CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION. Northwest Community Healthcare and Subsidiaries Quarter Ended December 31, 2012

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION Northwest Community Healthcare and Subsidiaries Quarter Ended December 31, 2012 UNAUDITED

2 Northwest Community Healthcare and Subsidiaries Consolidated Balance Sheets Unaudited Note 1 12/31/12 09/30/12 Assets Current assets: Cash and cash equivalents $ 53,656,385 $ 43,990,244 Investments restricted under bond financings 8,578 9,948 Patient accounts receivable, less allowances for uncollectible accounts (December 2012 $31,750,000; September 2012 $31,421,000) 65,707,128 62,461,829 Other receivables 4,078,945 4,904,656 Prepaid expenses and other 9,126,058 9,966,701 Total current assets 132,577, ,333,378 Assets limited as to use, at fair value: Internally designated for operations and liquidity 97,983,496 97,496,695 Internally designated for capital replacement 274,073, ,236,590 Internally designated for insurance (NCHCI) 2,183,593 2,977,578 Internally designated for endowment 1,441,170 1,413,685 Externally designated for endowment 1,412,361 1,385, ,094, ,509,969 Property and equipment, at cost: Land and land improvements 24,555,915 24,524,352 Buildings 346,711, ,657,472 Fixed equipment and leasehold improvements 219,892, ,822,663 Major movable equipment 117,690, ,215,716 Construction-in-progress 2,645,942 1,624, ,496, ,845,046 Less accumulated depreciation (293,869,547) (284,852,362) 417,627, ,992,684 Reinsurance receivable 23,576,391 23,576,391 Other long term assets 8,781,206 9,068,310 Total assets $ 959,656,191 $ 951,480,732

3 Northwest Community Healthcare and Subsidiaries Consolidated Balance Sheets Unaudited Note 1 12/31/12 09/30/12 Liabilities and net assets Current liabilities: Accounts payable $ 8,664,448 $ 10,909,468 Accrued expenses and other 49,752,950 54,935,015 Current maturities of long-term debt obligations 6,233,491 6,233,491 Due to third-party payors 47,600,682 42,168,160 Total current liabilities 112,251, ,246,134 Long-term debt obligations, less current maturities: Series 2008A bonds 148,825, ,825,000 Series 2008B bonds 36,320,000 36,320,000 Series 2008C bonds 36,320,000 36,320,000 Series 2011 bonds 50,200,000 50,200,000 Capital lease obligation 533, , ,198, ,267,714 Asset retirement obligation 1,092,132 1,085,148 Other long term liabilities 836, ,640 Interest rate swap 870,345 1,062,418 Reserve for self insurance 45,169,908 43,379,926 Pension obligation 40,884,262 43,274,512 Total noncurrent liabilities 361,051, ,962,358 Total liabilities 473,302, ,208,492 Net assets: Unrestricted 478,858, ,349,430 Temporarily restricted 6,263,448 5,690,930 Permanently restricted 1,231,880 1,231,880 Total net assets 486,353, ,272,240 Total liabilities and net assets $ 959,656,191 $ 951,480,732

4 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets Unaudited Note 1 For the Quarter Ended For the Year Ended December 31, September 30, Revenue Net patient service revenue (net of contractual allowances) $ 130,482,443 $ 127,776,863 $ 505,575,719 Provision for uncollectible accounts (11,726,426) (9,034,536) (39,908,413) 118,756, ,742, ,667,306 Other operating revenue 7,577,242 4,686,227 27,493,379 Total revenue 126,333, ,428, ,160,685 Expenses Salaries and employee benefits 66,657,291 69,351, ,511,418 Supplies and other 25,477,430 23,844,280 95,904,162 Professional fees and purchased services 14,057,030 11,944,173 52,969,935 Depreciation and amortization 9,085,497 11,037,740 37,308,927 Illinois hospital assessment 2,919,030 2,919,030 11,676,247 Interest 2,515,486 2,661,949 10,052,357 Total expenses 120,711, ,758, ,423,046 Operating income 5,621,495 1,670,313 11,737,639 Nonoperating revenue Investment income 4,644,243 17,186,319 45,963,103 Change in value of interest rate swap 192, ,534 1,064,599 Other 41,255 (343,530) (1,715,253) Net nonoperating revenue 4,877,571 17,156,323 45,312,449 Excess of revenue over expenses $ 10,499,066 $ 18,826,636 $ 57,050,088

