisitions;

$4.4 million for construction of a new ambulatory services building; $4.4 million for upgrades to information

systems infrastructure and various clinical systems; $3.8 million for a new hybrid operating room; $3.6 million

for medication delivery systems; $3.3 million for main campus renovations; $0.6 million for refurbishing other

ambulatory services buildings. Additional information on the District’s capital assets can be found in note 4 to

the financial statements.

In fiscal 2014, other assets increased by $1.5 million, primarily related to increases in the equity in LeeSar.

In fiscal 2013, other assets increased by $77.5 million, primarily related to the additional optional $75.0 million

contribution to the defined benefit retirement plan.

The District has several interest rate swaps related to its outstanding bond instruments. The swaps are presented

in the Balance Sheets as assets or liabilities at fair value. Changes in fair value are recorded in the Balance Sheets

as deferred outflows or deferred inflows for those swaps determined to be effective hedges in accordance with

applicable governmental accounting standards or in the Statements of Revenues, Expenses and Changes in Net




(Unaudited)

17 (Continued)

Position as nonoperating changes in fair value for ineffective interest rate swaps. Please refer to note 5 to the

financial statements for a more detailed discussion of the District’s interest rate swaps.

In fiscal 2014, current liabilities decreased $10.5 million, primarily related to a decrease in accrued amounts due

for completion of the construction of the Courtyard Tower project, partially offset by increases in estimated third

party settlements, the current portion of state of Florida medical assistance assessment, and employee

compensation and benefits payable.

In fiscal 2013, current liabilities increased $22.2 million, primarily related to an increase in accrued amounts due

for completion of the construction of the Courtyard Tower project, an increase in estimated third party

settlements, an increase in employee compensation and benefits payable and an increase in the current portion of

long-term debt.

In fiscal 2014, noncurrent liabilities decreased $16.4 million, primarily as a result of a decrease in long-term debt

partially offset by an increase in interest rate swap liabilities. The District exercised its right for an optional early

redemption of $11.85 million of Series 2009A bonds in July 2014. Additional information on the District’s

long-term debt can be found in note 5 to the financial statements.

In fiscal 2013, noncurrent liabilities decreased $21.2 million, primarily as a result of the decrease in interest rate

swap liabilities and a decrease in long-term debt. Additional information on the District’s long-term debt can be

found in note 5 to the financial statements.

Profitability, Liquidity, and Capital Ratios

The following table outlines ratios monitored by the District as compared to Moody’s “A1” rated, freestanding

hospitals, single and multi-state healthcare systems:

2013Moody’s A1

2014 2013 2012 Median

Profitability ratios:Operating margin 10.9% 5.5% 5.4% 3.0%Excess margin 12.0 8.7 9.0 6.6Return on assets 5.7 3.6 3.9 5.0Total EBIDA% 19.8 16.4 16.1 n/aOperating cash flow margin 18.8 13.5 12.7 10.4

Liquidity ratios:Days cash on hand 452 460 546 227Net days in receivables 40 34 33 52

Capitalization ratios:Maximum debt service coverage

ratio 4.6 3.5 3.3 5.1Cash to debt 159 141 160 151

(EBIDA – Earnings Before Interest, Depreciation and Amortization)




(Unaudited)

18

Discussion of Ratios

To be consistent with rating agency calculations, tax revenues are considered operating revenues and interest

expense is considered operating expense for the ratio calculations above.

The profitability and capitalization ratios noted above all improved as a result of the 2014 financial performance.

In 2014, Moody’s Investors Services affirmed the District’s unenhanced long-term ratings on all outstanding debt

of A1. In 2013, Fitch Ratings affirmed the District’s unenhanced long term ratings on all outstanding debt of

AA-. The rating agencies have noted the District’s financial performance, strong liquidity, and strong service

area characteristics.

The budget for fiscal year 2015 calls for a 4.4% operating margin. There continues to be an emphasis on meeting

overall budget goals and exceeding volume targets, in order to align strategic opportunities with operational and

financing capacity.

Contacting the District for Additional Financial Information

This financial report is intended to provide our citizens, customers, and creditors with a general overview of the

District’s finances and to demonstrate the District’s accountability for the tax funding it receives. You may

access the District’s annual and quarterly financial information, as well as the current budget, via our website,

www.smh.com. The District has engaged Digital Assurance Certification, LLC (DAC) as its Investment

Relations Provider. To view additional detailed secondary market disclosure information, please visit

www.dacbond.com. If you have any questions regarding this report or need additional information, contact the

District’s Corporate Finance Department at Sarasota Memorial Hospital, Attention: Controller, 1700 S. Tamiami

Trail, Sarasota, FL 34239.

19


Balance Sheets


2013Assets 2014 (as restated)

Current assets:Cash and cash equivalents $ 51,859,775 32,326,806 Patient accounts receivable, less allowance for uncollectible accounts of $59,830,842 in 2014

and $57,556,082 in 2013 63,082,807 45,656,289 Inventories of supplies 10,304,239 10,199,913 Prepaid expenses and other assets 13,663,719 12,874,251 Due from related organizations 1,119,649 1,107,865

Total current assets 140,030,189 102,165,124

Noncurrent assets:Restricted investments 2,320,908 2,644,949 Board designated investments 603,657,334 582,036,247 Capital assets, net 532,505,852 540,970,626 Other assets 95,975,880 94,432,782 Interest rate swaps 18,809,286 14,132,498

Total noncurrent assets 1,253,269,260 1,234,217,102

Total assets 1,393,299,449 1,336,382,226

Deferred Outflows of Resources

Deferred amounts on debt refundings 8,315,165 8,900,132 Deferred effective interest rate swap outflows 18,806,440 13,713,385

Total deferred outflows of resources 27,121,605 22,613,517 Total assets and deferred outflows of resources $ 1,420,421,054 1,358,995,743

Liabilities

Current liabilities:Accounts payable $ 20,498,536 39,603,742 Employee compensation and benefits payable 43,984,622 36,780,083 Other accrued expenses 15,766,353 16,140,280 Estimated third-party settlements 25,924,632 24,253,889 Due to related organizations 10,318 7,905 Current portion of State of Florida medical assistance assessment 6,515,601 5,827,170 Current portion of long-term debt 9,002,536 9,598,466

Total current liabilities 121,702,598 132,211,535

Noncurrent liabilities:Long-term debt, less current portion 402,546,937 423,356,019 Long-term companion debt, less current portion 24,818,959 25,698,854 State of Florida medical assistance assessment, less current portion 3,447,587 2,939,143 Other long-term liabilities 15,780,669 15,306,325 Interest rate swaps 18,806,440 14,457,202

Total noncurrent liabilities 465,400,592 481,757,543

Total liabilities 587,103,190 613,969,078

Deferred Inflows of Resources

Deferred effective interest rate swap inflows 14,609,673 10,357,469

Total deferred inflows of resources 14,609,673 10,357,469

Net Position

Net investment in capital assets 129,703,599 117,286,449 Restricted for specific purposes 1,747,862 1,765,253 Unrestricted 687,256,730 615,617,494

Total net position 818,708,191 734,669,196 Total liabilities, deferred inflows of resources and net position $ 1,420,421,054 1,358,995,743

See accompanying notes to financial statements.

20


Statements of Revenues, Expenses and Changes in Net Position

Years ended September 30, 2014 and 2013

2014 2013

Operating revenues:Net patient service revenue, net of provision for bad

debts of $85,672,383 in 2014 and $79,484,302 in 2013 $ 573,611,059 491,358,369 Other revenue 20,543,107 21,110,387

Total operating revenues 594,154,166 512,468,756

Operating expenses:Salaries, wages and fringe benefits 292,456,170 276,450,557 Supplies 115,586,791 100,413,643 Purchased services 85,414,575 78,836,719 Professional fees 16,104,883 16,598,499 State of Florida medical assistance assessment 6,895,175 5,925,742 Depreciation and amortization 37,406,516 34,828,117

Total operating expenses 553,864,110 513,053,277

Operating income (loss) 40,290,056 (584,521)

Nonoperating items:Ad valorem tax 42,176,680 40,611,149 Interest expense (13,795,775) (9,159,500) Interest rate swap receipts (payments), net 743,009 (355,470) Investment income 8,530,600 18,300,499 Termination of interest rate swap — (26,768,969) Unrealized gains (losses) on investments, net 5,318,954 (26,329,685) Change in fair value of ineffective interest rate swaps 1,168,401 (5,172,326) Other nonoperating income (expense) (858,972) 742,397

Total nonoperating items 43,282,897 (8,131,905)

Excess (deficit) of revenues over expenses 83,572,953 (8,716,426)

Other changes in net position:Contributions restricted for capital purposes 466,042 3,034,189

Increase (decrease) in net position 84,038,995 (5,682,237)

Net position, beginning of year, as restated (note 1(d)) 734,669,196 740,351,433 Net position, end of year $ 818,708,191 734,669,196


21


Statements of Cash Flows

Years ended September 30, 2014 and 2013

2014 2013

Cash flows from operating activities:Received from patient care services $ 556,983,081 494,970,221Received from nonpatient sources 20,479,292 17,003,541Payments to employees (288,168,036) (350,623,146)Payments to suppliers (219,049,696) (195,550,229)

Net cash provided by (used in) operating activities 70,244,641 (34,199,613)

Cash flows from noncapital financing activities:Ad valorem taxes 42,176,680 40,611,149Grants and other noncapital items (5,000,350) (75,000)

Net cash provided by noncapital financing activities 37,176,330 40,536,149

Cash flows from capital and related financing activities:Proceeds from donations restricted for capital purposes 1,226,172 3,086,399Interest rate swap payments paid, net (759,714) (772,362)Purchases of capital assets (48,104,064) (82,486,210)Proceeds from disposals of capital assets 49,728 81,521Interest payments (12,765,621) (8,202,171)Repayment of long-term debt (21,467,935) (8,533,628)

Net cash used in capital and related financing activities (81,821,434) (96,826,451)

Cash flows from investing activities:Investment income received 10,231,451 18,367,440Purchase of investments (240,380,554) (5,004,313,570)Proceeds from sales and maturities of investments 224,513,349 5,050,588,958

Net cash (used in) provided by investing activities (5,635,754) 64,642,828

Increase (decrease) in cash and cash equivalents 19,963,783 (25,847,087)

Cash and cash equivalents, beginning of year 33,457,180 59,304,267Cash and cash equivalents, end of year $ 53,420,963 33,457,180

Reconciliation of cash and cash equivalents to the balance sheets:Cash and cash equivalents in current assets $ 51,859,775 32,326,806Cash and cash equivalents in restricted investments 1,561,188 1,130,374

Total cash and cash equivalents $ 53,420,963 33,457,180

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:Operating income (loss) $ 40,290,056 (584,521)Adjustments to reconcile operating income (loss) to net cash provided by

(used in) operating activities:Depreciation and amortization 37,406,516 34,828,117Provision for bad debts 85,672,383 79,484,302Changes in:

Patient accounts receivable (103,098,901) (82,010,201)Other current and noncurrent assets (410,079) (80,396,615)Current liabilities and other liabilities 10,384,666 14,479,305

Net cash provided by (used in) operating activities $ 70,244,641 (34,199,613)

Noncash capital and related financing activities:Accrued purchases of capital assets $ 1,690,586 20,867,186Long-term companion debt — 26,768,969Unrealized gains (losses) on investments, net 5,318,954 (26,329,685)



Notes to Financial Statements


22 (Continued)

(1) Operations, Organization, and Summary of Significant Accounting Policies

(a) Operations and Organization

The Sarasota County Public Hospital District was established in 1949 by a special act of the Florida

Legislature, which created and incorporated a special tax district to be known as Sarasota County

Public Hospital District (the District), which includes all of Sarasota County, and authorized the

District to levy property taxes for various purposes. The District’s primary function is to operate

Sarasota Memorial Hospital (the Hospital), Sarasota Memorial Nursing and Rehabilitation Center

(NRC), and provide other healthcare delivery services in Sarasota County. The District’s Varsity

Health Charter Plan (the Charter Plan) offers affordable health insurance for the purpose of

addressing the growing number of uninsured workers in Sarasota County.

