Northern Westchester Hospital Association and … FY12...Northern Westchester Hospital Association and Subsidiaries Consolidated Financial Statements and Additional Information as

Northern Westchester Hospital Association and Subsidiaries Consolidated Financial Statements and Additional Information as of and for the Years Ended December 31, 2012 and 2011, and Independent Auditors’ Report

NORTHERN WESTCHESTER HOSPITAL ASSOCIATION AND SUBSIDIARIES

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ REPORT 1–2

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011: Balance Sheets 3 Statements of Operations 4 Statements of Changes in Net Assets 5 Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7–32

ADDITIONAL INFORMATION AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011: 33 Supplemental Consolidating Schedules — Balance Sheets Information 34–37 Supplemental Consolidating Schedules — Statements of Operations and Changes in Net Assets Information 38–41

Member of Deloitte Touche Tohmatsu

INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees of Northern Westchester Hospital Association Mount Kisco, New York

We have audited the accompanying consolidated financial statements of Northern Westchester Hospital Association and its subsidiaries (the “Hospital”) (an affiliate of Stellaris Health Network), which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Hospital’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hospital’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Deloitte & Touche LLPTwo World Financial Center New York, NY 10281-1414 USA

Tel: +1 212 436 2000 Fax: +1 212 436 5000 www.deloitte.com

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Hospital as of December 31, 2012 and 2011, and the results of its operations, changes in its net assets, and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis-of-Matter

As discussed in Note 1 to the consolidated financial statements, the Hospital adopted the requirements of accounting guidance related to the presentation of the provision for bad debts in the 2012 and 2011 consolidated statements of operations. Our opinion is not modified with respect to this matter.

Report on Additional Information

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The additional information listed in the table of contents is presented for the purpose of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual entities, and is not a required part of the consolidated financial statements. This information is the responsibility of the Hospital’s management, was derived from, and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. Such information has been subjected to the auditing procedures applied in our audits of the consolidated financial statements, and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, such information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

May 31, 2013

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CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2012 AND 2011

2012 2011ASSETS

CURRENT ASSETS: Cash and cash equivalents 8,771,572$ 5,912,968$ Patient accounts receivable — less estimated uncollectibles of $4,970,000 and $4,458,000 in 2012 and 2011, respectively 26,483,618 29,013,337 Estimated insurance recoveries 3,500,000 5,500,000 Other receivables 935,229 1,954,290 Inventory 3,779,389 3,563,692 Prepaid expenses 1,604,602 1,519,373 Current portion of assets whose use is limited 6,145,356 7,034,910

Total current assets 51,219,766 54,498,570

ASSETS WHOSE USE IS LIMITED — Net of current portion 29,547,072 23,140,694

PROPERTY, PLANT, AND EQUIPMENT — Net 149,732,346 137,498,708

GOODWILL AND INTANGIBLE ASSET — Net 2,269,914 2,352,414

DEFERRED FINANCING COSTS — Net 1,514,336 1,611,550

OTHER ASSETS 881,826 862,871

TOTAL 235,165,260$ 219,964,807$

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Accounts payable and accrued expenses 34,067,885$ 35,400,746$ Accrued salaries and other related benefits 7,791,367 8,009,871 Due to third-party payors 2,177,001 2,479,247 Current portion of long-term debt 4,821,356 4,729,979 Estimated insurance claims payable 3,500,000 5,500,000 Current portion of estimated liability for self-insurance 3,941,000 3,849,000

Total current liabilities 56,298,609 59,968,843

LONG-TERM DEBT — Net of current portion 29,497,434 27,579,175

ESTIMATED LIABILITY FOR SELF-INSURANCE — Net of current portion 10,351,401 11,438,000

ACCRUED PENSION LIABILITY 38,482,555 27,511,148

DUE TO THIRD-PARTY PAYORS — Net of current portion 2,000,000 2,000,000

OTHER LIABILITIES 3,963,998 3,743,042

Total liabilities 140,593,997 132,240,208

COMMITMENTS AND CONTINGENCIES (Note 13)

