Tri-City Healthcare DistrictTri‐City Healthcare District Report on the Financial Statements We have audited the accompanying consolidated financial statements of Tri‐City Healthcare

Report of Independent Auditors and Consolidated Financial Statements with

Supplemental Schedules for

Tri-City Healthcare District

June 30, 2015 and 2014

CONTENTS

PAGEREPORTOFINDEPENDENTAUDITORS 1–2MANAGEMENT’SDISCUSSIONANDANALYSIS 3–10CONSOLIDATEDFINANCIALSTATEMENTS Consolidatedstatementsofnetposition 11–12 Consolidatedstatementsofrevenues,expenses,andchangesinnetposition 13 Consolidatedstatementsofcashflows 14–15 Notestoconsolidatedfinancialstatements 16–36SUPPLEMENTALSCHEDULES Consolidatingstatementofnetposition 37–38 Consolidatingstatementofrevenues,expenses,andchangesinnetposition 39

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REPORTOFINDEPENDENTAUDITORSTheBoardofDirectorsofTri‐CityHealthcareDistrictReportontheFinancialStatements

We have audited the accompanying consolidated financial statements of Tri‐City Healthcare District,whichcomprisetheconsolidatedstatementofnetpositionasofJune30,2015and2014,andtherelatedconsolidated statements of revenues, expenses, changes in net position, and cash flows for the yearsthenended,andtherelatednotestothefinancialstatements.Management’sResponsibilityfortheFinancialStatements

Management is responsible for the preparation and fair presentation of these consolidated financialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;this includes the design, implementation, and maintenance of internal control relevant to thepreparation and fair presentation of consolidated financial statements that are free from materialmisstatement,whetherduetofraudorerror.Auditor’sResponsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits.WeconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStates of America and the California Code of Regulations, Title 2, Section 1131.2, State Controller’sMinimumAuditRequirements forCaliforniaSpecialDistricts.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevant to the entity’s preparation and fair presentation of the consolidated financial statements inordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionon theeffectivenessof theentity’s internal control.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonableness of significant accounting estimates made by management, as well as evaluating theoverallpresentationoftheconsolidatedfinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in allmaterialrespects, the financial position of Tri‐City Healthcare District as of June 30, 2015 and 2014, and theresults of its operations and its cash flows for the years then ended in accordance with accountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.

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OtherMattersRequiredSupplementaryInformationAccounting principles generally accepted in the United States of America require thatmanagement'sdiscussion and analysis on pages 3‐10 be presented to supplement the basic consolidated financialstatements. Such information, although not part of the basic consolidated financial statements, isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartoffinancialreportingforplacingthebasicconsolidatedfinancialstatementsinanappropriateoperational,economic, or historical context. We have applied certain limited procedures to the requiredsupplementary information in accordance with auditing standards generally accepted in the UnitedStates of America, which consisted of inquiries of management about the methods of preparing theinformation and comparing the information for consistency with management's responses to ourinquiries,thebasicfinancialstatements,andotherknowledgeweobtainedduringourauditofthebasicfinancialstatements.Wedonotexpressanopinionorprovideanyassuranceontheinformationbecausethelimitedproceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance.OtherInformationOurauditwasconductedforthepurposeofformingopinionsontheconsolidatedfinancialstatementsthat collectively comprise theDistrict's basic financial statements.The consolidating statementof netpositionandconsolidatingstatementofrevenues,expenses,andchangesinnetpositionarepresentedforpurposesofadditionalanalysisandarenotarequiredpartofthebasicfinancialstatements.The consolidating statement of net position and consolidating statement of revenues, expenses, andchangesinnetpositionaretheresponsibilityofmanagementandwerederivedfromandrelatedirectlyto the underlying accounting and other records used to prepare the basic financial statements. Suchinformation has been subjected to the auditing procedures applied in the audit of the basic financialstatements and certain additional procedures, including comparing and reconciling such informationdirectlytotheunderlyingaccountingandotherrecordsusedtopreparethebasicfinancialstatementsor to the basic financial statements themselves, and other additional procedures in accordancewithauditing standards generally accepted in the United States of America and the California Code ofRegulations,Title2,Section1131.2,StateController’sMinimumAuditRequirementsforCaliforniaSpecialDistricts. In our opinion, the consolidating statement of net position and consolidating statement ofrevenues,expenses,andchangesinnetpositionarefairlystated,inallmaterialrespects,inrelationtothebasicfinancialstatementsasawhole.

Irvine,CaliforniaSeptember24,2015

TRI‐CITYHEALTHCAREDISTRICTMANAGEMENT’SDISCUSSIONANDANALYSIS

ASOFANDFORTHEYEARSENDEDJUNE30,2015AND2014

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OverviewThe Tri‐City Healthcare District (the “District”) is a public healthcare district and is a politicalsubdivisionoftheStateofCalifornia(the“State”)organizedpursuanttoDivision23oftheHealthandSafetyCodeoftheStateofCalifornia.TheDistrictoperatesa397‐bedacutecarehospitalinnorthernSanDiegoCounty(the“County”).The“Tri‐City”namerepresentsthecitiesofCarlsbad,Oceanside,andVista,the three cities which fall within its boundaries. The District was formed in 1957, and the hospitalopenedin1961.ThisreportcontainstheoperatingresultsofTri‐CityMedicalCenterandthesubsidiaries inwhichtheDistrictownsacontrollinginterest.ThoseentitiesincludeTri‐CityMedicalCenterAmbulatorySurgeryCenter Operators, LLC (“Ambulatory Surgery Center Operators”), the Tri‐City Medical CenterCardiovascularHealthInstitute,LLC(“CardiovascularInstitute”),theTri‐CityMedicalCenterOrthopedicInstitute,LLC(“OrthopedicInstitute”),theTri‐CityMedicalCenterNeuroscienceInstitute,LLC(“NeuroInstitute”), theTri‐CityRealEstateHoldingandManagementCompany,LLC(“RealEstateHoldingandManagementCompany”)andTri‐CityWellness,LLC(“WellnessCenter”).AmbulatorySurgeryCenterOperators,theCardiovascularInstitute,theOrthopedicInstitute,theNeuroInstitute, the Real Estate Holding and Management Company and the Tri‐City Wellness Center arecomponent units that have been blended for presentation purposes. The District has determinedblendedpresentation is appropriate forAmbulatory SurgeryCenterOperators as it appoints a votingmajority of the governing body and its operations are an integral part of the District’s mission. TheDistrict has alsodeterminedblendedpresentation is appropriate for theCardiovascular Institute, theOrthopedicInstitute,andtheNeuroInstituteasthecomponentunitsprovideservicesalmostentirelytotheDistrict.TheDistricthasdeterminedblendedpresentationisappropriatefortheRealEstateHoldingand Management Company and the Tri‐City Wellness Center as management of the District hasoperationalresponsibility.This section of the District’s annual financial report presents an analysis of the District’s financialperformancefortheyearsendedJune30,2015and2014.AllreferencestoyearsrefertothefiscalyearendedJune30,unlessotherwise indicated.Pleaseread thisanalysis inconjunctionwiththeReportofIndependentAuditorsandtheconsolidatedfinancialstatementsthatfollowthissection.Thisannualfinancialreportincludesthreeitems:

1. ReportofIndependentAuditors

2. Management’sDiscussionandAnalysis

3. Consolidated financial statements of the District, including notes that explain in more detail,someoftheinformationintheconsolidatedfinancialstatements.

TheDistrict’sconsolidatedfinancialstatementsreportinformationusingaccountingmethodsrequiredbytheGovernmentalAccountingStandardsBoard(“GASB”).Thesestatementscontainshort‐termandlong‐termfinancialinformationaboutitsactivities.

TRI‐CITYHEALTHCAREDISTRICTMANAGEMENT’SDISCUSSIONANDANALYSISASOFANDFORTHEYEARSENDEDJUNE30,2015AND2014

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ExecutiveSummaryFor the year ended June 30, 2015, the District reported consolidated net income from operations ofapproximately$424thousandandexcessofrevenueoverexpensesofapproximately$4.4million.

The2015excessofrevenueoverexpensesbyentitywasasfollows:

Tri‐CityMedicalCenter 1,687,567$AmbulatorySurgeryCenterOperators 1,751,315RealEstateHoldingandManagementCompany 197,097Tri‐CityWellnessCenter 176,165CardiovascularInstitute 361,463OrthopedicInstitute 156,607NeuroscienceInstitute 140,042Eliminations (36,288)Totalexcessofrevenueoverexpenses 4,433,968$

Contributingtothe2015resultswerethefollowingsignificantissues:

TheDistrictrecordedrevenuetotalingapproximately$8.9million throughthecontinuationof theIntergovernmentalTransfer(“IGT”)program.ThisprogramreimbursedthehospitalforaportionofthedifferencebetweenthecostoftreatingMedi‐Calpatientsandtheamountreimbursedthroughapre‐existingMedi‐Calcontract.

The District recorded revenue of approximately $1.1 million and received payments ofapproximately$727thousandduetosuccessfullymeetingmilestonesintheimplementationoftheDistrict’s electronic health record (“EHR"), one of the provisions of the American Recovery andReinvestmentActof2009.Thisrevenueisrecordedasotheroperatingrevenue.

The Oncology infusion practice, acquired in April 2013 by Tri‐City Medical Center (“OP Infusion

Center”),contributedapproximately$3.8milliontoexcessofrevenuesoverexpensesduring2015. TheDistrict’sstrategicpartnershipinAmbulatorySurgeryCenterOperatorsresultedinanexcessof

revenuesoverexpensesofapproximately$1.8millioninfiscal2015.BecausetheDistrictowns60%ofAmbulatorySurgeryCenterOperatorsandAmbulatorySurgeryCenterOperatorsowns52.8%ofNorthCoastSurgeryCenterLtd.,theDistrict’sshareofearningswasapproximately$555thousand.

The increase in the District’s revenue related to prior years’ cost report settlements totaledapproximately $2.1million. Cost reports typically are finalized several years beyond the close ofeachfiscalyear,afterreviewbytheappropriategovernmentagency,andafterallappealrightshavebeenexhausted.Tentativesettlementsoccurbetweentheendofafiscalyearandfinalizationofthesettlementprocess.



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ExecutiveSummary(continued)TheDistrictalsocontinuedorstarted the following initiativeswhichareanticipatedtoprovide futurefinancialbenefit: The District continued to recruit physicians to improvemedical coverage for the communities it

serves.Thespecialtiesrecruitedincludeobstetricsandgynecology,minimallyinvasivesurgeryandinternal medicine. Loans to physicians accrue interest during the draw period and during theforgivenessperiod.AsofJune30,2015,thephysicianloanbalancewas$5.5million.Approximately$1.3millionwasforgivenduring2015.

