via christi health system, inc. and subsidiaries

Via Christi Health System, Inc. and Subsidiaries Consolidated Financial Statements and Other Financial Information September 30, 2005 and 2004

Via Christi Health System, Inc. and Subsidiaries Index September 30, 2005 and 2004

Page(s)

Report of Independent Auditors .......................................................................................................1

Consolidated Financial Statements

Consolidated Balance Sheets ............................................................................................................2-3

Consolidated Statements of Operations and Changes in Net Assets ....................................................4-5

Consolidated Statements of Cash Flows ...............................................................................................6

Notes to Consolidated Financial Statements .................................................................................... 7-27

Consolidating Information

Schedule 1: Consolidating Balance Sheet.................................................................................... 28-29

Schedule 2: Consolidating Statement of Operations and Changes in Net Assets.......................................................................................................... 30-31

Schedule 3: Via Christi Regional Medical Center Consolidating Balance Sheet......................................................................................................... 32-33

Schedule 4: Via Christi Regional Medical Center Consolidating Statement of Operations and Changes in Net Assets.................................................. 34-35

Schedule 5: Consolidating Balance Sheet (Obligated Group Subtotaled) ....................................... 36-37

Schedule 6: Consolidating Statement of Operations and Changes in Net Assets (Obligated Group Subtotaled) ............................................................. 38-39

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Report of Independent Auditors

Board of Directors Via Christi Health System, Inc. and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and changes in net assets and of cash flows present fairly, in all material respects, the financial position of Via Christi Health System, Inc. and Subsidiaries (the “Health System”) at September 30, 2005 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Health System’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information on Schedules 1 through 6 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies. Accordingly, we do not express an opinion on the financial position or results of operations of the individual companies. However, the consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

January 9, 2006

PricewaterhouseCoopers LLP One North Wacker Chicago, IL 60606 Telephone (312) 298-2000 Facsimile (312) 298-2001

Via Christi Health System, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2005 and 2004

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(in thousands of dollars) 2005 2004

AssetsCurrent assets

Cash and cash equivalents 64,972$ 60,946$ Short-term investments 328,765 246,682 Assets whose use is limited that are required for current liabilities 5,026 5,330 Patient accounts receivable (less allowance for uncollectible accounts of $45,900 in 2005 and $47,900 in 2004) 104,817 114,423 Subscribers premiums receivable 2,738 3,033 Inventories 23,598 22,706 Other current assets 30,141 22,349 Assets of discontinued operations, held for sale 37,008 95,051

Total current assets 597,065 570,520

Assets whose use is limitedDesignated by Board for capital improvements 166,151 153,209 Other 2,616 2,591 Held by trustee

Under bond indenture 10,616 25,779 Self-insurance arrangements 13,651 15,817

193,034 197,396 Less assets whose use is limited that are required for current liabilities (5,026) (5,330)

Total noncurrent portion of assets whose use is limited 188,008 192,066

Property and equipmentLand and improvements 56,047 56,169 Buildings and fixed equipment 512,932 501,035 Equipment 345,520 327,879 Less accumulated depreciation (506,461) (479,978) Construction in progress 12,090 13,674

Total net property and equipment 420,128 418,779

Other assetsInvestments in unconsolidated affiliates 54,158 49,667 Prepaid pension costs 40,183 40,598 Intangible assets 11,681 11,999 Long-term investments 8,573 8,541 Other assets 35,569 35,350

Total other assets 150,164 146,155 Total assets 1,355,365$ 1,327,520$

Via Christi Health System, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2005 and 2004

The accompanying notes are an integral part of the consolidated financial statements.

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2005 2004

Liabilities and net assetsCurrent liabilities

Current maturities of long-term debt 11,524$ 9,693$ Accounts payable 26,406 27,129 Accrued liabilities 71,654 62,230 Estimated amounts due to third-party payors 4,647 6,896 Medical claims payable 32,289 29,613 Liabilities of discontinued operations, held for sale 2,975 15,088

Total current liabilities 149,495 150,649

Noncurrent liabilitiesLong-term debt, less current maturities 390,969 399,761 Other noncurrent liabilities 27,607 29,346 Minority interest 45,707 43,183

Total noncurrent liabilities 464,283 472,290 Total liabilities 613,778 622,939

Net assetsUnrestricted 730,841 687,572 Temporarily restricted 5,879 12,167 Permanently restricted 4,867 4,842

Total net assets 741,587 704,581 Total liabilities and net assets 1,355,365$ 1,327,520$

Via Christi Health System, Inc. and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets Years Ended September 30, 2005 and 2004

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Revenues, gains, and other supportNet patient service revenues 730,019$ 734,341$ Premium revenues 380,879 361,723Other operating revenues 51,453 58,836

Total operating revenues 1,162,351 1,154,900

Operating expensesSalaries and benefits 409,342 405,332Medical claims and services 259,596 243,292Purchased services and other expenses 146,255 148,055Supplies 142,987 144,643Interest 19,653 21,923Depreciation and amortization 52,293 52,190Provision for uncollectible accounts 76,560 91,268

Total operating expenses 1,106,686 1,106,703Net operating income 55,665 48,197

Nonoperating gains (losses)Investment income 13,715 10,387Net realized gains on sale of investments 4,076 4,315Equity in earnings of investee organizations 4,143 2,730Income tax and other (8,846) (11,729)

Total nonoperating gains 13,088 5,703Excess of revenues over expenses before minority interest 68,753 53,900Minority interest (7,428) (4,071)

Excess of revenues over expenses 61,325$ 49,829$

Via Christi Health System, Inc. and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets Years Ended September 30, 2005 and 2004


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2005 2004

Unrestricted net assetsExcess of revenues over expenses 61,325$ 49,829$ Change in net unrealized gains on investments 5,096 5,708Discontinued operations (2,311) 882Net assets released from restrictions for capital 1,097 3,665Net asset transfer for discontinued operations (23,775) -Other changes in unrestricted net assets, including net transfer to sponsoring organizations 1,837 (532)

Increase in unrestricted net assets 43,269 59,552

Temporarily restricted net assetsContributions 2,891 4,321Investment income 574 986Net realized and unrealized gains on investments 297 150Net assets released from restrictions (7,263) (6,886)Net asset transfer for discontinued operations (1,652) -Other (1,135) (65)

Decrease in temporarily restricted net assets (6,288) (1,494)

Permanently restricted net assetsContributions for endowments funds 2 (7)Change in net unrealized losses on investments - 58Other 23 (20)

Increase in permanently restricted net assets 25 31

Increase in net assets 37,006 58,089

Net assetsBeginning of year 704,581 646,492End of year 741,587$ 704,581$

Via Christi Health System, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended September 30, 2005 and 2004


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Operating activitiesIncrease in net assets 37,006$ 58,089$ Adjustments to reconcile decrease in net assets to net cash provided by operating activities

Results from discontinued operations 2,311 (882)Depreciation and amortization 52,293 52,190Provision for bad debts 76,560 91,268Equity in earnings of investee organizations (4,143) (2,730)Minority interest in earnings of investee organizations 7,428 4,071Net realized and unrealized gains on investments (10,043) (10,928)Loss on sale of property, plant and equipment 3,605 17Net asset transfer for discontinued operations 23,775 - Donated property and equipment (815) (457)Impairment of property and equipment 1,508 3,616(Increase) decrease in operating assets

Net patient accounts receivable (68,931) (85,282)Inventories, prepaids and other assets (8,389) 6,234

Increase (decrease) in operating liabilitiesAccounts payable and accrued liabilities 11,377 (5,634)Net estimated payables to third-party payors (2,249) (1,643)Other liabilities (1,739) 216

Net cash provided by operating activities 119,554 108,145

Investing activitiesAdditions to property and equipment (61,323) (68,687) Decrease in assets whose use is limited 8,016 27,041 Increase in investments (75,694) (69,452) Decrease in other assets 3,132 10,370 Proceeds from sales of property and equipment 3,969 6,950 Cash disposition of St. Rose 18,321 -

Net cash used in investing activities (103,579) (93,778)

Financing activitiesProceeds from long-term debt 2,985 2,097Payments on long-term debt (10,030) (24,552)Distributions to minority interest holders (4,904) (2,727)

Net cash used in financing activities (11,949) (25,182)

Net increase (decrease) in cash and cash equivalents 4,026 (10,815)

Cash and cash equivalentsBeginning of year 60,946 71,761End of year 64,972$ 60,946$

Other cash and noncash disclosureCash paid during the year for interest 19,924$ 19,242$

Cash paid during the year for income taxes 9,128$ 7,486$

Noncash transactionsProperty and equipment in accounts payable 493$ 6,524$ Donated property and equipment 815$ 457$

Via Christi Health System, Inc. and Subsidiaries Notes to Consolidated Financial Statements September 30, 2005 and 2004

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1. Organization

Via Christi Health System, Inc. and subsidiaries (the “Health System”) is a not-for-profit corporation operating a network of regional health care providers in Kansas, San Francisco East Bay, and Northern Oklahoma. The Health System was formed effective October 2, 1995 through the consolidation of CSJ Health System of Wichita, Inc. (“CSJ”) and St. Francis Ministry Corporation (“SFMC”) into a newly organized Kansas not-for-profit corporation and is jointly sponsored and controlled by Marian Health System, Inc. and the Sisters of St. Joseph of Wichita, Kansas. See Note 14 for discussion of discontinued operations.