NET ASSETS: Unrestricted 77,079,660 78,854,287 Temporarily restricted 9,473,134 866,843 Permanently restricted 8,018,469 8,003,469

Total net assets 94,571,263 87,724,599

TOTAL 235,165,260$ 219,964,807$

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

2012 2011

REVENUES: Net patient service revenue (after contractual allowances and discounts) 243,850,060$ 234,833,535$ Provision for bad debts (4,421,216) (4,400,004) Net patient service revenue, net of provision for bad debts 239,428,844 230,433,531 Other operating revenue 7,362,729 6,623,925 Net assets released from restrictions — operations 1,045,913 897,093

Total revenues 247,837,486 237,954,549

EXPENSES: Salaries 100,832,506 94,202,610 Employee benefits 30,654,622 26,108,715 Supplies and other 95,093,363 92,468,674 Depreciation and amortization 13,078,538 11,541,883 Interest 948,943 853,599

Total expenses 240,607,972 225,175,481

INCOME FROM OPERATIONS 7,229,514 12,779,068

NONOPERATING ITEMS: Unrestricted contributions and legacies 126,797 100,302 Equity earnings (losses) on limited liability partnerships and corporations and other investment income — net 545,488 (1,016,611) Fundraising activities (562,458) 808,890

Total nonoperating items 109,827 (107,419)

EXCESS OF REVENUES AND NONOPERATING ITEMS OVER EXPENSES 7,339,341 12,671,649

OTHER CHANGES IN UNRESTRICTED NET ASSETS: Net assets released from restrictions for capital purposes 285,000 1,198,628 Pension-related adjustments (9,398,968) (15,584,119)

DECREASE IN UNRESTRICTED NET ASSETS (1,774,627)$ (1,713,842)$


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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Temporarily PermanentlyUnrestricted Restricted RestrictedNet Assets Net Assets Net Assets Total

BALANCE — January 1, 2011 80,568,129$ 2,645,278$ 7,371,154$ 90,584,561$

Excess of revenue and nonoperating items over expenses 12,671,649 - - 12,671,649 Interest income and losses on investments - (478,238) - (478,238) Contributions - 1,425,939 1,900 1,427,839 Net assets released from restrictions for operating purposes - (897,093) - (897,093) Net assets released from restrictions for capital purposes 1,198,628 (1,198,628) - - Transfer - (630,415) 630,415 - Pension-related adjustments (15,584,119) - - (15,584,119)

Change in net assets (1,713,842) (1,778,435) 632,315 (2,859,962)

BALANCE — December 31, 2011 78,854,287 866,843 8,003,469 87,724,599

Excess of revenue and nonoperating items over expenses 7,339,341 - - 7,339,341 Interest income and losses on investments - 816,552 - 816,552 Contributions - 9,120,652 15,000 9,135,652 Net assets released from restrictions for operating purposes - (1,045,913) - (1,045,913) Net assets released from restrictions for capital purposes 285,000 (285,000) - Pension-related adjustments (9,398,968) - - (9,398,968)

Change in net assets (1,774,627) 8,606,291 15,000 6,846,664

BALANCE — December 31, 2012 77,079,660$ 9,473,134$ 8,018,469$ 94,571,263$


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CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES AND NONOPERATING ITEMS: Change in net assets 6,846,664$ (2,859,962)$ Adjustments to reconcile change in net assets to net cash provided by operating activities and nonoperating items: Depreciation and amortization 13,078,538 11,541,883 Provision for bad debts 4,421,216 4,400,004 Equity (gains) losses on limited liability partnerships and corporations and other realized (gains) losses (421,640) 2,061,912 Pension-related adjustments 9,398,968 15,584,119 Restricted contributions (9,135,652) (1,427,839) Changes in operating assets and liabilities: Patient accounts receivable (1,891,497) (7,132,515) Estimated insurance recoveries 2,000,000 (5,500,000) Other receivables 1,019,061 (144,597) Due to third-party payors (302,246) 372,547 Estimated insurance claims payable (2,000,000) 5,500,000 Estimated liability for self-insurance (994,599) 2,917,278 Accounts payable and accrued expenses (1,514,861) 3,806,461 Accrued salaries and other related benefits (218,504) 1,373,973 Accrued pension liability 1,572,439 (4,798,481) Change in all other operating assets and liabilities (245,325) 313,610