The financial statements include the accounts of the Sarasota County Public Hospital District and the

following blended component units of the District: SMH Health Care, Inc., and SMH Physician

Services, Inc. (PSI). These entities are considered blended component units, as the governing bodies

of these entities are substantially the same as the District and the entities provide services almost

entirely to the District or benefit the District even though they do not provide services directly to the

District. The entities are hereafter referred to collectively as the “District.” All intercompany

accounts and transactions have been eliminated between the District and its blended component

units.

During 2013, the District entered into a management services agreement with the not-for-profit

BayCare Health System, Inc. (BayCare). The District retained its status as an independent public

hospital district and continued to be governed by its 9-member elected board. There were no

transfers of assets or changes that affect patient care or physician referrals. Effective June 20, 2014,

the District and BayCare mutually agreed to end their management services relationship. Both the

District and BayCare determined that they can accomplish many of the shared goals for improved

population health and high-quality outcomes without the formal structure of a management services

agreement.

(b) Mission Statement

The mission of the District is to provide health care services which excel in caring, quality, and

innovation.

(c) Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted

in the United States of America, requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the financial statements. Estimates also affect the reported amounts of revenues and expenses

during the reporting period. Actual results could differ from those estimates.

(d) Accounting Standards

The District recognizes revenues and expenses on the accrual basis of accounting in accordance with

the standards established by the Governmental Accounting Standards Board (GASB) and certain




23 (Continued)

provisions in the Audit and Accounting Guide for Health Care Organizations, published by the

American Institute of Certified Public Accountants.

Effective for periods beginning after December 15, 2012, GASB issued Statement Number 65, Items

Previously Reported as Assets and Liabilities (GASB 65). GASB 65 established standards to

reclassify as deferred outflows of resources and deferred inflows of resources, certain items that were

previously reported as assets and liabilities. The District adopted GASB 65 in fiscal year 2014. As a

result, the District recognizes debt issuance costs as an expense in the period incurred and wrote off

the unamortized debt issuance costs at prior fiscal year end. The write off of $2,653,560, reduced the

previously reported net position at October 1, 2012 from $743,004,993 to $740,351,433.

Effective for periods beginning after June 15, 2014, GASB issued Statement Number 68, Accounting

and Financial Reporting for Pensions (GASB 68). GASB 68 establishes standards for measuring and

recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and

expense/expenditures. For defined benefit pensions, GASB 68 identifies the methods and

assumptions that should be used to project benefit payments, discount projected benefit payments to

their actuarial present value, and attribute that present value to periods of employee service. Note

disclosure and required supplementary information requirements are also addressed in GASB 68.

GASB 68 requires the liability of employers to employees for defined benefit pensions (net pension

liability) to be measured as the portion of the present value of projected benefit payments to be

provided through the pension plan to current active and inactive employees that is attributed to those

employees’ past periods of service (total pension liability), less the amount of the pension plan’s

fiduciary net position. The District will implement GASB 68 in the fiscal year ending September 30,

2015. Implementation will primarily impact the balance sheet by recording a net pension liability and

the removal of a prepaid pension asset.

Effective for government combinations and disposals of government operations occurring in

financial reporting periods beginning after December 15, 2013, GASB issued Statement Number 69,

Government Combinations and Disposals of Government Operations (GASB 69). As used in this

Statement, the term government combinations includes a variety of transactions referred to as

mergers, acquisitions, and transfers of operations. GASB 69 provides specific accounting and

financial reporting guidance for combinations in the governmental environment.

Effective for periods beginning after June 15, 2013, GASB issued Statement Number 70, Accounting

and Financial Reporting for Nonexchange Financial Guarantees (GASB 70). The objective of this

Statement is to improve accounting and financial reporting by state and local governments that

extend and receive nonexchange financial guarantees. GASB 70 requires a government that extends

a nonexchange financial guarantee to recognize a liability when qualitative factors and historical

data, if any, indicate that it is more likely than not that the government will be required to make a

payment on the guarantee. This Statement requires a government that has issued an obligation

guaranteed in a nonexchange transaction to report the obligation until legally released as an obligor.

This Statement also requires a government that is required to repay a guarantor for making a

payment on a guaranteed obligation or legally assuming the guaranteed obligation to continue to

recognize a liability until legally released as an obligor.




24 (Continued)

(e) Community Programs

The District is a public health care provider established to meet the needs of Sarasota County.

Accordingly, services are being provided to the community at no charge or for which only partial

payments are received. The following is a summary of the cost, net of reimbursements, if any, of the

District’s community programs provided during the years ended September 30, 2014 and 2013:

2014 2013

Bad debts $ 20,741,999 20,311,339 Traditional charity care 14,133,085 16,767,030 Medicare losses 14,528,937 22,748,375 Medicaid losses 12,446,132 15,475,316 Emergency care center call pay and subsidies 4,209,647 4,389,675 Anesthesiologist, hospitalist, and psychiatric coverage 5,466,559 5,139,121 Clinics and other community programs 5,099,691 6,386,459 Indigent care fund payments 6,895,175 5,925,742

$ 83,521,225 97,143,057

The District provides traditional charity care to those patients who meet certain criteria under its

charity care policy. A patient is classified as a charity patient by reference to certain established

policies of the District. Amounts determined to qualify as traditional charity care are not reported as

revenue. Included in bad debts are estimated community support costs of $7,268,000 and $7,117,000

for the years ended September 30, 2014 and 2013, respectively. Community support recognizes the

cost of providing care for those patients that met other financial criteria which indicated an economic

hardship and inability to pay for their services, but who either did not meet the strict eligibility

requirements for traditional charity care or who did not complete all necessary paperwork to qualify

for traditional charity care.

Payments received from the Medicare and Medicaid programs are significantly less than established

patient charges and are less than management’s estimate of the costs of providing those services. An

assessment of 1.00% for net outpatient revenues, 1.50% for net inpatient revenues, and 0.04% of

total operating expenses is assessed to the Hospital to help fund the Florida Medicaid and Indigent

Care program.

(f) Net Patient Service Revenue

Net patient service revenue is reported at the estimated net realizable amounts from patients,

third-party payors, and others for services rendered, including estimated retroactive adjustments

under reimbursement agreements with third-party payors and the provision for bad debts.




25 (Continued)

The difference between customary charges and the contractually established rates is accounted for as

a contractual adjustment. The District’s customary charges, contractual adjustments, and provision

for bad debts for the years ended September 30, 2014 and 2013 are as follows:

2014 2013

Gross patient charges $ 2,254,728,517 1,956,161,168 Contractual adjustments (1,595,445,075) (1,385,318,497) Provision for bad debts (85,672,383) (79,484,302)

Net patient service revenue $ 573,611,059 491,358,369

The District has agreements with third-party payors that provide for payment to the District at

amounts different from its established rates. A summary of the basis of payment with major

third-party payors follows:

Medicare

Most services including inpatient acute care services, inpatient rehabilitative services, inpatient

psychiatric services, skilled nursing services, and hospital outpatient services rendered to Medicare

program beneficiaries are paid at prospectively determined rates. These rates vary according to a

patient classification system that is based on clinical, diagnostic, and other factors. Disproportionate

share reimbursement to partially offset the revenue losses from furnishing uncompensated care to

low-income patients and direct graduate medical education costs are paid at an interim rate with final

settlement determined after submission of annual cost reports by the Hospital and audits by the

Medicare fiscal intermediary.

The Hospital’s Medicare cost reports have been audited and final settlements determined by the

Medicare intermediary for all years through September 30, 2010. Retroactive adjustments for cost

reports and other settlements are accrued on an estimated basis in the period when the related

services are rendered and adjusted in future periods when final settlements are determined.

Medicaid

Inpatient and outpatient services (except for laboratory and pathology services) rendered to Medicaid

program beneficiaries are reimbursed under a cost reimbursement methodology subject to regulatory

reductions. Reimbursable cost is determined in accordance with the principles of reimbursement

established by the Florida Title XIX Hospital Reimbursement Plan, supplemented by the Medicare

Principles of Reimbursement. Interim rates are tentatively established on an individual per diem

basis for each hospital based on unaudited cost reports with exceptions. Effective with admissions on

or after July 1, 2013, Medicaid changed the reimbursement for inpatient stays to a APR-DRG-based

methodology. Final settlement is determined when the prospectively determined rate is adjusted after

the intermediary audit of the Medicaid cost report that was used to determine the prospective rate.

Retroactive adjustments for interim rate changes anticipated after the intermediary audit of the cost

report are accrued on an estimated basis in the period when final settlements are determined. The

District’s Medicaid rates are based on the Medicaid cost report periods ended through September 30,

2013, which have been audited by the fiscal intermediary through September 30, 2009.




26 (Continued)

Effective May 1, 2014, the Florida Medicaid program implemented a new system through which

Medicaid enrollees receive services. The program is called the Statewide Medicaid Managed Care

Medical Assistance Program. The new program is comprised of several types of managed care plans

including Health Maintenance Organizations, Provider Service Networks, and a Children’s Services

Network. The new program is designed to emphasize patient centered care, personal responsibility

and active patient participation, provide for fully integrated care through alternative delivery models

with access to providers and services through a uniform statewide program, and implement

innovations in reimbursement methodologies, plan quality and plan accountability. Most Medicaid

recipients must enroll in the program. Providers and the managed care plans negotiate mutually

agreed-upon rates and terms of payment for the provision of services as part of the contract between

the provider and the managed care plan. Unless stated in the law, managed care plans do not have to

pay in the same way that providers are paid under the fee-for-service Medicaid program.

Final combined Medicare and Medicaid amounts estimated related to prior years resulted in an

increase in net patient service revenue of $3,767,658 and $1,767,143 for the years ended

September 30, 2014 and 2013, respectively.

The District’s classification of patients and the appropriateness of their admission are subject to

review by the fiscal intermediaries administering the Medicare and Medicaid programs.

Laws and regulations governing the Medicare and Medicaid Programs are complex and subject to

interpretation. The District believes that it is in compliance with all applicable laws and regulations.

Compliance with such laws and regulations can be subject to future governmental review and

interpretation as well as significant regulatory action including fines, penalties, and exclusion from

the Medicare and Medicaid Programs. As a result, there is at least a reasonable possibility that

recorded estimates associated with these programs will change by a material amount in the near

term.

Other

The District has also entered into payment arrangements with certain commercial insurance carriers,

health maintenance organizations, and preferred provider organizations. The basis for payment to the

District under these arrangements includes prospectively determined rates per discharge, discounts

from established charges, and prospectively determined rates. Some of these arrangements provide

for review of paid claims for compliance with the terms of the contract and result in retroactive

settlement with third parties. Retroactive adjustments for other third-party claims are recorded in the

period when final settlement is determined.

Provisions have been recorded in the financial statements for open cost report years through 2014.

(g) Cash and Cash Equivalents

The District considers cash on hand, money in checking accounts, time deposits, short-term

unrestricted fund investments, and short-term assets whose use is restricted but available for current

liabilities with a maturity of three months or less when purchased to be cash and cash equivalents.




27 (Continued)

(h) Investments and Investment Income

Investment securities held by the District are carried at approximate fair value. Realized gains and

losses, based on the specific identification method, are included in investment income in

nonoperating items in the statements of revenues expenses, and changes in net position. Unrealized

gains and losses are included in unrealized gains and losses on investments, net in nonoperating

items in the statements of revenues, expenses and changes in net position.

(i) Inventories of Supplies

Inventories of supplies are stated at the lower of cost or market, on a first-in, first-out basis.

(j) Capital Assets

Capital assets have been recorded at historical cost if purchased or fair value at date of donation.

Capital purchases above $1,000 are capitalized. Major asset classifications and estimated useful lives

are generally in accordance with those recommended by the American Hospital Association. The

provision for depreciation is computed using the straight-line method over the estimated useful lives

of the assets as summarized below:

Estimateduseful lives

(years)

Land improvements 3–25Buildings 5–50Leasehold improvements 3–25Moveable equipment 2–25

Routine maintenance, repairs, renewals, and replacement costs are charged against operations.

