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All of the lifesaving and life-sustaining work done throughout our ministries every day is made possible by the tens of thousands of outstanding health care professionals and support staff who comprise our acute and long term care facilities, assisted living and continuing care facilities, behavioral health and rehabilitation facilities, home health and hospice agencies, and managed care programs. While providing direct patient and resident care are our reasons for being, it is also critically important that we remain careful stewards of the financial resources entrusted to us by our Sponsors. It is through diligent planning, hard work and determination that these resources are maintained, ensuring the continued vitality of our ministry and enabling our facilities to provide state-of-the-art equipment and technologies, make needed capital improvements and provide care for those who are poor. I am pleased to report to you that 2007 was a successful year from a stewardship perspective for our ministry. As a system, we generated more Community Benefit than the prior year; details of our Community Benefit activity will be shared in our upcoming Community Benefit Annual Report, due to be released in May. Financially, CHE experienced a strong rebound from 2006, with operating income improving to approximately $54 million, as compared to an $11 million operating loss during 2006. We continued to improve our ability to operate in communities that are financially challenged by becoming more efficient and effective through development of revenue cycle, supply chain and other systemness opportunities. We took advantage of previously implemented capital structure improvements through our modified Master Trust Indenture that resulted in a significant refinancing opportunity of $327 million of our debt that will yield an estimated $40 million benefit to our ministry. Nearly all of our financial ratios which we use to monitor progress toward our longer term financial goals improved. As a result, we have been able to maintain our A+ credit rating that was tenuous a year ago, and thus maintain strong access to capital when additional borrowing is necessary and appropriate. Despite improvement, we continue to face financial challenges in 2008 and beyond. The communities we serve continue to be affected by poor access to care, including increasingly growing numbers of uninsured and underinsured. And in many of our markets, looming Medicare and Medicaid reimbursement reductions pose serious threats to future organizational viability. Our strategic planning and analysis suggests we need to find more opportunities for scale and leverage within many of our minstries; we also need to find ways to further maximize our systemness in certain areas, such as supply chain and revenue cycle, as a vehicle to further improve our operating performance. Due in large part to our operating challenges, and the inability to rely on higher operating income, CHE takes a moderately conservative position on how we invest our cash, and how much interest rate risk we can manage. We invest available funds carefully with the assistance of top quality consultants and money managers in a program overseen by highly functioning, dedicated, experienced governance (Stewardship and Investment Committees) supported by a strong team in CHE Finance. Through our efforts, we take advantage of lower cost variable debt, but within guidelines that protect us from potential risks of sharp increases in interest rates. Our conservative positioning has protected us for the time being from the turmoil we currently see in the capital markets, largely fueled by fears of recession and more specifically by the sub-prime mortgage crisis. CHE has very modest debt exposure that has been most affected by this crisis (auction rate bonds) and consequently has experienced only a short term, limited increase in interest rates during the past several months. We are able to quickly transition out of this debt and into a more stable interest rate environment. Our excellent banking relationships are providing the liquidity to make these changes and respond to this challenge. Although this is a very fluid situation and we continue to monitor very closely, for now, we have been able to mitigate any significant negative impact to our operation. Should overall market conditions continue relative to recession and equity market investment declines, we may need to consider capital spending changes to respond to these concerns during 2008; we will act with integrity to meet these challenges and have processes already in place to do so. More importantly, we have a team that remains committed to our mission and meeting these challenges as well. Thanks to all of you who have a role in carefully shepherding and stewarding our financial resources, I am confident in our ongoing , collective ability to remain a transforming, healing presence in the communities we serve.
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