Via Christi Regional Medical Center, Inc. (“VCRMC”), owns and operates two hospitals on two campuses known as the St. Joseph Campus and the St. Francis Campus located in Wichita, Kansas. VCRMC also owns and operates Via Christi Riverside Medical Center, Via Christi Foundation, Via Christi Research and Via Christi Rehabilitation Center, Inc. also located in Wichita, Kansas. Additionally, other Health System acute general hospitals include: Mt. Carmel Regional Medical Center, Inc., located in Pittsburg, Kansas; Via Christi Oklahoma Regional Medical Center, located in Ponca City, Oklahoma; Hayward Sisters Hospital, Inc., d/b/a St. Rose Hospital located in Hayward, California; and Mercy Regional Health Center, Inc., located in Manhattan, Kansas.

Mercy Regional Health Center, Inc. was formed in 1996 through the operational consolidation of healthcare providers sponsored by VCHS and Memorial Hospital Association, each of whom contributed assets representing 50% interest. Due to management and operating agreements, VCHS is deemed to have a controlling financial interest, and therefore consolidates the operations of Mercy Regional Health Center, Inc, with minority interests eliminated.

Other entities which are owned and operated by the Health System include: Via Christi Senior Services, Inc., Affiliated Medical Services Laboratory, Inc., Sunflower Assurance Ltd., Via Christi Health Partners, Inc. and Preferred Health Systems, Inc. (“PHS”).

Investments in entities in which the Health System owns less than 50% and does not have significant operational influence are accounted for on an equity basis of accounting or cost basis as determined by ownership percentage.

The accompanying consolidated financial statements include the accounts of the Health System and their affiliates, all of which are related through common control, after elimination of significant transactions among the entities.

2. Significant Accounting Policies

Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation. All subsidiaries that are majority owned are consolidated. Minority interests in the earnings of investee organizations are included in the consolidated statement of operations and changes in net assets, with corresponding eliminations.


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Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses, and other changes in unrestricted net assets during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank deposits, investments in money market funds, and certificates of deposits purchased with maturities of three months or less. The Health System or affiliates have entered into repurchase agreements with banks to purchase and resell direct obligations that are not FDIC insured. As of September 30, 2005 and 2004, approximately $40.7 million and $38.9 million, respectively, under repurchase agreements were included in cash and cash equivalents.

Assets Whose Use is Limited and Investments Assets whose use is limited include assets set aside by the Board of Directors for future capital improvements over which the Board retains control and may at its discretion subsequently use for other purposes. Funds held by trustee are restricted by the bond indentures to be used primarily for construction, for debt service and for a debt reserve fund or are for self-insurance arrangements. The current portion of these funds represents the amount attributable to current liabilities.

Assets whose use is limited and investments are reported at fair value determined primarily from quoted market prices provided by financial institutions which hold such investments.

Interest and dividend income (investment return) and realized gains (losses) are included in excess of revenues over expenses in the accompanying statements of operations and changes in net assets. Unrealized gains and losses on investments are excluded from excess of revenues over expenses and are reported as net unrealized gains (losses) on investments in the statements of operations and changes in net assets.

Inventories Inventories, which consist primarily of supplies, are reported at the lower of cost or market, generally on a first-in, first-out basis.

Property and Equipment Property and equipment are stated at cost (or fair value at date of donation, if applicable). The costs of repairs and maintenance are charged to operations as incurred, and the costs of replacements, renewals, and improvements are capitalized. Upon the retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Depreciation is computed by the straight-line method over the estimated useful lives ranging from 3 to 40 years.

Equipment under capital lease obligations is amortized on the straight-line method over the shorter period of the lease term or the estimated useful life of the equipment. Such amortization is included in depreciation and amortization in the financial statements.


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The Health Systems records impairments of its property, plant and equipment when it becomes probable that the carrying value of the assets will not be fully recovered over their estimated lives. Impairments are recorded to reduce the carrying value of the assets to their net realizable values determined by management based on facts and circumstances at the time of the determination.

Effective October 1, 2004, Riverside ceased its outpatient emergency and intensive care services and became a specialty surgical hospital. Based on an appraisal of the Riverside building as of October 1, 2004, the fair market value of the property was $4,518,000 and the property had a carrying value of $8,134,000. The impairment loss on the building of $3,616,000 is charged to purchased services and other in the Statement of Operations and Changes in Net Assets for the year ended September 30, 2004.

Effective October 1, 2005, Riverside ceased operations as a specialty hospital. Based on an appraisal of the Riverside building as of October 1, 2005, and a negotiated sale of this building to a subsidiary of Via Christi Health System, the fair market value of the property was $3,500,000 and the property had a carrying value of $5,008,000. The impairment loss on the building of $1,508,000 is charged to purchased services and other in the Statement of Operations and Changes in Net Assets for the year ended September 30, 2005.

Intangible Assets Intangible assets, which are included in other assets, consist of covenants not to compete and goodwill. Intangible assets are being amortized over periods of 5 to 30 years. Management periodically evaluates recoverability of intangible assets and believes all amounts reported in the accompanying consolidated balance sheets to be recoverable through future operations.

Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Health System in perpetuity.

Net Patient Service Revenues Net patient service revenues are reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered and includes estimated retroactive adjustments due to future audits and reviews. Retroactive adjustments are considered in the recognition of revenues on an estimated basis in the period the related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits or reviews. Changes to prior year third-party settlement estimates increased net patient service revenue and excess of revenues over expenses by approximately $2.4 million and $2.6 million for the years ended September 30, 2005 and 2004, respectively.

Net revenues from the Medicare program accounted for approximately 39% and 37% of the Health System’s net patient revenues for the years ended 2005 and 2004. Net revenues from the Medicaid program accounted for approximately 11% and 9% of the Health System’s net patient revenues for the years ended 2005 and 2004, respectively. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term.


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Charity Care The Health System has a policy of providing charity care to those who are deemed unable to pay for the services received based on financial information obtained from the patient. Since the Health System does not expect or pursue payment, charges for charity care are not reported in net patient service revenue.

Contributions, Gifts, Bequests, and Grants Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value when the condition is met or at the date the gift is received. The gifts are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statements of operations and changes in net assets as other operating revenue. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as temporarily restricted support. Absent explicit donor stipulations about how these long-lived assets must be maintained, expirations of donor restrictions are reported when the donated or acquired long-lived assets are placed in service. Donor-restricted contributions within other operating revenue whose restrictions are met within the same year as received are reported as unrestricted contributions in the accompanying consolidated statements of operations.

Fair Value of Financial Instruments The following methods and assumptions were used by the Health System in estimating the fair value of its financial instruments:

Cash and Cash Equivalents, Patient Accounts Receivable, Subscriber Premiums Receivable, Other Current Assets, Accounts Payable, Medical Claims Payable and Accrued Expenses The carrying amounts reported in the balance sheets for cash and cash equivalents, patient accounts receivable, subscriber premiums receivable, other current assets, accounts payable, medical claims payable and accrued expenses approximate their fair values.

Assets Whose Use is Limited and Investments These assets consist primarily of cash, short-term investments, marketable equity securities, corporate debt instruments, U.S. government obligations and interest receivable. Investments are stated at fair value in the balance sheets, based on quoted market prices.

Long-Term Debt The fair value of the Health System’s long-term debt has been derived based on the market price of bonds in the secondary market. The fair value of long-term debt was approximately $415 million and $424 million at September 30, 2005 and 2004, respectively.

Derivative Financial Instruments The Health System uses swaps to maintain an allocation between variable and fixed rate debt. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements.


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Investments in Minority -owned Partnerships and Corporations The Health System primarily accounts for minority-owned investee partnerships and corporations by the equity method.

Medical Claims and Services Healthcare services are provided to member subscribers by hospitals, individual physicians and physician groups and other healthcare providers who contract with PHS. Primary care physician contracts typically provide for a discounted fee-for-service payment or a fixed fee payment for each member assigned to the physician, depending on the compensation arrangement under which they have contracted. The amount varies based upon certain health risk demographics and the benefit plan of the assigned member. Other physician and surgery center contracts are on a discounted fee-for-service or ambulatory surgical center case rate basis and hospital contracts generally provide for fixed payments per patient day based upon negotiated per day rates, or a diagnosis-related-group (“DRG”) rate. Such costs are recognized as services are rendered.

Accrued Contract Provider Incentive PHS’s subsidiary, Preferred Plus of Kansas, pays a medical utilization incentive to its primary care physician groups if the actual medical costs are at or below target. The incentive is based on a fixed percentage of projected medical expenses for the members assigned to the group. Additionally, certain participating providers have the opportunity to share with PHS in fund savings generated from a positive difference between actuarially established cost targets and actual medical costs incurred. The related expense is included in medical claims and services expense. The liability is included in medical claims payable on the balance sheet. The ultimate liability may exceed or be less than such estimates.

Premium Revenues Subscriber premiums are billed monthly in advance and are recognized as income in the month coverage is provided. Premium payments received prior to the month of coverage are recorded as unearned premiums in the accompanying consolidated balance sheets.

Income Taxes With the exception of PHS and certain other subsidiaries, all of the entities in the Health System are organizations described in Section 501(c)(3) of the Internal Revenue Code and are generally exempt from payment of income taxes on related income pursuant to Section 501(a) of the Internal Revenue Code. Subsidiaries, which are for-profit organizations, are subject to federal and state income taxes. Included in income taxes and other is tax expense totaling $7,875,000 and $6,774,000, respectively for 2005 and 2004.

Tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forward. Income tax expense or benefit is included in other non-operating gains and losses in the consolidated statements of operations and changes in net assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Health System recorded a deferred tax asset of approximately $124,000 and $1,225,000 at September 30, 2005 and 2004, respectively.


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Performance Indicators

Operating Income The Health System’s net operating income includes all unrestricted revenue, gains, net assets released from restrictions for operations, and other support and expenses from operations for the reporting period except for nonoperating gains including investment income, net capital contributions to and from affiliates, contributions of long-lived assets, net unrealized gains (losses) on investments, extraordinary items and transfers to affiliates.