Expenditures that materially increase values, change capacities, or extend useful lives are capitalized,

as is interest incurred during the period prior to the related assets being placed in service. Upon sale

or retirement of capital assets, the cost and related accumulated depreciation are eliminated from the

respective accounts and the resulting gain or loss is included in other nonoperating income

(expense).

(k) Debt Issue Costs, Original Issuance Premiums and Discounts, and Deferred Gains and Losses on

Refunding

As described in note 1(d) above, the District implemented GASB 65 in fiscal 2014. As a result, the

District recognizes debt issuance costs as an expense in the period incurred.

Original issuance premiums and discounts on bonds payable are amortized using the effective

interest method. Amortization of original issuance premiums and discounts is included in interest

expense. Deferred losses on refunding, which are included in deferred outflows of resources, are

amortized over the shorter of the remaining life of the old debt or the life of the new debt using the

straight-line method, which approximates the effective interest method. Amortization of deferred

gains and losses on refunding is included in interest expense.




28 (Continued)

(l) Other Noncurrent Liabilities

Other noncurrent liabilities consist of State of Florida medical assistance assessment and unearned

revenue and other long-term liabilities. The changes in other noncurrent liabilities for the years

ended September 30, 2014 and 2013 are as follows:

2014

Amounts due

Beginning Accrual/ Ending within

balance assessments Payments balance one year

State of Florida medical

assistance assessment $ 8,766,313 7,024,045 (5,827,170) 9,963,188 6,515,601

Other long-term liabilities 17,628,685 2,781,723 (2,343,070) 18,067,338 2,286,669

Total $ 26,394,998 9,805,768 (8,170,240) 28,030,526 8,802,270

2013

Amounts due

Beginning Accrual/ Ending within

balance assessments Payments balance one year

State of Florida medical

assistance assessment $ 8,534,574 5,877,331 (5,645,592) 8,766,313 5,827,170

Other long-term liabilities 16,033,094 4,076,215 (2,480,624) 17,628,685 2,322,360

Total $ 24,567,668 9,953,546 (8,126,216) 26,394,998 8,149,530

(m) Compensated Absences

The liability for compensated absences reported in the financial statements consists of unpaid,

accumulated paid time off (PTO A) balances for vacations, holidays, personal needs and sickness

and unpaid, accumulated and vested short term disability leave (PTO B) balances. PTO A is earned

by eligible employees at varying rates, up to a maximum balance of 320 hours. The unused balance

of PTO A is paid at time of employment termination. The liability for PTO A has been calculated

based on the unused hours and current rates of pay for each employee and is included in employee

compensation and benefits payable on the balance sheets. PTO B is earned by eligible employees up

to a maximum balance of 800 hours. Employees hired prior to October 1, 1998 who terminate with

ten years minimum years of service are vested in PTO B and will receive one half of accumulated

unused PTO B hours. Employees hired on or after October 1, 1998 will not receive any accumulated

hours in Bank B. The liability for PTO B has been calculated for vested employees based on half of

the unused hours and current rates of pay for each employee. The current and noncurrent portions are

estimated based on historical payment experience. The current portion is included in employee

compensation and benefits payable on the balance sheets. The noncurrent portion is included in other

long-term liabilities on the balance sheets.

(n) Net position

Net position of the District is classified in three components. Net investment in capital assets consists

of capital assets net of accumulated depreciation and reduced by the outstanding balances of any

borrowings used to finance the purchase or construction of those assets. Restricted for specific

purposes is net position that must be used for a particular purpose, as specified by creditors, grantors,

or contributors external to the District, including amounts deposited with trustees as required by




29 (Continued)

bond indentures. Unrestricted net position is remaining net position that does not meet the definition

of net investment in capital assets nor restricted for specific purposes.

(o) Operating Revenues and Expenses

The District’s statements of revenues, expenses and changes in net position distinguish between

operating and nonoperating revenues and expenses. Operating revenues result from exchange

transactions associated with furtherance of its mission, and include related grant revenues. Operating

expenses are all expenses incurred to provide health care services, other than financing costs.

Nonexchange revenues and expenses, including ad valorem taxes, investment income, interest

expense on borrowed funds, the difference between interest rate swap payments received and paid,

unrealized gains and losses on investments, changes in the fair value of ineffective interest rate

swaps, grants paid, gains and losses on disposal of capital assets, and other nonoperating income and

expenses are reported as nonoperating items in the financial statements.

(p) Income Taxes

The District is organized as a political subdivision of the State of Florida and is not subject to federal

and state income taxes.

SMH Health Care, Inc. and PSI, have been recognized by the Internal Revenue Service (IRS) as

tax-exempt organizations described in Internal Revenue Code Section 501(c)(3). Income earned by

these organizations in furtherance of their tax-exempt purpose is exempt from federal and state

income taxes.

(q) Ad Valorem Taxes

Tax monies received are based on assessments by the District to Sarasota County real property

owners for purposes stated in the Millage resolutions. Ad valorem taxes are recorded in the period

for which the taxes are levied and amounted to $42,176,680 and $40,611,149 for the years ended

September 30, 2014 and 2013, respectively.

(r) Derivative Instruments

The District uses interest rate swaps, which are recorded based on criteria set forth in GASB 53, as

amended by GASB 64, to manage net exposure to interest rate changes related to its borrowings and

to lower its overall borrowing costs. The derivative instruments are recorded as either assets or

liabilities in the balance sheets at fair value. Gains and losses resulting from terminations of swaps,

when they occur, are recognized as a component of nonoperating items in the accompanying

statements of revenues, expenses and changes in net position. Increases or decreases in the fair value

of effective interest rate swaps are recognized as deferred effective interest rate swap inflows or

outflows in the accompanying balance sheets. Gains and losses resulting from changes in the fair

value of ineffective interest rate swaps are recognized as a component of nonoperating items in the

accompanying statements of revenues, expenses and changes in net position.




30 (Continued)

(s) Impairment of Long-Lived Assets

Management evaluates whether there has been a significant unexpected decline in the utility of a

capital asset that could indicate an impairment in the capital asset. If there is an indication that the

asset may be impaired, the District follows GASB Statement No. 42, Accounting and Financial

Reporting for Impairment of Capital Assets and for Insurance Recoveries, to determine if the

impairment loss should be recognized. The amount of impairment, if any, is determined by

comparing the historical carrying value of the asset to the valuation method which most

appropriately reflects the decline in service utility of the capital asset. The District concluded that no

impairments existed as of September 30, 2014 and 2013.

(t) Reclassifications

Certain items in the 2013 financial statements have been reclassified to conform to the 2014

presentation. The reclassifications had no effect on excess of revenues over expenses or changes in

net position.

(2) Cash and Investments

(a) Cash Deposits

For the years ended September 30, 2014 and 2013, the District’s governmental bank balances are

held in accounts protected under Chapter 280, Florida Statutes in institutions classified as qualified

public depositories. The District’s nongovernmental bank balances of $995,000 and $2,579,000 were

covered by federal depository insurance to the applicable limits for the years ended September 30,

2014 and 2013, respectively.

(b) Investments

Florida Statutes and the District’s enabling legislation authorize the District to invest in obligations

of the U.S. government and certain of its agencies, certificates of deposit of qualified public

depositories, certain bankers’ acceptances, certain domestic commercial paper, corporate notes and

bonds, interest-bearing time deposits or savings accounts of qualified banks and savings and loans

institutions, and repurchase and reverse repurchase agreements.

The fair values of short-term investments are estimated based on quoted market prices, which are

generally equal to carrying amounts because of the short maturity of those instruments. The fair

values of restricted investments and board designated investments are based on quoted market prices.




31 (Continued)

As of September 30, 2014, the District had cash and investments maturing as follows:

Cash and investment maturities

Less than More than

Fair value 1 year 1-5 years 6-10 years 10 years

U.S. government securities $ 79,895,568 35,960,294 36,249,573 7,685,701 —

U.S. government agency

securities 179,199,682 16,779,582 99,239,580 56,589,870 6,590,650

Corporate bonds 288,041,016 4,020,646 174,554,966 109,465,404 —

Municipal securities 46,475,622 9,591,445 36,884,177 — —

Other, including bank deposits 64,226,129 64,226,129 — — —

Total cash and

investments $ 657,838,017 130,578,096 346,928,296 173,740,975 6,590,650

As of September 30, 2013, the District had cash and investments maturing as follows:

Cash and investment maturities

Less than More than

Fair value 1 year 1-5 years 6-10 years 10 years

U.S. government securities $ 96,007,864 55,650,806 32,744,323 7,612,735 —

U.S. government agency

securities 163,566,067 16,658,551 86,164,460 48,410,199 12,332,857

Corporate bonds 280,183,654 25,666,503 166,074,361 88,442,790 —

Municipal securities 31,854,093 18,088,027 13,766,066 — —

Other, including bank deposits 45,396,324 45,396,324 — — —

Total cash and

investments $ 617,008,002 161,460,211 298,749,210 144,465,724 12,332,857

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an

investment. The District’s investment policy authorizes a strategic asset allocation that is designed to

provide an optimal return over the District’s investment horizon within the District’s risk tolerance

and cash requirements. The District’s investment policy states that investment transactions shall be

structured to minimize capital losses, whether from securities defaults or erosion of market value. To

attain this objective, diversification is required in order to minimize potential losses on the portfolio.

As a means of limiting its exposure to fair value losses arising from rising interest rates, the

District’s investment policy limits the District’s investment portfolio to maturities as follows:

Direct government obligations 10 yearsU.S. government and U.S. government agency securities 10 yearsBankers’ acceptances 0.5 yearsCommercial paper, corporate notes, and bonds 10 yearsCertificate of deposits 0.5 years




32 (Continued)

Although the policy typically prohibits US Government Agency investment maturities greater than

10 years, for asset-backed or similar securities the investment policy limitation is based on weighted

average life rather than maturity. At September 30, the weighted average life was less than 10 years.

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its

obligations. The District’s investment policy provides guidelines for its fund managers and lists

specific allowable investments. The policy provides for the utilization of varying styles of managers

so that portfolio diversification is maximized and total portfolio efficiency is enhanced.

GASB No. 40, Deposit and Investment Risk Disclosures – an Amendment of GASB Statement No. 3,

requires that disclosure be made as to the credit quality ratings of investments in debt securities

except for obligations of the U.S. government or obligations explicitly guaranteed by the

U.S. government. As of September 30, 2014, the Moody’s ratings of the District’s investments range

from A – to AAA, except for the corporate bond noted below, which is rated at Baa1. As of

September 30, 2013, the Moody’s ratings of the District’s investments range from A – to AAA,

except for the corporate bond noted below, which is rated at Baa1.

The investment policy limits commercial paper investments to that of prime quality rated by at least

two nationally recognized debt rating agencies in the highest letter and numerical rating of each

agency. If not so rated, such prime quality commercial paper may be purchased if secured by a letter

of credit provided by a commercial bank, which bank or its holding company carries a credit rating

in one of the two highest alphabetical categories from at least two nationally recognized debt rating

agencies.

The investment policy limits corporate debt investments to interest-bearing bonds, debentures, and

other such evidence of indebtedness with a fixed maturity of any domestic corporation within the

United States which is listed on any one or more of the recognized national stock exchanges in the

United States and conforms with the periodic reporting requirements under the Securities Exchange

Act of 1934. Such obligation shall either carry ratings in one of the three highest classifications of at

least two nationally recognized debt rating agencies; or be secured by a letter of credit provided by a

commercial bank, which bank or its holding company carries a credit rating in one of the three

highest alphabetical categories from at least two nationally recognized debt rating agencies. As of

September 30, 2014, at the request of its investment manager, the District permitted a specific

temporary exception to the policy limits for one corporate bond in the amount of $4,212,512. As of

September 30, 2013, at the request of its investment manager, the District permitted a specific

temporary exception to the policy limits for one corporate bond in the amount of $4,002,232.

