Sie sind auf Seite 1von 14

Quarterly Financial Disclosure

and Management Discussion

For the Six Months Ended February 28, 2017


Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 2

TABLE OF CONTENTS
I. Recent Historical Trends and Outlook for FY 2017 Page 3

II. Seasonality of Fiscal Year 2017 Budgeted Operating Results Page 4

III. Review of Consolidated Results for 2nd Qtr. FY 2017 Page 5


(Six months ended February 28, 2017)

IV. System Operating EBIDA for the Second Quarter Page 6

V. Utilization Statistics and Payor Mix Page 7

VI. Combined Balance Sheet as of February 28, 2017 Page 8

VII. Combined Schedule of Cash Flows Page 9

VIII. Days Cash on Hand Page 10

IX. Interest Rate Derivatives Page 11

X. MBHS Debt Structure Page 11

XI. Other Page 13

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 3

I. Recent Historical Trends and Outlook for Fiscal Year 2017:

The Health Systems financial performance for the fiscal years 2012 through 2016 is
summarized in Table 1 below. For FY 2016, the Health System had a $47.0 million increase in
total revenue, increased non-capital expenses of $32.7 million and increased capital expenses of
$0.7 million. A large reason for the increase in revenues and expenses year over year is that
MBHS acquired two critical access hospitals, Baptist Medical Center-Yazoo (BMC-Yazoo) and
Baptist Medical Center-Attala (BMC-Attala) during FY 2015 and there was a full year of activity
during FY2016 versus a partial year during the acquisition year of FY 2015. Additionally,
MBHS had significant growth in its primary care network through the acquisition of Premier
Medical Group in October 2015. The remaining increase in operating revenues can be attributed
to inpatient and outpatient volume growth, decrease in average length of stay and assets released
from restriction of $5.0 million during FY 2016.

Included for comparison is the FY 2017 budget. In FY 2017, the Health System budget
reflects a $15.3 million increase in total revenue principally resulting from increased outpatient
and inpatient volume, payor rate increases and revenue enhancement strategies. These increases
are offset by the lease of Restorative Care Hospital, MBHSs long-term acute care hospital, and
BMC-Leakes extended care facility, together comprising over $12 million in revenues during
FY 2016. Non-capital expenses are budgeted to increase $13.0 million or 2.8%, also net of the
impact of the decrease in expenses associated with the leased facilities. For FY 2017, budgeted
operating EBIDA is $41.1 million, as compared to $38.8 million for FY 2016, while budgeted
operating income is breakeven as compared to an operating loss of $3.3 million for FY 2016.
Overall, the budgeted revenue in excess of expenses is $5.6 million, a 4.3 million increase from
FY 2016 to FY 2017. Table 1
Mississippi Baptist Health Systems & Subsidiaries
Statements of Operations
(000's Omitted)
Audited Budget
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
MBMC Admissions 20,454 20,555 20,720 21,504 21,868 22,258
Revenues:
Net patient service revenues $ 401,148 $ 398,241 $ 411,209 $ 443,876 $ 488,231 $ 506,195
Other operating revenues 15,741 19,184 18,010 17,444 20,050 17,344
Total Revenue 416,889 417,425 429,219 461,320 508,281 523,539
Non-Capital Expenses:
Salaries and Benefits 246,967 267,019 279,282 283,046 313,849 324,239
Supplies and other 132,871 138,693 140,458 153,779 155,628 158,235
Total Non-Capital Expenses: 379,838 405,712 419,740 436,825 469,477 482,474
Operating EBIDA 37,051 11,713 9,479 24,495 38,804 41,065
Capital Expenses:
Depreciation/Amortization 22,977 25,230 29,023 31,428 32,308 31,101
Interest Expense 9,503 9,167 9,764 10,021 9,841 9,964
Total Capital Expenses 32,480 34,397 38,787 41,449 42,149 41,065
Operating Income (Loss) 4,571 (22,684) (29,308) (16,954) (3,345) -
Non-operating income(expense): 9,133 30,653 19,237 4,113 4,644 5,633
Revenues in excess of (less than) expenses 13,704 7,969 (10,071) (12,841) 1,299 5,633
Net assets released from restriction and
used for purchase of property and equipment 89 18 615 213 287 500
Increase (decrease) in unrestricted net assets $ 13,793 $ 7,987 $ (9,456) $ (12,628) $ 1,586 $ 6,133