InresponsetotheneedforadditionalprimarycarephysiciansintheTCHDservicearea,theDistrictopenedtheTri‐CityPrimaryCarephysicianclinicinJanuary2015.TheDistrictownsandoperatestheclinicfromwhichfourphysiciansprovideprofessionalservicestothecommunity.

Development of the District’s EHR continued during 2015, with a focus on implementingapplications in an effort to meet Meaningful Use Year 2, Stage 2 attestation. These applicationsincludeElectronicNotes,SummaryofCareTransition,QualityMeasures,PatientPortalandDirectMessaging.Asecurityriskanalysiswascompletedandthesyndromiclabreportingrequirementwasmet during the year. The District received approximately $727 thousand from Medicare inMeaningfulUsepaymentsduring2015.

TheDistrictimplementeditsresponsetohealthcarereformlegislationin2012byformingitsown

AccountableCareOrganization(“ACO”).AsprovisionsofPatientProtectionandAffordableCareActhavebecomeeffective,theACOprovidestheinfrastructureandcontractingmechanismsrequiredtoalign physician and hospital efforts. It also provides a contracting and a physician engagementmechanism to align with anticipated changes in future reimbursement methodologies. Since itsformationin2012,theACOhasbeenprofitableeachyearofitsexistence.


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ExecutiveSummary(continued)RequiredConsolidatedFinancialStatementsConsolidatedStatementofNetPosition–Theconsolidatedstatementofnetposition includesallofthe District’s assets and liabilities and provides information about the nature and amounts ofinvestments in resources (assets) and the obligations to the District’s creditors (liabilities), and netposition– thedifferencebetweenassets and liabilities – of theDistrict, and the changes thereto.ThestatementofnetpositionalsoprovidesthebasisforevaluatingthecapitalstructureoftheDistrictandassessingtheliquidityandfinancialflexibilityoftheDistrict.CondensedConsolidatedStatementsofNetPositionasofJune30,2015and2014(inThousands)

2015 2014

Currentassets 125,599$ 125,580$Capitalassets‐net 109,059 114,380Non‐currentassets 21,763 16,238

Total 256,421$ 256,198$

Currentliabilities 122,369$ 122,790$Long‐termdebt‐netofcurrentportion 28,358 30,608Workers'compensationandcomprehensive

liability‐netofcurrentportion 7,966 8,176

Totalliabilities 158,693 161,574

Netinvestmentincapitalassets 77,480 79,665Unrestricted 18,545 13,390Restricted,non‐expendable 1,703 1,569

Totalnetposition 97,728 94,624

Total 256,421$ 256,198$

ASSETS

LIABILITIESANDNETPOSITION



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2015AnalysisofChangesintheConsolidatedStatementofNetPosition Currentassetstotalingapproximately$125.6millionin2015remainconsistentwiththeprioryear.

Included in the $125.6 million is an increase of approximately $1.8 million in cash and cashequivalents, and a decrease in estimatednet third‐party payor settlements of approximately $1.8million.

Cash on hand and unused availability from the revolving credit facility provide liquidity to theDistrict. Cash and cash equivalents totaled approximately $15.7million and the unused availablerevolvinglineofcreditwasapproximately$19.6millionatJune30,2015.

Noncurrentassetsincreasedapproximately$5.5millionprimarilyduetoa$4.7milliondepositwith

theStateofCaliforniaTreasurerrelated toeminentdomainproceedings toacquireanon‐campusmedicalofficebuilding.

Estimatednetthird‐partypayorsettlementsdecreasedapproximately$1.8millionprimarilyduetoreceiptspertainingtotheLowIncomeHealthProgram,MeaningfulUse,andprioryearcostreportsettlements.Themajorityofthird‐partysettlementsreceivableatJune30,2015pertainstocurrentyearcostreportestimates.

Capitalassets,netofaccumulateddepreciation,decreasedapproximately$5.3million,andtotaled

approximately$109.1millionasofJune30,2015.Acombinationofcashpaymentsandequipmentfinancing were utilized to acquire approximately $6.4 million in equipment, software, and othercapitalimprovementprojectsduringtheyear.

Current liabilities totaled approximately $122.4 million at year end. Long‐term debt totaling

approximately $28.4 million at June 30, 2015 reflects a decrease of approximately $2.3 millioncomparedtoJune30,2014.

Workers’ compensation and comprehensive liability insurance reserves classified as long term

liabilitiesdecreasedby$210thousand,basedonactuarialanalysesofopenclaimsandestimatesofclaimsincurredbutnotyetreported(“IBNR”).Actuarialstudiesarecommissionedtwiceeachyeartodeterminethepotentialliabilitiesandrequiredreserves.


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CondensedConsolidatedStatementsofRevenues,Expenses,andChangesinNetPositionfortheYearsEndedJune30,2015and2014(InThousands)

2015 2014

Operatingrevenue 337,195$ 319,743$Operatingexpenses 336,771 325,398

Netincome(loss)fromoperations 424 (5,655)

Non‐operatingrevenue 4,010 10,040

Excessofrevenueoverexpenses 4,434 4,385

Minorityinterestdistributions‐net (1,330) (1,637)

Changeinnetposition 3,104 2,748

Beginningnetposition 94,624 91,876

Endingnetposition 97,728$ 94,624$

Averagedailycensus 191.0 193.1Emergencyroomvisits 70,090 69,357

2015AnalysisoftheConsolidatedStatementofRevenues,ExpensesandChangesinNetPosition TheDistrictexperiencedaslightdecreaseininpatientvolumein2015.Totalaveragedailycensus

was191 for the current year compared to 193 in theprior year. Total hospital outpatient visitsincreased approximately 4.2% compared to 2014, emergency treat and release visits increasedapproximately 1.1%, home health visits increased approximately 16.6% and OP Infusion Centervisitsincreased18.1%in2015.

Operating revenues increased by approximately $17.5 million in 2015 compared to 2014. This

increaseisduetomultiplefactorsincludingincreasedacuityofinpatients,payormixchangesandincreasedoutpatientvolumes.Netrevenueinbothyearswasreducedbysequestration,resultingina2%reductioninMedicarereimbursement,approximating$2.4millionintheyearendedJune30,2015and$2.4millionintheyearendedJune30,2014.



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2015AnalysisoftheConsolidatedStatementofRevenues,ExpensesandChangesinNetPosition(continued) Operating expenses, which include patient care expenses and overhead and administrative

expenses, increased approximately $11.4million. The largest single increase was experienced insupplies expense,which increasedapproximately$5.1millionprimarilydue toan increase in thevolumeandcomplexityoforthopedicandspinesurgeriesandpharmaceuticalcosts.

Althoughsalariesandrelatedexpensesincreasedbyapproximately$6.5million,acontinuedfocuson increasedproductivityreducedsalariesandrelatedexpenses fromapproximately57%of totaloperatingrevenuein2014toapproximately56%in2015.

Non‐operating income and expense is comprised of the District’s share of property tax revenue

collected by the County, interest earned on invested monies, interest expense, and other non‐operating items. The resulting net non‐operating revenue totaled approximately $4.0 million in2015comparedtoapproximately$10.0millionin2014.The$6.0milliondecreaseinnon‐operatingrevenueisprimarilyduetothereceiptofapproximately$5.5millioninlegalsettlementincomein2014.

StatementofCashFlows–TheStatementofCashFlowsreportscashreceipts,cashpayments,andnetchangesincashresultingfromoperating,noncapitalandcapitalfinancing,andinvestingactivities.

2015 2014

Netcashprovidedby(usedin)Operatingactivities 9,586$ 11,894$Noncapitalfinancingactivities 6,865 12,497Capitalandrelatedfinancingactivities (14,713) (27,897)Investingactivities 45 4,186

Netchangeincashandcashequivalents 1,783 680

Beginningcashandcashequivalents 13,928 13,248

Endingcashandcashequivalents 15,711$ 13,928$

YearsEndedJune30,

Cashflowsarisefromoperatingincomeadjustedfornoncashexpendituressuchasdepreciationexpenseandbaddebtexpense(“operatingactivities”),changesininvestmentsandinterestincomereceivedoninvestments (“investing activities”), purchase of new capital assets and payments of interest andprincipal on debt (“capital and related financing activities”), and county tax revenues (“noncapitalfinancingactivities”).


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2015AnalysisoftheConsolidatedStatementofCashFlowsCash and cash equivalents totaled approximately $15.7million at the endof fiscal 2015 compared toapproximately$13.9millionat fiscal2014yearend.Netcashprovidedbyoperatingactivitiesin2015decreased approximately $2.3 million and cash provided by noncapital financing activities in 2015decreasedbyapproximately$5.8million.The$4.7milliondeposit to theStateofCaliforniarelated toeminentdomainproceedings in thecurrentyearand the$5.5million legal settlementreceived in theprioryearcontributedtothedecreases.Cashusedincapitalandrelatedfinancingactivitiesdecreasedapproximately$13.2millionfrom2014to2015,dueprimarilytothepurchaseoftheTri‐CityWellnessCenter in 2014. The District received approximately $1.0million from the Foundation and Auxiliaryduring2015.2015CapitalAssetsDuring 2015 the District invested approximately $6.4 million in new equipment and buildingimprovements.Majoracquisitionsduring2015includedthedesignandbuildoutoftheTri‐CityPrimaryCarephysicianclinic,continueddevelopmentofthehospitalelectronichealthrecord,twofluoroscopyC‐arm systems, a cardiacmapping system, several hospital remodel projects and a number of surgicalequipmentupgrades.Capital lease payments were made timely. More detailed information about the District’s debt ispresentedinNotes9and10totheconsolidatedfinancialstatements.FinanceContactTheDistrict’sconsolidatedfinancialstatementsaredesignedtopresentuserswithageneraloverviewoftheDistrict’sfinancesandtodemonstratetheDistrict’saccountability.Ifyouhaveanyquestionsaboutthe reportorneedadditional financial information,please contact theChiefFinancialOfficer,Tri‐CityHealthcareDistrict,4002VistaWay,Oceanside,California92056.