5 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets (continued) Unaudited Note 1 For the Quarter Ended For the Year Ended December 31, September 30, Unrestricted net assets Excess of revenue over expenses $ 10,499,066 $ 18,826,636 $ 57,050,088 Pension-related changes other than net periodic pension cost 1,939,914 Net assets released from restrictions used for purchase of property and equipment 9,520 1, ,232 Increase in unrestricted net assets 10,508,586 18,828,553 59,537,234 Temporarily restricted net assets Contributions 555, ,659 1,999,867 Investment income 26,937 85, ,837 Net assets released from restrictions used for: Purchase of property and equipment (547,232) Operations (9,520) (1,917) (796,731) Increase in temporarily restricted net assets 572, , ,741 Permanently restricted net assets Contributions 270 1,070 Increase in permanently restricted net assets 270 1,070 Increase in net assets 11,081,103 19,283,405 60,431,045 Net assets at beginning of period 475,272, ,841, ,841,195 Net assets at end of period $ 486,353,343 $ 434,124,600 $ 475,272,240 See accompanying notes.

6 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Cash Flows Unaudited Note 1 For the Quarter Ended For the Year Ended December 31, September 30, Operating activities Increase in net assets $ 11,081,103 $ 19,283,405 $ 60,431,045 Adjustments to reconcile change in net assets to net cash provided by operating activities Pension-related changes other than net periodic pension cos (1,939,914) Restricted contributions (555,100) (370,929) (2,000,937) Depreciation and amortization 9,085,497 11,037,740 37,308,927 Provision for uncollectible accounts 11,726,426 9,034,536 39,908,413 (Gain) loss on disposal of fixed assets (17,179) (21,550) 1,305,368 Unrealized loss (gain) on investments 21,092,950 (9,782,860) (39,113,765) Change in value of interest rate swap (192,073) (313,534) (1,064,599) Changes in other assets and liabilities: Accounts receivable, other receivables and due to third-party payors (8,713,491) (7,746,125) (36,766,520) Accounts payable and accrued expenses (7,427,085) (5,519,831) (2,200,716) Investments (25,675,849) (7,927,749) (11,357,168) Other assets and liabilities 409,716 (1,179,049) (1,656,138) Net cash provided by operating activities 10,814,915 6,494,054 42,853,996 Investing activities Property and equipment additions, net (1,634,584) (4,225,658) (21,726,039) Net cash used in investing activities (1,634,584) (4,225,658) (21,726,039) Financing activities Issuance of long-term obligations 53,100,000 53,100,000 Payments on long-term obligations (69,290) (53,165,265) (59,052,233) Restricted contributions 555, ,929 2,000,937 Net cash provided by (used in) financing activities 485, ,664 (3,951,296) Net increase in cash and cash equivalents 9,666,141 2,574,060 17,176,661 Cash and cash equivalents at beginning of period 43,990,244 26,813,583 26,813,583 Cash and cash equivalents at end of period $ 53,656,385 $ 29,387,643 $ 43,990,244 Supplemental disclosure of cash flow information Cash paid for interest $ 4,269,917 $ 4,123,387 $ 8,994,302 See accompanying notes.