Note: The above budget information is presented in a format consistent with the audited financial statements and may have minor differences
between those used by management for internal purposes.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 4

II. Seasonality of Fiscal Year 2017 Budgeted Operating Results:

As illustrated in Table 2 below, the quarterly operating budget for fiscal year 2017
demonstrates the seasonal nature of the hospitals business cycle.

Table 2

Mississippi Baptist Health Systems & Subsidiaries


Statements of Operations
(000's Omitted)
FY 2017 Budget
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total
Revenues:
Net patient service revenues $ 124,934 $ 127,430 $ 126,705 $ 127,126 $ 506,195
Other operating revenues 4,126 4,138 4,139 4,141 16,544
Net Assets released from restrictions 200 200 200 200 800
Total Revenue 129,260 131,768 131,044 131,467 523,539
Non-Capital Expenses:
Salaries and Benefits 81,034 81,040 81,243 80,922 324,239
Supplies and other 40,308 39,283 39,496 39,148 158,235
Total Non-Capital Expenses: 121,342 120,323 120,739 120,070 482,474
Operating EBIDA 7,918 11,445 10,305 11,397 41,065
Capital Expenses:
Depreciation/Amortization 7,757 7,781 7,781 7,782 31,101
Interest Expense 2,491 2,491 2,491 2,491 9,964
Total Capital Expenses 10,248 10,272 10,272 10,273 41,065
Operating Income (Loss) (2,330) 1,173 33 1,124 -
Non-operating income(expense): 5,086 197 197 153 5,633
Revenues in excess of (less than) expenses 2,756 1,370 230 1,277 5,633
Net assets released from restriction and
used for purchase of property and equipment 125 125 125 125 500
Increase (decrease) in unrestricted net assets $ 2,881 $ 1,495 $ 355 $ 1,402 $ 6,133

Note: The above budget information is presented in a format consistent with the audited financial statements and
may have minor differences between those used by management for internal purposes.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 5

III. Review of Consolidated Results for the six months ended February 28, 2017:
The Health Systems financial performance for the six months ended February 28,
2017 is summarized in Table 3 below. This table shows year-to-date operating loss of
$6.7 million and operating EBIDA of $13.4 million. Net operating revenue decreased
1.7% over prior year, and under budgeted growth by $10.9 million. Actual inpatient
volume as compared to budgeted volume for the Medical Center was ahead of budget by
264 admissions and ahead of prior year by 402 admissions. Outpatient volume was above
budget expectations and above prior year. Actual non-capital operating expenses are
below both budgeted expectations and prior year. Actual capital related expenses are
below prior year and budgeted amounts. This resulted in an operating loss of $6.7
million for the February 2017 year-to-date financial performance as compared to a
budgeted loss of $1.2 million. The non-operating gain is $17.2 million versus the
budgeted gain of $5.3 million and the $12.0 million loss in the prior year. Included in
this line item are year-to-date realized investment gains totaling $1.3 million, unrealized
investment gains of $6.9 million, and a $9.7 million positive change in valuation of the
fixed payer swap transaction entered into in March 2007.

In September 2016, MBHS entered into a Letter of Intent with Baptist Memorial
Health Care Corporation with the intent of merging the two institutions which is
discussed under Section XI of the report.