Seeaccompanyingnotes. 11

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATEDSTATEMENTSOFNETPOSITION

2015 2014

CURRENTASSETSCashandcashequivalents 15,711,112$ 13,928,158$Restrictedcashandinvestments 51,418,000 51,426,000Patientaccountsreceivable‐netofestimated

uncollectibleaccountsof$23,096,486and$24,655,998in2015and2014,respectively 43,587,397 43,086,341

Otherreceivables 1,972,226 2,672,642Suppliesinventory 7,401,180 6,716,866Prepaidexpensesandotherassets 2,691,937 3,118,615Estimatedthird‐partypayorsettlements 2,817,491 4,631,305

Totalcurrentassets 125,599,343 125,579,927

NON‐CURRENTCASHANDINVESTMENTSBoard‐designated 392,638 391,680

CAPITALASSETS‐net 109,058,505 114,379,827

OTHERASSETSNotesreceivable 5,456,244 4,430,469Other 15,913,884 11,416,223

Totalotherassets 21,370,128 15,846,692

TOTAL 256,420,614$ 256,198,126$

ASSETS

JUNE30,

12 Seeaccompanyingnotes.

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATEDSTATEMENTSOFNETPOSITION(CONTINUED)

2015 2014

CURRENTLIABILITIESAccountspayableandaccruedliabilities 40,043,691$ 40,283,983$Accruedpayrollandrelatedexpenses 21,064,762 18,755,969Currentmaturitiesoflong‐termdebt 3,221,570 4,106,095Short‐termdebt 56,430,432 57,375,225Othercurrentliabilities 989,459 970,337Estimatedthird‐partypayorsettlements 618,888 1,298,780

Totalcurrentliabilities 122,368,802 122,790,389

LONG‐TERMDEBT‐netofcurrentportion 28,357,448 30,608,235

WORKERS'COMPENSATIONANDCOMPREHENSIVELIABILITY‐netofcurrentportion 7,966,244 8,175,504

Totalliabilities 158,692,494 161,574,128

NETPOSITIONNetinvestmentincapitalassets 77,479,485 79,665,497Unrestricted 18,545,334 13,389,770Restricted,non‐expendable 1,703,301 1,568,731

Totalnetposition 97,728,120 94,623,998

TOTAL 256,420,614$ 256,198,126$

JUNE30,

LIABILITIESANDNETPOSITION


TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATEDSTATEMENTSOFREVENUES,EXPENSES

ANDCHANGESINNETPOSITION

2015 2014REVENUE

Netpatientservicerevenue 311,993,429$ 290,993,376$Premiumrevenue 17,893,104 21,255,171Otherrevenue 7,308,188 7,494,366

Totaloperatingrevenue 337,194,721 319,742,913

EXPENSESSalariesandrelatedexpenses 189,371,461 182,869,893Supplies 71,529,950 66,418,086Purchasedservices 18,147,963 19,863,619Depreciationandamortization 11,724,273 13,366,473Otheroperatingexpense 18,336,719 17,109,611Professionalandmedicalfees 14,646,849 14,142,515Maintenance,rent&utilities 13,013,256 11,627,502

Totaloperatingexpenses 336,770,471 325,397,699

NETINCOME(LOSS)FROMOPERATIONS 424,250 (5,654,786)

NON‐OPERATINGREVENUE(EXPENSE)Districttaxrevenue 8,469,927 8,021,086Interestincome 195,950 154,935Interestexpense (4,229,852) (4,320,644)Othernon‐operating(expense)income (426,307) 6,184,472

Totalnon‐operatingrevenue 4,009,718 10,039,849

EXCESSOFREVENUEOVEREXPENSES 4,433,968 4,385,063

MINORITYINTERESTDISTRIBUTIONS‐NET (1,329,846) (1,636,662)

Changesinnetposition 3,104,122 2,748,401

NETPOSITION‐Beginningofyear 94,623,998 91,875,597

NETPOSITION‐Endofyear 97,728,120$ 94,623,998$

YEARSENDEDJUNE30,

14 Seeaccompanyingnotes.

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATEDSTATEMENTSOFCASHFLOWS

2015 2014

CASHFLOWSFROMOPERATINGACTIVITIESReceiptsfrompatients,insurers,andotherpayors 331,219,815$ 311,957,639$Paymentstovendors (136,172,665) (123,196,907)Paymentsforsalaries,wages,andrelatedbenefits (187,062,668) (181,855,302)Otherreceiptsandpayments 1,601,656 4,988,790

Netcashprovidedbyoperatingactivities 9,586,138 11,894,220

CASHFLOWSFROMNONCAPITALFINANCINGACTIVITIESMinorityinterestdistributions,net (1,329,846) (1,636,662)ReceiptofDistricttaxes 8,469,927 8,021,086Othernon‐operating(expense)revenue (275,377) 6,113,198

Netcashprovidedbynoncapitalfinancingactivities 6,864,704 12,497,622

CASHFLOWSFROMCAPITALANDRELATEDFINANCINGACTIVITIESAcquisitionofcapitalassets (6,402,951) (6,869,678)WellnessCenterpurchase/financing ‐ (38,380,805)ProceedsfromWellnessCentertermloan ‐ 26,500,000PrincipalrepaymentsonWellnessCentertermloan (445,524) (349,035)Proceedsfromrevolvinglineofcredit 366,335,846 330,274,514Principalrepaymentsonrevolvinglineofcredit (367,280,639) (330,699,289)Proceedsfromotherdebt 1,050,625 986,551Principalrepaymentsonotherdebt (3,740,412) (5,038,745)Interestpaymentsondebt (4,229,852) (4,320,644)

Netcashusedincapitalandrelatedfinancingactivities (14,712,908) (27,897,131)

CASHFLOWSFROMINVESTINGACTIVITIESProceedsfromsaleofinvestments ‐ 4,117,593Interestoninvestments 45,020 68,023

Netcashprovidedbyinvestingactivities 45,020 4,185,616

NETINCREASEINCASHANDCASHEQUIVALENTS 1,782,954 680,327

CASHANDCASHEQUIVALENTS‐Beginningofyear 13,928,158 13,247,831

CASHANDCASHEQUIVALENTS‐Endofyear 15,711,112$ 13,928,158$

YEARSENDEDJUNE30,


TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATEDSTATEMENTSOFCASHFLOWS(CONTINUED)

2015 2014

Netincome(loss)fromoperations 424,250$ (5,654,786)$Adjustmentstoreconcilenetincome(loss)fromoperations

tonetcashprovidedbyoperatingactivities:Provisionforbaddebt 48,397,226 54,765,985Depreciationandamortization 11,724,273 13,366,473Changesinnetassetsandliabilities

Patientaccountsreceivable (48,898,282) (58,934,176)Otherreceivables 700,416 (1,328,030)Other‐net (5,964,168) (3,825,085)Accountspayableandaccruedliabilities (240,292) 7,283,935Accruedpayrollandrelatedexpenses 2,308,793 1,014,591Estimatedthird‐partypayorsettlements 1,133,922 5,205,313

Netcashprovidedbyoperatingactivities 9,586,138$ 11,894,220$

Capitalassetsacquiredthroughlong‐termdebt ‐$ 1,133,501$

YEARSENDEDJUNE30,

RECONCILIATIONOFNETINCOME(LOSS)FROMOPERATIONSTONETCASHPROVIDEDBYOPERATINGACTIVITIES

NONCASHINVESTING,CAPITAL,ANDFINANCINGACTIVITIES

TRI‐CITYHEALTHCAREDISTRICTNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS

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Note1–OrganizationOrganization–Tri‐CityHealthcareDistrict (the “District” or “TCMC”) is apolitical subdivisionof thestateofCaliforniaorganizedasaspecialdistrict.TheDistrictprovidescomprehensivemedicalservicesat its facility located in Oceanside, California. The consolidated financial statements of the DistrictincludetheaccountsoftheDistrict,Tri‐CityMedicalCenterASCOperators,LLC(“ASCO”),NorthCoastSurgeryCenterLtd.(“NCSC”),theCardiovascularHealthInstitute,LLC(“CVI”),theOrthopedicInstitute,LLC(“Ortho”),theNeuroscienceInstitute,LLC(“Neuro”),Tri‐CityRealEstateHoldingandManagementCo,LLC(“REHM”)andTri‐CityWellness,LLC(“Tri‐CityWellness”).ASCO, NCSC, CVI, Ortho, Neuro, REHM and Tri‐City Wellness are component units that have beenblended for presentation purposes. The District owns a 60% interest in ASCO, which providesmanagementservicestoNCSC.ASCOownsa52.8%interestinNCSC.NCSCprovidesoutpatientsurgicalservicestothesurroundingcommunitiesofOceanside,California.TheDistricthasdeterminedblendedpresentationisappropriateasitappointsavotingmajorityofASCO’sgoverningbody.TheDistrictowns61.4%of CVI, 50%of Ortho and 68%ofNeuro. The Instituteswere established to align the goals ofindependentphysicianpracticesandspecialtyserviceswiththegoalsof thehospital.Keygoalsaretoimprovequalityoutcomereportingandimprovefinancialandoperationalperformanceoftherespectiveservicelines.TheDistricthasdeterminedblendedpresentationisappropriateforCVI,Ortho,andNeuroasthecomponentunitsprovideservicesalmostentirelytotheDistrict.TheDistrictowns99%ofREHM.The District has determined blended presentation is appropriate for REHM as management of theDistrict has operational responsibility for REHM. The District owns 99.9% of Tri‐CityWellness. TheDistricthasdeterminedblendedpresentationisappropriateforTri‐CityWellnessasmanagementoftheDistrict has operational responsibility forTri‐CityWellness. All intercompany transactions havebeeneliminatedintheDistrict’sconsolidatedfinancialstatements.Note2–SummaryofSignificantAccountingPoliciesBasisofpresentation–Theconsolidatedfinancialstatementshavebeenpreparedinaccordancewiththe applicable provisions of the American Institute of Certified Public Accountants’ Audit andAccounting Guide, Health Care Organizations, and pronouncements of the Governmental AccountingStandardsBoard(“GASB”)andtheCaliforniaCodeofRegulations,Title2,Section1131,StateController’sMinimumAuditRequirementsandReportingGuidelines forCaliforniaSpecialDistricts.TheDistrictusesproprietary (enterprise) fundaccounting.Revenuesandexpensesare recognizedon theaccrualbasisusingtheeconomicresourcesmeasurementfocus.Accounting estimates – The preparation of consolidated financial statements in conformity withaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(“GAAP”)requiresmanagementtomakeestimatesthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsand liabilitiesat thedateof theconsolidated financial statementsand thereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultsmaydifferfromthoseestimates.


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Note2–SummaryofSignificantAccountingPolicies(continued)Cashequivalents–Forpurposesoftheconsolidatedfinancialstatements,theDistrictconsidershighlyliquid debt instruments (excluding non‐current cash and investments) purchasedwith amaturity ofthreemonthsorlesstobecashequivalents.Termloancollateral–Thetermloanisfullycollateralizedbyrestrictedcashof$51.0millionatJune30, 2015 and 2014. The custodians of the restricted cash are the financial institutions that haveprovided the term loan. Term loan collateral is included within restricted funds in the consolidatedstatementsofnetpositionatJune30,2015and2014.Investments – Investmentsare reportedat fairvalue, asdeterminedbyquotedmarketprices, in thestatementsofnetposition, andall investment incomeor losses, includingchanges in the fairvalueofinvestments,arereportedinnon‐operatingincome(expense)inthestatementsofrevenues,expenses,andchangesinnetposition.Supplies inventories – Supplies inventories are reported at the lower of cost (first‐in, first‐out) ormarketvalue.Goodwill – Goodwill represents the excess of purchase price of an acquired business over the nettangible and identifiable intangible assets acquired and liabilities assumed in connection with theacquisitionof theoncology infusionpractice in2013.At June30,2015and2014,goodwillassociatedwith this transaction was approximately $4.6 million, which is included in other assets in theconsolidatedstatementsofnetposition.TheDistrictevaluatesgoodwillforimpairmentatleastannuallyor whenever events or changes in circumstances require an interim impairment assessment. TheDistrict compares the fairvalueofeach reportingunit to its carryingamount todetermine if there ispotential goodwill impairment. If the fair value of a reporting unit is less than its carrying value, animpairmentlossisrecordedtotheextentthatthefairvalueofthegoodwillwithinthereportingunitislessthanthecarryingvalueof itsgoodwill.Managementdeterminedthattherewasno impairmentofgoodwillasofJune30,2015and2014.Capitalassets–Property,plantandequipmentarerecordedatcost.Depreciationiscomputedusingthestraight‐linemethodovertheestimatedusefullifeofeachclassofdepreciableasset(theshorteroftheestimatedusefullifeortheleasetermforleaseholdimprovements)asfollows:

Landimprovements 15yearsBuildingsandbuildingimprovements 10‐40yearsLeaseholdimprovements 3‐15years


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Note2–SummaryofSignificantAccountingPolicies(continued)Interestcostincurredonborrowedfundsduringtheperiodofconstructionofcapitalassets,netofanyinterest earned on temporary investments of the proceeds for construction projects funded by tax‐exemptborrowings,iscapitalizedasacomponentofthecostofacquiringthoseassets.Netinterestcostcapitalized was approximately $0 and $31 thousand for the years ended June 30, 2015 and 2014,respectively.Capitalassetsareevaluatedforimpairmentwheneventsorchangesincircumstancessuggestthattheserviceutilityof thecapitalassetmayhavesignificantlyandunexpectedlydeclined.Capitalassetsareconsideredimpairedifboththedeclineinserviceutilityofthecapitalassetislargeinmagnitudeandtheevent or change in circumstance is outside the normal life cycle of the capital asset. Such events orchanges in circumstances thatmaybe indicative of impairment include evidence of physical damage,enactmentorapprovalof lawsorregulationsorotherchangesinenvironmentalfactors, technologicalchangesorevidenceofobsolescence, changes in themannerordurationofuseofacapitalasset,andconstruction stoppage. The determination of the impairment loss is dependent upon the event orcircumstance in which the impairment occurred. Impairment losses, if any, are recorded in thestatementsofrevenues,expenses,andchangesinnetposition.NoimpairmentlossesarerecordedintheyearsendedJune30,2015and2014.Netposition–Netpositionof theDistrict isclassified in fourcomponents. “Net investment incapitalassets”consistsofcapitalassets,netofaccumulateddepreciationandisreducedbythebalancesofanyoutstandingborrowingusedtofinancethepurchaseorconstructionofthoseassets.“Unrestricted”netposition is the remaining net position that does notmeet the definition of net investment in capitalassets or restricted. “Restricted” net position is non‐capital net position required to be used for aparticularpurpose,asspecifiedbycontributorsexternaltotheDistrict.“Restricted,nonexpendable”netpositionincludesthenetpositionofASCO,CVI,Ortho,Neuro,REHMandTri‐CityWellnessnotownedbytheDistrict.Grants and contributions – From time to time, the District receives grants and contributions fromindividualsorprivateorganizations.Revenuesfromgrantsandcontributions(includingcontributionsofcapital assets) are recognizedwhenall eligibility requirements, including time requirements aremet.Grants and contributions may be restricted for either specific operating purposes or for capitalpurposes. Amounts that are unrestricted or that are restricted to a specific operating purpose arereportedasnon‐operatingrevenues.Amountsrestrictedtocapitalacquisitionsarereportedafternon‐operatingrevenuesandexpenses.Operatingrevenuesandexpenses–TheDistrict’sstatementsofrevenues,expenses,andchanges innet position distinguish between operating and non‐operating revenues and expenses. Operatingrevenues result from exchange transactions associated with providing health care services – theDistrict’sprincipalactivity.Operatingexpensesincludeallexpensesincurredtodirectlyprovidehealthcareservices.Non‐operating incomeandexpensesconsistof thoserevenuesandexpenses that resultfromnon‐exchangetransactions,suchasDistricttaxes,financingcosts,interestexpense,andinvestmentincome.


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Note2–SummaryofSignificantAccountingPolicies(continued)Netpatientservicerevenue–Netpatientservicerevenueisreportedattheestimatednetrealizableamounts from patients, third‐party payers, and others for services rendered, including estimatedretroactive adjustments under reimbursement agreements with third‐party payers. Retroactiveadjustments are accrued on an estimated basis in the period the related services are rendered andadjusted in future periods as final settlements are determined. The District estimates net collectibleaccountsreceivableandthecorrespondingimpactonnetpatientservicesrevenuebyapplyinghistoricalcollection realization percentages to outstanding gross accounts receivable by payor class. Normalestimation differences between subsequent cash collections on patient accounts receivable and netpatient accounts receivable estimated in the prior year are reported as adjustments to net patientservicerevenueduringthecollectionperiod.SubsequentcollectionsthroughJuly2015haveexceedednetpatientaccounts receivable reflectedasof June30,2014byapproximately$2.9million, andhaveexceedednetpatientaccountsreceivablereflectedasofJune30,2013byapproximately$1.3million.Premium revenue – The District has agreements with various health maintenance organizations(“HMOs”)toprovidemedicalservicestosubscribingparticipants.Undertheseagreements,theDistrictreceivesmonthlycapitationpaymentsbasedon thenumberofeachHMO’sparticipants, regardlessofservicesactuallyperformedbytheDistrict.TheDistrictrecognizespremiumrevenueintheperiodtheDistrict is obligated to provide services, which is generally in the month capitation payments arereceived. In addition, the HMOs make fee‐for‐service payments to the District for certain coveredservices based upon discounted fee schedules. Under some of these agreements, the District alsoparticipates in shared‐risk pools with medical groups, through which it could receive additionalreimbursementorpayadditionalamountstothemedicalgroups.Inconjunctionwiththeriskpools,theDistrictestimatesincurredbutnotreported(“IBNR”)claimsformedicalservicesprovidedtopatientsatotherfacilities(seeNote14).IBNRliabilitiesofapproximately$1.9millionand$1.7millionareincludedinaccountspayableandaccruedliabilitiesintheaccompanyingconsolidatedstatementsofnetpositionasofJune30,2015and2014,respectively.Propertytaxes–TheDistrictreceivesfinancialsupportfrompropertytaxes.Thesefundsareusedtosupport operations. Property taxes are levied annually by theCounty of SanDiego (the “County”) onbehalfoftheDistrictandareintendedtofinancetheDistrict’sactivities.TheCounty’sfiscalyearisfromJuly1throughJune30.AmountsoftaxleviedarebasedonassessedpropertyvaluesasofthefirstdayofJanuary proceeding the fiscal year for which the taxes are levied. District tax revenue amounted toapproximately$8.5millionand$8.0millionfortheyearsendedJune30,2015and2014,respectively.Incometaxes–TheDistrictisagovernmentalsubdivisionofthestateofCaliforniaandisexemptfromfederalincomeandstatefranchisetaxes.


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Note2–SummaryofSignificantAccountingPolicies(continued)Compensatedabsences–TheDistrict’sbenefits‐eligibleemployeesearnvacationleaveatvaryingratesbased upon qualifying‐service hours. Employees may accumulate vacation leave up to a specifiedmaximum.Accrued vacation leave is paid to the employee upon termination of employment or uponconversiontonon‐benefits‐eligiblestatus.Theestimatedamountofvacationleavepayabletoemployeesisreportedasacurrentliabilityofapproximately$8.7millionatbothJune30,2015and2014.Sicktimeisalsoearnedat a specific rateperqualified‐servicehour.However,nopayment ismade foraccruedsicktimewhenemploymentisterminated.Note 3 – Patient Service Revenue, Third‐Party Reimbursement Programs and Non‐OperatingRevenueTheDistrictrendersservicestopatientsundercontractualarrangementswiththeMedicareandMedi‐CalprogramsandvariousHMOsandpreferredproviderorganizations(“PPOs”).TheMedicareprogramgenerally pays the District a prospectively determined rate per discharge for services rendered toMedicareinpatients.Additionally,MedicarereimbursestheDistrictforcertaincapitalrelatedcostsandpsychiatricservicesonthebasisofcostsincurred. SenateBill853addedsection14105.28totheWelfareandInstitutionCode.Thissectionmandatedthedesignandimplementationofanewpaymentmethodologyforhospital inpatientservicesprovidedtoMedi‐Cal beneficiaries based upon Diagnosis Related Groups (“DRGs”). The DRG case‐basedreimbursementmethodologyreplacedthepreviousperdiempaymentmethodforallprivatehospitalswithadmissionsonorafterJuly1,2013,andfornon‐designatedpublichospitalswithadmissionsonorafter January1,2014.Aperdiemreimbursementmethodology is stillused for rehabilitative servicesand behavioral health services. Revenue from the Medicare and Medi‐Cal programs accounted forapproximately66%and60%oftheDistrict’sgrosspatientservicerevenueintheyearsendedJune30,2015and2014,respectively.TheDistrict is reimbursed for serving adisproportionate share of low incomepatients, reimbursableMedicarebaddebtandcertainotheritemsatatentativeratewithfinalsettlementdeterminedaftertheDistrict'ssubmissionofannualcostreportsandauditsthereofbyStateandFederalagenciesandtheirintermediaries. Cost reports for theMedicare programs have been final settled for all years through2012.Resultsofcostreportsettlements,aswellastheDistrict'sestimatesforsettlements,ofall fiscalyearsthrough2015arereflectedintheaccompanyingconsolidatedfinancialstatements.Estimatednet third‐party settlements consistedof anet receivableof approximately$2.2millionand$3.3million as of June 30, 2015 and 2014, respectively. During fiscal year 2015, the District settledvariousprior‐yearcostreports,appeal issuesandadjustedprior‐yearsettlementestimates.Prioryearsettlements and changes in estimates resulted in approximately $2.1 million and $517 thousand ofadditionalnetpatientservicerevenueintheyearsendedJune30,2015and2014,respectively,andareincluded in net patient service revenue in the accompanying consolidated statements of revenue,expenses,andchangesinnetposition.