The custodial credit risk for deposits is the risk that, in the event of the failure of a depository

financial institution, the District will not be able to recover deposits or will not be able to recover

collateral securities that are in the possession of an outside party. The District’s deposits are exposed

to custodial credit risk if they are not covered by depository insurance and the deposits are

uncollateralized, collateralized with securities held by the pledging financial institution, or

collateralized with securities held by the pledging financial institution’s trust department or agent but

not held in the District’s name.

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty

to a transaction, the District will not be able to recover the value of the investment or collateral

securities that are in the possession of an outside party. The District’s investment securities are




33 (Continued)

exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the

District, and are held by either the counterparty or the counterparty’s trust department or agent but

not in the District’s name.

At September 30, 2014, the District’s governmental deposits and investments were not exposed to

custodial credit risk since the full amount was insured or registered, or securities held by the District

or its agent, in the District’s name. The District’s investment policy states that District securities be

held with a third-party custodian and all securities purchased by, and all collateral obtained by, the

District shall be properly designated as an asset of the District. Other entities of the District have

deposits in a financial institution in excess of federally insured limits and which are not

collateralized.

Concentration of credit risk is the risk of loss attributed to the magnitude of the District’s investment

in a single issuer. Disclosure is required for investments in any one issuer that represent 5% or more

of total investments. Investments issued or explicitly guaranteed by the U.S. government and

investments in mutual funds, external investment pools, and other pooled investments are excluded

from this requirement. The District’s investment policy states that no single corporate fixed income

issuer shall represent more than 10% of the portfolio. The policy further states that the District’s

investments shall be diversified to the extent practicable to control the risk of loss resulting from

over concentration of assets in a specific maturity, issuer, instrument, dealer, or bank through which

financial instruments are bought and sold. At September 30, 2014 and 2013, there were no

investment holding above the applicable concentration of credit risk limits.

(3) Restricted Investments and Board Designated Investments

Restricted investments and board designated investments as of September 30, 2014 and 2013 are as

follows:

2014 2013

Under bond indenture agreements held by trustees, at fairvalue plus accrued interest, held for:

Payment of principal and interest $ 432,055 370,176 Payment of bond issuance costs — 236,102

432,055 606,278 Restricted funds designated by donors or grantors, at fair

value plus accrued interest, held for:Specific purposes 339,113 159,954 Plant replacement and expansion 1,549,740 1,878,717

1,888,853 2,038,671

Total restricted investments $ 2,320,908 2,644,949

Unrestricted funds designated by the Board, at fair valueplus accrued interest, held for:

Capital improvements $ 603,657,334 582,036,247




34 (Continued)

(4) Capital Assets

The changes in capital assets for the years ended September 30, 2014 and 2013 are as follows:

2014

Beginning Transfers in/ Ending

balance Additions transfers out Disposals balance

Nondepreciable:

Land $ 45,478,833 (100,000) — — 45,378,833

Land held for future expansion 28,102,940 — — — 28,102,940

Construction in progress 18,083,818 18,281,950 (21,091,765) — 15,274,003

Total

nondepreciable 91,665,591 18,181,950 (21,091,765) — 88,755,776

Depreciable:

Land improvements 13,302,136 20,635 883,589 — 14,206,360

Buildings 525,270,702 757,226 (6,248,129) — 519,779,799

Leasehold improvements 4,576,404 187,344 169,519 — 4,933,267

Moveable equipment 260,381,543 9,789,695 26,286,786 (423,600) 296,034,424

Total depreciable 803,530,785 10,754,900 21,091,765 (423,600) 834,953,850

895,196,376 28,936,850 — (423,600) 923,709,626

Less accumulated depreciation (354,225,750) (37,406,516) — 428,492 (391,203,774)

Capital assets, net $ 540,970,626 (8,469,666) — 4,892 532,505,852




35 (Continued)

2013

Beginning Transfers in/ Ending

balance Additions transfers out Disposals balance

Nondepreciable:

Land $ 39,944,629 5,534,204 — — 45,478,833

Land held for future expansion 28,102,940 — — — 28,102,940

Construction in progress 123,517,195 75,866,151 (181,299,528) — 18,083,818

Total

nondepreciable 191,564,764 81,400,355 (181,299,528) — 91,665,591

Depreciable:

Land improvements 13,358,913 12,785 200,705 (270,267) 13,302,136

Buildings 368,475,282 2,502,955 158,970,096 (4,677,631) 525,270,702

Leasehold improvements 5,568,807 45,093 365,288 (1,402,784) 4,576,404

Moveable equipment 243,652,775 14,481,926 21,763,439 (19,516,597) 260,381,543

Total depreciable 631,055,777 17,042,759 181,299,528 (25,867,279) 803,530,785

822,620,541 98,443,114 — (25,867,279) 895,196,376

Less accumulated depreciation (344,395,602) (34,625,541) — 24,795,393 (354,225,750)

Capital assets, net $ 478,224,939 63,817,573 — (1,071,886) 540,970,626

The District has expansion and renovation programs involving various Hospital departments, patient care

areas, ambulatory centers and support services. Total estimated cost to complete all projects in progress is

approximately $61.5 million as of September 30, 2014, including $45.6 million for a new comprehensive

rehabilitation services building.




36 (Continued)

(5) Long-Term Debt

The District was obligated under long-term debt as of September 30, 2014 and 2013 as follows:

2014 2013

Sarasota County Public Hospital District, Municipal InflationLinked Exempt Bonds Series 1997A, $5,000,000 dueOctober 1, 2020 and $10,000,000 due October 1, 2021.Interest paid semi-annually in the sum of 2.05% plus orminus a floating rate which will increase or decrease eachsemi-annual period based on the Consumer Price Index, asdefined. Both components of the interest rates totaled 5.745%at September 30, 2014. $ 15,000,000 15,000,000

Sarasota County Public Hospital District, Fixed Rate HospitalRevenue Refunding Bonds, Series 1998B, due in annualamounts through 2028 at annual interest rates from 5.25% to5.50%. 100,000,000 102,000,000

Sarasota County Public Hospital District, Variable RateDemand Hospital Revenue Bonds, Series 2008A, due inannual amounts through 2037 at an interest rate of 0.01% atSeptember 30, 2014. 71,100,000 72,200,000

Sarasota County Public Hospital District, Variable RateDemand Hospital Revenue Bonds, Series 2008B, due inannual amounts through 2037 at variable interest rates,0.05% at September 30, 2014. 70,975,000 73,000,000

Sarasota County Public Hospital District, Fixed RateHospital Revenue Bonds, Series 2009A, due in annualamounts through 2039 at interest rates from 4.0% to5.625% (less unamortized bond issuance discount in theamount of $2,018,505 and $2,056,961 at September 30,2014 and 2013, respectively). 82,011,495 95,323,039

Sarasota County Public Hospital District, Variable RateDemand Hospital Revenue Refunding Bonds, Series 2009B,due in annual amounts through 2037 at variable interestrates, 0.03% at September 30, 2014. 70,750,000 72,700,000

Note payable to Ehlers Enterprises, LLP. and Charles F. Ison,due on July 24, 2026. Interest only payments were duemonthly until July 24, 2011. Principal and interest are payablemonthly beginning August 24, 2011 through July 24, 2026.Interest rate is 6%. 1,712,978 1,809,560

Other miscellaneous long-term payables — 881,866 Capital equipment leases, due in monthly principal and interest

payments through 2014. — 40,020

411,549,473 432,954,485

Less current portion (9,002,536) (9,598,466)

$ 402,546,937 423,356,019




37 (Continued)

Long-term debt activity for the years ended September 30, 2014 and 2013 was as follows:

2014

Amounts due

Beginning Ending within one

balance Additions Reductions balance year

Hospital Revenue Refunding

Fixed Rate Bonds (1998B) $ 102,000,000 — (2,000,000) 100,000,000 2,000,000

Municipal Inflation Linked Exempt

Variable Rate Bonds (1997A) 15,000,000 — — 15,000,000 —

Hospital Revenue Variable Rate

Demand Bonds (2008A) 72,200,000 — (1,100,000) 71,100,000 1,075,000


Demand Bonds (2008B) 73,000,000 — (2,025,000) 70,975,000 2,175,000

Hospital Revenue Fixed

Rate Bonds (2009A) 97,380,000 — (13,350,000) 84,030,000 1,575,000


Refunding Bonds (2009B) 72,700,000 — (1,950,000) 70,750,000 2,075,000

Ehlers note payable 1,809,560 — (96,582) 1,712,978 102,536

Other miscellaneous payables 881,866 24,467 (906,333) — —

Capital leases payable 40,020 — (40,020) — —

435,011,446 24,467 (21,467,935) 413,567,978 9,002,536

Less original issue discount (2,056,961) — 38,456 (2,018,505) —

Total long-term debt $ 432,954,485 24,467 (21,429,479) 411,549,473 9,002,536




38 (Continued)

2013

Amounts due



Hospital Revenue Refunding

Fixed Rate Bonds (1998B) $ 104,000,000 — (2,000,000) 102,000,000 2,000,000

Municipal Inflation Linked Exempt

Variable Rate Bonds (1997A) 15,000,000 — — 15,000,000 —


Demand Bonds (2008A) 73,225,000 — (1,025,000) 72,200,000 1,100,000


Demand Bonds (2008B) 74,925,000 — (1,925,000) 73,000,000 2,025,000

Hospital Revenue Fixed

Rate Bonds (2009A) 98,840,000 — (1,460,000) 97,380,000 1,505,000


Refunding Bonds (2009B) 74,575,000 — (1,875,000) 72,700,000 1,950,000

Ehlers note payable 1,900,527 — (90,967) 1,809,560 96,580

Other miscellaneous payables 781,867 99,999 — 881,866 881,866

Capital leases payable 197,681 — (157,661) 40,020 40,020

443,445,075 99,999 (8,533,628) 435,011,446 9,598,466

Less original issue discount (2,088,146) — 31,185 (2,056,961) —

Total long-term debt $ 441,356,929 99,999 (8,502,443) 432,954,485 9,598,466

Maturities under the long-term debt agreements, including interest, described above are as follows:

Total Principal Interest

Year ending September 30:2015 $ 21,567,296 9,002,536 12,564,760 2016 21,627,613 9,333,859 12,293,754 2017 23,458,786 11,460,575 11,998,211 2018 23,545,860 11,892,703 11,653,157 2019 23,636,215 12,345,271 11,290,944 2020-2024 122,516,422 70,682,259 51,834,163 2025-2029 122,524,497 72,750,775 49,773,722 2030-2034 135,166,089 96,345,000 38,821,089 2035-2039 136,807,640 119,755,000 17,052,640

$ 630,850,418 413,567,978 217,282,440

Debt service on the Series 1997A and 1998B Bonds in the above table is based upon the execution of an

interest rate exchange agreement in which the District will be paying rates based on the Securities Industry

and Financial Markets Municipal Swap Index (SIFMA Index). The assumed rate to calculate debt service

is the average rate for the year ended September 30, 2014. Debt service on the Series 2008A Bonds, the

Series 2008B Bonds, and the Series 2009B Bonds in the above table is based upon the execution of interest

rate exchange agreements in which the District will be paying fixed rates of 3.61%, 3.766%, and 3.697%,

respectively.




39 (Continued)

All bonds were issued by the District pursuant to a Master Trust Indenture dated September 1, 1996, as

supplemented and amended, between the District and U.S. Bank National Association as master trustee. As

of September 30, 2014 and 2013, the District was the only member of the obligated group under the Master

Trust Indenture; however, members may be admitted to the obligated group or may cease membership in

accordance with the terms of the Master Trust Indenture.

On July 7, 1997, the District issued $15,000,000 in Municipal Inflation Linked Exempt Bonds, Series

1997A, to refund existing debt at that time. The Series 1997A Bonds are collateralized by a municipal

bond insurance policy.

During 1998, the District issued, $120,000,000 of Fixed Rate Hospital Revenue Refunding Bonds, Series

1998B, to refund existing debt at that time.