7 1. Organization and Nature of Operations Northwest Community Healthcare (Healthcare) was established to own, operate, control, and otherwise coordinate the delivery of health care within the service area of Northwest Community Hospital (the Hospital) and coordinate the activities of the various corporations affiliated with Healthcare. Subsidiaries of Healthcare include the Hospital, Northwest Community Hospital Foundation (the Foundation), and Northwest Community Day Surgery Center, Inc. (DSC), which are not-for-profit entities; Northwest Community Health Services, Inc. (Health Services) and NPC- CyberKnife, LLC (CyberKnife), which are taxable entities; and NCH Casualty Insurance SPC Limited (NCHCI), a Cayman Islands corporation. The Hospital, located in Arlington Heights, Illinois, is a 496-bed acute care facility providing inpatient, outpatient, and emergency care services primarily to residents of Arlington Heights and the surrounding communities. Northwest Community Capco, Inc. (Capco), an Illinois for-profit corporation; Northwest Community Physicians Association, LLC (NCPA), a limited liability company; and NCH Physicians Cooperative (NCHPC), an Illinois not-for-profit corporation, are subsidiaries of the Hospital. NCH Service Company, LLC (NCHSC), a limited liability company, is a subsidiary of NCPA. Included in Healthcare s consolidated financial statements are all of its wholly-owned or controlled subsidiaries. Significant intercompany transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. Results for the quarter ended December 31, 2012 are subject to year-end audit and potential adjustment. For further information, refer to the audited consolidated financial statements and notes thereto for the year ended September 30, Recent Accounting Pronouncements In January 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Not-for-Profit Entities: Mergers and Acquisitions, which establishes accounting and disclosure requirements for how a not-for profit entity determines whether a combination is a merger or an acquisition, how to account for each, and the required disclosures. In addition, ASU included amendments to FASB s Accounting Standards Codification (the Codification or ASC) Topic 350, Intangibles Goodwill and Other, and Topic 810, Consolidation, to make both applicable to not-for-profit entities. Effective October 1, 2010, NCH adopted the guidance relative to ASU , which requires goodwill of not-for-profit entities to be evaluated for impairment at least annually. The goodwill impairment test is a two-step test. Under the first step, the fair value of each reporting unit is compared with its carrying value (including goodwill). If the fair value of a reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the

8 entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. Healthcare has determined that the appropriate reporting unit for goodwill is the consolidated Healthcare entity and the annual impairment test was performed as of September 30, Healthcare applied the transition guidance under ASC Topic 350, and as a result, recognized a goodwill impairment transition loss of $17,920,000 in the consolidated statement of operations and changes in net assets, as a cumulative effect of a change in accounting principle. As of September 30, 2012 no goodwill impairment losses have been recorded. In July 2011, the FASB issued ASU , Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (ASU ). ASU requires healthcare entities that recognize significant amounts of patient service revenue at the time of service even though they do not assess the patient s ability to pay to present the provision for bad debts related to patient service revenue as a deduction from patient service revenue on the statement of operations. In addition, enhanced disclosure about the entity s policies for recognizing revenue and assessing bad debts, including disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts, is required. This new guidance is effective for Healthcare for fiscal years and interim periods within those fiscal years beginning after December 15, 2012, with early adoption permitted. Effective October 1, 2011, Healthcare adopted the guidance relative to ASU The required change in presentation is reflected in Healthcare s Statement of Operations. 3.. Investments Healthcare has designated all of its investments as trading. Investments in equity and debt securities and mutual funds with readily determinable fair values are reported at fair value using quoted market prices. Alternative investments, primarily limited partnerships that invest in hedge funds are reported using the equity method of accounting based on information provided by the partnership. Income earned, realized gains (losses) and changes in unrealized gains (losses) on funds internally designed for operations and liquidity are reported as other operating revenue. All other investment income, realized gains (losses) and changes in unrealized gains (losses) are reported as nonoperating income.

9 The composition and presentation of investment income are as follows for the quarter ended December 31 (in thousands): For the Quarter Ended December Interest and dividends $ 4,266 $ 2,636 Net realized gains on investments 21,991 5,043 Change in net unrealized gains and losses on investments (21,093) 9,783 $ 5,164 $ 17,462 Reported as: Other operating revenue $ 493 $ 190 Investment income 4,644 17,186 Temporarily restricted investment income $ 5,164 $ 17,462 Fair Value Measurements All investments in marketable securities are reported at fair value as defined in ASC 820, Fair Value Measurements and Disclosures. ASC establishes a three-level valuation hierarchy. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

10 A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table presents the financial instruments carried at value, except certain alternative investments, as of December 31, 2012, by caption on the consolidated balance sheet by the valuation hierarchy defined above (in thousands): Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 53,656 $ $ $ 53,656 Investments restricted under bond financings: Cash and cash equivalents 9 9 Internally designated for operations and liquidity: Cash and money market fund U.S. government and agency obligations 19,684 19,684 Corporate bonds 75,479 75,479 Municipal bonds 2,510 2, ,673 97,984 Internally designated for capital replacement: Cash and cash equivalents Mutual funds: U.S. equity 178, ,011 International equity Fixed income 60,017 60, , ,148 Internally designated for insurance: Mutual funds short-term fixed income 2,184 2,184 Internally and externally designated for endowment: Mutual funds: U.S. equity 1,412 1,412 International equity Fixed income 1,014 1,014 2,853 2,853 Investments at fair value $ 297,161 $ 97,673 $ $ 394,834 Alternative investments not at fair value (equity method) 35,925 $ 430,759 Liabilities Interest rate swap $ $ 870 $ $ 870