Excess of Revenues Over Expenses The Health System’s excess of revenues over expenses excludes other changes in unrestricted net assets, which is consistent with industry practice, including unrealized gains and losses on investments other than trading securities, permanent transfers of assets to and from affiliates for other than goods and services, and contributions of long-lived assets (including assets acquired using contributions which by donor restriction were to be used for the purposes of acquiring such assets).

Reclassifications Certain prior year amounts were reclassified to conform to the current year presentation.

3. Charity Care and Community Benefits

The Health System maintains records to identify and monitor the level of charity care it provides. These records include the amount of charges foregone for services furnished under its charity care policy. The following information measures the level of charity care provided during the years ended September 30, 2005 and 2004:

(in thousands of dollars) 2005 2004Charges foregone, based on established rates 50,763$ 40,937$

Charity care, as reported above, does not include unreimbursed costs from beneficiaries of public programs such as Medicare and Medicaid and other community benefits (as described below).

In addition to these reported charges, the Health System actively sponsors community benefit programs that are specifically targeted to identify community needs. These programs focus on the poor and underserved of the community and are implemented with the intention of improving the overall health of the community. The Health System endorses a broad definition of the meaning of a healthy community by encouraging systemic change, removal of barriers to access to health care, and development of strong partnerships within each community. These efforts include: mobile clinics and school based screenings and health education, transportation, development of health ministry programs across all faith groups, community center-based health and social services, community case management, and resources for indigent clinics and mental health services. The Health System solicits community input and direction for these programs that are central to its mission. The Health System operates 24-hour emergency rooms that provide care to all patients regardless of their ability to pay. The costs for these services are included in operating expenses.


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4. Net Patient Service Revenue

The Health System has agreements with third-party payors that provide for payments at amounts different from their established rates. A summary of the payment arrangements with major third-party payors follows.

• Medicare – Inpatient acute care and rehabilitation services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors.

Outpatient and home health services are paid on prospective payment methodologies that are based on clinical classification of the services provided.

Skilled nursing facility services are paid at prospectively established per diem rates. These rates vary according to a patient classification system that is based on clinical assessments.

Psychiatric services related to Medicare beneficiaries are paid based on a cost reimbursement methodology, subject to certain limitations.

For those services that the Health System is paid on a cost reimbursement basis, a tentative rate is initially computed with a final settlement determined after submission of an annual cost report by the Health System and completion of an audit thereof by the Medicare fiscal intermediary. The Health System’s cost reports have generally been audited by the Medicare fiscal intermediary through 2003.

• Medicaid – Inpatient services rendered to Medicaid program beneficiaries are reimbursed based on prospectively established per diem rates. Outpatient services are reimbursed on a fee for service basis from predetermined fee schedules. In October 2005, the Centers for Medicare and Medicaid Services (“CMS”) approved a Kansas plan whereby hospital providers would pay an assessment based on net revenues and the Federal government would match the total assessment at an approximate 2 to 1 ratio, which would be paid back to providers, primarily through additional Medicaid payments. The program is retroactive to July 2004. For the year ended September 30, 2005, the estimated net benefit of $6,600,000 was included in other current assets.

• Managed care organizations – The Health System participates as a provider of health care services under agreements with certain managed care organizations and under contracts negotiated with area employers. The terms of each contract will vary, but typically include either prospectively determined per diem rates, established rates for specific procedures, or a negotiated discount rate offered by the constituent corporations for services provided to patients covered under the plan.


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The Health System’s gross charges and deductions from continuing operations for the years ended September 30, 2005 and 2004 are as follows:

(in thousands of dollars) 2005 2004Gross Gross

Charges Deductions Charges Deductions

Medicare 848,460$ 565,127$ 810,806$ 541,022$ Medicaid 253,480 175,695 243,948 179,536Managed care and other 549,386 180,485 592,513 192,368

1,651,326$ 921,307$ 1,647,267$ 912,926$

5. Concentration of Credit Risk

The Health System generally grants credit without collateral to their patients, most of whom are local residents of the markets where the facilities are located and are insured under third-party payor agreements. The distribution of net patient accounts receivable by payer at September 30, 2005 and 2004 is as follows:

2005 2004Medicare 28 % 21 % Medicaid 8 8 Other contracted payors/private pay 64 71

100 % 100 %

6. Short-term Investments and Assets Whose Use is Limited

The Health System’s short-term investments are primarily invested in the VCHS pool administered by a bank custodian. Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value as principally determined from quoted market values.

Assets whose use is limited consist of investments in the VCHS investment pool totaling $152,896,000 and $146,556,000 at September 30, 2005 and 2004 and other amounts held by trustees.


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The Health System’s investments including short-term investments, long-term investments and assets whose use is limited consist of the following:

September 30,(in thousands of dollars) 2005 2004

Cash and cash equivalents 23,801$ 27,358$ Pooled funds (see below) 384,581 307,660 Less amounts reported as held for sale (3,968) (5,780) Marketable equity securities 48,090 46,377 US treasury and other US obligations 56,358 43,664 Corporate obligations 21,431 29,009 Unamortized bond discount 53 3,863 Other 26 468

530,372$ 452,619$

In addition to the Pooled funds discussed below, certain of the Health System’s investments are in an unrealized loss position at September 30, 2005 and 2004. Management has evaluated these investments, including the Pooled Funds to determine if the losses are likely to be other than temporary impairments and concluded that none exist at this time. The aggregate of unrealized losses, exclusive of the Pooled Funds, at September 30, 2005 and 2004 was less than $900,000.

Investments in an Unrealized Loss Position That Are Not Other Than Temporarily Impaired The following tables show the gross unrealized gains, losses and fair value of the Health System’s pooled investments with unrealized losses that are not deemed to be other-than-temporarily impaired (in thousands), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2005 and 2004:

Fair Unrealized Unrealized Fair Unrealized Unrealized Fair Unrealized Unrealized(in thousands of dollars) Value Gains Losses Value Gains Losses Value Gains Losses

Cash and cash equivalents 42,355$ 22$ -$ 1,090$ 4$ -$ 43,445$ 26$ -$ Marketable equity securities 54,803 4,167 1,855 60,398 8,876 2,275 115,201 13,043 4,130

U.S. treasury obligations 69,856 23 527 56,722 34 2,306 126,578 57 2,833Other government fixed income 7,179 - 89 5,826 23 75 13,005 23 164

Corporate fixed income 35,652 21 537 50,700 257 1,820 86,352 278 2,357Total 209,845$ 4,233$ 3,008$ 174,736$ 9,194$ 6,476$ 384,581$ 13,427$ 9,484$

Less than 12 Months Greater than 12 Months Total2005

Fair Unrealized Unrealized Fair Unrealized Unrealized Fair Unrealized Unrealized(in thousands of dollars) Value Gains Losses Value Gains Losses Value Gains Losses

Cash and cash equivalents 54,387$ 42$ -$ -$ -$ -$ 54,387$ 42$ -$ Marketable equity securities 52,955 2,753 1,447 34,422 5,953 2,408 87,377 8,706 3,855

U.S. treasury obligations 65,315 188 1,073 7,035 - 485 72,350 188 1,558Other government fixed income 17,185 33 160 9,846 125 56 27,031 158 216

Corporate fixed income 49,124 297 569 17,391 532 468 66,515 829 1,037Total 238,966$ 3,313$ 3,249$ 68,694$ 6,610$ 3,417$ 307,660$ 9,923$ 6,666$

Less than 12 Months Greater than 12 Months Total2004


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Marketable Equity Securities The Health System’s investments in marketable equity securities consist primarily of investments in common stock diversified by industry and country. Because the Health System has the ability and intent to hold its investments until a recovery of fair value, it does not consider these investments to be other-than-temporarily impaired at September 30, 2005.

U.S. Treasury Obligations The unrealized losses on the Health System’s investments in U.S. Treasury obligations were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Health System has the ability and intent to hold these investments until a recover of fair value, which may be maturity, the Health System does not consider these investments to be other-than-temporarily impaired at September 30, 2005.

Other Government Fixed Income The unrealized losses on the Health System’s investment in other governmental fixed income securities were caused by interest rate increases. The Health System purchased these investments primarily in the secondary market at prevailing market value. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Health System’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality and because the Health System has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Health System does not consider these investments to be other-than-temporarily impaired at September 30, 2005.

Corporate Fixed Income The Health System’s unrealized losses on investments in corporate bonds relates primarily to interest rate increases. Because the Health System has the ability and intent to hold its investments until a recovery of fair value, which may be maturity, it does not consider these investments to be other-than-temporarily impaired at September 30, 2005.

7. Equity Investments

Included in other assets are investments of $54.2 million and $49.7 million, representing the Health System’s investment in unconsolidated affiliates. The investment and summarized information below relates primarily to Salina Regional Health Center, Inc.

