Agreed-Upon Procedures-Calculation of Long-Term Debt Service Coverage Ratio December 31, 2011
CONTENTS INDEPENDENT ACCOUNTANT S REPORT ON APPLYING AGREED-UPON PROCEDURES Pages 1-2 ATTACHMENT Calculation of Long-Term Debt Service Coverage Ratio Attachment A
To the Board of Trustees Valley Health System Obligated Group 1840 Amherst Street Winchester, Virginia 22601 INDEPENDENT ACCOUNTANT S REPORT ON APPLYING AGREED-UPON PROCEDURES We have performed the procedures enumerated below, which were agreed to by Valley Health System Obligated Group (the Obligated Group) as of December 31, 2011, solely to assist the users of this report in evaluating Management s compliance with the requirements of Section 3.10 of the Master Trust Indenture dated as of September 1, 1986, between the Medical Center and Bank of America as amended by the Supplemental Indentures dated May 1, 1991 and July 1, 1993 with First Union National Bank, the Master Trustee of the 1991 and 1993 bond funds, the Supplemental Indentures dated January 1, 2000 and January 1, 2007 with The Bank of New York, the Master Trustee of the 2000 and 2007 bond funds, and the Supplemental Indenture dated November 1, 2009 with the Bank of New York Mellon, the Master Trustee of the 2009 bond funds, collectively the specified users. Management is responsible for the Obligated Group s compliance with these requirements. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The specific procedures performed and findings noted are as follows: We compared the amounts listed in the Calculation of Long-Term Debt Service Coverage Ratio schedule (Attachment A) for the unrestricted revenues, gains and other support in excess of expenses, depreciation, amortization, interest expense, and long-term debt service requirement to amounts in the December 31, 2011, audited financial statements and accounting records of the Obligated Group and noted them to be in agreement. We compared the amount of interest payments listed on the Calculation of Long-Term Debt Service Coverage Ratio schedule to amounts listed in the trustee statement for the $80,000,000 Industrial Development Authority of the City of Winchester Hospital Facility Revenue Bonds (Winchester Medical Center, Inc.) Series 1991, the $46,695,000 Industrial Development Authority of the City of Winchester Hospital Facility Revenue Refunding Bonds (Winchester Medical Center, Inc.) Series 1993, the $70,000,000 Industrial Development Authority of Clarke County, Virginia Hospital Facility Revenue Bonds (Winchester Medical Center, Inc.) Series 2000, the $88,335,000 Industrial Development Authority of the City of Winchester Hospital Revenue Bonds (the Obligated Group) Series 2007, the $25,000,000 West Virginia Hospital Finance Authority Hospital Revenue Bonds Series 2009 and the $175,000,000 Industrial Development Authority of the City of Winchester, Hospital Revenue bonds Series 2009 and noted them to be in agreement. We recalculated the Long-Term Debt Service Coverage Ratio in the Calculation of Long-Term Debt Service Coverage Ratio schedule based on the Income Available for Debt Service and the Long-Term Debt Service Requirement and found it to be in agreement. Innovation With Results AF Center 101 Washington Street, East P.O. Box 2629 Charleston, West Virginia 25329 304/346-0441 800/642-3601 www.afnetwork.com
Valley Health System Obligated Group Page 2 We were not engaged to, and did not, perform an examination, the objective of which would be the expression of an opinion on management s compliance with the aforementioned requirements. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the use of Valley Health System Obligated Group and the above other specified users and is not intended to be and should not be used by anyone other than these specified parties. ARNETT & FOSTER, P.L.L.C. Charleston, West Virginia April 4, 2012
Attachment A VALLEY HEALTH SYSTEM OBLIGATED GROUP Calculation of Long-Term Debt Service Coverage Ratio For year ended December 31, 2011 (In Thousands) Unrestricted revenues, gains and other support in excess of $ 53,839 expenses Add: Depreciation 38,821 Interest expense 10,455 Amortization of deferred financing costs 252 Income Available for Debt Service (A) $ 103,367 Principal payments on long-term debt $ 9,564 Interest payments on long-term debt (B) 14,169 Long-Term Debt Service Requirement (A) $ 23,733 Long-Term Debt Service Coverage Ratio (A and C) 4.36 Bond Documents Require Long-Term Debt Service Ratio Greater Than 1.25 (A) As defined in the Master Trust Indenture dated as of September 1, 1986. (B) Consists of interest expense per financial statements, which closely approximates the January and July 2011 interest payments to the Trustees for the Series 1991, Series 1993 and Series 2009 bonds, the monthly interest payments to the Trustees for the Series 2000 and Series 2007 bonds, direct amounts incurred related to interest rate swap agreements, and interest costs capitalized in association with construction projects of $3,714 thousand (C ) Computed as Income Available for Debt Service divided by the Long-Term Debt Service Requirement.