11 The following table presents the financial instruments carried at fair value, except certain alternative investments, as of September 30, 2012, by caption on the consolidated balance sheet by the valuation hierarchy defined above (in thousands): Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 43,990 $ $ $ 43,990 Investments restricted under bond financings: Cash and cash equivalents Internally designated for operations and liquidity: Cash and money market fund U.S. government and agency obligations 11,531 11,531 Corporate bonds 83,625 83,625 Municipal bonds 1,487 1, ,643 97,497 Internally designated for capital replacement: Cash and cash equivalents Mutual funds: U.S. equity 191, ,811 International equity Fixed income 41,431 41, , ,322 Internally designated for insurance: Mutual funds short-term fixed income 2,977 2,977 Internally and externally designated for endowment: Mutual funds: U.S. equity 1,395 1,395 International equity Fixed income 1,003 1,003 2,799 2,799 Investments at fair value $ 283,952 $ 96,643 $ $ 380,595 Alternative investments not at fair value (equity method) 35,915 $ 416,510 Liabilities Interest rate swap $ $ 1,062 $ $ 1,062

12 The fair value of Level 1 investments is based on quoted market prices and is valued on a daily basis. The fair value of the interest rate swap is based on discounted cash flows adjusted for nonperformance risk. The adjustment is based on bond pricing for equivalent credit-related entities. Level 2 pricing is based on the custodian s pricing methodologies which are based on institutional bid evaluations. Institutional bid evaluations are estimated prices computed by pricing vendors. These prices are determined using observable inputs for similar securities as of the measurement date. Redemption frequency is monthly. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value because of the short maturity of those assets and liabilities. The estimated fair value of long-term debt (including current portion) based on quoted market prices for the same or similar issues was $292,426,000 and $292,482,000 at December 31, 2012 and September 30, 2012, respectively. Healthcare s investments are exposed to various kinds and levels of risk. Equity securities and mutual funds expose Healthcare to market risk, performance risk, and liquidity risk. Market risk is the risk associated with major movements of the equity markets. Performance risk is the risk associated with a company s operating performance. Fixed income securities and mutual funds expose Healthcare to interest rate risk, credit risk, and liquidity risk. As interest rates change, the values of many fixed income securities are affected, including those with fixed interest rates. Credit risk is the risk that the obligor of the security will not fulfill its obligations. Liquidity risk is affected by the willingness of market participants to buy and sell particular securities and tends to be higher for equities related to small capitalization companies. Due to the volatility in the capital markets, there is a reasonable possibility of subsequent changes in fair value resulting in additional gains and losses in the near term. 4. Long-Term Obligations Healthcare s long-term debt is issued pursuant to a master trust indenture dated February 1, The master trust indenture establishes an Obligated Group, consisting of the Hospital, Healthcare, and DSC. All members of the Obligated Group are jointly and severally obligated to pay all debt under the master trust indenture and are required to maintain their status as tax-exempt, not-for-profit health care providers. All obligations issued under the master trust indenture are secured by a security interest in the receivables of the Obligated Group as defined in the master trust indenture. Under the terms of the master trust indenture, the Obligated Group must meet certain financial covenants, including minimum debt service coverage levels. As of December 31, 2012, the Obligated Group was in compliance with these covenants.