Table 3
Mississippi Baptist Health Systems and Subsidiaries
Statements of Operations
Sept-Nov Dec-Feb Mar-May (000's Omitted)
FY 2017 Six months ended February 28, 2017
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Current Budget Prior
Revenues:
Net patient service revenues $ 121,639 $ 122,136 $ 243,775 $ 252,364 $ 245,661
Other operating revenues 3,976 2,389 6,365 8,664 8,862
Net operating revenue 125,615 124,525 - - 250,140 261,028 254,523
Non-capital expenses:
Salaries and benefits 80,631 77,857 158,488 162,074 157,990
Supplies and other 40,504 37,755 78,259 79,591 82,016
Total non-capital expenses 121,135 115,612 - - 236,747 241,665 240,006
Operating EBIDA 4,480 8,913 - - 13,393 19,363 14,517
Capital expenses:
Depreciation/amortization 7,574 7,408 14,982 15,538 16,285
Interest expense 2,380 2,747 5,127 4,982 4,968
Total capital expenses 9,954 10,155 - - 20,109 20,520 21,253
Operating income (loss) (5,474) (1,242) - - (6,716) (1,157) (6,736)
Non-operating income (expense) 8,038 9,204 17,242 5,283 (11,970)
Revenues in excess of (less than) expenses 2,564 7,962 - - 10,526 4,126 (18,706)
Other changes:
Net assets released from restrictions 63 59 122 250 209
Change in unrestricted net assets $ 2,627 $ 8,021 $ - $ - $ 10,648 $ 4,376 $ (18,497)

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 6

IV. System Operating EBIDA for the Second Quarter:

As can be seen in Table 4 below, the System generated an operating EBIDA of $8.9
million for the second quarter. This performance is lower than our budget of $11.4
million, and more than the prior year income of $6.6 million. Admissions in the second
quarter were above budget expectations and above prior year totals. Total revenue in the
second quarter was under budgeted expectations by $7.2 million and $4.3 million less
than the same time period last fiscal year. Non-capital expenses were under budget and
under prior year.

Table 4

Mississippi Baptist Health Systems


2nd Quarter ended February 28, 2017
(000's Omitted)
Current Budget Prior
MBMC Admissions 5,655 5,570 5,475
Revenues:
Net patient service revenues $ 122,136 $ 127,430 $ 123,585
Other operating revenues 2,389 4,338 5,208
Total revenue 124,525 131,768 128,793
Non-capital expenses:
Salaries and benefits 77,857 81,040 80,661
Supplies and other 37,755 39,283 41,560
Total non-capital expenses 115,612 120,323 122,221

Operating EBIDA - 2nd Quarter $ 8,913 $ 11,445 $ 6,572

Operating EBIDA - Previous Qtrs $ 4,480 $ 7,918 $ 7,945

Operating EBIDA - FY 2017 $ 13,393 $ 19,363 $ 14,517

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 7

V. Utilization Statistics and Payor Mix:

As discussed in the operating EBIDA results summary, the Medical Centers


inpatient volumes (admissions) for fiscal 2017 are above budgeted levels and above prior
year. For fiscal 2017, the Medical Centers patient day volume is 1.9% below budget.
Overall average length of stay was favorable to budget and remains to be a key focus area
for FY 2017. Key ancillary areas remained consistent over prior year. Outpatient hospital
volumes are ahead of budget and above prior year, mainly due to the addition of 5
provider based clinics in the beginning of FY 2017. Hospital payor mix as of the first
half of the fiscal year reflected a shift from commercial payors to governmental payors.

Table 5
Mississippi Baptist Health Systems Utilization Stats & Payor Mix

Historic Trending Performance Six months ended February 28


FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Budget Prior
Utilization Statistics
Admissions (MBMC Only) 20,555 20,720 21,504 21,868 11,296 11,032 10,894
Patient Days (MBMC Only) 109,462 107,447 112,153 106,097 51,851 52,845 53,565
Average Length of Stay (MBMC Only) 5.3 5.2 5.2 4.9 4.6 4.8 4.9
Average Daily Census (MBMC Only) 300 294 307 290 286 292 294
Adjusted Patient Days (MBMC Only) 215,069 216,639 208,398 202,197 103,181 104,647 101,243
Births (MBMC) 1,135 1,396 1,666 1,715 907 855 910
Emergency Dept. Visits (MBMC Total) 59,852 60,951 65,487 68,728 34,269 32,844 33,580
Surgical Cases (MBMC Total) 15,209 15,635 15,577 16,036 8,026 7,981 7,855
Outpatient Hospital Cases* 133,473 127,156 129,445 135,083 116,750 70,070 67,375