Financial information for investee organization is summarized as follows:

(Unaudited)(in thousands of dollars) 2005 2004Total assets 217,366$ 228,114$

Total liabilities 45,884$ 49,910$

Net assets 171,482$ 178,204$

Total revenues 131,637$ 118,347$

Total expenses 116,498$ 114,170$


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8. Long-Term Debt

Long-term debt consists of the following:


Series III 2001 Hospital Facilities Revenue Bonds, fixed interest rates from 4.0% to 6.25%, principal due annually and interest due semi-annually through 2031 161,550$ 161,865$ Series 2001 Hospital Revenue Bonds, fixed interest rates from 4.0% to 5.50%, principal due annually and interest due semi-annually through 2031 35,916 36,619Series 2001 Health Care Facilities Revenue Bonds principal due annually, fixed interest rates from 4.0% to 5.875%, and interest due semi-annually through 2031, net of unamortized discount 13,716 13,789 Series XI 1999 Hospital Facility Improvement and Refinancing Revenue Bonds due annually through 2024, fixed interest rates from 5.125% to 6.75% 96,880 98,430 Series 2003 Health Care Facilities Refunding Revenue Bonds with varying maturities through 2018, fixed interest rates from 2.75% to 4.75% 4,180 4,420 Series 1992 Hospital Facilities Improvement and Refunding Revenue Bonds ("Series 1992 Bonds") with variable interest rates due annually through 2022 70,679 74,119 Series II, 2004 Health Care Facilities Refunding Revenue Bonds with varing maturities through 2029, interest rates from 1.8% to 5.125% 8,185 8,385 Note payable to Nazareth Convent and Academy, noninterest bearing, interest imputed at 8%, payable in monthly installments through 2007 1,148 1,767 Note payable to bank, variable interest (5.75% as of September 30, 2005), collateralized by building, equipment, and deposits at the bank, payable in monthly principal and interest installments through 2007 3,023 3,224 Notes payable to bank, interest rates varying 3.5% to 5.35% as of September 30, 2005, collateralized by real property, buildings and improvements, payable in monthly principal and interest installments through 2008 1,746 2,390 Other long-term debt and capital lease obligations collateralized by certain property and equipment 5,470 4,446

402,493 409,454Less: Current portion (11,524) (9,693)Long-term debt, less current portion 390,969$ 399,761$


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The Health System, along with other Health System hospitals (the “Obligated Group”), entered into a master trust indenture and an obligated group agreement whereby they were jointly and severally liable for all amounts due under any and all notes and guarantees issued pursuant to the master trust indenture. The Obligated Group consists of the Health System, VCRMC, Via Christi Rehabilitation Center, Mt. Carmel Regional Medical Center and Via Christi Oklahoma Regional Medical Center-Ponca City (VCORMC), as defined. See Note 14 for discussion of discontinued operations and removal of VCORMC from the Obligated Group.

In July 2001, the City of Wichita, Kansas (the “City”) issued Hospital Facilities Revenue Bonds Series III 2001 (“Series 2001 Bonds”) for the benefit of the Health System in the amount of $162,775,000 bearing interest at 3.5% to 6.25%. The proceeds of the Series 2001 Bonds were used by the Health System to refund certain of the Series 1992 Bonds, pay cost of issuance, and to establish a project fund for the future capital improvements.

In February 2001, the City of Manhattan, Kansas issued $38,000,000 of its Hospital Revenue Bonds bearing interest at 3.75% to 5.5% for the benefit of Mercy Regional Health Center of Manhattan. These bonds were issued to acquire, purchase, construct, equip and furnish certain improvements to the Mercy Regional Health Center facility and to pay insurance and other costs of issuance. At the date of issuance, Mercy Regional Health Center was the only member of its obligated group; as such term is used in the Master Indenture for this issue.

In May 2001, Sedgwick County, Kansas issued $14,000,000 of its Health Care Facilities Revenue Bonds bearing interest at 3.7% to 5.875% for the benefit of Catholic Care Center, a subsidiary of the Health System. These bonds were issued to pay the costs associated with the construction of a new 100-unit assisted living facility (consisting of 60 assisted living units and 40 special care units) to be operated by the Catholic Care Center. The Catholic Care Center Bonds provide substantially level debt service over their term. The Health System has agreed, in accordance with limitations and qualifications contained in the Master Trust Indenture to unconditionally guarantee the payment of principal premium, if any, and interest on the Catholic Care Center Bonds. The guaranty of the Health System will be unsecured and will constitute an obligation of the Obligated Group members. Management of the Health System does not expect to incur any actual liability in connection with its guaranty of the Catholic Care Center Bonds.

In November 1999, the City issued Hospital Facilities Improvement and Refunding Revenue Bonds Series XI 1999 (“Series 1999 Bonds”) on behalf of the Health System in the amount of $102,660,000. The proceeds of the Series 1999 Bonds were used by the Health System to refund certain previously outstanding indebtedness and to establish a project fund for future capital improvements.

In July 2003, the Health System took action to inform the bond trustee of the intent to make a tender offer to the holders of the outstanding Series 1992 bonds. This tender offer consisted of principal, unpaid interest; call premium (if applicable) and a fee above the principal termed tender fees. All holders, excluding $3,286,000, accepted the tender offer. The untendered bonds were retired. The purchase of the tendered Series 1992 bonds was done by a third party who still holds the Series 1992 bonds.


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In connection with this transaction, the Health System entered into a total return swap agreement, with the same third party. This swap agreement has a notional amount of $77,319,000, expires in five tranches from 2003 through 2017, and requires the third party to pay fixed interest rates, ranging from 5.70% to 6.17%, and the Health System to pay a variable interest rate based on the BMA index rate. At the same time, the Health System entered into another swap agreement with the same third party. This swap agreement has a notional amount of $77,319,000 expires in 2 tranches in 2010 and 2017, and requires the Health System to pay fixed interest rates, ranging from 2.04% to 2.752%, and the third party to pay a variable interest rate based on 75% of LIBOR. At September 30, 2005 and 2004, these swap agreements had a fair value of $1,175,000 and $(350,000), respectively. The fair value of these swap agreements are recorded in the balance sheet and the changes in their value are reported in the performance indicator.

Debt related to all in substance defeased prior issues of St. Francis and CSJ, had a remaining outstanding principal balance of $23.6 million and $27.1 million at September 30, 2005 and 2004, respectively. The debt and the related funds, which have been irrevocably placed with trustees in accordance with escrow deposit agreements, are excluded from the accompanying consolidated financial statements.

In connection with certain of the bond issuance, legal title to Mt. Carmel and the VCRMC facilities has been transferred to the City and lease agreements with the City have been executed. The Health System has the option to acquire legal title to these facilities at any time during the remaining term of the leases by paying amounts sufficient to redeem the principal amount of bonds outstanding plus accrued interest to the redemption date, and all other costs associated with the redemption, plus a nominal amount. These transactions have been accounted for as purchases, and accordingly, the consolidated financial statements reflect the indebtedness as liabilities and the cost of the applicable leased property, plant and equipment as assets.

Scheduled principa l repayments on long-term debt including capital leases are as follows:

(in thousands of dollars)

2006 11,524$ 2007 10,1072008 8,3412009 10,0122010 9,764Thereafter 352,745

402,493$

An affiliate of the Health System has entered into a $7 million line of credit agreement with a bank, expiring June 2006. Certain investments have been pledged as collateral based on the outstanding balance drawn on the line. Borrowings on the line which were less than $1 million as of September 30, 2005 and are included in accrued expenses in the accompanying balance sheet.


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9. Temporarily and Permanently Restricted Net Assets

Temporarily restricted net assets are available for the following purposes or periods at September 30, 2005 and 2004:

(in thousands of dollars) 2005 2004Medical education 477$ 2,018$ Other designated health programs 5,402 10,149

5,879$ 12,167$

Designated health care programs relate mainly to assets held by foundations which are designated by donors or grantors to be used in specific health care programs for medical and patient services or capital equipment.

Permanently restricted net assets of $4.9 million at September 30, 2005 and 2004 are restricted to investments to be held in perpetuity, the income from which is expendable to support health care services.

10. Pension and Retirement Plans

The Health System participates in a 403(b) defined contribution plan. The Plan covers substantially all employees and employees of certain affiliates. Contributions charged to income approximated $4,482,088 and $4,100,000 for the years ended September 30, 2005 and 2004, respectively.

The Health System sponsors a noncontributory defined benefit pension plan that covers substantially all of the Health System’s employees and employees of certain affiliates. The pension plan, which qualifies for church plan status and, accordingly, is exempt from the requirements of the Employment Retirement Income Security Act of 1974 (“ERISA”), provides benefits under an individual participant (cash balance) account based plan whereby participants are guaranteed a benefit equal to a percentage of their annual compensation based on years of service. Annual contributions to the plan are generally to the minimum funding requirements of ERISA. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Plan assets are invested in common stock, corporate and government bonds and money market funds. The measurement date for all calculations is June 30.


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The following table sets forth the plans’ funded status and the amount recognized in the consolidated balance sheets at September 30:

VCHS Retirement Plan Summary (in thousands) 2005 2004

Changes in projected benefit obligationBenefit obligation at beginning of year 170,948$ 161,941$ Service cost 14,409 14,186 Interest cost 10,639 10,075 Actuarial loss 8,717 262 Benefits paid (11,866) (15,516) Transfer to St. Rose pension plan (23,960) -

Projected benefit obligation 168,887$ 170,948$

Changes in plan assetsFair value of plan assets at beginning of year 189,297$ 163,009$ Actual return on plan assets 10,809 26,538 Employer contribution 7,325 15,266 Benefits paid (11,866) (15,516) Transfer to St. Rose pension plan (26,539) -

Fair value of plan assets at end of year 169,026$ 189,297$

Funded status - Plan assets in excess of projected benefit obligation 139$ 18,349$ Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 40,627 30,109 Prior service cost not yet recognized in net periodic pension costs 499 860

Prepaid pension costs (including amounts of discontinued operations) 41,265$ 49,318$

The following weighted average assumptions were used to determine the plan’s benefit obligations as of September 30:

2005 2004

Discount rate 5.25 % 6.25 % Rate of increase in compensation levels 4.00 4.00


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2005 2004

Components of net periodic pension costsService cost benefits earned during the year 14,409$ 14,186$ Interest cost on projected benefit obligation 10,639 10,075 Expected return on assets (15,085) (12,982) Net amortization of unrecognized prior service cost and net loss 1,114 2,691

Net periodic pension cost 11,077$ 13,970$

The following weighted-average assumptions were used to determine the pension cost for the years ended September 30:

2005 2004Discount rate 6.25 % 6.25 % Rate of increase in compensation levels 4.00 4.00 Expected long-term rate of return on assets 8.00 8.00 The Plan’s investment assets at June 30, 2005 consisted of equities 65%; debt securities 28%; and cash and cash equivalents 7%. Plan investment policies include a target asset allocation range of equities 55% to 75%, debt securities 25% to 43%; and cash and cash equivalents 0% to 15%.