13 In December 2011, the IFA issued $53,100,000 of variable rate demand revenue bonds (the Series 2011 debt) on behalf of the Hospital. The proceeds were used to currently refund the Series 2002B debt. The bonds were purchased directly by a bank for an initial term of ten years and bear interest based on a percentage of LIBOR plus an agreed-upon spread. The bonds have a final maturity date of July 1, The direct pay letter of credit securing the Series 2008 B/C debt was replaced on December 1, 2011, with irrevocable transferable letters of credit that expire on December 1, The letters of credit provide a commitment to provide funds for the purchase of Series 2008 B/C bonds that may be tendered pursuant to an optional or a mandatory tender and that have not been remarketed. Such advances convert to term loans, with principal payments payable no earlier than a year and a day from the date of the advance. In October 2008, the Illinois Finance Authority issued $86,820,000 of variable rate demand revenue bonds (the Series 2008B and Series 2008C debt) on behalf of the Hospital. The proceeds were used to refinance a taxable bank loan obtained to refund Series 2002A debt. The bonds are payable in varying installments through July 1, 2032 and bear interest at a variable rate not to exceed 12%. 5. Derivatives The Hospital has an interest rate-related derivative instrument to manage its exposure on its variable rate debt and does not enter into derivative instruments for any purpose other than risk management purposes. By using a derivative financial instrument to manage the risk of changes in interest rates, the Hospital exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Hospital, which creates credit risk for the Hospital. When the fair value of a derivative contract is negative, the Hospital owes the counterparty and therefore does not possess credit risk. The Hospital minimizes the credit risk in its derivative instrument by requiring that the counterparty post collateral for the benefit of the Hospital based on the credit rating of the counterparty and the fair value of the derivative contract. Market risk is the adverse effect on the value of a financial instrument that results from change in interest rates. The market risk associated with interest rate changes is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Hospital also mitigates risk through periodic review of its derivative position in the context of the total blended cost of capital. During 2003, the Hospital entered into an interest rate swap agreement (the swap agreement) with a notional amount of $100,000,000 to hedge against changing interest rates. Under the terms of the swap agreement, the Hospital receives semiannual payments based upon 81% of the one-month LIBOR and makes semiannual payments based upon the SIFMA Index. The scheduled termination date of the swap agreement is July 1, During 2012, the notional amount was reduced to $75,950,000.

14 The Hospital s swap agreement contains a provision requiring posting of collateral to the counterparty if the swap is in a liability position and the liability amount exceeds certain specific threshold amounts. The threshold amounts are determined based on the credit rating assigned by Moody s or Standard & Poor s to the Hospital s variable rate bonds. As of December 31, 2012, the liability of $870,000 is below the threshold, and as such, no collateral has been posted. Similarly, the swap agreement requires the counterparty to post collateral to the Hospital if the swap is in an asset position and exceeds certain threshold amounts. Net amounts paid or received under the swap agreement are included in interest expense. The change in the fair value of the swap agreement was approximately $192,000 and $314,000 for the three months ended December 31, 2012 and 2011, respectively, and is recorded as a nonoperating item. The fair value of the swap agreement approximates $(870,000) and $(1,062,000) at December 31, 2012 and September 30, 2012, respectively, and is recognized as a noncurrent liability. Following is a summary of the swap agreement as of December 31, 2012 and September 30, 2012: Date Notional Amount Maturity Date Rate Paid Rate Received December 2012 $ 75,950,000 July 2032 September 2012 $ 75,950,000 July 2032 USD-SIFMA Municipal Swap Index 81% of LIBOR USD-SIFMA Municipal Swap Index 81% of LIBOR The fair value of derivative instruments at December 31, 2012 and September 30, 2012 is as follows (in thousands): Balance Sheet Location Dec Sept Derivative not designated as hedging instrument under ASC 815: Interest rate contract Interest rate swap $ (870) $ (1,062) The effects of derivative instruments on the consolidated statements of operations and changes in net assets for the three months ended December 31, 2012 and 2011 are as follows (in thousands):

15 Derivative not designated as hedging instrument under ASC 815: Amount of Gain (Loss) Location of Gain (Loss) Included in excess (deficiency) of revenue over expenses Interest rate contract Interest income (expense) $ $ (15) Change in value of interest rate swap (nonoperating expense) Commitments and Contingencies Healthcare and subsidiaries are defendants in certain lawsuits and may be subject to additional claims alleging professional liability. Effective November 1, 1978, Healthcare and subsidiaries began insuring basic professional and general liability coverage, subject to a nominal deductible, through the Chicago Hospital Risk Pooling Program (CHRPP). CHRPP is a self-insured trust established under the Illinois Religious and Charitable Risk Pooling Trust Act of In the opinion of management, although certain of these claims could potentially exceed Healthcare and subsidiaries coverage, the final premiums and costs under this arrangement and the ultimate disposition of claims covered under CHRPP and its excess coverage will not have a material adverse effect on the financial position of Healthcare and its subsidiaries. During 2010, CHRPP announced that it would discontinue the issuance of professional and general liability coverage and commerce a voluntary run-off of its claim portfolio effective January 1, As of that date, Healthcare established a self-insured retention program in which it retains the risk for all claims with individual values under $4,000,000. An additional buffer self-insured retention exists for the first claim that exceeds $4,000,000. Healthcare has obtained commercial insurance on an occurrence basis for claims exceeding the self-insured retention. During 2007, the Hospital established an owner-controlled insurance program related to its patient care addition construction project, requiring a bank letter of credit in the amount of $2,000,000. No amounts have been drawn on this letter of credit. 7. Employee Retirement Plans Substantially all employees of Healthcare participate in one of two retirement plans. The Northwest Community Hospital Employees Retirement Plan (the Plan) is a trusteed, noncontributory, defined-benefit plan. The Northwest Community Healthcare Employees Retirement Plan (the DC Plan) is a defined-contribution plan.