Payor Mix (MBMC Gross Revenue)


Medicare 54.7% 54.5% 54.7% 54.0% 55.4% 51.9% 52.6%
Medicaid 7.2% 7.4% 8.3% 8.1% 8.4% 8.1% 8.2%
Blue Cross 16.1% 15.7% 14.8% 14.7% 14.0% 14.9% 15.3%
HMO/PPO 13.0% 13.6% 13.4% 14.0% 13.2% 13.9% 14.3%
Private Insurance 1.2% 1.6% 1.9% 1.5% 1.3% 1.6% 1.7%
No Insurance / Other 7.8% 7.2% 6.9% 7.7% 7.8% 9.7% 8.0%

* Total outpatient cases changed from prior year reports due to the new system Paragon and how it calculates the outpatient hospital
cases. The difference in the reporting is that it no longer includes non patient labs in this number per the Decision Support department.
Because of this change, 2011 to 2014 numbers have been restated to be consistent with the new reporting.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 8

VI. Combined Balance Sheet as of February 28, 2017:

The combined Balance Sheets as of February 28, 2017, and prior years for Baptist
Health Systems and its subsidiaries are shown below in Table 6. Total assets of $688.3
million as of February 28, 2017, decreased $4.9 million from August 31, 2016 year-end
balance. The decrease in cash and cash equivalents is primarily the result of the transfer
of cash to the Health Systems investment portfolio, which is a driver for the increase in
assets limited to use. The change in inventory and prepaid expenses is mainly due to the
timing of payments made for maintenance contracts and insurance coverage.

Table 6

Mississippi Baptist Health Systems


Combined Balance Sheets
(000's Omitted)
Audited 31-Aug 28-Feb
FY 13 FY 14 FY 15 FY 16 FY 17

Assets:
Cash and cash equivalents $ 2,925 $ 3,572 $ 6,928 $ 30,858 $ 16,500
Assets limited to use 271,699 261,595 234,838 240,881 255,933
Patient receivables, net 56,148 57,099 56,554 54,231 55,772
Notes and other receivables 5,145 7,764 8,570 9,043 10,071
Inventory and prepaid expenses 13,202 13,043 12,061 12,975 17,689
Property and equipment, net 301,832 309,599 338,178 309,828 297,695
Other Assets 19,993 24,799 34,748 35,350 34,595

Total Assets $ 670,944 $ 677,471 $ 691,877 $ 693,166 $ 688,255


Liabilities:
Current portion long term debt $ 12,177 $ 9,279 $ 9,740 $ 11,306 $ 11,306
Accounts Payable 16,400 15,110 11,850 12,810 9,405
Accrued payroll and withholdings 15,555 16,338 19,316 19,961 19,168
Accrued expenses 22,055 18,889 19,932 22,301 21,109
Long-Term debt 216,143 234,121 249,949 238,214 236,285
Other long-term liabilities 28,873 32,868 42,827 52,202 44,129

Total Liabilities $ 311,203 $ 326,605 $ 353,614 $ 356,794 $ 341,402


Net Assets:
Unrestricted $ 341,336 $ 331,879 $ 319,252 $ 320,838 $ 331,487
Temporarily restricted 16,069 16,470 16,494 12,889 12,760
Permanently restricted 2,336 2,517 2,517 2,645 2,606

Total Net Assets $ 359,741 $ 350,866 $ 338,263 $ 336,372 $ 346,853

Total Liabilities and Net Assets $ 670,944 $ 677,471 $ 691,877 $ 693,166 $ 688,255

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 9

VII. Combined Schedule of Cash Flows:

A combined schedule of cash flows for Baptist Health Systems and its Subsidiaries
is found in Table 7 below. Cash and equivalents of $16.5 million plus Board designated
investments of $200.2 million total $216.7 million as of February 28,2017.