Net cash provided by operating activities and nonoperating items 21,612,562 26,008,393

CASH FLOWS FROM INVESTING ACTIVITIES: Capital acquisitions (24,804,062) (21,792,045) Purchases of investments (4,876,154) (5,083,646) Sales of investments 5,328,601 3,078,744

Net cash used in investing activities (24,351,615) (23,796,947)

CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt issuance 4,019,515 - Proceeds from restricted contributions 3,588,021 1,795,091 Repayment of debt (2,009,879) (3,443,998)

Net cash provided by (used in) financing activities 5,597,657 (1,648,907)

NET INCREASE IN CASH AND CASH EQUIVALENTS 2,858,604 562,539

CASH AND CASH EQUIVALENTS — Beginning of year 5,912,968 5,350,429

CASH AND CASH EQUIVALENTS — End of year 8,771,572$ 5,912,968$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid 973,943$ 852,700$

Accruals for the acquisition of property, plant, and equipment 182,000$ - $


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization — Northern Westchester Hospital Association (the “Association”) is a membership corporation organized under the not-for-profit corporation laws of the state of New York and is exempt from federal income tax on related income under Section 501(c)(3) of the Internal Revenue Code (IRC). The Association operates an acute care facility located in Mount Kisco, New York.

The Association is an affiliate of Stellaris Health Network (“Stellaris”). The purpose of Stellaris is to preserve a strong community-based health care system for Westchester and Putnam counties, expand access to and improve the quality of care for the communities served, develop a comprehensive network of providers, and achieve and capitalize on economies of scale to provide efficient and effective health care to the community. The other affiliates of Stellaris are Lawrence Hospital Center, Phelps Memorial Hospital Association, and White Plains Hospital Center. Under the terms of the affiliation agreement, Stellaris is the sole member of the Association subject to certain terms and conditions.

The Association is the parent company of NORCORP, Inc. (NORCORP), the Northern Westchester Hospital Center Foundation, Inc. (“Foundation”), Northern Westchester Realty Holding Corporation (“Holding”), and Northern Westchester Surgical Services, P.C. (“Surgical Services”) (collectively, the “Hospital”).

NORCORP is a not-for-profit corporation exempt from income tax under Section 501(c)(3) of the IRC. NORCORP promotes health care education, research, and advances in the health field and supports activities of not-for-profit organizations engaged in health care activities for the betterment of the general health of the communities served. NORCORP owns 100% of the common stock of Northern Westchester Oncology Management Associates, Inc. (NWOMA), a for-profit outpatient oncology center subject to income taxes. During 2005, NWOMA became dormant and is in the process of being dissolved. In addition, NORCORP owns 100% of the common stock of NWHC Health Management Services, Inc. (“Management Services”), a for-profit health management company subject to income taxes. In October 2006, Management Services entered into a joint venture with Yorktown Radiology. In October 2010, Management Services acquired the remaining ownership interest in Yorktown Radiology. In February 2012, the practice was approved by the Department of Health to provide services under Article 28 of the New York State Public Health Law. As such, it became an operating department of the Hospital.

The Foundation’s primary purpose is to raise funds on behalf of the Hospital. The Foundation is exempt from federal income tax under Section 501(c)(3) and maintains public charity status under Section 509(a)(3) of the IRC.

Holding’s primary purpose is to acquire rental property for the benefit of the Hospital. Holding is exempt from federal income tax under Section 501(c)(2) of the IRC.

Surgical Services is a for-profit New York professional service corporation pursuant to Section 708 of the Business Corporation Law of the State of New York. Surgical Services was established January 1, 2011.

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Income taxes relating to for-profit operations are not significant.