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Note 3 – Patient Service Revenue, Third‐Party Reimbursement Programs and Non‐OperatingRevenue(continued)Thehospitalrecordednetpatientservicerevenueofapproximately$2.0millionduringtheyearendedJune 30, 2014 from the Low Income Health Program (“LIHP”), a five‐year California MedicaidDemonstration Waiver program (“Section 1115 waiver”) which allowed the State of California toestablishlowincomehealthprogramsineachcountytoexpandcoveragefortheuninsured,inadvanceof the Medicaid expansion program provisions of the Affordable Care Act of 2010. The DistrictparticipatedinthisprogramthrougharelationshipwiththeCountyofSanDiegoDepartmentofHealthandHumanServices,untiltheprogramendedonDecember31,2013.The District has also entered into payment agreements with certain commercial insurance carriers,HMOs,andPPOs.ThebasisforpaymenttotheDistrictundertheseagreementsincludesprospectivelydeterminedratesperdischarge,discountsfromestablishedcharges,andprospectivelydetermineddailyrates.The District grants credit without collateral to its patients, most of who are local residents and areinsuredunderthird‐partypayoragreements.Themixofnetreceivablesfrompatientsandthird‐partypayorsasofJune30,2015and2014wereasfollows:

Medicareplans 36 % 30 %Medi‐Calplans 17 20HMO/PPO 34 35Others 13 15

Total 100 % 100 %

20142015

Non‐operatingrevenueincludesDistricttaxrevenueandothernon‐patientservicerevenue.Districttaxrevenue totaled approximately $8.5million and $8.0million for the years ended June 30, 2015 and2014,respectively.Othernon‐operatingincomeincludesapproximately$325thousandand$5.5millioninlegalsettlementsin2015and2014,respectively.Note4–CashandCashEquivalentsandInvestmentsThe State of California Government Code (the “Code”) generally authorizes the District to investunrestrictedandBoard‐designatedassetsinobligationsoftheU.S.TreasuryandcertainU.S.governmentagencies, obligations of the state of California and local government entities, bankers’ acceptances,commercial paper, certificates of deposit, repurchase agreements, and mortgage securities. Certaininvestmentsmaybepurchasedonlyinlimitedamounts,asdefinedintheCode.


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Note4–CashandCashEquivalentsandInvestments(continued)The California State Treasurer’s Office makes available the Local Agency Investment Fund (“LAIF”)throughwhichlocalgovernmentsmaypoolinvestments.Eachgovernmentalentitymayinvestupto$40millioninthefund.InvestmentsintheLAIFarehighlyliquid,asdepositscanbeconvertedtocashwithin24hourswithoutlossofinterest.TheDistrictisavoluntaryparticipantintheLAIF.ThefairvalueoftheDistrict’s investments in the LAIF is reported in the accompanying consolidated financial statementsbasedontheDistrict’sproratashareofthefairvalueprovidedbytheLAIFfortheentireLAIFportfolio.AsofJune30,2015and2014theDistrictheldapproximately$393thousandand$392thousandinLAIF,respectively.TheDistricthas$51.0millionheldascollateralfora$51.0milliontermloan,whichisheldinapledgedcashaccountclassifiedasrestrictedfundsatJune30,2015and2014intheaccompanyingconsolidatedstatementsofnetposition.There aremany factors that can affect the value of investments. Some, such as credit risk, custodialcredit risk, and concentration of credit risk and interest rate risk, may affect both equity and fixedincomesecurities.Equityanddebtsecuritiesrespondtosuchfactorsaseconomicconditions,individualcompany earnings performance, and market liquidity, while fixed income securities are particularlysensitivetocreditrisksandchangesininterestrates.Creditrisk–Fixedincomesecuritiesaresubjecttocreditrisk,whichisthechancethatanissuerwillfailtopayinterestorprincipalinatimelymannerorthatnegativeperceptionsoftheissuer’sabilitytomake these paymentswill cause security prices to decline. Certain fixed income securities, includingobligations of the U.S. government or those explicitly guaranteed by the U.S. government, are notconsideredtohavecreditrisk.TheDistrictinvestsprimarilyinobligationsoftheU.S.government.Concentration of credit risk – Concentration of credit risk is the risk associated with a lack ofdiversification,suchashavingsubstantialinvestmentsinafewindividualissuers,therebyexposingtheDistrict to greater risks resulting from adverse economic, political, regulatory, geographic, or creditdevelopments. Investments issuedorguaranteedby theU.S. governmentand investments in externalinvestmentpools,suchasLAIF,arenotconsideredsubjecttoconcentrationofcreditrisk.Inaccordancewithstatelaw,nomorethan5%oftotalinvestmentsmaybeinvestedinthesecuritiesofanyoneissuer,exceptobligationsoftheU.S.government,nomorethan10%maybeinvestedinanyonemutualfund,andnomorethan30%maybeinvestedinbankers’acceptancesofanyonecommercialbank.Custodialcreditrisk‐deposits–Custodialcreditriskistheriskthatintheeventofabankfailure,theDistrict’sdepositsmaynotbereturnedtoit.TheDistrictdoesnothaveapolicyforcustodialcreditrisk.AsofJune30,2015and2014,theDistrict’sbankbalancestotaledapproximately$67.1millionand$65.4million,respectively,andwerenotexposedtocustodialcreditrisk,astheuninsureddepositsarewithfinancial institutions which are individually required by state law to have government depositscollateralizedatarateof110%ofthedeposits.SuchcollateralisconsideredtobeheldintheDistrict’sname.


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Note4–CashandCashEquivalentsandInvestments(continued)Custodial credit risk – investments – District policy requires that all investments be insured orregistered,orbeheldbytheDistrict’sagentintheagent’snomineename,withsubsidiaryrecordslistingtheDistrictasthelegalowner.Forthesereasons,theDistrictisnotexposedtocustodialcreditriskforitsinvestments.Interestraterisk–Interestrateriskistheriskthatthevalueoffixedincomesecuritieswilldeclineduetoincreasinginterestrates.Thetermsofadebtinvestmentmaycauseitsfairvaluetobehighlysensitivetointerestratechanges.Asameansoflimitingitsexposuretofairvaluelossesarisingfromincreasinginterest rates, the District’s investment policy, as per statutory requirements, limits the term of anyinvestmenttoamaturitynotexceedingfiveyears.The carrying amount of deposits and investments are included in the following statements of netpositioncaptionsatJune30:

2015 2014

Cashandcashequivalents 15,711,112$ 13,928,158$Restrictedcash 51,418,000 51,426,000Board‐designated 392,638 391,680

Total 67,521,750$ 65,745,838$

Note5–RestrictedCashandInvestmentsTheDistrict held other cash and investments that are restrictedby external parties for the followingpurposesatJune30:

2015 2014

Workers'compensationlettersofcredit 418,000$ 426,000$Termloancollateral 51,000,000 51,000,000

Total 51,418,000$ 51,426,000$


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Note6–CapitalAssetsProperty,plant,andequipmentasofJune30,2015and2014consistedofthefollowing:2015 Beginning Ending

Balance BalanceJune30,2014 Additions Deletions Transfers June30,2015

Landandlandimprovements 19,877,710$ ‐$ ‐$ ‐$ 19,877,710$Buildingsandimprovements 200,915,689 187,075 ‐ 2,185,600 203,288,364Equipment 142,397,349 2,869,310 ‐ 6,249,975 151,516,634

363,190,748 3,056,385 ‐ 8,435,575 374,682,708

Assetsunderlease 9,244,706 ‐ ‐ (5,337,119) 3,907,587Lessaccumulateddepreciationandamortization (259,935,809) (11,768,771) ‐ (271,704,580)Constructioninprogress 1,880,182 3,391,064 ‐ (3,098,456) 2,172,790

Totalcapitalassets 114,379,827$ (5,321,322)$ ‐$ ‐$ 109,058,505$

2014 Beginning EndingBalance Balance

June30,2013 Additions Deletions Transfers June30,2014

Landandlandimprovements 9,827,710$ 10,050,000$ ‐$ ‐$ 19,877,710$Buildingsandimprovements 168,417,230 2,399,226 ‐ 30,099,233 200,915,689Equipment 138,614,463 1,798,551 (145,427) 2,129,762 142,397,349

316,859,403 14,247,777 (145,427) 32,228,995 363,190,748

Assetsunderlease 41,544,445 1,133,502 ‐ (33,433,241) 9,244,706Lessaccumulateddepreciationandamortization (252,969,916) (13,122,568) ‐ 6,156,675 (259,935,809)Constructioninprogress 2,443,996 4,388,615 ‐ (4,952,429) 1,880,182

Totalcapitalassets 107,877,928$ 6,647,326$ (145,427)$ ‐$ 114,379,827$

Note7–OtherAssetsOtherassetsconsistedofthefollowingasofJune30:

2015 2014

Goodwill 4,629,430$ 4,629,430$Medicalofficebuildingdeposits 9,704,692 5,004,692Other 1,579,762 1,782,101

Total 15,913,884$ 11,416,223$


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Note7–OtherAssets(continued)AsofJune30,2015and2014,approximately$9.7millionand$5.0millionisreflectedinotherassetsintheaccompanyingconsolidatedstatementsofnetpositionpertainingtopaymentstothedeveloperofanon‐campusmedicalofficebuildingand to theStateofCaliforniaTreasurer related toeminentdomainproceedingstoacquireanon‐campusmedicalofficebuilding.Claimshavebeenmadebythedeveloperand claims have been made by the District regarding the medical office building. In July 2014, theDistrictcommencedeminentdomainproceedingstoacquirethemedicalofficebuildingandaccordinglydepositedapproximately$4.7millionduring2015withtheStateofCaliforniaTreasurer.Note8–Short‐TermDebtTerm loan – InApril2012, theDistrict replaced itsexisting term loanwithanew term loanwithaninitialmaturitydateofJune28,2013.Thenewtermloanmaintainedtheexistingprincipaloutstandingof $51.0 million and existing collateral of $51.0 million with new lenders. The term loan currentlymaturesonMay28,2016,afterwhichtheDistrictanticipatesextendingthematuritytoDecember31,2016.Lineofcredit–InJuly2013,anewrevolvinglineofcreditwasobtainedfromMidCap,LLC.Theamountavailableunderthisnewlineofcreditisupto$25.0million,subjecttoaborrowingbasecalculation,asdefinedwithin the Credit and SecurityAgreement. The interest rate is the London InterbankOfferedRate(“LIBOR”)plus3.50%subjecttoaLIBORfloorof1%.Theinitialtermofthislineofcreditwasthreeyears.Subsequenttoyear‐endtherevolvinglineofcreditagreementwasamended,extendingthetermmaturity date to August 31, 2017. See Note 16 – Subsequent Events. The borrowings on the creditfacilityarefullycollateralizedbycertainassetsoftheDistrict.TheDistrict’srevolvinglineofcreditfacilityandtermloanaresubjecttocompliancewithcertaindebtcovenants,includingrestrictionsonadditionalindebtedness,maximumdebttocapitalizationratio,andaminimumfixedchargecoverageratio.TheDistrict is incompliancewithdebtcovenants included intheamendedrevolvinglineofcredit.