Table 7

Mississippi Baptist Health Systems & Subsidiaries


Statement of Cash Flows
For Six Months Ended February 28, 2017
(000's Omitted)

Cash flows from operating activities:


Change in net assets $ 10,481
Add back: depreciation/amortization 17,969
Other non-cash adjustments (17,859)
Other changes in working capital (11,067)
Change in cash from operating activities (476)
Cash flows from investing activities:
Capital expenditures (7,565)
Change in assets limited as to use 9,738
Cash proceeds from sales of property and equipment 3,901
Investments in equity investees (1,014)
Change in other assets (17,130)
Change in cash from investing activities (12,070)
Cash flows from financing activities:
Proceeds from long-term debt -
Line of Credit, net -
Repayment of long-term debt (1,843)
Restricted contributions and investment income 31
Change in cash from financing activities (1,812)
Net increase in cash and cash equivalents (14,358)
Cash and cash equivalents, beginning of year 30,858
Cash and cash equivalents, end of year $ 16,500

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 10

VIII. Days Cash on Hand:

As shown in Table 8, Baptists DCOH increased over the prior fiscal year end.
The primary reason for the increase is the change in unrestricted cash and investments
primarily driven by the decrease of $10.1 million in the collateral posting requirements
under the swap agreement, as discussed in Interest Rate Derivatives, and increased
investment returns. This is offset slightly by the increase in average daily cash operating
expenses.

Table 8

Mississippi Baptist Health Systems & Subsidiaries


Days Cash on Hand
For Six Months Ended February 28, 2017
(000's Omitted)

FY 2016 FY 2017
Aug 31 Nov 30 Feb 28 May 31 Aug 31
Cash and cash equivalents $ 30,858 $ 12,885 $ 16,500
Unrestricted board-designated investments 175,413 193,525 200,194
Total unrestricted cash and investments $ 206,271 $ 206,410 $ 216,694 $ - $ -

Average daily cash operating expenses 1,310 1,357 1,336

Days cash on hand 158 152 162

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 11

IX. Interest Rate Derivatives:

On March 1, 2007 Mississippi Baptist Health Systems entered into a 67% of one-
month LIBOR fixed payor swap with USBAG. The swap had a notational amount of $80
million (Series 2007B bonds) and is fixed at 3.759% for a term of thirty years.

As a result of the 2010 Fitch downgrade to BBB+ by Fitch Ratings, earlier in


2013, UBS requested that Baptist post collateral on the value of the swap agreement, in
accordance with our swap agreement executed with the Series 2007 debt issuance. On
April 29, 2013, Baptist entered into a swap novation agreement with Deutsche Bank. The
agreement calls for Deutsche Bank to post $5M of collateral at the BBB rating level, by
Fitch ratings with a net interest cost of 6.25 bps on the $80M swap. As of February 28,
2017, the Health System has posted collateral of approximately $17 million, a decrease of
$10.1 million from August 31, 2016.

As of February 28, 2017 the valuation of the swap was a $21.4 million liability, a
decrease of $9.7 million from August 31, 2016. This is reported on the balance sheet in
other long-term liabilities.

X. MBHS Debt Structure:

2007A Bond Issue - $121 million fixed rate issue, part of a $201 million issued
sold through the Mississippi Hospital Equipment and Facilities Authority (MHEFA) in
March 2007. Five percent fixed rate interest is paid semiannually in February and
August with annual principal payments also paid in August. The principal balance as of
February 28, 2017 is $81,605,000.

