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Report of Independent Auditors

and Financial Statements

Marin Healthcare District

June 30, 2014 and 2013

CONTENTS PAGEMANAGEMENT’SDISCUSSIONANDANALYSIS 13REPORTOFINDEPENDENTAUDITORS 45FINANCIALSTATEMENTS Statementsofnetposition 6 Statementsofrevenues,expenses,andchangesinnetposition 7 Statementsofcashflows 89 Notestofinancialstatements 10–21

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MarinHealthcareDistrictMANAGEMENT’SDISCUSSIONANDANALYSIS

FortheYearsEndedJune30,2014,2013,and2012This section ofMarin Healthcare District’s (the District) financial statements presentsmanagement’sdiscussionandanalysisofthefinancialactivitiesoftheDistrictforthefiscalyearsendedJune30,2014,2013,and2012.Weencouragethereadertoconsidertheinformationpresentedhereinconjunctionwiththefinancialstatementsasawhole.IntroductiontotheFinancialStatementsThisdiscussionandanalysis is intended to serveas an introduction to theDistrict’s audited financialstatements.ThisannualreportispreparedinaccordancewiththeGovernmentalAccountingStandardsBoard(GASB)StatementNo.34,BasicFinancialStatements–andManagement’sDiscussionandAnalysis–forStateandLocalGovernments.The required financial statements include the Statement of Net Position; the Statement of Revenues,Expenses, and Changes in Net Position; and the Statement of Cash Flows. The Notes to the financialstatements,supplementarydetailand/orstatisticalinformation,andthissummary,providesupporttothesestatements.AllinformationmustbeconsideredtogethertoobtainacompleteunderstandingofthefinancialpictureoftheDistrict.StatementofNetPositionThisstatementincludesallassetsandliabilitiesusingtheaccrualbasisofaccountingasofthestatementdate.Thedifferencebetweenthetwoclassificationsisrepresentedas“NetPosition”;thissectionofthestatement identifiesmajor categories of restrictions on these assets and reflects the overall financialpositionoftheDistrictasawhole.StatementofRevenues,Expenses,andChangesinNetPositionThisstatementpresentstherevenuesearnedandtheexpensesincurredduringtheyearusingtheaccrualbasisofaccounting.Undertheaccrualbasis,allincreasesordecreasesinnetpositionarereportedassoonastheunderlyingeventoccurs,regardlessofthetimingofthecashflow.Consequentlyrevenuesand/orexpendituresreportedduringthisfiscalyearmayresultinchangestocashflowsinafutureperiod.StatementofCashFlowThisstatementreflects inflowsandoutflowsofcash,summarizedbyoperating,capital, financing,andinvestingactivities.Thedirectmethodwasusedtopreparethisinformation,whichmeansgrossratherthannetamountswerepresentedfortheyear’sactivities.NotestotheFinancialStatementsThis additional information is essential to a full understanding of the data reported in the financialstatements.TheDistrict isapoliticalsub‐divisionofthestateofCalifornia.It isthesolememberofMarinGeneralHospital(MGH)andisgovernedbyapublicly‐electedBoardofDirectors.

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FortheYearsEndedJune30,2014,2013,and2012AnalyticalOverviewTheStatementofNetPositionandStatementofRevenues,Expenses,andChangesinNetPositionpresentasummaryoftheDistrict’sactivities.

2014 2013 2012

Currentandotherassets 6,684,483$ 6,252,248$ 6,287,637$Capitalassets,netofaccumulateddepreciation 6,609,601 7,188,373 7,685,188

Totalassets 13,294,084 13,440,621 13,972,825

Currentliabilities 3,639,317 3,388,099 3,291,712Long‐termdebtandotherlong‐termliabilities 1,626,055 3,067,649 4,448,783

Totalliabilities 5,265,372 6,455,748 7,740,495

NetpositionNetinvestmentincapitalassets 5,342,934 5,682,147 5,979,070Unrestrictednetposition 2,685,778 1,302,726 253,260

Totalnetposition 8,028,712$ 6,984,873$ 6,232,330$

CondensedStatementsofNetPositionTable1

JUNE30,

SummaryTotalassetsdecreasedby1%or$146,537at6/30/2014comparedto6/30/2013,primarilyrelatedtothereduction in capital assets. Total assets decreased by 4% or $532,204 at 6/30/2013 compared to6/30/2012,primarilyrelatedtothereductionincapitalassets.Liabilitiesdecreasedby18%or $1,190,376at6/30/2014 compared to6/30/2013, as a resultof thereduction of notes and loans payable and deferred lease revenue. Liabilities decreased by 17% or$1,284,747at6/30/2013comparedto6/30/2012asaresultofthereductionofnotesandloanspayable,anddeferredleaserevenue.Theoverall change tonet assets is an increaseof $1,043,839, resulting in a June30,2014balanceof$8,028,712.