Basis of Accounting — The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with the American Institute of Certified Public Accountants’ Audit and Accounting Guide, Health Care Entities, and other pronouncements applicable to health care organizations and include the activities of the Association, NORCORP, NWOMA, Foundation, Holding, Surgical Services, and Management Services. The Hospital accounts for its interest in its controlled affiliates using the equity basis of accounting. Such entities are presented in the supplemental consolidating schedules on a cost basis. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates — The preparation of the consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for uncollectible patient accounts, contractual allowances, valuation of alternative investments, estimated amounts due to third-party payors, estimated liability for self-insurance, and accrued pension liability and other employee benefit costs.

Cash and Cash Equivalents — Cash and cash equivalents include all highly liquid investments with maturities of three months or less from the date of purchase, excluding amounts classified as assets whose use is limited.

Inventory — Inventory is accounted for under the first-in, first-out method at the lower of cost or market.

Assets Whose Use is Limited — Assets whose use is limited include assets set aside by the Board of Trustees, over which the Board of Trustees retains control and may use at its discretion, assets held by trustees under indenture agreements, assets held in a malpractice trust, and donor-restricted gifts.

Assets whose use is limited that are invested in alternative investments, which include hedge funds structured as limited partnerships, are reported using the equity method of accounting, which approximates fair value as estimated by the investment manager. The fund managers’ estimates and assumptions of fair values of nonmarketable investments may differ significantly from the values that would have been used had a ready market existed and may also differ significantly from the values at which such investments may be sold, and the differences could be material. Certain of the alternative investments have restrictions on the withdrawal of the funds. The holdings of alternative investment interests may indirectly expose the Hospital to securities lending, short sales of securities, and trading in futures, forward contracts, options, and other derivative products. All investments in debt securities are measured at fair value at the balance sheet date based upon quoted market prices. Investment income or loss (including realized gains and losses on investments, equity earnings and losses on limited liability partnerships and corporations, interest, and dividends) is included in excess of revenues and nonoperating items over expenses, unless the income or loss is restricted by donor or law.

Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. As such, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated balance sheets and consolidated statements of operations and changes in net assets.

Other-Than-Temporary Impairment of Investments — The Hospital reviews its investments to identify those for which market value is below cost. The Hospital then makes a determination as to whether the investment should be considered other-than-temporarily impaired. The Hospital has not

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recognized any losses related to declines in value that were other than temporary in nature in 2012 and 2011.

Property, Plant, and Equipment — Property and equipment acquisitions are recorded at cost or, in the case of gifts, at fair market value at the date of the gift. Capitalized lease obligations are recorded at the present value of the minimum lease payments at the inception of the lease. Leased assets are amortized over the lesser of the estimated useful life of the asset or lease term. Such amortization is reported within depreciation and amortization in the accompanying consolidated statements of operations. Depreciation is provided over the estimated useful life of each class of depreciable asset and is computed on the straight-line method.

Gifts of long-lived assets, such as land, buildings, or equipment, are reported as unrestricted support and are excluded from the excess of revenues and nonoperating items over expenses, unless explicit donor stipulations specify how the donated assets must be used. 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 restricted support. Absent explicit donor stipulations about how long these long-lived assets must be maintained, expiration of donor-restrictions is reported when the donated or acquired long-lived assets are placed in service.

Land improvements 8–15 yearsBuildings and fixed equipment 6–20 yearsFurniture and equipment 3–10 years

Goodwill and Other Intangibles — Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized, but instead is tested for impairment at the reporting unit level annually or more frequently if the presence of certain circumstances indicates that impairment may have occurred. The impairment review process compares the fair value of the reporting unit in which goodwill resides to the carrying value. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of the reporting unit goodwill to its carrying amount. In calculating the implied fair value of the reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.

Intangible assets (other than goodwill) are amortized on a straight-line basis over the periods of benefit. The Hospital evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Deferred Financing Costs — Deferred financing costs include legal, financing, and placement fees associated with the issuance of long-term debt. Deferred financing costs are being amortized over the term of the related debt using the interest method. Accumulated amortization was approximately $717,000 and $799,000 as of December 31, 2012 and 2011, respectively.

Impairment of Long-Lived Assets — Long-lived assets to be held and used are reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell.