16 Defined-Benefit Plan ASC 715 requires plan sponsors of defined-benefit pension plans to recognize the funded status of their plans in the balance sheet, measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end balance sheet, and provide additional disclosures. A September 30 measurement date was utilized for 2012 and During fiscal 2010, the Hospital elected to freeze benefit accruals for all participants in the Plan. An amendment to the Plan eliminated all future benefit accruals, including participants credited service, final average earnings, and final average compensation amounts used to calculate Plan benefits. Net periodic pension cost for the quarter ended December 31 for all of the Plan s participants consists of the following (in thousands): For The Quarter Ended December Service cost for benefits earned during the year $ $ Interest cost on projected benefit obligation 1,830 2,265 Expected return on plan assets (3,884) (3,374) Net amortization and deferral Settlement charge 1,365 1,370 Net periodic pension cost $ (290) $ 690 The total amount of employer contributions paid during the three months ended December 31, 2012 was $2,100,000. Defined-Contribution Plan As of January 1, 2005, substantially all new employees are eligible for the DC Plan. Total DC Plan expense was approximately $3,283,000 and $2,874,000 for the quarters ending December 31, 2012 and Illinois Hospital Assessment Program In December 2008, the Illinois Hospital Assessment Program (HAP) was approved by the Federal Centers for Medicare and Medicaid Services (CMS) for the period July 1, 2008 through June 30, Under HAP, Illinois receives additional Federal Medicaid funds for the State s health care system administered by the Illinois Department of Healthcare and Family Services. HAP includes both a payment to the Hospital from the State and an assessment against the Hospital, which is paid to the State in the same year.

17 The Hospital recognized the following amounts in the quarters ended December 31, 2012 and 2011 (in thousands): For The Quarter Ended December HAP revenue in net patient service revenue $ 2,846 $ 2,950 HAP assessment expense 2,919 2,919 Net excess from HAP $ (73) $ Subsequent Events Healthcare and subsidiaries evaluated events and transactions occurring subsequent to December 31, 2012 through January 2013, the date of issuance of these unaudited financial statements. During this period, there were no other subsequent events requiring recognition or disclosure in the consolidated financial statements.

18 Details of Consolidation

19 Northwest Community Healthcare and Subsidiaries Details of Consolidated Balance Sheet December 31, 2012 (Unaudited) Northwest Northwest NWC NWC Day NCH NPC- NWC Community Community Hospital Surgery Casualty CyberKnife, Health Consolidating Healthcare Hospital Foundation Center Insurance LLC Services Eliminations Total Assets Current assets: Cash and cash equivalents $ 3,468,408 $ 42,189,227 $ 4,039,717 $ 1,285,563 $ 1,268,303 $ 610,164 $ 795,003 $ 53,656,385 Investments restricted under bond financing 8,578 8,578 Patient accounts receivable, less allowance for uncollectible accounts $31,750,000 61,836,283 1,679,939 2,190,906 65,707,128 Other receivables 438,127 1,304, ,138 1,587,539 94,447 4,078,945 Prepaid expenses and other 7,612,239 39,435 1,282,659 3, ,082 9,126,058 Due from affiliates 2,840,573 95,251 (2,935,824) Total current assets 3,906, ,791,594 4,733,290 4,248,161 2,859, ,415 3,268,438 (2,935,824) 132,577,094 Assets limited as to use, at fair value: Internally designated for operations and liquidity 97,971,605 11,891 97,983,496 Internally designated for capital replacement 274,073, ,073,618 Internally designated for insurance (NCHCI) 2,183,593 2,183,593 Internally designated for endowment 1,441,170 1,441,170 Externally designated for endowment 1,412,361 1,412, ,073,618 97,971,605 2,865,422 2,183, ,094,238 Property and equipment, at cost: Land and land improvements 8,486,216 16,039,342 30,357 24,555,915 Buildings 41,181, ,182,319 8,347, ,711,599 Fixed equipment and leasehold improvements 8,734, ,740,589 5,098, , ,892,686 Major movable equipment 878, ,760,124 3,179,996 3,555,000 2,316, ,690,667 Construction in progress 2,218, ,929 2,645,942 59,280, ,940,387 16,656,911 3,555,000 3,063, ,496,809 Less accumulated depreciation (26,763,344) (253,720,069) (9,011,645) (3,555,000) (819,489) (293,869,547) 32,517, ,220,318 7,645,266 2,244, ,627,262 Interest in net assets of Foundation 6,698,999 (6,698,999) Interest in affiliate 375,495 (375,495) Reinsurance receivable 23,576,391 23,576,391 Other long term assets 6,060, ,151 1,567, ,397 8,781,206 Investment in subsidiaries 28,000,000 (28,000,000) 28,375,495 36,336, ,151 1,567, ,397 (35,074,494) 32,357,597 Total assets $ 338,873,081 $ 625,319,903 $ 8,531,863 $ 11,893,427 $ 6,610,740 $ 705,415 $ 5,732,080 $ (38,010,318) $ 959,656,191