On September 2, 2008, to refinance existing debt, the District issued the $76,875,000 Variable Rate

Hospital Revenue Refunding Bonds, Series 2008A bonds, and the $81,725,000 Variable Rate Hospital

Revenue Refunding Bonds, Series 2008B bonds. Both of these series are supported by separate bank credit

facilities in the form of a direct pay letter of credit. The 2008A letter of credit expires on October 1, 2016

and the 2008B letter of credit expires on October 1, 2019. There were no drawings or loans on these letters

of credit during the year ended September 30, 2014.

On August 27, 2009, the District issued $103,890,000 of fixed rate hospital revenue bonds, Series 2009A,

to provide funding for a new nine-story hospital bed tower to be constructed on the Hospital campus. The

bonds were issued with interest rates ranging from 3.0% to 5.625% at yields ranging from 1.95% to 5.82%,

resulting in a total net original issuance discount of $2,104,385 which is being amortized using the

effective interest method over the life of the bonds which mature in varying amounts through 2039. The

District exercised its right for an optional $11,845,000 partial redemption on July 1, 2014.

As the result of marketability problems on the Series 2007B bonds following the April 2009 credit rating

downgrade of the bank which issued the direct pay letter of credit supporting the bonds, the District

refunded the issue on September 30, 2009. The refunding of the Series 2007B bonds was accomplished

through the issuance of the $79,525,000 Variable Rate Hospital Revenue Refunding Bonds, Series 2009B,

which are supported by a bank credit facility in the form of a direct pay letter of credit. On October 19,

2011, the 2009B bonds were remarketed with a mode change to daily and with a new bank credit facility in

the form of a direct pay letter of credit that will expire on October 15, 2015. There were no drawings or

loans on this letter of credit during the year ended September 30, 2014.

The Hospital Revenue Bonds described above are collateralized by a lien on and a pledge of the net

revenues of the District and all monies held in funds created by the bond resolution. The debt agreements

contain various covenants, which provide for, among other things, the maintenance of minimum levels of

cash and investments and specified debt service coverage ratios. Management believes the District was in

compliance with all debt covenants at September 30, 2014 and 2013.

The District’s ability to borrow is restricted under certain covenants of the Master Trust Indenture. Among

these is the limitation of indebtedness not under the Master Indenture, which may not exceed 25% of

operating revenue.




40 (Continued)

Approximately $47,030 and $5,019,000 of interest expense was capitalized in connection with the

District’s construction programs for the years ended September 30, 2014 and 2013, respectively.

The fair value of the long-term debt is based on dealer quotes for hospital tax-exempt debt with similar

terms and maturities and using discounted cash flow analyses based on current interest rates for similar

types of borrowing arrangements. The estimated fair value as of September 30, 2014 and 2013 was

$437,911,488 and $445,663,541, respectively. These values represent a general approximation of the fair

value and may never actually be realized.

Hedging Derivative Instruments

Objectives of the hedging derivative instruments: The District has entered into interest rate swaps to

manage interest costs related to long-term debt.

Terms at September 30, 2014:

Associated Notional Fair value at Net cash

bond amount Effective District District Termination September 30, flows during

issue of swap Counterparty date pays receives date 2014 (1) 2014

Fixed rates per1998B $ 100,000,000 Goldman Sachs 9/15/1998 SIFMA maturities 7/1/2028 $ 14,609,673 4,808,538

67% of 1-2008A 71,100,000 Deutsche Bank 11/19/2010 3.610% month LIBOR 7/1/2037 (15,787,879) (2,519,588)

61.7% of 1-month LIBOR

2008B 70,975,000 Deutsche Bank 7/3/2013 3.766% plus 0.26% 7/1/2037 (1,625,956) (1,713,064)


2009B 70,750,000 U.S. Bank 7/4/2013 3.697% plus 0.26% 6/28/2023 (1,392,605) (1,695,587)

(1) Fair value at September 30, 2014 excludes current net accrued interest receivable of $585,063.

Note:

In accordance with GASB 53, the fair values of the novated 2008B and 2009B swaps are based on the at-the-market

payor rates of the respective swaps. The actual fair value of the 2008B and 2009B swaps at September 30, 2014were $(14,629,151) and $(14,026,664), respectively.

Definitions:

SIFMA is the Securities Industry Financial Markets Association benchmark rate

LIBOR is the London InterBank Offering Rate




41 (Continued)

Terms at September 30, 2013:




Fixed rates per1998B $ 102,000,000 Goldman Sachs 9/15/1998 SIFMA maturities 7/1/2028 $ 9,421,359 4,821,970

67% of 1-2008A 72,200,000 Deutsche Bank 11/19/2010 3.610% month LIBOR 7/1/2037 (13,713,385) (2,535,838)


2008B 73,000,000 Deutsche Bank 7/3/2013 3.766% plus 0.26% 7/1/2037 338,491 (2,226,350)


2009B 72,700,000 U.S. Bank 7/4/2013 3.697% plus 0.26% 6/28/2023 597,619 (2,212,999)


Note:

In accordance with GASB 53, the fair values of the novated 2008B and 2009B swaps are based on the at-the-market

payor rates of the respective swaps. The actual fair value of the 2008B and 2009B swaps at September 30, 2013were $(13,300,890) and $(12,426,757), respectively.

Definitions:

SIFMA is the Securities Industry Financial Markets Association benchmark rate

LIBOR is the London InterBank Offering Rate

Risks

Credit risk: The District is exposed to credit risk on hedging derivative instruments that are in asset

positions. To minimize its exposure to loss related to credit risk, it is the District’s policy to require

counterparty collateral posting provisions in its nonexchange-traded swaps. These terms require full

collateralization of the fair value of the swaps in asset positions (net of the effect on applicable netting

arrangements) should the counterparty’s Moody’s credit rating fall below Baa3. The District is not required

to post collateral to the counterparty in any circumstance. Collateral is to be posted in the form of

U.S. Treasury securities held by a third-party custodian.

Interest rate risk: The District is exposed to interest rate risk on its pay-variable, receive-fixed interest rate

swap. As SIFMA increases, the District’s net payment on the swap increases. Alternatively, on its

pay-fixed, receive variable interest rate swaps, as LIBOR decreases, the District’s net payment increases.

Basis risk: The District is exposed to basis risk on its pay-fixed, receive variable interest rate swaps

because the variable rate payments received by the District are based on an index other than the interest

rates the District pays on its hedged variable rate demand obligations, which are remarketed either daily or

weekly, depending on the series. As of September 30, 2014, the average rate on the District’s hedged

variable rate debt was 0.03% while the LIBOR-based variable receiver rates are 0.10% and 0.36% on the

pay-fixed, receive variable interest rate swaps.

Termination risk: The District or its counterparties may terminate each of the derivative instruments if the

other party fails to perform under the terms of the contract. Additionally, the District can terminate the

contracts without cause at any time.




42 (Continued)

The fixed receiver swap with Goldman Sachs (Goldman) can be terminated if Goldman exercises its option

to deliver securities under an existing put agreement, or if the District exercises its option to terminate the

put agreement. Currently, no determination can be made by management relating to the probability of the

termination option being exercised. In exchange for granting the option, the District receives a semi-annual

payment of 8 basis points calculated on the outstanding Series 1998B Bonds, the issuance costs of the

Series 1998B Bonds paid by the counterparty to the interest rate swap, and, in the event the option is

exercised, the reasonable cost of refunding the Series 1998B Bonds into Variable Rate Demand Hospital

Revenue Bonds similar in characteristics to the original debt.

In trades completed on June 28, 2013, the District implemented a novation strategy for its existing interest

rate swap transactions related to its Series 2008B and Series 2009B Bond issues. The District solicited

proposals for new counterparties to replace Citibank, N.A. (Citi) on these two fixed payer interest rate

swap agreements, both of which included optional termination events that effectively provided Citi

recurring put options. The 2008B termination option would have been first exercisable by Citi in

September 2013, and the 2009B termination option first exercisable by Citi in September 2014. The

District selected Deutsche Bank AG and U.S. Bank N.A. for the 2008B and 2009B swaps, respectively.

The trades took place on June 28, 2013 with effective dates of July 3, 2013, for the 2008B swap and July 4,

2013, for the 2009B swap.

Simultaneously with the novations, confirmations were entered into with the new counterparties that

modified the terms of the original swaps. The 2008B swap fixed payment rate was increased 16.8 basis

points to 3.766% and the counterparty no longer has any option to terminate early. The variable payment

rate remains the same at 61.7% of the 1-month LIBOR rate plus 0.26%. The 2008B swap is in the notional

amount of $73,000,000 with reductions tied to the Series 2008B Bond principal payments, and the

termination date is July 1, 2037.

For the 2009B swap the District opted for a 10-year “put” and a fixed payment rate increase of 9.9 basis

points to 3.697%. The mandatory termination date on the 2009B swap is June 28, 2023. The variable

payment rate remains the same at 61.7% of the 1-month LIBOR rate plus 0.26%. The 2009B swap is in the

notional amount of $72,700,000 with reductions tied to the Series 2009B Bond principal payments through

the October 1, 2037 2009B Bond maturity date.

In accordance with Governmental Accounting Standards Board Statement No. 53, the novations resulted in

a termination of hedge accounting for the replaced Citi swaps. As a result of the terminations of the 2008B

and 2009B swaps, losses on termination were recorded in fiscal 2013 in the amounts of $13,739,010 and

$13,029,959, respectively. The new swaps were considered to be hybrid instruments consisting of a

“companion instrument” and an at-the–market swap. The noncurrent portion of the total companion

instrument liability is included in the balance sheets as “long term companion debt, less current portion”

and the current portion is included in other accrued expenses. The companion instrument is amortized over

the term of the related 2008B and 2009B swaps. During the fiscal year ended September 30, 2014, the

amortization of the companion debt resulted in an increase to interest expense of $590,681 and an increase

in interest rate swap receipts (payments), net of $1,451,553.




43 (Continued)

Long-term companion debt activity for the year ended September 30, 2014 and 2013 was as follows:

2014

Amounts due



2008B Swap Companion Debt $ 13,629,348 — (441,103) 13,188,245 448,466

2009B Swap Companion Debt 12,925,598 — (419,749) 12,505,849 426,669

Total Long-term

companion debt $ 26,554,946 — (860,852) 25,694,094 875,135

2013

Amounts due



2008B Swap Companion Debt $ — 13,739,010 (109,662) 13,629,348 438,649

2009B Swap Companion Debt — 13,029,959 (104,361) 12,925,598 417,443

Total Long-term

companion debt $ — 26,768,969 (214,023) 26,554,946 856,092

Maturities for the long-term companion debt, including interest, described above are as follows:

Total Principal Interest

Year Ending September 30:2015 $ 1,451,533 875,135 576,398 2016 1,451,533 899,575 551,958 2017 1,451,533 919,585 531,948 2018 1,451,533 940,040 511,493 2019 1,451,534 960,950 490,584 2020-2024 7,257,666 5,135,042 2,122,624 2025-2029 7,257,666 5,732,132 1,525,534 2030-2034 7,257,666 6,397,561 860,105 2035-2039 3,991,717 3,834,074 157,643

$ 33,022,381 25,694,094 7,328,287

Any termination of a contract would cause a settlement payment or receipt at the fair value of the

instrument.




44 (Continued)

Investment Derivative Instruments

The District has entered into four basis swaps that are accounted for as investment derivative instruments.