The broad-based investment goals of the Plan are to: 1) at a minimum, preserve the inflation-adjusted value of the Pension assets after administrative costs and benefit payments; 2) prudently invest assets in a high-quality, diversified manner; 3) achieve the optimal return possible within the specified risk parameters; 4) achieve the actuarial earnings assumptions; 5) adhere to the established guidelines; and 6) foster and advance business practices and activities which reflect Christian principles, values and traditions embraced by Via Christi.

The split among various asset classes, particularly the equity versus fixed-income ratio, is the most significant decision to affect the overall volatility of results. The assets are viewed as having a long-term horizon with low to moderate liquidity constraints. The goal is to maximize returns over the long-term and accordingly, performance will be measured and reviewed regularly, the long-term allocation will be reviewed at least annually, and the asset allocation will be particularly re-balanced as the asset allocation nears the minimum and maximum of the established ranges.

Investments in debt securities are limited to a minimum quality of BBB and the average quality shall be no less than AA. Equity investments will be well diversified. Leverage of the portfolio is prohibited.


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Investment managers must adhere to the moral and ethical principles that reflect social justice and peace according to the Gospel principles and are consistent with the principles and values of the Roman Catholic Church. Investment in organizations which engage in activities, services, or pursuits, or which are involved in the design, manufacture, fabrication, distribution or handling of products, not in concert with such principles, will be avoided or will utilized to effect favorable change or other positive influences through the exercise of proxies, elections, votes and other corporate authority. Investment advisors and manager will place investments and will exercise stockholder’s rights and other authority, as they may from time to time posses, in a manner consistent with and in furtherance of such principles.

The long-term rate of return reflects the average rate of earnings expected on the funds invested to provide for the benefits in the future. In estimating this rate, the appropriate consideration was given to the returns currently being earned by the plan assets (8.2% over the most recent eight years) and the rates of return expected to be available for reinvestment. The present and expected assed mix was taken into account. The long-term rate is expected to be less volatile than the actual rate of return on assets, since the expected rate not only considers current returns, but also reinvestment rates in the future. This rate will generally be the same each year, unless asset mix and/or asset returns are expected to significantly change in the future.

Expected benefits to be paid in the next 10 years as calculated by the consulting actuary are:

Year Amount 1 $13,600,000 2 13,200,000 3 13,000,000 4 13,300,000 5 13,000,000 6-10 65,500,000

The employer contribution for the coming year, due June 15, 2006 is $2,122,446.

11. Professional and General Liability Insurance

One of the Health System’s subsidiaries, VCRMC, is self-insured for professional liability claims up to $200,000 per occurrence and $600,000 in the aggregate per year. Mercy Regional Health Center, Mt. Carmel Regional Medical Center and Via Christi Rehabilitation Center have coverage on a claims made basis, through commercial insurance, up to $200,000 per occurrence and $600,000 in the aggregate per year. In addition to this, VCRMC, Mercy, Mt. Carmel, and Via Christi Rehabilitation Center have coverage provided by the Kansas Health Center Stabilization Fund (“HCSF”) for each occurrence up to $800,000 per occurrence and $2,400,000 in the aggregate per year. Other Health System subsidiaries which are required to comply with the HCSF are insured up to $1,000,000 per occurrence and $3,000,000 annual aggregate through commercial claims made policies.


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The Health System has purchased excess liability insurance in the amount of $45,000,000 which sits above underlying hospital professional liability insurance, medical professional liability insurance, general liability insurance, automobile liability insurance, non-owned aircraft liability insurance, employers liability insurance, directors’ and officers’ liability insurance, errors and omissions liability insurance, employment practices liability insurance, and fiduciary liability insurance. This excess liability insurance is being provided through a captive insurance company which is a subsidiary of the Health System. The captive insurance company has purchased reinsurance to cover the majority of its exposure.

In addition to this coverage, the captive also provides professional liability coverage for the Health System’s physician employees, senior care facilities, home health agencies, and other System health care providers.

The Health System is self-insured for workers’ compensation, general liability and health insurance claims. Deposits in related revocable trust accounts for self-insurance programs, approximating $2,200,000 and $3,100,000 at September 30, 2005 and 2004, respectively, are included under assets whose use is limited in the accompanying consolidated financial statements. The Health System’s accrual for professional liability claims which are included in other liabilities, and its accruals for workers’ compensation claims, which is included in other accrued liabilities, are based upon actuarially determined estimates of potential losses to be incurred from asserted and unasserted claims, discounted based on an interest rate of 6%. The accruals for professional liability claims were approximately $1,673,000 and $1,734,000 and the accruals for workers’ compensation claims were approximately $2,432,200 and $2,498,000 at September 30, 2005 and 2004, respectively.

12. Commitment and Contingencies

Lease Commitments as Lessee The Health System’s hospitals maintain certain departments and physician clinics in leased premises and are committed under equipment leases that have terms of one year or more. Future minimum annual rentals under the aforementioned lease agreements as of September 30, 2005 are as follows:

(in thousands of dollars)

2006 8,662$ 2007 6,3382008 5,1922009 4,6432010 2,021Thereafter 3,653

30,509$


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Total rental expense for all operating leases, including amounts paid under lease agreements with initial terms less than one year in duration, in the years ended September 30, 2005 and 2004 approximated $9,747,000 and $7,795,000, respectively. Such amounts are included in other expenses in the accompanying consolidated statements of operations.

Litigation The Health System is periodically involved in litigation and regulatory investigations arising in the course of business. Management is not aware of any matters that would have a material adverse effect on the Health System’s future financial position, results from operations, or cash flows.

The Health System has two Medicare appeal claims outstanding for the Medicare terminating cost reports relative to the consolidation of St. Joseph Medical Center, Inc. and St. Francis Regional Medical Center, Inc. in Wichita, Kansas, effective September 30, 1995, with the potential for payments receivable in a material amount. A preliminary settlement offer on one of the claims has been received, but it is not considered to be a valid offer and has not been accepted. The timing and ultimate amounts of the settlements are unknown, and the consolidated financial statements do not include a receivable for these claims.

Regulatory Compliance The U.S. Department of Justice and other federal agencies are increasing resources dedicated to regulatory investigations and compliance audits of health care providers. The Health System is subject to these regulatory efforts and has received correspondence from federal agencies with regard to such initiatives. In consultation with legal counsel, management estimates these matters will be resolved without material adverse effect on the Health System’s financial position or results of operations.

13. Functional Expenses

The Health System affiliates provide health care services to residents within their geographic location. Expenses related to providing these services are as follows:

(in thousands of dollars) 2005 2004Health care services 935,067$ 938,442$ General and administrative 171,619 168,261

1,106,686$ 1,106,703$

14. Discontinued Operations

In December 2003, the Board of Trustees of St. Rose Hospital approved a plan by which St. Rose Hospital would cease to be sponsored by the Health System and would become an independent hospital sponsored by the St. Rose Hospital Board itself. The plan included obtaining long-term financing through an independent third party to replace the intercompany debt. The affiliation change and refinancing was completed in August 2005. Total debt forgiven was $10,995,000, plus transaction costs, and net assets transferred to the local board was $13,442,000.


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The financial position and results of St. Rose Hospital for 2005 and 2004 have been presented as discontinued operations in the accompanying financial statements. Components of amounts reflected in the Health System’s consolidated balance sheets and statements of operations and changes in net assets are presented in the following table:

(in thousands of dollars) 2005 2004Current assets -$ 28,108$ Property and equipment, net - 20,685Other assets - 7,896

Assets of discontinued operations held for sale -$ 56,689$

Current liabilities -$ 9,175$ Noncurrent liabilities - 3,885

Liabilities before VCHS debt - 13,060

VCHS debt - 29,917

Liabilities of discontinued operations held for sale (including VCHS debt) -$ 42,977$

(in thousands of dollars) 2005 2004Revenue 88,400$ 94,008$ Expenses and other changes in net assets 88,670 93,119

Change in net assets (270)$ 889$

In August 2005, the VCHS Board of Trustees approved a plan by which Via Christi Oklahoma Regional Medical Center (“VCORMC”) would be sold. In November 2005, a non-binding Letter of Intent to acquire VCORMC was entered into with a company seeking acquisitions of rural hospitals. Management anticipates the sale will be completed by March 2006.