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Note8–Short‐TermDebt(continued)AscheduleofchangesintheDistrict’sshort‐termdebtasofJune30,2015and2014isasfollows:

Beginning Other Ending2015 Balance Additions Payments Classification Balance

Termloan 51,000,000$ ‐$ ‐$ ‐$ 51,000,000$Lineofcredit 6,375,225 366,335,847 (367,280,640) ‐ 5,430,432

Totalshort‐termdebt 57,375,225$ 366,335,847$ (367,280,640)$ ‐$ 56,430,432$

Beginning Other Ending2014 Balance Additions Payments Classification Balance

Insurancefinancing ‐$ 986,551$ (986,551)$ ‐$ ‐$Termloan ‐ ‐ ‐ 51,000,000 51,000,000Lineofcredit 6,800,000 330,274,514 (330,699,289) ‐ 6,375,225

Totalshort‐termdebt 6,800,000$ 331,261,065$ (331,685,840)$ 51,000,000$ 57,375,225$

Note9–Long‐TermDebtThetermsandduedatesoftheDistrict’slong‐termdebtareasfollows: REHMtermnote,interestrateof3.25%,withprincipalbalanceoutstandingofapproximately$821

thousand and $871 thousand at June 30, 2015 and 2014, respectively. Principal payments ofapproximately $4 thousand plus interest are duemonthly commencing December 2011with theremainingaggregateunpaidamountdueDecember2016.ThenoteiscollateralizedbycertainrealestateofREHM.

REHMtermnote,interestrateof3.50%,withprincipalbalanceoutstandingofapproximately$650

thousand and $750 thousand at June 30, 2015 and 2014, respectively. Principal payments ofapproximately $8 thousand plus interest are due monthly commencing January 2012 with theremainingaggregateunpaidamountdueDecember2016.ThenoteiscollateralizedbycertainrealestateofREHM.

WellnessCenterTermloan,interestrateofLIBORplus6.0%subjecttoaLIBORfloorof0.75%,with

principalbalanceoutstandingofapproximately$25.7millionand$26.2millionatJune30,2015and2014, respectively. Principal and interest payments of approximately $185 thousand are duemonthlywiththeremainingaggregateunpaidamountdueJuly2016.ThenoteisfullycollateralizedbycertainrealestateofTri‐CityWellness,LLC.Subsequenttoyear‐end,theWellnessCenterTermloan was amended, extending the maturity date to August 31, 2017. See Note 16 – SubsequentEvents.


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Note9–Long‐TermDebt(continued)

Bank of the West note payable, interest rate of 2.89%, with principal balance outstanding ofapproximately$444thousandand$657thousandatJune30,2015and2014,respectively.Principalandinterestpaymentsofapproximately$19thousandareduemonthlycommencingJune2012withtheremainingaggregateunpaidamountdueJune2017.ThenoteiscollateralizedbycertaincapitalassetsoftheDistrict.

Bank of the West note payable, interest rate of 2.91%, with principal balance outstanding of

approximately$483thousandand$667thousandatJune30,2015and2014,respectively.Principalandinterestpaymentsofapproximately$17thousandareduemonthlycommencingJanuary2013with the remaining aggregate unpaid amount due December 2017. The note is collateralized bycertaincapitalassetsoftheDistrict.

Promissory note payable – OP Infusion Center, interest rate of 4.75%, with principal balance

outstandingofapproximately$1.0millionand$2.2millionatJune30,2015and2014,respectively.Principal and interest payments of approximately $105 thousand are due monthly with theremaining aggregate unpaid amount due April 2016. The note is collateralized by certain capitalassetsoftheDistrict.

Bank of the West note payable, interest rate of 2.95%, with principal balance outstanding of

approximately$1.0millionatJune30,2015.Principalandinterestpaymentsofapproximately$30thousandareduemonthlycommencingJune2015withtheremainingaggregateunpaidamountdueMay2018.ThenoteiscollateralizedbycertaincapitalassetsoftheDistrict.

Variouscapitalequipment leaseswith interest ratesvaryingbetween2.31%and6.40%.Principaland interest payments due monthly commencing various dates and expiring on various datesrangingfromAugust2016throughMarch2019.Principalbalancesduetotaledapproximately$1.4millionand$3.4millionasofJune30,2015and2014,respectively.


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Note9–Long‐TermDebt(continued)Ascheduleof changes in theDistrict’s long‐termdebt (includingcurrentportion)asof June30,2015and2014isasfollows:

Beginning Other Ending DueWithin2015 Balance Additions Payments Classification Balance 1Year

REHMnotespayable 1,620,833$ ‐$ (150,000)$ ‐$ 1,470,833$ 150,000$WellnessCentertermloan 26,150,965 (445,524) ‐ 25,705,441 420,580BankoftheWestnotespayable 1,323,894 1,050,625 (424,330) ‐ 1,950,189 748,808Promissorynotepayable(infusion) 2,208,691 ‐ (1,180,916) ‐ 1,027,775 1,027,775Other 3,813 ‐ (3,813) ‐ ‐

Totallong‐termdebt 31,308,196 1,050,625 (2,204,583) ‐ 30,154,238 2,347,163

Capitalleaseobligations 3,406,134 ‐ (1,981,353) ‐ 1,424,780 874,408

Totallong‐termdebt 34,714,330$ 1,050,625$ (4,185,936)$ ‐$ 31,579,018$ 3,221,570$

Beginning Other Ending DueWithin2014 Balance Additions Payments Classification Balance 1Year

REHMnotespayable 1,783,333$ ‐$ (162,500)$ ‐$ 1,620,833$ 150,000$WellnessCentertermloan ‐ 26,500,000 (349,035) ‐ 26,150,965 420,580BankoftheWestnotespayable 1,708,962 ‐ (385,068) ‐ 1,323,894 396,382Promissorynotepayable(infusion) 3,334,930 ‐ (1,126,239) ‐ 2,208,691 1,180,915TermLoan 51,000,000 ‐ ‐ (51,000,000) ‐ ‐Other 53,299 ‐ (49,486) ‐ 3,813 ‐

Totallong‐termdebt 57,880,524 26,500,000 (2,072,328) (51,000,000) 31,308,196 2,147,877

Capitalleaseobligations 39,182,832 1,440,897 (2,328,902) (34,888,693) 3,406,134 1,958,218

Totallong‐termdebt 97,063,356$ 27,940,897$ (4,401,230)$ (85,888,693)$ 34,714,330$ 4,106,095$

Aschedule,byyear,offutureminimumpaymentsunderlong‐termdebtandcapitalleaseobligationsasofJune30,2015,isasfollows:

Principal Interest Total

3,221,570$ 1,910,031$ 5,131,601$27,631,503 205,199 27,836,702

608,765 12,704 621,469117,180 1,372 118,552

31,579,018$ 2,129,306$ 33,708,323$Total

YearsEndingJune30,

2016201720182019


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Note9–Long‐TermDebt(continued)AssetsacquiredthroughcapitalleasesasofJune30,2015and2014areasfollows:

2015 2014

Equipmentundercapitallease 3,907,588$ 3,907,588$Softwareundercapitallease ‐ 5,337,119

Subtotal 3,907,588 9,244,707

Accumulatedamortization (2,492,988) (1,711,583)

Total 1,414,600$ 7,533,124$

Note10–RetirementPlansTheDistricthasa contributorymoneyaccumulationpensionplan (“MAPP”) covering substantiallyallemployees, underwhich benefits are limited to amounts accumulated from total contributions. As ofJune30,2015, therewerea totalof1,328planmembers, includingretirees.Activeplanmembersarerequiredtocontribute2%ofcoveredsalary.TheDistrictisrequiredtocontribute6%ofannualcoveredpayroll. Plan provisions and contribution requirements are established andmay be amended by theBoard.TheDistrict’scontributionexpenserelatedtotheMAPPtotaledapproximately$5.9millionand$4.7millionfortheyearsendedJune30,2015and2014,respectively.Employeesare immediatelyvested in theirowncontributionsandearningsandbecomevested in theEmployer contributions andearnings according to a five year vesting schedule.Non‐vested employercontributions are forfeited upon termination of employment. The forfeitures are used to reduceemployercontributionsunderthePlan.FortheyearsendedJune30,2015and2014,forfeituresreducedthe District’s expenses and contributions under the Plan by approximately $224 thousand and $1.1million,respectively.Since 1983, the District has sponsored a retirement plan, the Tri‐City Healthcare District NationalSecurity Retirement Program (“NSRP”), an alternative to the U.S. Social Security system. NSRP isadministered by an insurance company and provides retirement and survivorship benefits. As aconditionofparticipation,eachemployeemakescontributionstoNSRP.TheDistrictcontributed4.5%ofeach participating employee’s annual compensation up to approximately $79 thousand and $78thousandfortheyearsendedJune30,2015and2014,respectively.TheDistrict’s contributions toNSRP totaledapproximately$2.7millionand$2.6million for theyearsended June 30, 2015 and 2014, respectively. Effective January 1, 1992, the District provided itsemployeeswiththeoptionofremainingintheNSRPprogramortransferringtotheU.S.SocialSecuritysystem.StatutesauthorizeNSRPtoinvestingrouporindividualinsuranceorannuitycontractsorotherfunding vehicles as approved by the District’s Board. Contributions to NSRP are deposited in one ormoreoffourinvestmentoptionsasdirectedbyindividualparticipants.