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Self-Insurance — Costs under self-insurance programs for employee health benefits, professional liability, and workers’ compensation include the estimated costs for both reported claims and claims incurred but not reported. The undiscounted estimates are approximately $1,000,000 for employee health benefits as of December 31, 2012 and 2011, and $2,987,000 and $2,677,000 for workers’ compensation as of December 31, 2012 and 2011, respectively. These amounts are included in the accompanying consolidated balance sheets as accounts payable and accrued expenses and estimated liability for self-insurance. The undiscounted estimate for professional liability is approximately $11,581,000 and $12,850,000 at December 31, 2012 and 2011, respectively, which is recorded as estimated liability for self-insurance in the accompanying consolidated balance sheets (see Note 7).

Net Assets — The net assets of the Hospital and changes therein are classified and reported as follows:

Unrestricted Net Assets — Unrestricted net assets represent contributions, gifts, and grants that have no donor-imposed restrictions or that arise as a result of operations.

Temporarily and Permanently Restricted Net Assets — Temporarily restricted net assets are those whose use has been limited by donors or grantors to a specific time period or purpose. Temporarily restricted net assets are available for capital acquisition, defined health care operations, health care education, and indigent care. Permanently restricted net assets have been restricted by donors to be maintained in perpetuity (the income from which is expendable to support health care services and necessary education). Generally, the donors of these assets permit the Hospital to use all of the income earned on related investments for specific purposes.

Pledges Receivable — Pledges receivable, less an allowance for uncollectible amounts, are recorded in the year made and are primarily unsecured and are receivable from individuals and business. Pledges receivable greater than one year are recorded at their present value (discounted at December 31, 2012 and 2011 at 1.0% and 4.0%, respectively). Restricted pledges are reported as additions to the appropriate restricted net assets.

Donor-Restricted Gifts — Gifts of cash and other assets are reported as 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 to unrestricted net assets and reported in the accompanying consolidated statements of operations and changes in net assets as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are reflected as unrestricted contributions.

Consolidated Statements of Operations — For purposes of display, transactions deemed by management to be ongoing, major, or central to the provision of health care services are reported as revenues and expenses; peripheral or incidental transactions, primarily contributions and fundraising activities and investment income and losses, other than that related to funds held in the malpractice trust, including equity earnings and losses on limited liability partnership and corporation investments, are reported as nonoperating items. The accompanying consolidated statements of operations include the caption excess of revenues and nonoperating items over expenses, which is the performance indicator. Changes in unrestricted net assets that are excluded from the performance indictor, consistent with industry practice, include permanent transfers of assets from affiliates for other goods and services, 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), and pension-related adjustments.

Patient Service Revenue, after contractual allowances and discounts (but before provision for bad debts) — The Hospital recognizes patient service revenue associated with services provided to patients

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who have third-party coverage on the basis of contractual rates for the services rendered. For uninsured patients that do not qualify for charity care, the Hospital recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). On the basis of historical experience, a significant portion of the Hospital’s uninsured patients will be unable or unwilling to pay for the services provided. Thus, the Hospital records a significant provision for bad debts related to uninsured patients in the period the services are provided. Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:

2012 2011

Medicare 64,354,834$ 63,131,552$ Medicaid 8,598,199 8,298,851 Managed care 141,947,188 134,747,022 Self-pay 4,357,138 4,084,673 Other third-party payors 24,592,701 24,571,437

Net patient service revenue after contractual allowances and discounts 243,850,060$ 234,833,535$

A summary of the payment arrangements with major third-party payors follows:

Medicare — Under the Medicare program, the Hospital receives reimbursement under a prospective payment system (PPS) for inpatient and outpatient services. Under the Hospital inpatient PPS, fixed-payment amounts per inpatient discharge are established based on the patient’s assigned diagnosis related group (DRG). When the estimated cost of treatment for certain patients is higher than the average, providers typically will receive additional “outlier” payments. Under outpatient PPS, ambulatory services are paid based on service groups called ambulatory payment classifications. The Hospital’s behavioral health unit is subject to PPS based on the intensity of the services provided to the patient.