The financial position and results of operations of VCORMC for 2005 and 2004 have been presented as discontinued operations in the accompanying financial statements. Components of amounts reflected in the Health System’s consolidated balance sheets and statements of operations and changes in net assets are presented in the following table:

(in thousands of dollars) 2005 2004Current assets 12,671$ 12,249$ Property and equipment, net 19,935 21,353Other assets 4,402 4,760

Assets of discontinued operations held for sale 37,008$ 38,362$

Current liabilities 2,975$ 2,028$ Noncurrent liabilities - -

Liabilities before VCHS debt 2,975 2,028

VCHS debt 4,686 4,946Liabilities of discontinued operations held for sale (including VCHS debt) 7,661$ 6,974$


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(in thousands of dollars) 2005 2004Revenue 43,857$ 42,255$ Expenses and other changes in net assets 45,898 42,262

Change in net assets (2,041)$ (7)$

Consolidating Information

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Via Christi Health System, Inc. and Subsidiaries Consolidating Balance Sheet September 30, 2005 Schedule 1

Wichita PreferredVCRMC Mt. Carmel VCORMC St. Rose Mercy Health Senior Health Sunflower AMS Health Consolidated

Consolidated Pittsburg Ponca City Hayward Manhattan System Services Partners Assurance Lab Systems Eliminations TotalAssetsCurrent assets

Cash and cash equivalents, including restricted 16,025$ 2,254$ 1,748$ -$ 5,650$ 351$ 5,002$ 10,981$ 1,485$ 703$ 22,521$ (1,748)$ 64,972$ cashShort-term investments 51,686 22,369 2,337 - 911 92,895 8,972 52,247 - - 99,685 (2,337) 328,765Assets whose use is limited that are required for current liabilities 519 - - - 116 4,391 - - - - - - 5,026Patient accounts receivable, net 80,207 11,823 6,142 - 13,150 - 1,963 7,080 1,384 - (16,932) 104,817Subscribers premiums receivable - - - - - - - - 382 - 3,066 (710) 2,738Inventories 17,320 1,577 1,273 - 2,661 - 186 1,854 - - - (1,273) 23,598Other current assets 16,667 2,408 1,171 - 1,915 12,883 252 1,619 217 113 4,858 (11,962) 30,141Assets of discontinued operations, held for sale - - - - - - - - - - - 37,008 37,008

Total current assets 182,424 40,431 12,671 - 24,403 110,520 16,375 73,781 2,084 2,200 130,130 2,046 597,065

Assets whose use is limitedDesignated by Board for capital improvements 155,521 - 1,602 - 9,211 1,267 152 - - - - (1,602) 166,151Other 2,057 - - - - - 559 - - - - - 2,616Held by trustee

Under bond indenture - - - - 2,584 8,032 - - - - - - 10,616Self-insurance arrangements 2,198 - - - - - - 11,453 - - - 13,651

Less assets whose use is limited that are required for current liabilities (519) - - - (116) (4,391) - - - - - - (5,026)

Total noncurrent portion of assets whose use is limited 159,257 - 1,602 - 11,679 4,908 711 - 11,453 - - (1,602) 188,008

Property and equipmentLand and improvements 28,931 872 1,993 - 2,122 123 10,016 13,983 - - - (1,993) 56,047Buildings and fixed equipment 299,005 32,217 34,275 - 50,067 3,110 84,576 43,887 - 70 - (34,275) 512,932Equipment 230,920 28,886 27,216 - 36,165 779 10,631 27,267 - 1,257 9,615 (27,216) 345,520Less accumulated depreciation (363,497) (33,208) (43,704) - (33,157) (1,108) (23,702) (43,722) - (671) (7,396) 43,704 (506,461)Construction in progress 3,468 1,727 155 - 4,271 - 2,276 348 - - - (155) 12,090

Total net property and equipment 198,827 30,494 19,935 - 59,468 2,904 83,797 41,763 - 656 2,219 (19,935) 420,128

Other assetsInvestments in unconsolidated affiliates - - 33 - 318 54,060 - - - - - (253) 54,158Prepaid pension costs 33,298 1,876 1,486 - 743 1,738 930 112 - - - - 40,183Intangible assets, net 811 - - - - 10,732 138 - - - - - 11,681Long-term investments - - - - 8,573 - - - - - - - 8,573Other assets 14,365 1,490 1,281 - 3,657 223,825 412 4,500 - 3 8,586 (222,550) 35,569

Total assets 588,982$ 74,291$ 37,008$ -$ 108,841$ 408,687$ 102,363$ 120,156$ 13,537$ 2,859$ 140,935$ (242,294)$ 1,355,365$

29

Via Christi Health System, Inc. and Subsidiaries Consolidating Balance Sheet September 30, 2005 Schedule 1


Consolidated Pittsburg Ponca City Hayward Manhattan System Services Partners Assurance Lab Systems Eliminations Total

Liabilities and Net AssetsCurrent liabilities

Current maturities of long-term debt 8,425$ 55$ 269$ -$ 1,718$ 5,994$ 3,650$ 1,816$ -$ -$ -$ (10,403)$ 11,524$ Accounts payable 15,826 3,604 1,306 - 3,056 1,846 930 1,280 225 470 544 (2,681) 26,406Accrued liabilities 23,055 3,611 1,420 - 3,882 9,089 2,956 3,022 41 451 26,231 (2,104) 71,654Estimated amounts due to third-party payors 4,547 100 249 - - - - - - - - (249) 4,647Medical claims payable - - - - - - - - - - 43,079 (10,790) 32,289Liabilities of discontinued operations, held for sale - - - - - - - - - - - 2,975 2,975

Total current liabilities 51,853 7,370 3,244 - 8,656 16,929 7,536 6,118 266 921 69,854 (23,252) 149,495

Noncurrent liabilitiesLong-term debt, less current maturities 152,510 1,175 4,417 - 40,923 325,243 73,331 6,135 - - - (212,765) 390,969Other noncurrent liabilities 6,797 - - - - 3,615 5,757 216 12,824 1 4,074 (5,677) 27,607Minority interest - - - - 1,259 - 3,686 10,070 - - - 30,692 45,707

Total noncurrent liabilities 159,307 1,175 4,417 - 42,182 328,858 82,774 16,421 12,824 1 4,074 (187,750) 464,283Total liabilities 211,160 8,545 7,661 - 50,838 345,787 90,310 22,539 13,090 922 73,928 (211,002) 613,778

Net assetsUnrestricted 366,359 65,746 29,136 - 55,631 62,900 11,973 97,617 447 1,937 67,007 (27,912) 730,841Temporarily restricted 6,621 - 211 - 1,714 - 80 - - - - (2,747) 5,879Permanently restricted 4,842 - - - 658 - - - - - - (633) 4,867

Total net assets 377,822 65,746 29,347 - 58,003 62,900 12,053 97,617 447 1,937 67,007 (31,292) 741,587

Total liabilities and net assets 588,982$ 74,291$ 37,008$ -$ 108,841$ 408,687$ 102,363$ 120,156$ 13,537$ 2,859$ 140,935$ (242,294)$ 1,355,365$

30

Via Christi Health System, Inc. and Subsidiaries Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2005 Schedule 2



Revenues, gains and other supportNet patient service revenues 553,214$ 76,743$ 42,943$ 86,784$ 74,479$ -$ 42,944$ 60,111$ -$ -$ -$ (207,199)$ 730,019$ Premium revenues - - - - - - 7,399 - 1,062 - 384,197 (11,779) 380,879Other operating revenues 26,968 3,261 914 1,616 3,134 25,731 911 5,232 465 10,294 1,517 (28,590) 51,453

Total operating revenues 580,182 80,004 43,857 88,400 77,613 25,731 51,254 65,343 1,527 10,294 385,714 (247,568) 1,162,351

Operating expensesSalaries and employees benefits 268,475 43,848 19,013 52,835 36,005 6,516 27,433 18,041 - 3,720 16,476 (83,020) 409,342Medical claims and services - - - - - - 2,463 - - - 332,195 (75,062) 259,596Purchased services and other 90,644 10,105 10,681 12,435 11,079 3,316 5,340 17,959 1,527 2,852 17,232 (36,915) 146,255Supplies 97,335 12,783 5,519 9,779 14,381 87 4,981 12,737 - 2,120 156 (16,891) 142,987Interest 7,806 177 302 1,707 2,228 17,946 4,696 484 - 1 - (15,694) 19,653Depreciation and amortization 32,565 3,336 3,887 2,644 5,556 523 3,784 5,157 - 219 1,153 (6,531) 52,293Provision for uncollectible accounts 65,425 4,814 5,924 9,291 4,632 18 79 1,370 222 - (15,215) 76,560

Total operating expenses 562,250 75,063 45,326 88,691 73,881 28,406 48,776 55,748 1,527 9,134 367,212 (249,328) 1,106,686

Income from operations 17,932 4,941 (1,469) (291) 3,732 (2,675) 2,478 9,595 - 1,160 18,502 1,760 55,665

No operating gains (losses)Investment income 7,169 809 215 - 667 96 339 1,750 - - 2,885 (215) 13,715Net realized loss on sale of investments 2,983 342 75 - 3 40 64 682 - - (38) (75) 4,076Equity in earnings of invested organizations - - 41 - (21) 4,164 - - - - - (41) 4,143Other (3,431) - (26) - 49 (37) 68 2,610 - (446) (7,658) 25 (8,846)

Total no operating gains 6,721 1,151 305 - 698 4,263 471 5,042 - (446) (4,811) (306) 13,088

Excess of revenues over expenses before minority interest 24,653 6,092 (1,164) (291) 4,430 1,588 2,949 14,637 - 714 13,691 1,454 68,753

Minority interest - - - - (173) - (624) (4,919) - - - (1,712) (7,428)

Excess of revenues over expenses 24,653 6,092 (1,164) (291) 4,257 1,588 2,325 9,718 - 714 13,691 (258) 61,325

31

Via Christi Health System, Inc. and Subsidiaries Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2005 Schedule 2



Unrestricted net assetsExcess of revenues over expenses 24,653$ 6,092$ (1,164)$ (291)$ 4,257$ 1,588$ 2,325$ 9,718$ -$ 714$ 13,691$ (258)$ 61,325$ Change in net unrealized gain (loss) on investments 492 54 15 16 214 1,591 30 12 2,810 (138) 5,096Discontinued operations - - - - - - - - - - - (2,311) (2,311)Net assets released from restriction - - - - 1,080 - 17 - - - - - 1,097Net asset transfer for discontinued operations - - - (11,790) - (11,985) - - - - - - (23,775)Other changes in unrestricted net assets, including net transfer to sponsoring organizations (7,162) (1,657) (874) 204 - 17,905 (69) (472) 16 (16) (6,473) 435 1,837