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FortheYearsEndedJune30,2014,2013,and2012CondensedStatementsofRevenue,Expenses,andChangesinNetPosition

2014 2013 2012

Operatingrevenues 15,892,950$ 14,081,476$ 8,916,163$Operatingexpenses 19,851,075 16,943,723 10,640,433

Operatingloss (3,958,125)$ (2,862,247)$ (1,724,270)$

Non‐operatingrevenues 5,001,964$ 3,614,790$ 1,636,783$

Changeinnetposition 1,043,839$ 752,543$ (87,487)$

YEARSENDEDJUNE30,

Theincreasesinoperatinglossesareprimarilyduetothelossesincurredfromtheexpansionofthe1206(b)Clinics. The operating deficits are funded byMGH,which accounts for the increase inNon‐OperatingRevenues.EconomicOutlookandMajorInitiativesTheHospitalFacilitiesSeismicUpgradeAct(SB1953)TheDistricthasassumedresponsibilityforcompliancewiththeHospitalFacilitiesSeismicUpgradeAct(SB1953)classificationSPC2andthroughHazus2010.TheDistricthasreceivedanextensionto2030.PaymentsfromFederalandStateHealthCareProgramsEntitiesdoingbusinesswithgovernmentalpayors,includingMedicareandMedi‐Cal,aresubjecttorisksuniquetothegovernment‐contractingenvironmentthataredifficulttoanticipateandquantify.Revenuesaresubjecttoadjustmentasaresultofexaminationbygovernmentagenciesaswellasauditors,contractors,andintermediariesretainedbythefederal,state,orlocalgovernments.Resolutionofsuchauditsorreviewsoftenextends(andinsomecasesdoesnotevencommenceuntil)severalyearsbeyondtheyearinwhichserviceswererenderedand/orfeesreceived.ContactingtheDistrict’sFinancialManagementThisfinancialreportisintendedtoprovidecitizens,taxpayers,andcreditorswithageneraloverviewoftheDistrict’s finances. Questions about this report shouldbedirected toMarinHealthcareDistrict to theattentionoftheChiefFinancialOfficerortheChairoftheFinanceandAuditCommitteeat415‐464‐2090.

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REPORTOFINDEPENDENTAUDITORSTotheBoardofDirectors

MarinHealthcareDistrictReportonFinancialStatementsWehaveauditedtheaccompanyingfinancialstatementsofMarinHealthcareDistrict(theDistrict),whichcomprise the statements of net positionas of June30, 2013 and2014, and the related statementsofrevenues,expenses,andchangesinnetposition,andcashflowsfortheyearsthenended,andtherelatednotestothefinancialstatements.Management’sResponsibilityfortheFinancialStatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthedesign, implementation, and maintenance of internal control relevant to the preparation and fairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Auditor’sResponsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.WeconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidenceobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

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OpinionInouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofMarinHealthcareDistrictasofJune30,2014and2013,andtheresultsofitsoperationsanditscashflowsfortheyearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.OtherMatterRequiredSupplementaryInformationAccounting principles generally accepted in the United States of America require thatManagement’sDiscussionandAnalysisonpages1through3bepresentedtosupplementthebasicfinancialstatements.Suchinformation,althoughnotapartofthebasicfinancialstatements,isrequiredbytheGovernmentalAccountingStandardsBoardwhoconsidersittobeanessentialpartoffinancialreportingforplacingthebasicfinancialstatementsinanappropriateoperational,economic,orhistoricalcontext.Wehaveappliedcertain limited procedures to the required supplementary information in accordance with auditingstandardsgenerallyacceptedintheUnitedStatesofAmerica,whichconsistedofinquiriesofmanagementabout themethods of preparing the information and comparing the information for consistencywithmanagement’sresponsestoourinquiries,thebasicfinancialstatements,andotherknowledgeweobtainedduringourauditofthebasicfinancialstatements.Wedonotexpressanopinionorprovideanyassuranceontheinformationbecausethelimitedproceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance.Stockton,CaliforniaOctober28,2014

FINANCIALSTATEMENTS

MARINHEALTHCAREDISTRICTSTATEMENTSOFNETPOSITION

6 Seeaccompanyingnotes.

2014 2013

CurrentassetsCashandcashequivalents 3,078,927$ 2,540,016$Patientaccountsreceivable,netofallowancefor

doubtfulaccountsof$22,690and$200,043in2014and2013,respectively 1,759,172 1,659,665

Otherreceivables 530,059 636,670Prepaidexpenses 13,920 13,920Inventory 14,092 13,275

Totalcurrentassets 5,396,170 4,863,546

Deposits 572,906 572,906

Notereceivable,netofcurrentportion ‐ 43,149

Capitalassets,netofaccumulateddepreciation 6,609,601 7,188,373

Intangibleassets,netofaccumulatedamortization 715,407 772,647

Totalassets 13,294,084$ 13,440,621$

CurrentliabilitiesAccountspayable 1,352,884$ 1,549,665$Accruedexpenses 464,454 244,498Accruedelectionexpense 102,600 37,800Currentportionofnotepayable 466,667 414,538Currentportionofdeferredleaserevenue 1,252,712 1,141,598

Totalcurrentliabilities 3,639,317 3,388,099

Notepayable,netofcurrentportion 1,300,000 1,600,000Deferredleaserevenue,netofcurrentportion 326,055 1,467,649

Totalliabilities 5,265,372 6,455,748

Netinvestmentincapitalassets 5,342,934 5,682,147Unrestricted 2,685,778 1,302,726

Totalnetposition 8,028,712 6,984,873

Totalliabilitiesandnetposition 13,294,084$ 13,440,621$

ASSETS

LIABILITIES

JUNE30,

NETPOSITION

MARINHEALTHCAREDISTRICTSTATEMENTSOFREVENUES,EXPENSES,ANDCHANGESINNETPOSITION

Seeaccompanyingnotes. 7

2014 2013

OPERATINGREVENUENetpatientservicerevenue 14,315,716$ 12,516,866$Leaseincome 1,577,234 1,564,610

Totaloperatingrevenues 15,892,950 14,081,476

OPERATINGEXPENSESSalariesandbenefits 12,882,357 11,905,080Rent 1,240,624 1,121,332Purchasedservices 3,019,735 1,737,348Depreciationandamortization 666,873 643,626Supplies 642,520 674,004Communitycommunicationandeducation 88,289 262,911Insurance 89,030 84,904Charitablecontributions ‐ 30,000Other 1,221,647 484,518