2009 Bond Issue $80 million variable rate demand bonds issued through
Regions Bank in May 2009. This issue was used to close an $80 million line of credit
extended by Regions Bank. The $80 million line of credit was used to redeem $80
million in auction rate bonds issued in March 2007 (2007B) as part of the $201 million
issue mentioned above. In October 2011, this bond issue was amended to extend the
maturity date to May 19, 2016. The Series 2009 bond bore interest at a variable rate
based on 67% of LIBOR plus a spread as defined in the loan agreement. During fiscal
2012 $15,000 was paid on the Series 2009 bond obligation and during fiscal 2015 the
remaining $79,985,000 balance was refunded with the Series 2015 bonds discussed
below.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 12

2015 Bond Issue-On April 1, 2015, MBHS retired the Series 2009 Bond Issue
through a combination of a financing agreement with Regions Bank and the issuance of
floating rate notes in a public offering. The floating rate notes known as the 2015A
bonds were issued at $50,725,000 with interest paid monthly based on the SIFMA rate +
1.3% spread, which was 1.94% at February 28, 2017. The amount financed with Regions
Bank known as the 2015B bonds is $30,140,000 with interest paid monthly at the
variable rate of 1.97% as of February 28, 2017. The principal balance on the 2015A
bonds as of February 28, 2017, is $50,725,000. The principal balance on the 2015B
bonds as of February 28, 2017, is $30,140,000.

2006 Bond Issue $17 million GoZone bonds issued in 2006 to finance a medical
office building in Madison County approximately 10 miles north of the main hospital
campus. In October 2009 the System made a principal payment of $2.6 million with the
balance of $14.4 million converted from a variable instrument backed by a letter of credit
from a commercial bank to a variable debt instrument held by the commercial bank.
Interest on the debt is a variable rate based on LIBOR plus a spread as defined in the
supplemental trust indenture dated October 1, 2009. The debt initially had a maturity
date of October 31, 2012 but was extended through December 31, 2012 and was
refinanced with principle and interest payments due now referred to as the Regions
2012B bonds. The principal balance as of February 28, 2017, is $11,651,089 at the fixed
interest rate of 2.02%.

In February 2007, Standard & Poors and Fitch Ratings assigned the Series
2007A Bonds ($121 million) ratings of A (outlook stable). In February 2009, Fitch
lowered its rating to A- and revised its rating outlook to negative. In July 2010, Fitch
lowered its rating to BBB+ and revised its outlook to stable. In July 2011, Fitch affirmed
this rating. In April 2009, S&P lowered its rating to A- and revised its rating outlook to
negative. In June 2010, S&P affirmed its A- rating and maintained its negative rating
outlook. In January 2012, S&P again affirmed its A- rating and revised its negative
outlook to stable. In June 2014, S&P lowered its rating to BBB+ with a stable outlook.
In July 2014, Fitch lowered its rating to BBB with a stable outlook. In February and
March of 2015, both agencies affirmed these ratings in respect to the Series A Bond
Issue. In March 2016, S&P affirmed its rating of BBB+ with a stable outlook but Fitch
changed its rating to BBB with a negative outlook.

Effective September 12, 2011, MBHS entered into a joint venture with a
radiology practice group. The equipment transferred to the LLC by MBHS included
equipment financed with $3,592,565 of Series 2007A Bond proceeds and $10,500 of
Series 2007B Bond proceeds.

On September 10, 2012, the System executed a 3% fixed rate Series 2012 revenue
bond for $20,000,000 through the MS Business Finance Corporation. The proceeds of
the bond were used to finance the construction of a parking garage, skywalk and other
related construction on the Systems main campus.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 13