Terms as of September 30, 2014:




62.4% of 1-SIFMA Swap month LIBOR

1997A $ 10,000,000 CitiGroup 6/24/2005 index + 0.705% 10/1/2021 $ 222,184 75,854

SIFMA Swapindex Floating CPI rate

1997A 15,000,000 Goldman Sachs 11/19/2010 + 0.04% + 2.05% 10/1/2021 2,284,015 591,312

62.4% of 1-

SIFMA Swap month LIBOR1998B 84,000,000 CitiGroup 6/24/2005 index + 0.757% 7/1/2028 1,472,698 681,368

67% of 1-

SIFMA Swap month LIBOR2008A 71,100,000 J.P. Morgan 4/24/2003 index plus 0.655% 7/1/2037 220,716 514,176


Definitions:SIFMA is the Securities Industry Financial Markets Association benchmark rateCPI is Consumer Price Index

Terms as of September 30, 2013:




62.4% of 1-SIFMA Swap month LIBOR

1997A $ 10,000,000 CitiGroup 6/24/2005 index + 0.705% 10/1/2021 $ 204,758 72,417

SIFMA Swapindex Floating CPI rate

1997A 15,000,000 Goldman Sachs 11/19/2010 + 0.04% + 2.05% 10/1/2021 2,766,418 575,461

62.4% of 1-

SIFMA Swap month LIBOR1998B 84,000,000 CitiGroup 6/24/2005 index + 0.757% 7/1/2028 803,853 652,330

67% of 1-

SIFMA Swap month LIBOR2008A 72,200,000 J.P. Morgan 4/24/2003 index plus 0.655% 7/1/2037 (743,817) 497,539


Definitions:SIFMA is the Securities Industry Financial Markets Association benchmark rateCPI is Consumer Price Index




45 (Continued)

Risks

Credit risk: The District is exposed to credit risk on investment derivative instruments that are in asset

positions. To minimize its exposure to loss related to credit risk, it is the District’s policy to require

counterparty collateral posting provisions in its nonexchange-traded swaps. These terms require full

collateralization of the fair value of the swaps in asset positions (net of the effect on applicable netting

arrangements) should the counterparty’s Moody’s credit rating fall below Baa3. The District is not required

to post collateral to the counterparty in any circumstance. Collateral is to be posted in the form of

U.S. Treasury securities held by a third-party custodian.

Interest rate risk: The District is exposed to interest rate risk on its pay-fixed, receive variable interest rate

swap; as LIBOR decreases, the District’s net settlement payment increases.

Basis risk: The District is exposed to basis risk on its swap in which it pays based on SIFMA and receives

a payment based on the six-month change based on the CPI index because the variable rate payments

received by the District are based on an index other than the interest rates the District pays on its hedged

variable rate demand obligations. As of September 30, 2014, the rate the District paid the counterparty was

0.08% and the rate received was 5.75%.

The District is also exposed to basis risk on the three swaps in which the District payment is based on the

SIFMA index and receives a payment based on the one-month LIBOR index. As of September 30, 2014,

the SIFMA index was 0.04% and the one-month LIBOR index was 0.16%.

Termination risk: The District or its counterparties may terminate each of the derivative instruments if the

other party fails to perform under the terms of the contract. Additionally, the District can terminate the

contracts without cause at any time.

Any termination of a contract would cause a settlement payment or receipt at the market value of the

instrument.

(6) Retirement Plan

On September 24, 1995, the District withdrew from the Florida Retirement System (FRS). This withdrawal

was accomplished by transferring all District employees to SMH Health Care, Inc., a related organization.

SMH Health Care, Inc. contracts with the District for leased personnel services. All employees of SMH

Health Care, Inc. were given a one-time option to choose between two retirement options with an effective

date of October 1, 1995. All employees’ benefits previously earned through FRS are guaranteed under the

new retirement plan. Employees who have 10 or more years of service under FRS will be entitled to a

pension from the State of Florida. Employees who do not have 10 years of service will retain their years of

service under either of the new options.

The SMH Health Care Retirement Plan (the Plan) is a single-employer defined benefit pension plan

administered by the District. The Plan provides retirement, disability, and death benefits to plan members

and their beneficiaries. During the year ended September 30, 2003, the District changed the status of the

Plan from an ERISA plan to a governmental plan under the Florida Statutes thereby eliminating various

ERISA requirements. The change was made effective for the year ended September 30, 2003. On

March 26, 2003, the District formally requested a private letter ruling from the Internal Revenue Service




46 (Continued)

(IRS) to change the status of the pension plan to a governmental plan. On January 22, 2007, the IRS

informed the District that the IRS would not issue letter rulings on whether or not a plan is a

“governmental plan” because the IRS intends to publish new guidance regarding the meaning of a

“governmental plan”. To date, no such guidance has been published. Management believes, based on

discussions with legal counsel, that a favorable outcome will ultimately be granted. However, if the IRS

were to determine that the Plan is not a “governmental plan”, it is estimated that no additional contribution

would be necessary for the Plan to be 80% funded on an ERISA plan basis (including the changes under

the Pension Protection Act which impacts ERISA plans starting with 2008 plan years) as of October 1,

2013. This estimate includes any adjustments for the funding relief legislation passed in July 2012 and in

August 2014. The District issues a publicly available financial report that includes financial statements and

required supplementary information for the Plan. That report may be obtained by writing to the District.

Plan members are not required or permitted to contribute to the Plan under the funding policy. The District

is required to contribute at an actuarially determined rate.

The Plan is now closed to any employee hired or rehired on or after October 1, 2009. Employees hired on

or after October 1, 2009 participate in a new defined contribution plan named the SMHCS Retirement

Savings Plan (RSP Plan), whereby the District contributes a stated percentage of qualified earnings into the

RSP Plan. The stated contribution rate for the fiscal years ended September 30, 2014 and 2013 was 4% of

qualified earnings and does not require a matching contribution by the employee. The expense of the RSP

Plan for the years ended September 30, 2014 and 2013 was $2,145,918 and $2,009,989, respectively, and

is included in salaries, wages and fringe benefits on the statements of revenues, expenses and changes in

net position.

The District’s annual pension cost and net pension asset for the Plan, included with other assets in the

balance sheets, as of September 30 was as follows:

2014 2013

Annual required contribution $ (16,606,485) (23,258,981) Interest on net pension obligation 5,250,000 — Adjustments (6,043,980) —

Annual pension cost (17,400,465) (23,258,981)

Contributions made 16,606,485 98,258,981

(Decrease) increase in net pension asset (793,980) 75,000,000

Net pension asset, beginning of year 75,000,000 —

Net pension asset, end of year $ 74,206,020 75,000,000




47 (Continued)

The annual required contribution for the current year was determined as part of the October 1, 2013

actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions

included (a) 7.00% investment rate of return (net of administrative expenses) and (b) projected age-graded

compensation increases of 4% to 8%, based on Plan experience. Both (a) and (b) included an inflation

component of 2.75%. Effective October 1, 2001, the actuarial value of assets method was changed from

fair value to a method utilizing a five-year averaging of gains and losses. The initial unfunded actuarial

accrued liability as of October 1, 2002 is being amortized as a level dollar amount on a closed group basis.

The remaining amortization period at October 1, 2013 was 19 years.

Three-year trend information is as follows:

Annual Percentagepension of APC Net pension

cost (APC) contributed asset

Fiscal year ended September 30:2012 $ 22,923,126 100.0% $ — 2013 23,258,981 422.5 75,000,000 2014 17,400,465 95.4 74,206,020

A schedule of funding progress (required supplementary information – unaudited-see accompanying

auditors’ report) for the previous six plan years is as follows:

Unfunded

actuarial UAAL as a

Actuarial Actuarial Actuarial accrued percentage

valuation value of accrued liability Funded Covered of covered

date plan assets liability (UAAL) ratio payroll payroll

10/1/2008 $ 142,384,033 213,977,674 71,593,641 66.5% $ 150,848,731 47.5%

10/1/2009 151,855,366 238,542,316 86,686,950 63.7 166,667,613 52.0

10/1/2010 162,211,763 249,732,530 87,520,767 65.0 161,452,376 54.2

10/1/2011 171,964,360 274,910,006 102,945,646 62.6 153,291,551 67.2

10/1/2012 181,828,196 293,666,035 111,837,839 61.9 139,579,218 80.1

10/1/2013 257,775,704 304,802,520 47,026,816 84.6 133,004,920 35.4

(7) Post-Employment Benefits

The District provides other postemployment health care benefits (OPEB Plan) to all employees who retire

from the District under the OPEB Plan after 20 or more years of service and age 55, or after 30 years of

service. Premiums paid by retirees are based on the projected average plan cost of the District’s

self-insured health benefit program for the year.

Life insurance is offered to those who retire under the Florida Retirement System (FRS) or the OPEB Plan

with at least 20 years of service.

The OPEB Plan is funded on a pay-as-you-go basis. The District may make additional contributions as

desired. No additional contributions have been made to date.




48 (Continued)

The District’s OPEB cost is calculated based on the Annual Required Contribution of the employer (ARC),

an amount actuarially determined in accordance with the parameters of GASB Statement Number 45

(GASB 45), Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than

Pensions. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover

normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not

to exceed 30 years. The following table shows the components of the District’s annual OPEB cost for the

year, the amount actually contributed to the OPEB Plan, and changes in the District’s net OPEB obligation.

2014 2013

Annual required contribution $ 676,967 669,858 Interest on net OPEB obligation 153,620 117,815 Adjustment to annual required contribution (211,826) (170,331)

Annual OPEB cost 618,761 617,342

Contributions made (220,488) (71,345)

Increase in net OPEB obligation 398,273 545,997

Net OPEB obligation, beginning of year 3,491,369 2,945,372

Net OPEB obligation, end of year $ 3,889,642 3,491,369

The net OPEB obligation is included in other long-term liabilities in the balance sheets. The District’s

annual OPEB cost, the percentage of annual OPEB cost contributed to the OPEB Plan, and the net OPEB

obligation for the most recent three years were as follows:

Annual Percentage NetOPEB of AOC OPEB

cost (AOC) contributed obligationFiscal year ended September 30:

2012 $ 665,544 (1.2) 2,945,372 2013 617,342 11.6 3,491,369 2014 618,761 35.6 3,889,642




49 (Continued)

A schedule of funding progress (required supplementary information – unaudited – see accompanying

auditors’ report) for the previous six plan years is as follows:

Unfunded

actuarial UAAL as a

Actuarial Actuarial Actuarial accrued percentage

valuation value of accrued liability Funded Covered of covered

date plan assets liability (UAAL) ratio payroll payroll

10/1/2008 — $ 9,016,044 9,016,044 —% 160,102,269 5.6%

10/1/2009 — 8,366,705 8,366,705 — 172,124,744 4.9

10/1/2010 — 8,333,008 8,333,008 — 174,865,030 4.8

10/1/2011 — 7,561,305 7,561,305 — 180,806,146 4.2

10/1/2012 — 7,356,185 7,356,185 — 183,435,395 4.0

10/1/2013 — 7,305,740 7,305,740 — 193,463,523 3.8

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and

assumptions about the probability of occurrence of events far into the future. Examples include

assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined

regarding the funded status of the OPEB Plan and the annual required contributions of the employer are

subject to continual revision as actual results are compared with past expectations and new estimates are

made about the future. The schedule of funding progress presents trend information about whether the

actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued

liabilities for benefits.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as

understood by the employer and the plan members) and include the types of benefits provided at the time

of each valuation and the historical pattern of sharing of benefit costs between the employer and plan

members to that point. The actuarial methods and assumptions used include techniques that are designed to

reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets,

consistent with the long-term perspective of the calculations.

In the October 1, 2013 actuarial valuation, the projected unit credit actuarial cost method was used. The

actuarial assumptions included a 4% discount rate, the open level dollar amortization method amortized

over 30 years, and an annual healthcare cost trend rate of 8% initially, reduced each year until an ultimate

rate of 5% is reached after 12 years (in the 2024/2025 plan year).




50 (Continued)

(8) Related Organizations

The District is related to various organizations through several provisions contained in the articles of

incorporation and bylaws of the entities. These related organizations are not component units of the

District because they are legally separate, the District does not appoint the voting majority of the

organizations’ Boards, they are not fiscally dependent on the District, the District does not have access to

the entities’ resources nor is it responsible for the entities’ debts, and it would not be misleading to not

include the entity as a component unit. Net amounts due from/to these related organizations and

investments in related organizations as of September 30, 2014 and 2013 are as follows:

2014 2013

Current assets:Community Health Corporation $ 6,778 207 Physician Hospital Organization, Inc. 38,849 33,337 LeeSar Inc. 1,070,000 1,070,000 Other 4,321 4,321

Total current assets $ 1,119,948 1,107,865

Noncurrent assets (included in other assets):Investment in LeeSar Inc. $ 13,967,457 11,790,086

Total noncurrent assets $ 13,967,457 11,790,086

Current liabilities:Physician Hospital Organization, Inc. $ 7,098 6,872 Other 3,220 1,033

Total current liabilities $ 10,318 7,905

Community Health Corporation was established to provide educational services, operate, manage, and own

health care facilities, provide services for the care of persons suffering from illnesses and disabilities, and

to further the interest of the District.