Totaloperatingexpenses 19,851,075 16,943,723

OPERATINGLOSS (3,958,125) (2,862,247)

NON‐OPERATINGREVENUES(EXPENSES)SupportfromMarinGeneralHospital 5,030,855 ‐Settlementagreement ‐ 3,657,550Interestexpense (36,750) (47,250)Otherrevenue 7,859 4,490

Totalnon‐operatingrevenues 5,001,964 3,614,790

INCREASEINNETPOSITION 1,043,839 752,543

NETPOSITION,beginningofyear 6,984,873 6,232,330

NETPOSITION,endofyear 8,028,712$ 6,984,873$

YEARSENDEDJUNE30,

MARINHEALTHCAREDISTRICTSTATEMENTSOFCASHFLOWS

8 Seeaccompanyingnotes.

2014 2013

CASHFLOWSFROMOPERATINGACTIVITIESReceiptsfromtenants 546,754$ 423,012$Receiptsfrompatients 14,216,209 12,684,123Paymentstoemployeesandphysicians (12,709,771) (11,681,582)Paymentstosuppliersandothers (6,483,795) (4,585,695)

Netcashfromoperatingactivities (4,430,603) (3,160,142)

CASHFLOWSFROMCAPITALANDRELATEDFINANCINGACTIVITIES

Capitalassetpurchases (30,861) (89,571)PrincipalpaymentsforCAMSF‐relatednotepayable (200,000) (200,000)ProceedsfromloanforCAMSFassetacquisition 200,000 200,000PrincipalpaymentsforMMG‐relatednotepayable (14,538) (58,143)Interestpaymentsonnotespayable (68,250) (52,500)

Netcashfromcapitalandrelatedfinancingactivities (113,649) (200,214)

CASHFLOWSFROMNON‐CAPITALANDRELATEDFINANCINGACTIVITIES

ProceedsfromMGHforoperations 5,030,855 3,657,550

Netcashfromnon‐capitalandrelatedfinancingactivities 5,030,855 3,657,550

CASHFLOWSFROMINVESTINGACTIVITIESInterestearned 7,859 4,490Issuanceofnotesreceivable ‐ (90,000)Proceedsfromnotesreceivable 44,449 3,585

Netcashfrominvestingactivities 52,308 (81,925)

NETCHANGEINCASHANDCASHEQUIVALENTS 538,911 215,269

CASHANDCASHEQUIVALENTS,beginningofyear 2,540,016 2,324,747

CASHANDCASHEQUIVALENTS,endofyear 3,078,927$ 2,540,016$

YEARSENDEDJUNE30,

MARINHEALTHCAREDISTRICTSTATEMENTSOFCASHFLOWS

Seeaccompanyingnotes. 9

2014 2013

RECONCILIATIONOFOPERATINGINCOMETONETCASHFROMOPERATINGACTIVITIES

Operatingloss (3,958,125)$ (2,862,247)$

Adjustmentstoreconcileoperatinglosstonetcashfromoperatingactivities:

Depreciationandamortization 666,873 643,626Provisionforbaddebts 246,410 95,277Changesincertainassetsandliabilities:

Patientaccountsreceivable (345,917) 71,980Depositsandotherreceivables (128,022) (82,765)Prepaidexpenses ‐ (13,920)Inventory (817) 34,261Accountspayable (196,781) (87,649)Otherlong‐termliabilities (1,030,480) (1,141,598)Accruedexpenses 316,256 182,893

Netcashfromoperatingactivities (4,430,603)$ (3,160,142)$

SUPPLEMENTALNON‐CASHACTIVITIESINFORMATIONLoanforgivenessfromMarinGeneralHospital (233,333)$ (175,000)$

YEARSENDEDJUNE30,

MARINHEALTHCAREDISTRICTNOTESTOFINANCIALSTATEMENTS

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NOTE1–BASISOFPRESENTATIONANDACCOUNTINGPOLICIESReportingentity–MarinHealthcareDistrict(theDistrict)isapoliticalsubdivisionofthestateofCalifornia.District directors are electedofficialswhose solemission is topromote thehealthandwelfareof theresidentsofthecommunitiesservedbytheDistrict.TheDistrictoperatedtheMarinGeneralHospitalfacility(theHospitalFacility)until1985,whenitreorganizedincompliancewithlocalhospitaldistrictlawofthestateofCalifornia.TheDistrict’sprincipalassetishospitalproperty,plant,andequipment.TheHospitalFacilityisageneralacute‐carefacilitylocatedinMarinCounty,California,andprovidesinpatientandoutpatienthealthcareservices. Inpatient facilities consist of medical‐surgical, pediatrics, maternity, nursery, intensive care,coronary,psychology,radiology,andlaboratoryservices.TheHospitalFacilityisleasedtoMGH.EffectiveJune30,2010,theDistrictbecamethesolememberofMGHandappointeditsinitialBoardofDirectors.TheMGHBoardisresponsibleforoversightoftheoperationsofMGHandtheDistricthascertainongoingreservepowersandgovernanceoversightresponsibilities.TheDistrictisalsoaforumfordiscussionoflocalhealthcareissues,promoteshealthcareserviceswithinthecommunity,andactsonbehalfofthepublicasanadvocateofhighquality,reasonablypricedhealthcareservices.The financialstatementsof theDistrict include theaccountsof theDistrictandhealthcareclinics (theClinics).TheDistrictformedtheClinics,pursuanttoCaliforniaHealthandSafetyCodeSection1206(b).TheClinicscontractwithphysicianstoprovidehealthcareserviceswithintheDistrict’sgeographicboundaries.Duringthefiscalyear,2014,theDistrictacquired3newmedicalgroups:TamalpaisInternalMedicine(TIM),MarinEndocrineCenter(MEC),andMarinUrologyCenter.NoconsiderationwaspaidandnoliabilitiesassumedwiththeadditionofbothTIMandtheMarinUrologyCenter.Minimalconsiderationwaspaidandno liabilitieswere assumed by the District forMEC. Asminimal or no considerationwas paid, theseacquisitionswerenotaccountedforasbusinesscombinations.ItisintheDistrict’snaturetocontinuetoexpanditsclinicnetworktocontractwithphysiciansandprovidehealthcareserviceswithintheDistrict’sgeographicboundaries.MarinMedicalPracticeConcepts(MMPC),amanagementcompany,providesbillingandcollectionservicesforthe1206(b)clinicsoftheDistrict.TheDistrict is inamanagementservicesagreementwhereMMPCprovidestheDistrictwithmanagementandadministrativeservicesfortheclinics.AsofJune30,2014,therewerenineclinicsoperating.Proprietaryfundaccounting–TheactivitiesoftheDistrictareaccountedforasanEnterpriseFund.EnterpriseFundsareaccountedforontheflowofeconomicresourcesmeasurementfocusandusetheaccrualbasisofaccounting.Under themethod, revenuesarerecordedwhenearnedandexpensesarerecordedatthetimeobligationsareincurred.