20 Northwest Community Healthcare and Subsidiaries Details of Consolidated Balance Sheet (continued) December 31, 2012 (Unaudited) Northwest Northwest NWC NWC Day NCH NPC- NWC Community Community Hospital Surgery Casualty CyberKnife, Health Consolidating Healthcare Hospital Foundation Center Insurance LLC Services Eliminations Total Liabilities, net assets, and equity Current liabilities: Accounts payable $ 110,480 $ 7,945,574 $ 550 $ 532,543 $ $ $ 75,301 $ $ 8,664,448 Accrued expenses and other 1,535,031 37,422, , ,697 6,235,245 20,282 3,948,442 49,752,950 Current maturities of long-term obligations 6,233,491 6,233,491 Due to third-party payors 45,802,452 1,798,230 47,600,682 Due to affiliates 111,680 95,251 88, ,990 2,035,697 (2,935,824) Total current liabilities 1,757,191 97,498, ,882 3,386,460 6,235,245 20,282 6,059,440 (2,935,824) 112,251,571 Long-term obligations, less current maturities: Series 2008A bonds 148,825, ,825,000 Series 2008B bonds 36,320,000 36,320,000 Series 2008C bonds 36,320,000 36,320,000 Series 2011 bonds 50,200,000 50,200,000 Capital lease obligation 533, , ,198, ,198,424 Asset retirement obligation 1,092,132 1,092,132 Other long term liabilities 658, , ,206 Interest rate swap 870, ,345 Reserve for self-insurance 1,854,276 42,485, ,103 45,169,908 Pension obligation 40,884,262 40,884,262 Total noncurrent liabilities 1,854, ,530, , , , ,051,277 Total liabilities 3,611, ,029, ,882 4,216,563 6,235,245 20,282 6,718,360 (2,758,538) 473,302,848 Net assets and equity: Unrestricted 335,261, ,591, ,653 7,676, ,133 (986,280) (28,552,781) 478,482,520 Temporarily restricted 5,587,588 6,263,448 (5,587,588) 6,263,448 Permanently restricted 1,111,411 1,231,880 (1,111,411) 1,231,880 Common shares 120, ,000 Preferred shares 2,880,000 2,880,000 Retained earnings (2,624,505) (2,624,505) Total net assets and equity 335,261, ,290,316 8,301,981 7,676, , ,133 (986,280) (35,251,780) 486,353,343 Total liabilities, net assets, and equity $ 338,873,081 $ 625,319,903 $ 8,531,863 $ 11,893,427 $ 6,610,740 $ 705,415 $ 5,732,080 $ (38,010,318) $ 959,656,191