Physician Hospital Organization, Inc. is a corporation formed by physicians and the Hospital. The

corporation contracts with payors to provide health care services. The District and certain medical staff

physicians are each 50% members of the entity. The District utilizes the equity method of accounting for

the investment.

During 1998, the Hospital entered into a joint venture with another southwest Florida area governmental

hospital. The purpose of the joint venture was to develop a regional service center, LeeSar HealthTrust

Partners, L.C. (LeeSar), to meet the materials services and distribution needs of both hospitals. The

hospitals agreed to fund initial costs of opening LeeSar and working capital needs through an established

line of credit. Each hospital provided a revolving credit loan not to exceed $3,000,000 to assist in funding

LeeSar purchases, capital costs, and operational costs. The terms of the amended agreement stated the

entire principal and accrued interest would be due and payable on September 30, 2005. The District voted

in November 2003 to convert the LeeSar loan to an equity form of investment, effective September 30,

2003, due to LeeSar’s inability to repay the loan under the current terms. Each organization had a 50%

ownership interest through the year ended September 30, 2010. During 2010, the partners sold 5.555%




51 (Continued)

each, of their respective ownership interest to a central Florida hospital. As a result, the Hospital now has a

44.445% ownership interest. The Hospital is accounting for the joint venture under the equity method of

accounting. LeeSar’s excess of revenues over expenses was approximately $4,899,000 and $3,416,000 for

the years ended September 30, 2014 and 2013, respectively. Effective October 1, 2009, LeeSar Healthtrust

Partners, L.C. merged with LeeSar Inc. LeeSar Inc., the surviving corporation, is a 501(c)(3) not-for-profit

Florida corporation.

Sarasota Memorial Healthcare Foundation, Inc. (the Foundation) was formed to assist in fund-raising

activities and community relations. The Foundation is not a component unit of the District because it is a

legally separate organization, benefits other healthcare organizations in Sarasota County, and is not

controlled by the Sarasota County Public Hospital Board. Funds contributed by the Foundation to the

District are recorded as restricted or unrestricted gifts and bequests depending on the nature of the

donation.

The District has pledges receivable from the Foundation of $1,339,000 and $1,999,000 which are included

in restricted investments as of September 30, 2014 and 2013, respectively. The District received

$2,107,000 and $3,698,000 from the Foundation during the years ended September 30, 2014 and 2013,

respectively.

(9) Malpractice Insurance

The District is subject to malpractice claims and litigation. Losses incurred have been estimated and

accrued in the accompanying financial statements. The District is potentially liable for losses in excess of

amounts accrued. However, in management’s opinion, such excess, if any, should not have a material

adverse effect on the results of operations or financial position of the District. Effective September 12,

1986, the District, as a “state agency or subdivision,” eliminated its malpractice insurance coverage and

invoked sovereign immunity for medical malpractice claims in excess of $100,000 per individual and

$200,000 per occurrence. Effective October 1, 2011, the sovereign immunity limits increased to $200,000

per individual and $300,000 per occurrence. The District has accrued for the Hospital and Sarasota

Memorial Nursing and Rehabilitation Center $5,434,000 and $5,449,000 as of September 30, 2014 and

2013, respectively, for estimated professional liability claims, which is included in other accrued expenses

in the accompanying balance sheets.

PSI is subject to malpractice claims and litigation. Losses incurred have been estimated and accrued in the

accompanying financial statements. PSI is potentially liable for losses in excess of amounts accrued.

However, in management’s opinion, such excess, if any, should not have a material adverse effect on the

results of operations or financial position of PSI. PSI has received a favorable ruling on a court decision

that its physicians are covered under the doctrine of sovereign immunity. Effective December 1, 2003, PSI

as a “state agency or subdivision,” eliminated its malpractice insurance coverage and invoked sovereign

immunity for medical malpractice claims in excess of $100,000 per individual and $200,000 per

occurrence. As noted above, effective October 1, 2011, the sovereign immunity limits increased to

$200,000 per individual and $300,000 per occurrence. PSI accrued $2,717,000 and $3,044,000 as of

September 30, 2014 and 2013, respectively, for professional liability claims, which is included in other

accrued expenses in the accompanying balance sheets.

Prior to December 1, 2003, PSI carried professional and comprehensive general liability insurance for each

physician for claims arising from acts or omissions occurring within the scope of the physician’s




52 (Continued)

employment with PSI. The amount of coverage for each physician was determined jointly by PSI and the

physician. The minimum coverage was $250,000 for each claim and $750,000 in the aggregate.

Activity related to these self-insured professional liability claims included as a component of other accrued

expenses in the accompanying balance sheets for the years ended September 30, 2014 and 2013 is reflected

in the tables below:

2014Self-insured Self-insured

liabilities liabilitiesSeptember 30, Insurance September 30,

2013 expense (credit) Payments 2014

Professional liabilities $ 8,493,000 (175,776) (166,224) 8,151,000

2013Self-insured Self-insured

liabilities liabilitiesSeptember 30, Insurance September 30,

2012 expense Payments 2013

Professional liabilities $ 8,523,000 244,656 (274,656) 8,493,000

The District had no significant reductions in insurance coverage during the fiscal year ended September 30,

2014. There were no settlements which exceeded the District’s insurance coverage in any of the past three

fiscal years.

(10) Commitments and Contingencies

The District has various contractual arrangements for employment contracts, leased office space related to

medical practices, and equipment leases. Some of the employment contracts and operating leases have

initial or remaining noncancelable lease terms in excess of one year. Total operating lease expense for the

years ended September 30, 2014 and 2013 was approximately $8,840,000 and $8,539,000, respectively.

Minimum payments required under contractual employment agreements and operating leases as of

September 30, 2014 are approximately as follows:

Employment Operatingcontracts leases Total

Year ending September 30:2015 $ 10,145,697 3,325,333 13,471,030 2016 — 3,091,147 3,091,147 2017 — 3,167,311 3,167,311 2018 — 3,170,031 3,170,031 2019 — 3,144,993 3,144,993 All years after September 30, 2019 — 15,365,777 15,365,777

$ 10,145,697 31,264,592 41,410,289




53

Additionally, the District may from time to time, be party to routine legal proceedings incidental to the

operation of its business. The outcome of any pending or threatened proceedings is not expected to have a

material adverse effect on the financial condition, operating results, or cash flows of the District.

Lastly, all expenditures financed by Federal and State of Florida grants are subject to audit by the granting

agencies to determine if such expenditures comply with the conditions of a grant. Management believes

that no material liability will arise from any such audits.

(11) Concentrations of Credit Risk

Financial instruments which potentially subject the District to concentrations of credit risk consist

principally of cash and cash equivalents, investments, patient accounts receivable, other assets, and

investments restricted under bond indenture agreements or by donors or designated by the Board for future

use.

The District places its cash and cash equivalents with what management believes to be high credit quality

financial institutions. As stated in note 2, the custodial credit risk for deposits is the risk that, in the event

of the failure of a depository financial institution, the District will not be able to recover deposits or will

not be able to recover collateral securities that are in the possession of an outside party. The District’s

deposits are exposed to custodial credit risk if they are not covered by depository insurance and the

deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or

collateralized with securities held by the pledging financial institution’s trust department or agent but not

held in the District’s name. The District’s governmental bank balances are held in accounts protected under

Chapter 280, Florida Statutes in institutions classified as qualified public depositories under Chapter 280

for the years ended September 30, 2014 and 2013. Other entities of the District have deposits in a financial

institution in excess of federally insured limits and which are not collateralized.

As noted in note 2(b), the District’s board designated and restricted investments are primarily invested in

time deposits with high credit quality financial institutions, U.S. Treasury bonds and notes,

government-backed mortgage securities, and highly rated corporate bonds.

The District grants credit without collateral to its patients, most of whom are local residents and are insured

under third-party payor agreements. The mix of gross receivables from patients and third-party payors as

of September 30, 2014 and 2013 was as follows:

2014 2013

Medicare 43.5% 39.0%Self-pay and others 22.1 25.2Managed care and commercial 21.3 22.6Medicaid 13.1 13.2

100.0% 100.0%

(Continued)54


Supplemental Information – Combining Balance Sheet Information

September 30, 2014

SarasotaMemorial Sarasota SMH

Sarasota Nursing & County Public SMH PhysicianMemorial Corporate Rehabilitation Charter Hospital Health Care, Services,

Assets Hospital Division Center Plan Eliminations District Inc. Inc. Eliminations TotalCurrent assets:

Cash and cash equivalents $ 49,297,449 802,777 444,812 606,394 — 51,151,432 58,151 650,192 — 51,859,775 Patient accounts receivable, less allowance for

uncollectible accounts 59,172,928 — 1,414,157 — — 60,587,085 — 2,495,722 — 63,082,807 Inventories of supplies 10,260,947 — 43,014 — — 10,303,961 — 278 — 10,304,239 Prepaid expenses and other assets 12,470,375 950,995 151,624 — — 13,572,994 52,156 38,569 — 13,663,719 Due from related organizations 32,109,259 70,749 545,478 — (874,703) 31,850,783 8,109,194 — (38,840,328) 1,119,649

Total current assets 163,310,958 1,824,521 2,599,085 606,394 (874,703) 167,466,255 8,219,501 3,184,761 (38,840,328) 140,030,189

Noncurrent assets:Restricted investments 2,320,908 — — — — 2,320,908 — — — 2,320,908 Board designated investments 603,657,334 — — — — 603,657,334 — — — 603,657,334 Capital assets, net 415,568,098 111,478,753 3,699,312 39,025 — 530,785,188 — 1,720,664 — 532,505,852 Other assets 14,365,809 — — — (398,352) 13,967,457 82,008,423 — — 95,975,880 Interest rate swaps 16,303,087 2,506,199 — — 18,809,286 — — — 18,809,286

Total noncurrent assets 1,052,215,236 113,984,952 3,699,312 39,025 (398,352) 1,169,540,173 82,008,423 1,720,664 — 1,253,269,260

Total assets 1,215,526,194 115,809,473 6,298,397 645,419 (1,273,055) 1,337,006,428 90,227,924 4,905,425 (38,840,328) 1,393,299,449

Deferred Outflows of Resources

Deferred amounts on debt refundings 8,315,165 — — — — 8,315,165 — — — 8,315,165

Deferred effective interest rate swap outflows 18,806,440 — — — — 18,806,440 — — — 18,806,440

Total deferred outflows of resources 27,121,605 — — — — 27,121,605 — — — 27,121,605 Total assets and deferred outflows of resources $ 1,242,647,799 115,809,473 6,298,397 645,419 (1,273,055) 1,364,128,033 90,227,924 4,905,425 (38,840,328) 1,420,421,054

55


Supplemental Information – Combining Balance Sheet Information

September 30, 2014


Sarasota Nursing & County Public SMH PhysicianMemorial Corporate Rehabilitation Charter Hospital Health Care, Services,

Liabilities Hospital Division Center Plan Eliminations District Inc. Inc. Eliminations TotalCurrent liabilities:

Accounts payable $ 18,526,969 623,750 533,337 13,343 — 19,697,399 9,173 791,964 — 20,498,536 Employee compensation and benefits payable — — — — — — 43,984,622 — — 43,984,622 Other accrued expenses 11,190,025 436,207 770,604 535,560 — 12,932,396 — 2,833,957 — 15,766,353 Estimated third-party settlements 25,773,620 — 151,012 — — 25,924,632 — — — 25,924,632 Due to related organizations 548,129 6,950,894 1,022,439 17,688 (874,703) 7,664,447 30,476,372 709,827 (38,840,328) 10,318 Current portion of State of Florida medical assistance

assessment 6,515,601 — — — — 6,515,601 — — — 6,515,601 Current portion of long-term debt 8,864,034 138,502 — — — 9,002,536 — — — 9,002,536