30

Note10–RetirementPlans(continued)TheDistrictalsooffersitsemployeesadeferredcompensationplancreatedinaccordancewithInternalRevenueCodeSection457.Employeeswhoelecttoparticipateintheplanmakecontributionsthroughareductioninsalary.AllemployeecontributionsareinvestedbyafundingagencyselectedbytheDistrict.The investments of the NSRP retirement plan and the Section 457 deferred compensation plan andearnings thereon are held by fiduciaries in trust for the benefit of the employees. TheNSRP and theSection 457 deferred compensation plan assets are not subject to the claims of theDistrict’s generalcreditors.Accordingly,theplans’assetsandtherelatedliabilitiesareexcludedfromtheaccompanyingconsolidatedstatementsofnetpositionasofJune30,2015.TheDistrictmaintainsa tax‐deferredcapitalaccumulationaccount forcertainmanagementpersonnelunder which the District has contributed funds to mutual fund investments as directed by theparticipants.The contributionsvestoveraperiodofno less than twoyears.Asof June30,2015and2014,thebalanceofcapitalaccumulationfundswasapproximately$194thousandand$286thousand,respectively,whichisincludedinotherlong‐termassetsontheaccompanyingconsolidatedstatementofnetposition.Thecorrespondingcompensationliabilitiesofapproximately$154thousandforboth2015and 2014 are included in accrued payroll and related expenses on the accompanying consolidatedstatements of net position. The plan assets remain the property of the District until paid or madeavailabletoparticipants,subjectonlytoclaimsoftheDistrict’sgeneralcreditors.Note11–OperatingLeasesTheDistrictleasescertainbuildingspaceandequipmentundernon‐cancelableoperatingleasesexpiringbetween July 2015 and October 2022. Operating lease expense for all operating leases totaledapproximately$2.4millionand$2.3millionfortheyearsendedJune30,2015and2014,respectively.AsofJune30,2015,futureminimumleasepaymentsundernon‐cancelableoperatingleasesareasfollows:

2,335,923$2,150,2361,900,9071,130,764615,765618,300

8,751,895$

Thereafter

Total

YearsEndingJune30,

20162017201820192020


31

Note12–RelatedOrganizationsTri‐City Hospital Foundation (the “Foundation”) and Tri‐City Hospital Auxiliary (the “Auxiliary”) areCalifornia nonprofit corporations organized to benefit the District. Both the Foundation and theAuxiliaryhavebylawsthatgoverntheirseparateactivities,andthemembersandofficersofeachofthetwoorganizationsareselectedsolelybythemembersthemselves.DonationstotheDistrictbytheFoundationtotaledapproximately$1.0millionand$1.1millionintheyears ended June 30, 2015 and 2014, respectively. The Auxiliary donated $39 thousand and $138thousandintheyearsendedJune30,2015and2014,respectively.TheDistrictpayssalariesandrelatedcostsforemployeesoftheFoundation,providesfacilitiesfortheAuxiliarygiftshop,andprovidesadministrativeofficespacetobothorganizationsfreeofcharge.Suchcosts totaledapproximately$580 thousandand$597 thousand in theyearsended June30,2015and2014,respectively.A summaryof theorganizations’ assets, liabilitiesandnetassets (unaudited)asof June30,2015and2014isasfollows:

2015 2014Tri‐CityHospitalFoundation

Assets 3,770,627$ 3,603,943$

Liabilities 25,569$ ‐$

NetAssets 3,745,058$ 3,603,943$

Tri‐CityHospitalAuxiliary

Assets 1,446,824$ 1,305,094$

Liabilities 776,113$ 780,261$

NetAssets 670,711$ 524,833$


32

Note13–PartnershipsDuringtheyearendedJune30,2010,theDistrictenteredintoageneralpartnershipwithSurgicalCareAffiliates of Oceanside to form Tri‐City Medical Center Ambulatory Surgery Center Operators, LLC(“ASCO”),aCaliforniaLimitedLiabilityCompany.ThepartnershipacquiredcontrollinginterestinNorthCoast Surgery Center (“NCSC”), a partnership between ASCO, and several limited partners, primarilyphysicians.TheprimarypurposeoftheDistrict’sinvolvementintheventureistorelocateloweracuityout‐patientsurgeriestothesurgerycenterinordertofreeupsurgicalsuitetimeforsurgeriesrequiringhospital surgical services. The financial results of ASCO have been consolidated into the District’sconsolidatedfinancialstatements.AlsoduringtheyearendedJune30,2010,theDistrictformedtheCardiovascularInstitute,LLC(“CVI”),aCalifornia Limited Liability Company. The purpose of CVI is to further the District’s mission andcommitmenttopromotecardiovascularhealthandprovidequalityheartandvascularservicesfortheresidentsoftheDistrict.TheDistrictandCVIenteredintoaco‐managementagreementunderwhichCVIprovidescertainservicestomeetthismission.During the year ended June 30, 2011, the District formed the Orthopedic Institute, LLC (“Ortho”), aCalifornia Limited Liability Company. The purpose of Ortho is to further the District’s mission andcommitmenttopromoteorthopedichealthandprovidequalitysurgical,non‐invasiveandrehabilitationservices for the residents of the District. The District and Ortho entered into a co‐managementagreementunderwhichOrthoprovidescertainservicestomeetthismission.During the year ended June 30, 2012, the District formed the Tri‐City Real Estate Holding andManagementCompany,LLC(“REHM”),aCaliforniaLimitedLiabilityCompany.ThepurposeoftheREHMistofacilitatetheacquisitionanduseofrealestatepropertiestopromotetheDistrict’smission.During the year ended June 30, 2014 theDistrict formedTri‐CityWellness, LLC, a California LimitedLiabilityCompanytopurchasetheWellnessCenterwhichtheDistricthadpreviouslyoperatedunderacapital lease. During July 2013, Tri‐City Wellness, LLC procured a loan from Mid Cap Funding REHoldings, LLC for $26.5 million and the District contributed the remaining capital to purchase theWellnessCenter.During the year ended June 30, 2015, the District formed the Tri‐City Medical Center NeuroscienceInstitute,LLC(“Neuro”),aCaliforniaLimitedLiabilityCompany.ThepurposeoftheNeuroInstituteistofurther the District’s mission and commitment to promote neuroscience health and provide qualityneurological,neurosurgicalandnon‐invasiveservicesfortheresidentsoftheDistrict.TheDistrictandtheNeuroInstitute,enteredintoaco‐managementagreementunderwhichtheNeuroInstituteprovidescertainservicestomeetthismission.Theportionofconsolidatedexcessofrevenuesoverexpensesattributabletominorityinterestsintheseentities for the years ended June 30, 2015 and 2014 is approximately $1.4million and $1.5million,respectively.


33

Note14–CommitmentsandContingenciesLegalactions–TheDistrictisinvolvedinvariouslegalmattersarisingfromtimetotimeintheordinarycourseofbusiness.TheDistrict isexposedtovariousrisksof loss fromtorts; theftof,damage to,anddestruction of assets; business interruption; errors and omissions; natural disasters; and employeehealthandaccidentbenefits.Commercialinsurancecoverageispurchasedforclaimsarisingfromsuchmatters.The healthcare industry is subject to numerous laws and regulations of federal, state, and localgovernments. Compliancewith these laws and regulations, specifically those relating to theMedicareandMedi‐Calprograms,canbesubjecttogovernmentreviewandinterpretation,aswellasregulatoryactionsunknownandunassertedatthistime.Federalgovernmentactivityhasincreasedwithrespecttoinvestigations and allegations concerning possible violations by health care providers of regulations,whichcouldresultintheimpositionofsignificantfinesandpenalties,aswellassignificantrepaymentsofpreviouslybilledandcollectedrevenuesfrompatientservices.DuringJuly2013,theDistrictmadeanofferforsettlementtotheOfficeofInspectorGeneral(“OIG”)andDepartmentofJustice(“DOJ”)relatedto a self‐disclosure program to resolve a previously self‐disclosed matter. Pursuant to ongoingdiscussionswith theOIGandDOJ,during July2015 theDistrict increased itsoffer for settlement. SeeNote 16 – Subsequent Events. The District has yet to receive an acceptance or counter offer to theincreasedofferforsettlement.Seismiccompliance–CaliforniaSenateBill1953(“SB1953”)requireshospitalacutecarebuildingstomeet stringent seismic guidelines by 2013. There are efforts to extend the SB 1953deadline beyond2013andtorepeal therequirements imposed.TheCaliforniaOfficeofStatewideHealthPlanningandDevelopment(“OSHPD”)hasreviseditsSB1953compliancestandardsbyconsideringtheHAZUSzones(FEMAHazards – U.S.) inwhich each hospital is located. Under these revisedHAZUS standards, it isexpected thatmanyacutecare facilities throughoutthestatemayberequiredtoperformlessseismicretrofitthanoriginallyexpected,ornoneatall.BasedonawaivergrantedtotheDistrictbyOSHPDduring2009,theDistrict’sbuildingsareconsideredincompliancewithallSB1953requirementstotheyear2030.Self‐insurance programs – The District is self‐insured for unemployment benefits and dental PPObenefits.


34

Note14–CommitmentsandContingencies(continued)Prior to January1, 1999, theDistrictwas also self‐insured forworkers’ compensation,with stop‐lossinsurance coverage for individual claimsofmore than$250 thousand.Forpolicyyears1999 through2001, the District has reached maximum premium levels on its policies and has no further liabilityexposure on claims from those years. For policy year 2002, theDistrict has a retrospective premiumworkers’ compensation insurance coveragewith amaximumpremium.Themaximumpremium levelhasnotbeenreachedforthe2002policyyearandfurtherliabilityexposureispossible.Forpolicyyears2003 and 2004, the District had a large‐deductible workers’ compensation plan, with stop‐lossinsurance coverage for individual claims of more than $350 thousand. Under this insurancearrangement, as of June 30, 2015, the Districtmaintains letters of credit totaling $102 thousand forcalendaryear2003and$316thousandforcalendaryear2004.BeginningJanuary1,2005,theDistrictbegan a self‐insured worker’s compensation program. The District has fully reserved for estimatedclaimsbasedonactuarialanalysesofpolicyyearspriorto1999,and2002through2015.Suchreserveswereapproximately$8.6millionand$7.8millionasofJune30,2015and2014,respectively.Comprehensive liability insurance coverage – The District is insured for comprehensive liability(professional liability,generalliability,personal injuryandadvertisingliability,andemployeebenefitsadministration)underaclaims‐madepolicy,whichcoversassertedclaimsandincidentsreportedtotheinsurancecarrier, andhasaper‐claimdeductibleof$1millioneffective July1,2009.TheDistricthasreservedforestimatedIBNRclaimsthrough2015.Suchreserveswereapproximately$3.0millionand$3.8millionasofJune30,2015and2014,respectively.The following isasummaryof thechanges in theself‐insuredandclaims‐madeplan liabilities for theyearsendedJune30,2014and2015:

BalanceasofJune30,2013 10,881,348$Additions 3,931,197Payments (3,271,064)

BalanceasofJune30,2014 11,541,481Additions 3,286,658Payments (3,219,265)