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NOTE1–BASISOFPRESENTATIONANDACCOUNTINGPOLICIES(CONTINUED)Accountingstandards–PursuanttoGovernmentAccountingStandardBoard(GASB)StatementNo.62,CodificationofAccountingandFinancialReportingGuidanceContainedinPre‐November30,1989FinancialAccounting Standards Board (FASB) and American Institute of Certified Public Accountants (AICPA)Pronouncements,theDistrict’sproprietaryfundaccountingandfinancialreportingpracticesarebasedonallapplicableGASBpronouncementsaswellascodifiedpronouncementsissuedonorbeforeNovember30,1989.Proprietary fund operating revenues, such as charges for services, result from exchange transactionsassociatedwiththeprincipalactivityofthefund.Exchangetransactionsarethoseinwhicheachpartyreceivesandgivesupessentiallyequalvalues.Non‐operatingrevenues,suchassubsidiesandinvestmentearnings,resultfromnon‐exchangetransactionsorancillaryactivities.TheDistrictmayfundprogramswithacombinationofcost‐reimbursementgrants,categoricalblockgrants,andgeneralrevenues.Thus,bothrestrictedandunrestrictednetpositionsmaybeavailabletofinanceprogramexpenditures.TheDistrict’spolicyistofirstapplyrestrictedgrantresourcestosuchprograms,followedbygeneralrevenues,ifnecessary.Useofestimates–ThefinancialstatementshavebeenpreparedinconformitywithU.S.generallyacceptedaccounting principles, and as such, include amounts based on informed estimates and judgments ofmanagementwithconsiderationgiventomateriality.Actualresultscoulddifferfromthoseestimates.Netposition–NetpositionistheexcessofalltheDistrict’sassetsoverallitsliabilities,regardlessoffund.Net position is divided into three components. These captions apply only to net position, which isdeterminedonlyatthegovernment‐widelevel,andaredescribedbelow:

Netinvestmentincapitalassets:TheportionofthenetpositionthatisrepresentedbythecurrentnetbookvalueoftheDistrict’scapitalassets,lesstheoutstandingbalanceofanydebtissuedtofinancetheseassets.Restricted:Theportionofnetpositionthatisrestrictedastousebythetermsandconditionsofagreementswithoutsideparties,governmentalregulations,laws,orotherrestrictionswhichtheDistrictcannotunilaterallyalter.TheDistricthasnorestrictednetpositions.Unrestricted:Theportionofnetpositionthatisnotrestrictedtouse.

Cashandcashequivalents–Cashandcashequivalentsincludecashinbankchecking,moneymarketfunds,andinvestmentsinhighlyliquiddebtinstrumentswithamaturityofthreemonthsorlesswhenpurchased.