Total current liabilities 71,418,378 8,149,353 2,477,392 566,591 (874,703) 81,737,011 74,470,167 4,335,748 (38,840,328) 121,702,598

Noncurrent liabilities:Long-term debt, less current portion 383,994,330 18,552,607 398,352 — (398,352) 402,546,937 — — — 402,546,937 Long-term companion debt, less current portion 24,818,959 — — — — 24,818,959 — — — 24,818,959 State of Florida medical assistance assessment, less

current portion 3,447,587 — — — — 3,447,587 — — — 3,447,587 Other long-term liabilities 5,831 17,081 — — — 22,912 15,757,757 — — 15,780,669 Interest rate swaps 18,806,440 — — — — 18,806,440 — — — 18,806,440

Total noncurrent liabilities 431,073,147 18,569,688 398,352 — (398,352) 449,642,835 15,757,757 — — 465,400,592

Total liabilities 502,491,525 26,719,041 2,875,744 566,591 (1,273,055) 531,379,846 90,227,924 4,335,748 (38,840,328) 587,103,190

Deferred Inflows of Resources

Deferred effective interest rate swap inflows 14,609,673 — — — — 14,609,673 — — — 14,609,673

Total deferred inflows of resources 14,609,673 — — — — 14,609,673 — — — 14,609,673

Net Position

Net investment in capital assets 31,456,955 92,787,643 3,300,960 39,025 398,352 127,982,935 — 1,720,664 — 129,703,599 Restricted for specific purposes 1,747,862 — — — — 1,747,862 — — — 1,747,862 Unrestricted 692,341,784 (3,697,211) 121,693 39,803 (398,352) 688,407,717 — (1,150,987) — 687,256,730

Total net position 725,546,601 89,090,432 3,422,653 78,828 — 818,138,514 — 569,677 — 818,708,191

Total liabilities, deferred inflows of resourcesand net position $ 1,242,647,799 115,809,473 6,298,397 645,419 (1,273,055) 1,364,128,033 90,227,924 4,905,425 (38,840,328) 1,420,421,054

See accompanying independent auditors’ report.

56


Supplemental Information – Combining Statement of Revenues and Expenses and Changes in Net Position Information

Year ended September 30, 2014


Sarasota Nursing & County Public SMH PhysicianMemorial Corporate Rehabilitation Charter Hospital Health Care, Services,Hospital Division Center Plan Eliminations District Inc. Inc. Eliminations Total

Operating revenues:Net patient service revenue, net of provision for bad debts $ 524,681,346 — 10,964,013 — — 535,645,359 — 37,965,700 — 573,611,059 Other revenue 12,413,230 21,465,923 1,031,554 2,425,529 (16,456,241) 20,879,995 293,797,171 3,229,854 (297,363,913) 20,543,107

Total operating revenues 537,094,576 21,465,923 11,995,567 2,425,529 (16,456,241) 556,525,354 293,797,171 41,195,554 (297,363,913) 594,154,166

Operating expenses:Salaries, wages, and fringe benefits 230,190,994 11,093,737 6,790,082 164,830 — 248,239,643 293,721,328 44,216,527 (293,721,328) 292,456,170 Supplies 112,340,351 159,596 1,629,594 — — 114,129,541 — 1,457,250 — 115,586,791 Purchased services 84,575,620 10,439,851 2,857,406 1,663,049 (16,415,111) 83,120,815 75,843 4,674,125 (2,456,208) 85,414,575 Professional fees 17,196,477 30,008 78,472 — (41,130) 17,263,827 — 27,433 (1,186,377) 16,104,883 State of Florida medical assistance assessment 6,895,175 — — — — 6,895,175 — — — 6,895,175 Depreciation and amortization 32,658,620 3,752,985 428,674 19,723 — 36,860,002 — 546,514 — 37,406,516

Total operating expenses 483,857,237 25,476,177 11,784,228 1,847,602 (16,456,241) 506,509,003 293,797,171 50,921,849 (297,363,913) 553,864,110

Operating income (loss) 53,237,339 (4,010,254) 211,339 577,927 — 50,016,351 — (9,726,295) — 40,290,056

Nonoperating items:Ad valorem tax 42,176,680 — — — — 42,176,680 — — — 42,176,680 Interest expense (12,984,604) (811,171) (8,293) — 8,293 (13,795,775) — — — (13,795,775) Excess of interest rate swap payments over receipts, net 75,843 667,166 — — — 743,009 — — — 743,009 Investment income 8,530,331 — 1,455 — (8,293) 8,523,493 — 7,107 — 8,530,600 Unrealized gains on investments, net 5,318,954 — — — — 5,318,954 — — — 5,318,954 Change in fair value of ineffective interest rate swaps 1,633,378 (464,977) — — — 1,168,401 — — — 1,168,401 Other nonoperating income (expense) (860,276) 3,669 — — — (856,607) — (2,365) — (858,972)

Total nonoperating items 43,890,306 (605,313) (6,838) — — 43,278,155 — 4,742 — 43,282,897

Excess (deficit) of revenues over expenses 97,127,645 (4,615,567) 204,501 577,927 — 93,294,506 — (9,721,553) — 83,572,953

Other changes in net position:Contributions restricted for capital purposes 466,042 — — — — 466,042 — — — 466,042 Net transfers from (to) other component units (16,956,261) 7,906,261 — (450,000) — (9,500,000) — 9,500,000 — —

Increase (decrease) in net position 80,637,426 3,290,694 204,501 127,927 — 84,260,548 — (221,553) — 84,038,995

Net position, beginning of year, as restated 644,909,175 85,799,738 3,218,152 (49,099) — 733,877,966 — 791,230 — 734,669,196 Net position, end of year $ 725,546,601 89,090,432 3,422,653 78,828 — 818,138,514 — 569,677 — 818,708,191


57


Supplemental Information – Budgetary Comparison Schedule (Unaudited)

Year ended September 30, 2014

(In thousands of dollars)

Budget Actual Variance

Operating revenues:Net patient service revenue $ 519,268 573,611 54,343 Other revenue 17,363 20,543 3,180

Total operating revenues 536,631 594,154 57,523

Operating expenses:Salaries, wages, and fringe benefits 281,386 292,456 (11,070) Supplies 109,488 115,587 (6,099) Purchased services 87,179 85,415 1,764 Professional fees 16,256 16,105 151 State of Florida medical assistance assessment 6,172 6,895 (723) Depreciation and amortization 39,814 37,406 2,408

Total operating expenses 540,295 553,864 (13,569)

Operating income (loss) (3,664) 40,290 43,954

Nonoperating items:Ad valorem tax 42,118 42,177 59 Interest expense (13,753) (13,796) (43) Excess of interest rate swap payments over receipts (393) 743 1,136 Investment income 11,505 8,531 (2,974) Unrealized losses on investments, net — 5,319 5,319 Changes in fair value of ineffective interest rate swaps — 1,168 1,168 Other nonoperating income 2,000 (859) (2,859)

Total nonoperating items 41,477 43,283 1,806

Excess of revenues over expenses 37,813 83,573 45,760

Other changes in net position:Contributions restricted for capital purposes 2,000 466 (1,534)

Increase in net position 39,813 84,039 44,226

Net position, beginning of year, as restated 789,448 734,669 (54,779) Net position, end of year $ 829,261 818,708 (10,553)


58

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance

and Other Matters Based on an Audit of Financial Statements Performed in Accordance with

Government Auditing Standards

The Board Members


We have audited, in accordance with the auditing standards generally accepted in the United States of

America and the standards applicable to financial audits contained in Government Auditing Standards

issued by the Comptroller General of the United States, the financial statements of Sarasota County Public

Hospital District (the District) which comprise the balance sheet as of September 30, 2014, and the related

statements of revenues, expenses and changes in net position and cash flows for the years then ended, and

the related notes to the financial statements, and have issued our report thereon dated January 9, 2015.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District’s internal

control over financial reporting (internal control) to determine the audit procedures that are appropriate in

the circumstances for the purpose of expressing our opinion on the financial statements, but not for the

purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do

not express an opinion on the effectiveness of the District’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow

management or employees, in the normal course of performing their assigned functions, to prevent, or

detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of

deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of

the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A

significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe

than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this

section and was not designed to identify all deficiencies in internal control that might be material

weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any

deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses

may exist that have not been identified.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s financial statements are free from

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,

contracts, and grant agreements, noncompliance with which could have a direct and material effect on the

determination of financial statement amounts. However, providing an opinion on compliance with those

provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The

results of our tests disclosed no instances of noncompliance or other matters that are required to be

reported under Government Auditing Standards.



59

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance

and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal

control or on compliance. This report is an integral part of an audit performed in accordance with

Government Auditing Standards in considering the District’s internal control and compliance. Accordingly,

this communication is not suitable for any other purpose.

January 9, 2015


Independent Accountants’ Report

The Board Members


We have examined the Sarasota County Public Hospital District’s (the District) compliance with Section

218.415, Florida Statutes as of September 30, 2014. Management is responsible for the District’s

compliance with those requirements. Our responsibility is to express an opinion on the District’s

compliance based on our examination.

Our examination was conducted in accordance with attestation standards established by the American

Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence

about the District’s compliance with those requirements and performing such other procedures as we

considered necessary in the circumstances. We believe that our examination provides a reasonable basis for

our opinion. Our examination does not provide a legal determination on the District’s compliance with

specified requirements.

In our opinion, the Sarasota County Public Hospital District complied, in all material respects, with the

aforementioned requirements as of September 30, 2014.

January 9, 2015




Independent Auditors’ Report

The Board Members


We have audited, in accordance with auditing standards generally accepted in the United States of America

and the standards applicable to financial audits contained in Government Auditing Standards issued by the

Comptroller General of the United States, the financial statements of Sarasota County Public Hospital

District (the District), which comprise the balance sheets as of September 30, 2014 and 2013, and the

related statements of revenues, expenses and changes in net position, and cash flows for the years then

ended, and the related notes to the financial statements and have issued our report thereon dated January 9,

2015.

In connection with our audit, nothing came to our attention that caused us to believe that the Obligated

Group (as defined in the Master Trust Indenture) failed to comply with the terms, covenants, provisions, or

conditions of Article III (including the Long-term Debt Service Coverage Ratio, as defined in the Master

Trust Indenture, as shown on the attached Schedule A prepared by management of the District) of the

Master Trust Indenture dated September 1, 1996, as supplemented and amended, with U.S. Bank National

Association (successor to Wachovia Bank, N.A. (formerly First Union National Bank of Florida)), insofar

as they relate to accounting matters. However, our audit was not directed primarily toward obtaining

knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters

may have come to our attention regarding the Obligated Group’s (as defined in the Master Trust Indenture)

noncompliance with the above-referenced terms, covenants, provisions, or conditions of the Master Trust

Indenture, insofar as they relate to accounting matters.

This report is intended solely for the information and use of the board members and managements of the

District and U.S. Bank National Association, and is not intended to be, and should not be, used by anyone

other than these specified parties.

January 9, 2015




Schedule A

2


Schedule of Long-term Debt Service Coverage Ratio

September 30, 2014

(dollar amounts in thousands)

September 30,2014

(Unaudited)

Increase in net position $ 84,039

Plus:Depreciation and amortization expense 37,406 Interest expense 13,796

Less:Unrealized gains on investments, net (5,319) Change in fair value of ineffective interest rate swaps (1,168) Excess of interest rate swap receipts over payments (743)

Income available for debt service $ 128,011 Maximum annual debt service (1) $ 27,546

Historical coverage of maximum annual debt service 4.65 (1) Takes into consideration the interest rate exchange agreements entered into in connection

with bond indebtedness.


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