21 Details of Consolidated Statement of Operations and Changes in Net Assets Quarter Ended December 31, 2012 (Unaudited) Northwest Northwest NWC NWC Day NCH NPC- NWC Community Community Hospital Surgery Casualty CyberKnife, Health Consolidating Healthcare Hospital Foundation Center Insurance LLC Services Eliminations Total Revenue Net patient service revenue $ $ 119,688,075 $ $ 4,064,234 $ $ $ 6,966,618 $ (236,484) $ 130,482,443 Provision for uncollectible accounts - (11,614,159) - (112,267) (11,726,426) - 108,073,916-3,951, ,966,618 (236,484) 118,756,017 Other operating revenue 2,170,555 4,447, , , , ,890 (1,264,498) 7,577,242 Total revenue 2,170, ,521, ,190 3,952, , ,000 7,695,508 (1,500,982) 126,333,259 Expenses Salaries and employee benefits 762,557 57,486, ,908 1,554,318 2,247 6,721,482 (48,431) 66,657,291 Supplies and other 662,922 22,373,671 34,044 1,682, ,000 1,303,040 (1,270,437) 25,477,430 Professional fees and purchased services 718,564 12,096,057 12, ,939 77,536 85,461 1,059,511 (227,764) 14,057,030 Depreciation and amortization 488,605 8,160, , ,342 9,085,497 Illinois hospital assessment 2,919,030 2,919,030 Interest 2,515,486 2,515,486 Total expenses 2,632, ,550, ,678 3,682, ,536 87,708 9,309,375 (1,546,632) 120,711,764 Operating (loss) income (462,093) 6,971, , ,846 (223,973) 200,292 (1,613,867) 45,650 5,621,495 Nonoperating revenue Investment income 4,616, ,488 4,644,243 Change in value of interest rate swap 192, ,073 Other (147,821) 62,829 76,152 50,095 41,255 Net nonoperating revenue 4,468, ,601 27,488 76,152 50,095 4,877,571 Excess (deficiency) of revenue over expenses $ 4,006,142 $ 7,226,729 $ 462,000 $ 269,846 $ (147,821) $ 200,292 $ (1,613,867) $ 95,745 $ 10,499,066

22 Northwest Community Healthcare and Subsidiaries Details of Consolidated Statement of Operations and Changes in Net Assets (continued) Quarter Ended December 31, 2012 (Unaudited) Northwest Northwest NWC NWC Day NCH NPC- NWC Community Community Hospital Surgery Casualty CyberKnife, Health Consolidating Healthcare Hospital Foundation Center Insurance LLC Services Eliminations Total Unrestricted net assets Excess (deficiency) of revenue over expenses $ 4,006,142 $ 7,226,729 $ 462,000 $ 269,846 $ (147,821) $ 200,292 $ (1,613,867) $ 95,745 $ 10,499,066 Transfers (to) from affiliates Net assets released from restrictions used for purchase of property and equipment or operations 9,520 9,520 Increase (decrease) in unrestricted net assets 4,006,142 7,226, , ,846 (147,821) 200,292 (1,613,867) 95,745 10,508,586 Temporarily restricted net assets Contributions 555, ,100 Investment income 26,937 26,937 Net assets released from restrictions used for: Operations (9,520) (9,520) Increase in temporarily restricted net assets 572, ,517 Permanently restricted net assets Contributions Increase in permanently restricted net assets Increase (decrease) in net assets 4,006,142 7,226,729 1,044, ,846 (147,821) 200,292 (1,613,867) 95,745 11,081,103 Net assets at beginning of period 331,255, ,063,587 7,257,944 7,407, , , ,587 (35,347,525) 475,272,240 Net assets at end of period $ 335,261,614 $ 170,290,316 $ 8,301,981 $ 7,676,864 $ 375,495 $ 685,133 $ (986,280) $ (35,251,780) $ 486,353,343

23 UTILIZATION AND PAYOR MIX Quarter Ended December Hospital Licensed Beds Average Staffed Beds Average Daily Census Average % Occupancy Discharges Average Length of Stay Patient Days Medicare Case-Mix Index Total Case-Mix Index Adjusted Discharges Surgeries Inpatient surgeries Outpatient Surgeries (Note 1) Total Surgeries Emergency Department Visits Outpatient Discharge Equivalents Outpatient Registrations Hospital Payor Mix (Based on Gross Revenue) Medicare Managed Care Medicaid Commercial Insurance Self Pay and Other % 5, , ,951 1,183 3,103 4,286 18,752 5,888 92, % % % 5, , ,590 1,728 3,388 5,116 18,111 6,092 92, % % Note 1: Outpatient surgical procedures at Hospital and DSC