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NOTE1–BASISOFPRESENTATIONANDACCOUNTINGPOLICIES(CONTINUED)Capitalassets–Capitalassetsarerecordedatcost.Depreciationisprovidedonthestraight‐linebasisovertheestimatedusefullivesoftheassets.Thecapitalizationthresholdis$5,000.Capitalassetsareconsideredimpairedwhentheirserviceutilitydeclinessignificantlyandunexpectedly.Animpairmentlossisrecognizedforthedifferencebetweenthecarryingvalueoftheassetanditsfairvalueoradjusteddepreciatedvalue,dependingonthenatureoftheimpairment.NoimpairmentwasrecordedfortheyearsendedJune30,2014and2013.Assetimpairment–TheDistrictalsoevaluatesthecarryingvalueofitslong‐livedassetsotherthancapitalassetsforpotentialimpairment.Theevaluationsaddresstheestimatedrecoverabilityoftheassets’carryingvalue.Wheneventsorchangesincircumstancesindicatethatthecarryingvaluemaynotberecoverable,theexcessofthecarryingvalueoverthefairvalueisrecordedasimpairment.NoimpairmentwasrecordedfortheyearsendedJune30,2014and2013.Notereceivable–TheDistrictenteredintoanotereceivablewithaprofessionalmedicalcorporationforadvancesupto$94,000inDecember2012.Thetotalbalanceofthenotewas$43,169and$87,598atJune30,2014and2013,respectively.Thenotehasaninterestrateof6%andisunsecured.TheDistrictistoreceivemonthlypaymentsofprincipalandinterestof$4,041untilmaturityin2015.ThecurrentportionofthenotereceivableisincludedinotherreceivablesinthestatementofnetpositionatJune30,2014and2013.Riskmanagement–TheDistrictisexposedtovariousrisksoflossrelatedtotorts;theftof,damageto,anddestructionofassets;errorsandomissions;andnaturaldisastersforwhichtheDistrictcarriescommercialinsurance.TheClinics,whileoperatedbytheDistrict,areinsuredunderMGH’sinsurancepolicy.MGHisinsuredforprofessionalandgeneralliability.Theprofessionalandgeneralliabilitycoverageisforaclaims‐madepolicy,whichlimitscoveragetoclaimsthatarereportedtotheinsurancecompanyduringthepolicyyear.Deferredrevenue‐lease–DeferredrevenuerepresentscapitalexpendituresbyMGHinexcessofthecurrentcommitment,whichwillberecognizedasrentalrevenueinfutureyears(seeNote5).Leaseincome–TheDistrictrecognizesleaseincomeandreimbursementofoperatingexpenseswhenearned.TheDistrictderivessubstantiallyallofitsleaseincomefromMGH.Theannualrentpursuanttothe30‐yearleaseagreementwithMGH,asamendedbytheTransferAgreements,is$1,500,000,mostofwhichMGHhasprepaidintheformofcapitalexpendituresontheHospitalFacility,andMGHalsoreimbursestheDistrictforadministrativeexpensesthroughquarterlycashpayments,whichareincreasedannuallyby5%(seeNote5).


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NOTE1–BASISOFPRESENTATIONANDACCOUNTINGPOLICIES(CONTINUED)Netpatientservicerevenueandcreditconcentrations–TheDistrict’spatientservicerevenuesarerecognizedwhenhealthcareservicesareprovidedtopatientsattheClinics.Netpatientservicerevenueisreportedattheestimatednetrealizableamountfrompatients,governmentalprograms,healthmaintenance,andpreferredproviderorganizationsand insurance contractsunderapplicable laws, regulations, andprograminstructions.NetrealizableamountsaregenerallylessthantheDistrict’sestablishedrates.TheDistrictprovidesestimated lossesonaccountsreceivablebasedonpriorbaddebtexperience.Nointerest is charged on past due balances. Past due status is based on the date of services provided.Recoveriesfrompreviouslycharged‐offaccountsarerecordedwhenreceived.Amountswrittenofftobaddebtexpenseincludedinnetpatientservicerevenuetotaledapproximately$246,000and$95,000for2014and2013,respectively.Themixofgrossreceivablesfrompatientsandthird‐partypayorsisasfollows:

2014 2013

Medicare 42% 38%Medi‐Cal 11% 11%Commercial 30% 28%Self‐pay 14% 18%Other 3% 5%

100% 100%

JUNE30,

Charitycare–TheDistrictprovidesmedicallynecessarycaretoallpatientsregardlessofthepatient’sabilitytopay.Certainpatientsmaymeeteligibilitycriteriaunderitscharitycarepolicy,andnopaymentiscollectedfromthosepatients.DuringfiscalyearsendedJune30,2014and2013,theDistrictprovidedapproximately$9,000and$2,600infreeordiscountedservicesforthepoorandunderserved.Thisincludesservicesprovidedtopersonswhocannotaffordhealthcarebecauseofinadequateresourcesand/orareuninsuredorunderinsured.CostsarecomputedbasedonarelationshipofcoststochargessimilartoaMedicarecosttochargeratio.Operatingrevenuesandexpenses–TheDistrict’sstatementofrevenues,expenses,andchangesinnetpositiondistinguishesbetweenoperatingandnon‐operatingrevenuesandexpenses.OperatingrevenuesresultfromleasingtheHospitalFacilitytoMGHandprovidinghealthcareservicestopatientsattheClinics.Non‐exchangerevenues,includingtaxes,grants,andcontributionsreceivedforpurposesotherthancapitalassetacquisition,arereportedasnon‐operatingrevenues.OperatingexpensesareallexpensesincurredinordertoleasetheHospitalFacilityandtoprovidehealthcareservices,otherthanfinancingcosts.