BalanceasofJune30,2015 11,608,874$


35

Note14–CommitmentsandContingencies(continued)MedicalservicesIBNR–ThefollowingisasummaryofthechangesinthemedicalservicesIBNRclaimsfortheyearsendedJune30,2014and2015:

BalanceasofJune30,2013 1,688,936$Additions 8,141,363Payments (8,137,066)

BalanceasofJune30,2014 1,693,233Additions 7,677,929Payments (7,495,735)

BalanceasofJune30,2015 1,875,427$

Physician loanagreements –PhysicianRecruitmentAgreementsare thoseunderwhich theDistricthaselectedtoloanpracticingphysiciansuptoaspecifiedamountpermonthforaperiodoftwoorthreeyears (the “loan distribution period”). At the end of the loan distribution period, each physician isobligatedbyasignedloanagreementtorepaytheoutstandingloanbalance.Theloancanberepaidincashorin‐kindservices.Forrepaymentin‐kind,theDistrictforgivestheloansmonthlyovertheperioddefined in the loan agreement (up to 3 years), as long as the physician continues to practice in thedefined service area. Loans to physicians accrue interest during the draw period and during theforgivenessperiod.Theloanbalancesoutstandingtotaledapproximately$5.5millionand$4.4millionasof June 30, 2015 and 2014, respectively. The balance is included in other long‐term assets in theaccompanyingconsolidatedstatementsofnetposition.Note15–IntergovernmentalTransferProgramTheNon‐designatedPublicIntergovernmentalTransferProgram(“IGT)wasestablishedunderAB113in 2011 to allow non‐designated public hospitals to access additional federal funds. There are twosupplemental payment methodologies under the IGT program: a fee‐for‐service methodology and amanaged care plan methodology. Under this legislation, net intergovernmental transfers ofapproximately$8.9millionand$4.0millionwererecordedbytheDistrictduringtheyearsendedJune30, 2015 and 2014, respectively. IGT income is reflected in net patient service revenue in theaccompanyingconsolidatedfinancialstatements.


36

Note16–SubsequentEventsPursuanttoongoingdiscussionswiththeOIGandDOJ,duringJuly2015theDistrictincreaseditsofferfor settlement related to the voluntary self‐disclosure program to resolve a previously self‐disclosedmatter.SeeNote14–CommitmentsandContingencies.Thefinancial impactoftheincreasedofferforsettlement is reflected in the financial statements. The District has yet to receive an acceptance orcounteroffertotheincreasedofferforsettlement.DuringSeptember2015,amendmentstotherevolvinglineofcreditagreementandtheWellnessCentertermloanagreementwereexecuted,extendingthematuritydatesonbothcreditagreementstoAugust31,2017.SeeNote8–ShortTermDebtandNote9–LongTermDebt.

SUPPLEMENTALSCHEDULES

Seeaccompanyingreportofindependentauditors. 37

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATINGSTATEMENTOFNETPOSITION

JUNE30,2015

TCMC ASCO REHM WC CVI Ortho Neuro Eliminations Consolidated

ASSETSCURRENTASSETS

Cashandcashequivalents 14,717,561$ 573,169$ 171,216$ 44,453$ 100,074$ 59,348$ 45,291$ ‐$ 15,711,112$Restrictedcashandinvestments 51,418,000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 51,418,000Patientaccountsreceivable‐netofestimated

uncollectibleaccountsof$23,096,486and$24,655,998in2015and2014,respectively 42,525,583 1,061,814 ‐ ‐ ‐ ‐ ‐ ‐ 43,587,397

Otherreceivables 1,791,877 ‐ 8,474 1,217,803 318,750 81,737 144,401 (1,590,816) 1,972,226Suppliesinventory 7,399,699 1,481 ‐ ‐ ‐ ‐ ‐ ‐ 7,401,180Prepaidexpensesandotherassets 1,937,396 123,094 ‐ 631,447 ‐ ‐ ‐ ‐ 2,691,937Estimatedthird‐partypayorsettlements 2,817,491 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,817,491

Totalcurrentassets 122,607,607 1,759,558 179,690 1,893,703 418,824 141,085 189,692 (1,590,816) 125,599,343

NON‐CURRENTINVESTMENTSBoard‐designated 392,638 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 392,638

CAPITALASSETS‐net 67,673,734 860,116 3,697,475 36,827,180 ‐ ‐ ‐ ‐ 109,058,505

OTHERASSETSNotesreceivable 5,456,244 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 5,456,244Other 30,912,738 ‐ ‐ ‐ 118,654 53,901 46,267 (15,217,676) 15,913,884

Totalotherassets 36,368,982 ‐ ‐ ‐ 118,654 53,901 46,267 (15,217,676) 21,370,128

TOTAL 227,042,961$ 2,619,674$ 3,877,165$ 38,720,883$ 537,478$ 194,986$ 235,959$ (16,808,492)$ 256,420,614$

38 Seeaccompanyingreportofindependentauditors.

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATINGSTATEMENTOFNETPOSITION(CONTINUED)JUNE30,2015


LIABILITIESANDNETPOSITIONCURRENTLIABILITIES

Accountspayableandaccruedliabilities 40,959,194$ 288,328$ ‐$ 545,544$ 238,116$ 98,406$ 5,950$ (2,091,847)$ 40,043,691$Accruedpayrollandrelatedexpenses 20,901,826 162,936 ‐ ‐ ‐ ‐ ‐ ‐ 21,064,762Currentmaturitiesoflong‐termdebt 2,650,990 ‐ 150,000 420,580 ‐ ‐ ‐ ‐ 3,221,570Short‐termdebt 56,430,432 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 56,430,432Othercurrentliabilities 768,592 76,274 ‐ 144,593 ‐ ‐ ‐ ‐ 989,459Estimatedthird‐partypayorsettlements 618,888 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 618,888

Totalcurrentliabilities 122,329,922 527,538 150,000 1,110,717 238,116 98,406 5,950 (2,091,847) 122,368,802

LONG‐TERMDEBT‐netofcurrentposition 1,751,755 ‐ 1,320,832 25,284,861 ‐ ‐ ‐ ‐ 28,357,448

WORKERS'COMPENSATIONANDCOMPREHENSIVELIABILITY‐netofcurrentportion 7,966,244 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 7,966,244

Totalliabilities 132,047,921 527,538 1,470,832 26,395,578 238,116 98,406 5,950 (2,091,847) 158,692,494

NETPOSITIONNetinvestmentincapitalassets 63,270,988 860,116 2,226,642 11,121,739 ‐ ‐ ‐ ‐ 77,479,485Unrestricted 31,724,052 (197,327) 155,628 1,191,241 183,689 48,290 156,406 (14,716,645) 18,545,334Restricted,non‐expendable ‐ 1,429,347 24,063 12,325 115,673 48,290 73,603 ‐ 1,703,301

Totalnetposition 94,995,040 2,092,136 2,406,333 12,325,305 299,362 96,580 230,009 (14,716,645) 97,728,120

TOTAL 227,042,961$ 2,619,674$ 3,877,165$ 38,720,883$ 537,478$ 194,986$ 235,959$ (16,808,492)$ 256,420,614$

Seeaccompanyingreportofindependentauditors. 39

TRI‐CITYHEALTHCAREDISTRICTCONSOLIDATINGSTATEMENTOFREVENUES,EXPENSES,

ANDCHANGESINNETPOSITIONFORTHEYEARENDEDJUNE30,2015


REVENUENetpatientservicerevenue 303,971,711$ 8,021,718$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 311,993,429$Premiumrevenue 17,893,104 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 17,893,104Otherrevenue 7,328,658 4,969 253,685 2,780,619 514,812 254,399 180,600 (4,009,554) 7,308,188

Totaloperatingrevenue 329,193,473 8,026,687 253,685 2,780,619 514,812 254,399 180,600 (4,009,554) 337,194,721

EXPENSESSalariesandrelatedexpenses 187,056,515 2,246,772 ‐ ‐ 27,543 21,608 19,023 ‐ 189,371,461Supplies 69,703,139 1,826,811 ‐ ‐ ‐ ‐ ‐ ‐ 71,529,950Purchasedservices 18,526,322 555,055 ‐ ‐ 2,029 1,729 1,522 (938,694) 18,147,963Depreciationandamortization 10,553,091 346,001 ‐ 809,452 8,885 6,844 ‐ ‐ 11,724,273Otheroperatingexpense 17,831,451 463,756 3,640 21,543 4,819 9,832 1,678 ‐ 18,336,719Professionalandmedicalfees 14,412,444 48,218 ‐ ‐ 110,073 57,779 18,335 ‐ 14,646,849Maintenance,rent&utilities 14,564,642 783,241 ‐ ‐ ‐ ‐ ‐ (2,334,627) 13,013,256

Totaloperatingexpenses 332,647,604 6,269,854 3,640 830,995 153,349 97,792 40,558 (3,273,321) 336,770,471

NETINCOME(LOSS)FROMOPERATIONS (3,454,131) 1,756,833 250,045 1,949,624 361,463 156,607 140,042 (736,233) 424,250

NON‐OPERATINGREVENUE(EXPENSE)Districttaxrevenue 8,469,927 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8,469,927Interestincome 195,915 35 ‐ ‐ ‐ ‐ ‐ ‐ 195,950Interestexpense (2,403,232) (213) (52,948) (1,773,459) ‐ ‐ ‐ ‐ (4,229,852)Othernon‐operating(expense)revenue (1,120,912) (5,340) ‐ ‐ ‐ ‐ ‐ 699,945 (426,307)

Totalnon‐operatingrevenue(expense) 5,141,698 (5,518) (52,948) (1,773,459) ‐ ‐ ‐ 699,945 4,009,718

EXCESSOFREVENUEOVEREXPENSES 1,687,567 1,751,315 197,097 176,165 361,463 156,607 140,042 (36,288) 4,433,968

Minorityinterestdistributions‐net ‐ (1,123,495) ‐ ‐ (114,618) (118,333) 26,600 ‐ (1,329,846)Contributions(distributions)between

consolidatingentities ‐ (522,105) ‐ ‐ (177,885) (118,334) 63,367 754,957 ‐

Changesinnetposition 1,687,567 105,715 197,097 176,165 68,960 (80,060) 230,009 718,669 3,104,122

NETPOSITION‐Beginningofyear 93,307,474 1,986,451 2,209,235 12,149,141 230,403 176,638 ‐ (15,435,344) 94,623,998

NETPOSITION‐Endofyear 94,995,041$ 2,092,166$ 2,406,332$ 12,325,306$ 299,363$ 96,578$ 230,009$ (14,716,675)$ 97,728,120$

Documents

Tri-City Healthcare DistrictTri‐City Healthcare District Report on the Financial Statements We have audited the accompanying consolidated financial statements of Tri‐City Healthcare