From: Wessner, David
Sent: Thursday, April 16, 2009 9:50 AM
To: Exchange Users
To: All employees
From: David Wessner, Chief Executive Officer
Action needed by you: Understand our current economic situation.
March results showed some positive trends but key financial measures, used by our lenders to judge our performance, are not where they need to be. We are working on additional countermeasures to ensure that Park Nicollet will be able to emerge from this difficult period strong and able to thrive in the future. A number of action steps will be announced next week. Additional measures are being planned and will be announced when decisions are finalized, likely by month end.
Last month, I described what I called “an unprecedented number of risks” that are negatively impacting our economy and Park Nicollet. The risks are a result of declining markets, regulatory issues, debt, operating and liquidity issues, along with lower demand. I want to update you on where we are with our countermeasures to address these risks.
The action we have already taken is starting to show positive impact on our financial results. Clinic volumes are up slightly, and we have seen some improvement in surgery volumes. Overall expenses are lower than last year and lower than expected. Hospital and Emergency Center volumes, however, continue to remain six percent below last year. March year-to-date operating income is greater than last year but still short of what is needed.
Days cash on hand not where it needs to be
Days cash on hand, an important financial measure that our lenders look at to judge if their investment in us is safe, is below where it needs to be.
Days cash on hand is a calculation of how long Park Nicollet could pay its expenses if we stopped taking in revenue. The agreement we signed when we issued bonds (called a bond covenant) requires that we have at least 60 days of cash on hand. We began 2009 with 112 days cash and now are at 70. A year ago we had 130 days cash on hand.
In the past, Park Nicollet relied on an investment portfolio of over $280 million to meet cash requirements and to supplement earnings from operations through investment income. Since the fall of the market, we have far less cash and far less earnings from investments.
Sometime over the next two months Park Nicollet’s rating by Standard and Poor’s will be reviewed. Given the decline in our cash and demand, a downgrade from our “A” rating is likely. Downgrades are common now. For example, Mayo Clinic was downgraded last month and we believe local competitors also may be facing a downgrade. Once downgraded, we will have additional requirements from our bond holders that will further reduce our days cash on hand.
I am sharing the detail of our situation so that you can have an appreciation of the significant stress our finances are under and better understand the actions we will need to take to steer us clear of any situation that would impair our ability to survive and provide care to our patients and jobs to our people.
We can not rely on the market to come back and improve our days cash; we must improve our operating profitability. This will take higher profit margins than we have had in the past, and achieving these higher margins will necessitate us being far more critical of the financial performance of our programs, sites and services. We can no longer afford to subsidize areas or activities that consume cash. We also will need to take a harder look at all expenses.
Additional action needed to keep Park Nicollet strong
I noted in my March 18 communication, that as a result of our losses in 2008, the trustee of our bond holders required that we bring in an independent consultant to review our financial situation and outline action steps to improve. During the past few weeks, we have worked closely with the consultant. We reviewed the actions steps we have already taken and while these are helping, we feel they are not sufficient to position us to be free of the risk that I am describing in this email.
A number of action steps will be announced next week. Additional actions are being planned and will be announced when decisions are finalized, likely by month end. These decisions will not be easy but are necessary if Park Nicollet is to be strong and deliver on our mission. We must act thoughtfully but decisively while making changes that will impact our patients and each other.
We will announce these decisions as soon as we have plans in place. In the meantime, I realize there will likely be rumors and the level of anxiety for some will be high, but I must ask for your patience.
There is no doubt that these are difficult and troubling times. Working together, Park Nicollet will emerge from this crisis stronger and be an even more vital and dynamic health care resource for our community.
Thank you for all you do in serving our patients and Park Nicollet.