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NOTE1–BASISOFPRESENTATIONANDACCOUNTINGPOLICIES(CONTINUED)Grantsandcontributions–TheDistrictmayperiodicallyreceivegrantsandcontributionsfromothergovernmental entities, individuals, or private organizations. Revenues from grants and contributions(includingcontributionsofcapitalassets)arerecognizedwhenalleligibilityrequirements,includingtimerequirements,aremet.Grantsandcontributionsmayberestrictedforeitherspecificoperatingpurposesorforcapitalpurposes.Amountsthatareunrestrictedorthatarerestrictedtoaspecificoperatingpurposearereportedasnon‐operatingrevenues.Amountsrestrictedtocapitalacquisitionsarereportedafternon‐operatingrevenuesandexpenses.Newaccountingpronouncements–TheGASB issuedGASB StatementNo. 65 (GASBNo. 65), ItemsPreviouslyReportedasAssetsandLiabilities,whichiseffectiveforfinancialstatementsforperiodsbeginningafter December 15, 2012. GASBNo. 65 establishes accounting and financial reporting standards thatreclassify, asdeferredoutflowsof resourcesordeferred inflowsof resources, certain items thatwerepreviouslyreportedasassetsandliabilitiesandrecognizes,asoutflowsofresourcesorinflowsofresources,certain items that were previously reported as assets and liabilities. It also provides other financialreportingguidancerelatedtotheimpactofthefinancialstatementelementsdeferredoutflowsofresourcesanddeferredinflowsofresources,suchaschangesinthedeterminationofthemajorfundcalculationsandlimitingtheuseofthetermdeferredinfinancialstatementpresentations.TheDistricthasadoptedGASBNo.65forthefiscalyearendedJune30,2014.Theadoptionofthisstandardhadnoimpactonthefinancialstatements.TheGASBissuedGASBStatementNo.66(GASBNo.66),TechnicalCorrections–2012–AmendmentofGASBStatementsNo.10andNo.62.GASB66wasissuedtoresolveconflictingguidantthatwaspreviouslyissuedrelating tooperating leasepayments,purchaseofa loanorgroupof loans,andservice feesrelated tomortgageloans.TherequirementsofthestatementareeffectiveforfinancialstatementperiodsbeginningafterDecember15,2012.TheDistricthasadoptedGASBNo.66forthefiscalyearendedJune30,2014.Theadoptionofthisstandardhadnoimpactonthefinancialstatements.The GASB also issued GASB StatementNo. 70 (GASBNo. 70),AccountingandFinancialReporting forNonexchangeFinancialGuarantees.Somegovernmentsextendfinancialguaranteesfortheobligationsofanothergovernment,anot‐for‐profitorganization,aprivateentity,orindividualwithoutdirectlyreceivingequalorapproximatelyequalvalueinexchange(anonexchangetransaction).Asapartofthisnonexchangefinancial guarantee, a government commits to indemnify the holder of the obligation if the entity orindividualthatissuedtheobligationdoesnotfulfillitspaymentrequirements.Also,somegovernmentsissueobligations that are guaranteed by other entities in a nonexchange transaction. The objective of thisstatementistoimproveaccountingandfinancialreportingbystateandlocalgovernmentsthatextendandreceivenonexchangefinancialguarantees.TherequirementsofthestatementareeffectiveforfinancialstatementperiodsbeginningafterJune15,2013.TheDistricthasadoptedGASBNo.70forthefiscalyearendedJune30,2014.Theadoptionofthisstandardhadnoimpactonthefinancialstatements.


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NOTE2–CASHANDINVESTMENTSCashbalancesfromallfundsarecombinedandinvestedtotheextentpossiblepursuanttotheDistrictBoardapprovedInvestmentPolicyandGuidelinesandStatementGovernmentCode.TheDistrict’sinvestmentsarecarriedatfairvalue.Authorized investments – InaccordancewithSection53601of theCaliforniaGovernmentCode, theDistrictmayinvestinthefollowingtypesofinvestments: SecuritiesoftheU.S.government,oritsagencies Negotiablecertificatesofdeposits LocalAgencyInvestmentFund(StatePool)depositsCustodialcreditrisk–Custodialcreditriskfordepositsistheriskthat,intheeventofthefailureofadepositoryfinancialinstitution,agovernmentwillnotbeabletorecoveritsdepositsorwillnotbeabletorecovercollateralsecuritiesthatareinthepossessionofanoutsideparty.Thecustodialcreditriskfordepositsandinvestmentsistheriskthat,intheeventofthefailureofthecounterparty(e.g.,broker‐dealer)toatransaction,agovernmentwillnotbeabletorecoverthevalueofitsinvestmentorcollateralsecuritiesthatareinthepossessionofanotherparty.Californialawrequiresbanksandsavingsandloanassociationstopledgegovernmentsecuritieswithamarketvalueof110%oftheDistrict’scashondepositorfirsttrustdeedmortgagenoteswithavalueof150%of thedepositascollateral for thesedeposits.UnderCalifornia law, thiscollateral isheld intheDistrict’snameandplacestheDistrictaheadofgeneralcreditorsoftheinstitution.TheDistrictplacescertainfundswiththestateofCalifornia’sLocalAgencyInvestmentFund(LAIF).TheDistrictisavoluntaryparticipantinLAIF,whichisregulatedbyCaliforniaGovernmentCodeSection16429undertheoversightoftheTreasurerofthestateofCaliforniaandthePooledMoneyInvestmentBoard.ThestateTreasurer’sofficepoolsthesefundswiththoseofothergovernmentalagenciesinthestateandinveststhecash.ThefairvalueoftheDistrict’sinvestmentinthispoolisreportedintheaccompanyingfinancialstatementsbasedupontheDistrict’spro‐ratashareofthefairvalueprovidedbyLAIFfortheentireLAIFportfolio(inrelationtotheamortizedcostofthatportfolio).Themoniesheldinthepooledinvestmentfundsarenotsubjecttocategorizationbyriskcategory.Thebalanceavailableforwithdrawalisbasedontheaccounting records maintained by LAIF, which are recorded on the amortized cost basis. Funds areaccessibleandtransferabletothemasteraccountwith24hours’notice.FinancialstatementsforLAIFcanbeobtainedfromtheCaliforniaStateTreasurer’sOffice,915CapitolMall,Suite110,Sacramento,California,95814.ThemanagementofthestateofCaliforniaPooledMoneyInvestmentAccounthasindicatedtotheDistrictthatasofJune30,2014and2013theestimatedmarketvalueofthepool(includingaccruedinterest)was$27,259,018and$27,191,345,respectively.TheDistrict’sproportionateshareofthatvalueis$299,741and$299,019asofJune30,2014and2013,respectively.