In December 2014, Baptist Medical Center-Leake (BMC-Leake) completed a new


25-bed critical access hospital facility located adjacent to the old hospital in Carthage,
MS. In November 2013, BMC-Leake elected to finance the Project through the federal
New Markets Tax Credit (NMTC) program and its Mississippi counterpart, with
certain loans to be made to BMC-Leake in the aggregate principal amount of $25.4
million (Qualified Low Income Community Investments QLICI Loans). The QLICI
Loans include a senior loan of $17.2 million with a 7-year term and a junior loan in the
amount of $8.2 million with a 30 year term. The QLICI loans will be evidenced by
promissory notes. The senior loan will be refinanced after 7 years, while the junior loan
is expected to be acquired by Mississippi Baptist Medical Center after pursuant to a
put/purchase option agreement with a leverage fund. In order to obtain the QLICI loans,
BMC-Leake will be required to pay various fees and transaction cost both at closing and
during the 7-year NMTC compliance period.

In fiscal year 2015, Baptist entered into three capital lease agreements with Bank
of America Leasing & Capital, LLC. The first lease was for a MBMC Telemetry system
with total rental payments of $1,747,979, the second lease was for a Leake Telemetry
system with total payments of $228,422, and the third is a LINAC linear accelerator with
total payments of $4,205,289. As a result of the Yazoo City acquisition a select number
of capital leases were assumed but are immaterial in dollar value.

XI. Other:

On October 1, 2009, MBHS executed an agreement with Kings Daughters


Hospital of Yazoo City to acquire a 51% reversionary interest in the net assets of the
Hospital and perform management services. This 51% reversionary interest was
accounted for under the equity method. On February 1, 2015, MBHS exercised the
option to purchase the remaining 49% interest in the Hospital. MBHS operates the
Yazoo City Facility under the name Baptist Medical Center-Yazoo, a wholly-owned
subsidiary.

On June 1, 2015, MBHS, through a limited liability company, Baptist Medical


Center-Attala, closed on a transaction to lease and purchase certain assets from Montfort
Jones Memorial Hospital (MJMH) in Kosciusko, MS and the Board of Supervisors of
Attala County, MS. MJMH has both an outstanding principal balance of $6,325,000 on a
Mississippi Development Bank Special Obligation Bonds issued in 2011 and
$13,192,000 in New Market Tax Credit Financing issued in 2012. The terms of the lease
agreements are such that the annual rent will be equal to the annual debt service under the
outstanding obligations. At the end of the lease terms, MBHS will have to the right to
purchase the assets at a nominal amount. MBHS intends to operate the facility as Baptist
Medical Center-Attala (BMC-Attala). Under the terms of the lease agreements, BMC-

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org
Quarterly Disclosure Report/Discussion Disclosure Report
Six months ended February 28, 2017
Page 14

Attala has been granted all rights under the New Market Tax Credit Structure. MBHS
has reviewed the accounting treatment of the transaction and related disclosure and as a
result of the acquisition the hospital recorded an Inherent Contribution of approximately
$14.0 million in the FY 2015 financials as a Nonoperating Gain.

On October 1, 2015, MBHS acquired the minor assets of a major local medical
group, Premier Medical Group, and entered into employment agreements with the
physicians. MBHS operates this clinic as part of its Medical Foundation under the name
of Baptist Premier. MBHS employed over 20 physicians as part of this acquisition.

On September 30, 2016, the System entered into a Letter of Intent with Baptist
Memorial Health Care Corporation (BMHCC) with the purpose of merging the two
institutions. The form of the transaction will involve BMHCC becoming the sole
member of MBHS, with the current Trustees of MBHS or other persons chosen by the
Board of Trustees of MBHS joining the Board of Directors of BMHCC. Due diligence
procedures and negotiation of the definitive agreement (Shared Mission Agreement) are
presently underway and expected to be completed in April 2017. In the event the System
and BMHCC enter into a Shared Mission Agreement, the closing will be subject to
customary closing conditions and certain governmental and other approvals. There can
be no assurances the parties will execute the Shared Mission Agreement or the closing
will occur. It is anticipated that the closing will occur during MBHSs third quarter of
FY 2017.

1225 North State Street, Jackson, Mississippi 39202 (601) 968-5130 www.mbhs.org