Increase in unrestricted net assets 17,983 4,489 (2,023) (11,861) 5,551 9,099 2,303 9,258 16 698 10,028 (2,272) 43,269

Temporarily restricted net assetsContributions 2,662 - 18 - 205 - 24 - - - - (18) 2,891Investment income 536 - - - 38 - - - - - - - 574Net realized and unrealized gains (losses) on investments 229 - - - 68 - - - - - - - 297Net assets released from restrictions (6,124) - (36) - (1,122) - (17) - - - 36 (7,263)Net asset transfer for discontinued operations - - - (1,652) - - - - - - - - (1,652)Other changes (695) - - (199) 82 - (1) - - - - (322) (1,135)

Increase in temporarily restricted net assets (3,392) - (18) (1,851) (729) - 6 - - - - (304) (6,288)

Permanently restricted net assetsContributions for endowment funds - - - - 2 - - - - - - - 2Change in unrealized loss on investments - - - - - - - - - - - - -Other - - - - 25 - - - - - (2) 23

Increase in permanently restricted net assets - - - - 27 - - - - - - (2) 25Increase in net assets 14,591 4,489 (2,041) (13,712) 4,849 9,099 2,309 9,258 16 698 10,028 (2,578) 37,006

Net assetsBeginning of year 363,231 61,257 31,388 13,712 53,154 53,801 9,744 88,359 431 1,239 56,979 (28,714) 704,581End of year 377,822$ 65,746$ 29,347$ -$ 58,003$ 62,900$ 12,053$ 97,617$ 447$ 1,937$ 67,007$ (31,292)$ 741,587$

32

Via Christi Health System, Inc. and Subsidiaries Via Christi Regional Medical Center Consolidating Balance Sheet September 30, 2005 Schedule 3

PreferredMedical Via Christi Rehab Medical Medical Home Via Christi Via Christi GerardCenter Riverside Center Association Management Health Foundation Research House Eliminations Consolidated


Cash and cash equivalents, including restricted cash 12,235$ 520$ 858$ 1,530$ 48$ 22$ 742$ 66$ 4$ -$ 16,025$ Short-term investments 25,969 187 10,840 - - 1,408 12,548 426 308 - 51,686Assets whose use is limited that are required for current liabilities 519 - - - - - - - - - 519Patient accounts receivable, net 73,890 1,211 3,980 2,368 - 394 - - - (1,636) 80,207Inventories 16,438 317 130 279 - 26 123 7 - - 17,320Other current assets 16,543 (114) 3,061 405 - 56 475 2,168 38 (5,965) 16,667

Total current assets 145,594 2,121 18,869 4,582 48 1,906 13,888 2,667 350 (7,601) 182,424

Assets whose use is limitedDesignated by Board for capital improvements 151,470 - 159 - - - 3,892 - - - 155,521Other 2,057 - - - - - - - - - 2,057Held by trustee

Under bond indenture - - - - - - - - - -Self-insurance arrangements 2,198 - - - - - - - - - 2,198

Less assets whose use is limited that are required for current liabilities (519) - - - - - - - - - (519)

Total noncurrent portion of assets whose use is limited 155,206 - 159 - - - 3,892 - - - 159,257

Property and equipmentLand and improvements 23,449 3,746 1,497 234 - - - - 5 - 28,931Buildings and fixed equipment 278,249 12,801 6,774 838 - 2 - 155 186 - 299,005Equipment 213,754 6,241 4,432 3,888 - 538 563 1,397 107 - 230,920Less accumulated depreciation (339,353) (10,591) (7,222) (3,886) - (443) (475) (1,361) (166) - (363,497)Construction in progress 3,468 - - - - - - - - - 3,468

Total net property and equipment 179,567 12,197 5,481 1,074 - 97 88 191 132 - 198,827

Other assetsInvestments in unconsolidated affiliates - - - - - - - - - - -Prepaid pension costs 30,771 - 855 1,402 - 270 - - - - 33,298Intangible assets, net - 744 - - - - - 67 - - 811Long-term investments - - - - - - - - - - -Other assets 23,723 - 350 2,414 - 1 2,260 144 - (14,527) 14,365

Total assets 534,861$ 15,062$ 25,714$ 9,472$ 48$ 2,274$ 20,128$ 3,069$ 482$ (22,128)$ 588,982$

33

Via Christi Health System, Inc. and Subsidiaries Via Christi Regional Medical Center Consolidating Balance Sheet September 30, 2005 Schedule 3



Current maturities of long-term debt 5,045$ 1,516$ 1,864$ -$ -$ 120$ -$ -$ -$ (120)$ 8,425$ Accounts payable 12,966 442 1,114 1,471 25 23 4,504 1,148 3 (5,870) 15,826Accrued liabilities 18,137 1,157 2,987 1,485 - (49) 557 376 17 (1,612) 23,055Estimated amounts due to third-party payors 3,799 649 90 - - 9 - - - - 4,547

Total current liabilities 39,947 3,764 6,055 2,956 25 103 5,061 1,524 20 (7,602) 51,853

Noncurrent liabilitiesLong-term debt, less current maturities 132,951 16,393 3,166 - - 195 - - - (195) 152,510Other noncurrent liabilities 4,554 - - 2,225 - - - 18 - - 6,797

Total noncurrent liabilities 137,505 16,393 3,166 2,225 - 195 - 18 - (195) 159,307Total liabilities 177,452 20,157 9,221 5,181 25 298 5,061 1,542 20 (7,797) 211,160

Net assetsUnrestricted 346,527 (5,095) 16,493 4,291 23 1,976 3,604 1,393 462 (3,315) 366,359Temporarily restricted 10,882 - - - - - 6,621 134 - (11,016) 6,621Permanently restricted - - - - - - 4,842 - - - 4,842

Total net assets 357,409 (5,095) 16,493 4,291 23 1,976 15,067 1,527 462 (14,331) 377,822Total liabilities and net assets 534,861$ 15,062$ 25,714$ 9,472$ 48$ 2,274$ 20,128$ 3,069$ 482$ (22,128)$ 588,982$

34

Via Christi Health System, Inc. and Subsidiaries Via Christi Regional Medical Center Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2005 Schedule 4


Revenues, gains and other supportNet patient service revenues 487,819$ 10,840$ 21,499$ 27,790$ -$ 5,424$ -$ -$ -$ (158)$ 553,214$ Other operating revenues 14,203 568 1,167 1,308 (2) - 8,277 2,526 264 (1,343) 26,968

Total operating revenues 502,022 11,408 22,666 29,098 (2) 5,424 8,277 2,526 264 (1,501) 580,182

Operating expensesSalaries and employees benefits 217,794 7,303 13,597 20,960 1,805 4,200 862 1,829 198 (73) 268,475Purchased services and other 69,865 5,078 3,320 5,796 6 516 7,140 (80) 54 (1,051) 90,644Supplies 91,495 1,440 1,519 2,836 - 113 11 44 10 (133) 97,335Interest 6,181 1,266 359 - - - - - - - 7,806Depreciation and amortization 29,258 2,079 641 420 - 60 17 74 16 - 32,565Provision for uncollectible accounts 64,374 381 301 311 (3) 61 - - - - 65,425

Total operating expenses 478,967 17,547 19,737 30,323 1,808 4,950 8,030 1,867 278 (1,257) 562,250Income from operations 23,055 (6,139) 2,929 (1,225) (1,810) 474 247 659 (14) (244) 17,932

Nonoperating gains (losses)Interest and dividend income 6,717 8 306 - 12 62 7 47 10 - 7,169Net realized loss on sale of investments 2,820 3 106 - - 30 1 19 4 - 2,983Other 326 (92) - (3,664) - - (247) 2 - 244 (3,431)

Total nonoperating gains 9,863 (81) 412 (3,664) 12 92 (239) 68 14 244 6,721Excess of revenues over expenses 32,918 (6,220) 3,341 (4,889) (1,798) 566 8 727 - - 24,653

35

Via Christi Health System, Inc. and Subsidiaries Via Christi Regional Medical Center Consolidating Statement of Operations and Changes in Net Assets Year Ended September 30, 2005 Schedule 4


Unrestricted net assetsExcess of revenues over expenses 32,918$ (6,220)$ 3,341$ (4,889)$ (1,798)$ 566$ 8$ 727$ -$ -$ 24,653$ Change in net unrealized gain (loss) on investments 321 - 21 - - 1 144 3 2 - 492Other changes in unrestricted net assets, including net transfer to sponsoring organizations (12,432) (154) (355) 3,987 1,665 1 472 4 (1) (349) (7,162)

Increase in unrestricted net assets 20,807 (6,374) 3,007 (902) (133) 568 624 734 1 (349) 17,983

Temporarily restricted net assetsContributions - - - - - - 2,662 - - - 2,662Investment income and gains - - - - - - 536 - - - 536Net realized and unrealized gains (losses) on investments - - - - - - 229 - - - 229Net assets released from restrictions (3,731) - - - - - (6,124) (35) - 3,766 (6,124)Other changes - - - - - - (695) - - - (695)

Increase in temporarily restricted net assets (3,731) - - - - - (3,392) (35) - 3,766 (3,392)

Permanently restricted net assetsContributions for endowment funds - - - - - - - - - - -Change in unrealized loss on investments - - - - - - - - - - -Other - - - - - - - - - - -

Increase in permanently restricted net assets - - - - - - - - - - -Increase in net assets 17,076$ (6,374)$ 3,007$ (902)$ (133)$ 568$ (2,768)$ 699$ 1$ 3,417$ 14,591$ r

36

Via Christi Health System, Inc. and Subsidiaries Consolidating Balance Sheet (Obligated Group Subtotaled) September 30, 2005 Schedule 5