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NOTE3–CAPITALASSETSThefollowingisasummaryofchangesincapitalassetsduringtheyearsendedJune30:

Balance, Balance,Life(Years) June30,2013 Additions Deletions June30,2014

Equipment 3–20 $18,784,416 ‐$ ‐$ $18,784,416Hospitalbuildings 40 24,974,084 ‐ ‐ 24,974,084Constructionin

progress(notdepreciated) N/A ‐ ‐ ‐ ‐

Parkingstructure 40 2,324 ‐ ‐ 2,324Phase1building 40 102,625 ‐ ‐ 102,625Land(not

depreciated) N/A 865,701 ‐ ‐ 865,701Otherimprovements 40 851,182 ‐ ‐ 851,182Parkingimprovements 40 781,404 ‐ ‐ 781,404Moveableequipment 3–20 1,949,866 30,861 ‐ 1,980,727

Totalcapitalassets 48,311,602 30,861 ‐ 48,342,463

Lessaccumulateddepreciation (41,123,229) (609,633) ‐ (41,732,862)

Capitalassets,netofaccumulateddepreciation 7,188,373$ (578,772)$ ‐$ 6,609,601$

Balance, Balance,Life(Years) June30,2012 Additions Deletions June30,2013

Equipment 3–20 $18,784,416 $‐ $‐ $18,784,416Hospitalbuildings 40 24,974,084 ‐ ‐ 24,974,084Constructionin

progress(notdepreciated) N/A ‐ ‐ ‐ ‐

Parkingstructure 40 2,324 ‐ ‐ 2,324Phase1building 40 102,625 ‐ ‐ 102,625Land(not

depreciated) N/A 865,701 ‐ ‐ 865,701Otherimprovements 40 851,182 ‐ ‐ 851,182Parkingimprovements 40 781,404 ‐ ‐ 781,404Moveableequipment 3–20 1,860,295 89,571 ‐ 1,949,866

Totalcapitalassets 48,222,031 89,571 ‐ 48,311,602

Lessaccumulateddepreciation (40,536,843) (586,386) ‐ (41,123,229)

Capitalassets,netofaccumulateddepreciation 7,685,188$ (496,815)$ ‐$ 7,188,373$


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NOTE4–INTANGIBLEASSETSTheDistrictacquiredintangibleassetsaspartoftheacquisitionofassetsfromCardiovascularAssociatesofMarinandSanFranciscoMedicalGroup,Inc.(CAMSF)(seeNote6).ThefollowingisasummaryofchangesinintangibleassetsduringtheyearendedJune30:

Balance, Balance,

Life(Years) June30,2013 Additions Deletions June30,2014

Intangibleassets:

Otherintangibleassets 15 675,660$ ‐$ ‐$ 675,660$

Medicalrecord–CAM 15 182,844 ‐ ‐ 182,844

Totalintangibleassets 858,504 ‐ ‐ 858,504

Lessaccumulated

amortization (85,857) (57,240) ‐ (143,097)

Intangibles,netofaccumulated

amortization 772,647$ (57,240)$ ‐$ 715,407$

NOTE5–LEASEOFMARINHEALTHCAREDISTRICTFACILITYAnnualrentalpayments–EffectiveDecember1,1985,theDistrictleasedtheMarinGeneralHospitalfacilitytoMGHforatermof30yearspursuanttoSection32126oftheLocalHospitalDistrictLaw.PertheamendedleaseagreementdatedAugust25,1987,asfurtheramendedbythesubsequentagreements,theannual rent payments comprise capital expenditures made by MGH and quarterly payments ofapproximately$109,000and$104,000for2014and2013,respectively.Theminimumcashpayment,whichispayableinquarterlyinstallments,increasesannuallyby5%throughouttheleaseterm.DuetothesignificantcapitalinvestmentrequiredforthehospitalmodernizationprogramcompletedinJune1989,MGH’srentalpaymentcommitmentforcapitalexpendituresdueundertheentireleasehasbeensatisfied.Theadvancedcapitalcommitment(includingtheexcesscapitalcommitment)hasbeenrecordedasdeferredrevenue.Thetotaldeferredleaserevenuewas$1,578,767and$2,609,247asofJune30,2014and2013,respectively.


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NOTE5–LEASEOFMARINHEALTHCAREDISTRICTFACILITY(CONTINUED)Annualrentalpayments(continued)–Thedeferredleaserevenuewillbeamortizedovertheremainingtermofthelease,whichendsonDecember1,2015.Thefollowingtablesummarizesfutureamortizationofdeferredleaserevenueandfuturecashrentrevenuefortheremainderoftheleaseterm:

FiscalYearEnd Amortization CashPayment Total

2015 1,252,712$ 346,305$ 1,599,017$2016 326,055 116,670 442,725

Total 1,578,767$ 462,975$ 2,041,742$

NOTE6–DEBTANDACQUISITIONThefollowingtablesummarizestheDistrict’sdebttransactionsfortheyearendedJune30:

Balance, Balance,

June30,2013 Increases Decreases June30,2014

NotepayabletoCAMSF $800,000 ‐$ (200,000)$ $600,000

NotepayabletoMGH 1,200,000 200,000 (233,333) 1,166,667

NotepayabletoCAMSF

MarinMedicalGroup 14,538 ‐ (14,538) ‐

2,014,538$ 200,000$ (447,871)$ 1,766,667$

InJanuary2012,theDistrictandMGHenteredintoanaffiliationandco‐managementarrangement(CMMA)withCAMSF.TheDistricthasthereuponestablished1206BClinicsforcardiologyandvascularsurgeryservices,inconjunctionwithMGH,byenteringintoprofessionalservicesagreements(PSA)withCAMSFandLauraK.Pak,M.D.,Inc.forphysicianservicestoClinicpatients.Asapartofthattransaction,theDistrictacquiredanoutpatientdiagnosticservicesbusinessfromCAMSFontermsdescribedinanAssetPurchaseAgreementdatedJanuary1,2012.TheAssetPurchaseAgreementprovidedfortheDistricttopurchasemostofCAMSFpracticeassets(withtheexceptionofaccountsreceivable)intheamountof$1,750,000.Thishasbeenimplementedintheformofaninitialpaymentof$750,000onclosingand$200,000peryearforeachoffivesubsequentyearswithinterestattheprimerateofinterestplus2%peryearontheunpaidprincipalbalance.


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NOTE6–DEBTANDACQUISITION(CONTINUED)In accordancewith an agreement between theDistrict andMGH,MGH loaned $750,000 to cover theDistrict’spaymenttoCAMSFasdescribedabove.AspartoftheacquisitionofCAMSF,MGHagreedtofundtheDistrict’sfinancialobligationstoCAMSF.Aportionoftheloanwillbeforgiveneachmonthoverthefive‐yeartermofthecontractwithCAMSF.InApril2012,MGHloanedtheDistrict$500,000asanadvancetofundthemonthlyoutsidebillingandmanagementservicescompanyservicefee.ThevendorpaystheadministrativeoverheadoftheClinicsandthenbillstheDistrictforreimbursement.Theadvanceismeanttoensurethatthevendorhasadequatecashonhandtomeetitsobligations.Theoutstandingbalanceof$500,000ispayabletoMGHattheterminationof theagreement foroutsidebillingandmanagementservicesandhasbeenclassifiedas long‐termatJune30,2014.InNovember2011,theDistrictpurchasedassetsofMarinMedicalGroup.Inconnectionwiththeassetpurchase,theDistrictobtainedanotepayablefor$116,290payableineightquarterlyinstallments.Debtservicerequirementsforlong‐termdebtareasfollows:

YearsendingJune30, Principal Interest

2015 466,667$ 26,250$2016 466,667 15,7502017 333,333 5,2502018 500,000 ‐

1,766,667$ 47,250$


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NOTE7–COMMITMENTSANDCONTINGENCIESCompliancewiththeHospitalFacilitiesSeismicUpgradeAct–TheDistricthasassumedresponsibilityforcompliancewiththeHospitalFacilitiesSeismicUpgradeAct(SB1953)classificationSPC2andthroughHazus2010.TheDistricthasreceivedanextensionto2030.Outsidebillingandmanagementservices–TheDistrictsignedanagreementforthreeyearswithanoutsidebillingservicecompany,effectiveAugust1,2012,toperformthebillingandcollectionfunctionsfortheDistrict.Thecontractisautomaticallyrenewedforoneyear.Theannualmanagementfeefortheservicesis$126,800and$98,333for2014and2013,respectively.Regulatoryenvironment–Thehealthcareindustryissubjecttonumerouslawsandregulationsoffederal,state,andlocalgovernments.Compliancewiththeselawsandregulationsissubjecttoperiodicgovernmentreview,interpretation,andaudits,aswellasregulatoryactionsunknownandunassertedatthistime.Litigation–TheDistrictispartytovariousclaimsandlegalactionsinthenormalcourseofbusiness.Intheopinionofmanagement,theDistricthassubstantialmeritoriousdefensestopendingorthreatenedlitigationand,baseduponcurrentfactsandcircumstances,theresolutionofthesemattersisnotexpectedtohaveamaterialadverseeffectontheDistrict’sfinancialstatements.In2013,aphysicianfiledaclaimagainsttheDistrictforpotentialviolationsoftheprofessionalserviceagreement between thephysician and theDistrict. Subsequent to fiscal year‐ended2014, theDistrictenteredintoasettlementagreementwherebytheDistrictwasrequiredtoreturnamedicaldevice.Noadditionalmonetarydamageswerepaid.Professionalandclinicmanagementservicesagreements–MHDhasenteredintovariousProfessionalandClinicManagementServicesAgreementswiththe1206BClinics.Ingeneral,theagreementsprovideforcompensationandbenefitsallowanceforthephysiciansaswellasacompensationlevelguarantyfornewphysicians.Theagreementsalsoincludeacapontotalpaymentsthephysicianscanreceiveforservices.NOTE8–RELATEDPARTYTRANSACTIONSThefollowingtransactionsareconductedwithaffiliatedentities:EffectiveJune30,2010,theleaseagreementbetweentheDistrictandMGHwasamended.TheamendedleaseagreementrequiresthatMGHprovidefinancialsupporttotheDistrictrelatingtotheoperationoftheClinics.MGHprovided$4,577,895and$3,467,746totheDistrictfortheoperationoftheClinicsin2014and2013,respectively.Additionally, the leaseagreementalsorequiresMGHtoreimburseaportionof theDistrict’sadministrative,rent,andnon‐clinicexpenses.TheDistricthasareceivableof$434,311and$586,028duefromMGH,asof June30,2014and2013,respectively,includedinthestatementsofnetposition.


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NOTE9–OPERATINGLEASESTheDistrictandtheClinicsleaseofficefacilitiesunderanon‐cancelableoperatinglease.Thetotalexpensefortheleaseswas$1,106,311and$1,139,763forthefiscalyearendedJune30,2014and2013,respectively.Thefutureminimumleasepaymentswereasfollows:

YearsendingJune30, Amount

2015 1,103,271$2016 645,9452017 172,6122018 137,6552019 11,701

2,071,184$

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