Non ObligatedWichita Wichita Wichita Obligated GroupMedical Rehabilitation Pittsburg Ponca City Health Group and ConsolidatedCenter Center Mt. Carmel VCORMC System Eliminations Total Eliminations Total


Cash and cash equivalents, including restricted cash 13,765$ 858$ 2,254$ 1,748$ 351$ (1,750)$ 17,226$ 47,746$ 64,972$ Short-term investments 25,969 10,840 22,369 2,337 92,895 (2,337) 152,073 176,692 328,765Assets whose use is limited that are required for current liabilities 519 - - - 4,391 4,910 116 5,026Patient accounts receivable, net 76,258 3,980 11,823 6,142 - (6,142) 92,061 12,756 104,817Subscribers premiums receivable - - - - - - - 2,738 2,738Inventories 16,717 130 1,577 1,273 - (1,273) 18,424 5,174 23,598Other current assets 16,948 3,061 2,408 1,171 12,883 (3,871) 32,600 (2,459) 30,141Assets of discontinued operations, held for sale - - - - - 37,008 37,008 - 37,008

Total current assets 150,176 18,869 40,431 12,671 110,520 21,635 354,302 242,763 597,065

Assets whose use is limitedDesignated by Board for capital improvements 151,470 159 - 1,602 1,267 (1,602) 152,896 13,255 166,151Other 2,057 - - - - - 2,057 559 2,616Held by trustee

Under bond indenture - - - - 8,032 - 8,032 2,584 10,616Self-insurance arrangements 2,198 - - - - - 2,198 11,453 13,651

Less assets whose use is limited that are required for current liabilities (519) - - - (4,391) - (4,910) (116) (5,026)

Total noncurrent portion of assets whose use is limited 155,206 159 - 1,602 4,908 (1,602) 160,273 27,735 188,008

Property and equipmentLand and improvements 23,683 1,497 872 1,993 123 (1,993) 26,175 29,872 56,047Buildings and fixed equipment 279,087 6,774 32,217 34,275 3,110 (34,275) 321,188 191,744 512,932Equipment 217,642 4,432 28,886 27,216 779 (27,216) 251,739 93,781 345,520Less accumulated depreciation (343,239) (7,222) (33,208) (43,704) (1,108) 43,704 (384,777) (121,684) (506,461)Construction in progress 3,468 - 1,727 155 - (155) 5,195 6,895 12,090

Total net property and equipment 180,641 5,481 30,494 19,935 2,904 (19,935) 219,520 200,608 420,128

Other assetsInvestments in unconsolidated affiliates - - - 33 54,060 (33) 54,060 98 54,158Prepaid pension costs 32,173 855 1,876 1,486 1,738 (1,629) 36,499 3,684 40,183Intangible assets, net - - - - 10,732 - 10,732 949 11,681Long-term investments - - - - - - - 8,573 8,573Other assets 26,137 350 1,490 1,281 223,825 (158,928) 94,155 (58,586) 35,569

Total assets 544,333$ 25,714$ 74,291$ 37,008$ 408,687$ (160,492)$ 929,541$ 425,824$ 1,355,365$

37

Via Christi Health System, Inc. and Subsidiaries Consolidating Balance Sheet (Obligated Group Subtotaled) September 30, 2005 Schedule 5

Non ObligatedWichita Wichita Obligated GroupMedical Rehabilitation Pittsburg Ponca City Wichita Group and ConsolidatedCenter Center Mt. Carmel VCORMC Health System Eliminations Total Eliminations Total


Current maturities of long-term debt 5,045$ 1,864$ 55$ 269$ 5,994$ (5,320)$ 7,907$ 3,617$ 11,524$ Accounts payable 14,437 1,114 3,604 1,306 1,846 (3,283) 19,024 7,382 26,406Accrued liabilities 19,622 2,987 3,611 1,420 9,089 (1,420) 35,309 36,345 71,654Estimated amounts due to third-party payors 3,799 90 100 249 - (249) 3,989 658 4,647Medical claims payable - - - - - - - 32,289 32,289Liabilities of discontinued operations, held for sale - - - - - 2,975 2,975 - 2,975

Total current liabilities 42,903 6,055 7,370 3,244 16,929 (7,297) 69,204 80,291 149,495

Noncurrent liabilitiesLong-term debt, less current maturities 132,951 3,166 1,175 4,417 325,243 (142,313) 324,639 66,330 390,969Other noncurrent liabilities 6,779 - - - 3,615 - 10,394 17,213 27,607Minority interest - - - - - - - 45,707 45,707

Total noncurrent liabilities 139,730 3,166 1,175 4,417 328,858 (142,313) 335,033 129,250 464,283Total liabilities 182,633 9,221 8,545 7,661 345,787 (149,610) 404,237 209,541 613,778

Net assetsUnrestricted 350,818 16,493 65,746 29,136 62,900 (10,671) 514,422 216,419 730,841Temporarily restricted 10,882 - - 211 - (211) 10,882 (5,003) 5,879Permanently restricted - - - - - - - 4,867 4,867

Total net assets 361,700 16,493 65,746 29,347 62,900 (10,882) 525,304 216,283 741,587

Total liabilities and net assets 544,333$ 25,714$ 74,291$ 37,008$ 408,687$ (160,492)$ 929,541$ 425,824$ 1,355,365$

38

Via Christi Health System, Inc. and Subsidiaries Consolidating Statement of Operations and Changes in Net Assets (Obligated Group Subtotaled) Year Ended September 30, 2005 Schedule 6


Revenues, gains and other supportNet patient service revenues 515,609$ 21,499$ 76,743$ 42,943$ -$ (42,943)$ 613,851$ 116,168$ 730,019$ Premium revenues - - - - - - 380,879 380,879Other operating revenues 15,511 1,167 3,261 914 25,731 (13,530) 33,054 18,399 51,453

Total operating revenues 531,120 22,666 80,004 43,857 25,731 (56,473) 646,905 515,446 1,162,351

Operating expensesSalaries and employees benefits 238,754 13,597 43,848 19,013 6,516 (19,085) 302,643 106,699 409,342Medical Claims and Services - - - - - - 259,596 259,596Purchased services and other 75,661 3,320 10,105 10,681 3,316 (16,333) 86,750 59,505 146,255Supplies 94,331 1,519 12,783 5,519 87 (5,519) 108,720 34,267 142,987Interest 6,181 359 177 302 17,946 (7,194) 17,771 1,882 19,653Depreciation and amortization 29,678 641 3,336 3,887 523 (3,887) 34,178 18,115 52,293Provision for uncollectible accounts 64,685 301 4,814 5,924 18 (5,924) 69,818 6,742 76,560

Total operating expenses 509,290 19,737 75,063 45,326 28,406 (57,942) 619,880 486,806 1,106,686Income from operations 21,830 2,929 4,941 (1,469) (2,675) 1,469 27,025 28,640 55,665

Nonoperating gains (losses)Investment income 6,717 306 809 215 96 (215) 7,928 5,787 13,715Net realized gain (loss) on sale of investments 2,820 106 342 75 40 (75) 3,308 768 4,076Equity in earnings of investee organizations - - - 41 4,164 (41) 4,164 (21) 4,143Other (3,338) - - (26) (37) 26 (3,375) (5,471) (8,846)

Total nonoperating gains 6,199 412 1,151 305 4,263 (305) 12,025 1,063 13,088Excess of revenues over expenses before minority interest 28,029 3,341 6,092 (1,164) 1,588 1,164 39,050 29,703 68,753

Minority interest - - - - - - - (7,428) (7,428)Excess of revenues over expenses 28,029 3,341 6,092 (1,164) 1,588 1,164 39,050 22,275 61,325

39

Via Christi Health System, Inc. and Subsidiaries Consolidating Statement of Operations and Changes in Net Assets (Obligated Group Subtotaled) Year Ended September 30, 2005 Schedule 6


Unrestricted net assetsExcess of revenues over expenses 28,029$ 3,341$ 6,092$ (1,164)$ 1,588$ 1,164$ 39,050$ 22,275$ 61,325$ Change in net unrealized gain (loss) on investments 321 21 54 15 1,591 (15) 1,987 3,109 5,096Discontinued operations - - - - - (2,041) (2,041) (270) (2,311)Net assets released from restriction - - - - - - - 1,097 1,097Net asset transfer for discontinued operations - - - - (11,985) - (11,985) (11,790) (23,775)Other changes in unrestricted net assets, including net transfer to sponsoring organizations (8,445) (355) (1,657) (874) 17,905 874 7,448 (5,611) 1,837

Increase in unrestricted net assets 19,905 3,007 4,489 (2,023) 9,099 (18) 34,459 8,810 43,269

Temporarily restricted net assetsContributions - - - 18 - (18) - 2,891 2,891Investment income - - - - - - - 574 574Net realized and unrealized gains (losses) on investments - - - - - - - 297 297Net assets released from restrictions (3,731) - - (36) - 36 (3,731) (3,532) (7,263)Net asset transfer for discontinued operations - - - - - - - (1,652) (1,652)Other changes - - - - - - - (1,135) (1,135)

Increase in temporarily restricted net assets (3,731) - - (18) - 18 (3,731) (2,557) (6,288)

Permanently restricted net assetsContributions - - - - - - 2 2Change in unrealized loss on investments - - - - - - - -Other - - - - - - 23 23

Increase in temporarily restricted net assets - - - - - - - 25 25Increase in net assets 16,174 3,007 4,489 (2,041) 9,099 - 30,728 6,278 37,006

Net assetsBeginning of year 345,471 13,541 61,257 31,388 53,801 (14,842) 490,616 213,965 704,581

End of year 361,645$ 16,548$ 65,746$ 29,347$ 62,900$ (14,842)$ 521,344$ 220,243$ 741,587$

via christi health system, inc. and subsidiaries

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