The Hospital has received final settlements through 2007.

Non-Medicare Payors — On March 30, 2011, the New York State fiscal 2012 budget was passed resulting in the extension of the New York Health Care Reform Act of 1996 (the “Act”) for an additional three-year period ending March 31, 2014. Under the Act, Medicaid payment rates are promulgated by the New York State Department of Health on a prospective basis. The Act has been revised to incorporate certain proposals made by the Medicaid Redesign Team. In addition to a global Medicaid spending cap, the Act includes delivery system reform, home care payment changes, mandatory enrollment of populations into managed long-term care or managed care, payment and quality linkages, palliative care provisions, utilization review, and reimbursement reductions. Fixed payment amounts per inpatient discharge are established based on the patient’s assigned case mix similar to a Medicare DRG. All other third-party payors, principally, Blue Cross, other private insurance companies, home maintenance organizations, preferred provider organizations, and other managed care plans, negotiate payment rates directly with the Hospital. Such arrangements include DRG-based payment systems, per diems, case rates, and percentage of billed charges. If such rates are not negotiated, then the payors are billed at the Hospital’s established charges.

Indigent Care Pool — New York state regulations provide for the distribution of funds from an indigent care pool which is intended to partially offset the cost of services provided to the uninsured. The funds are distributed to hospitals based on each hospital’s level of bad debt and charity care in relation to all other hospitals. For the years ended December 31, 2012 and 2011, the Hospital received distributions of

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approximately $1,328,000 and $1,554,000, respectively, from the indigent care pool, which are included in net patient service revenue in the accompanying consolidated statements of operations.

Laws and Regulations — Both federal and New York state regulations provide for certain adjustments to current and prior years’ payment rates and indigent care pool distributions based on industry-wide and hospital-specific data. The Hospital has established estimates based on information presently available of the amounts due to or from Medicare, Medicaid, workers’ compensation, and no-fault payors and amounts due from the indigent care pool for such adjustments.

There are various proposals at the federal and New York state levels that could, among other things, reduce reimbursement rates or modify reimbursement methods. The ultimate outcome of these proposals and other market changes cannot presently be determined.

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. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as settlements are finalized. Changes in estimates increased net patient service revenue by $67,000 in 2012 and decreased net patient service revenue $373,000 in 2011. The Hospital believes that it is in compliance, in all material respects, with all applicable laws and regulations and it is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquires have been made, compliance with such laws and regulations can be subject to future government review and interpretation. Noncompliance with such laws and regulations could result in repayments of amounts improperly reimbursed, substantial monetary fines, civil and criminal penalties, and exclusion from the Medicare and Medicaid programs.

The federal government and many states have aggressively increased enforcement under Medicare and Medicaid antifraud and abuse legislation. Recent federal initiatives have prompted a national review of federally funded health care programs. The Hospital has implemented a compliance program to monitor conformance with applicable laws and regulations, but the possibility of future government review and interpretation exists. The ultimate outcome of any such reviews, which may be initiated by regulatory agencies, cannot be determined.

Charity Care — The Hospital strives to maintain quality health care delivery in a manner that respects the dignity of the individual and family, regardless of ability to pay. Consistent with the Hospital’s tax-exempt status and community service responsibilities, the Hospital provides financial assistance in the form of free or discounted care to patients who need health care services and meet program eligibility criteria. Because the collection of amounts determined to qualify as charity care is not pursued, it is not reported as revenue.

The estimated cost incurred by the Hospital to provide services to patients who are unable to pay was approximately $4,122,000 and $3,256,000 for the years ended December 31, 2012 and 2011, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the period. Gross charges associated with providing care to charity patients include only the related charges for those patients who are financially unable to pay and qualify under the Hospital’s charity care policy and that do not otherwise qualify for reimbursement from a governmental program.

Certain services are provided under Medical Assistance and Medicare programs whereby the payments received are less than the cost of providing the services. Additionally, services are performed at no charge, which benefit the community, such as public health screening, health care publications, workplace wellness, health-related educational programs, and other activities.

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Provision and Allowance for Doubtful Accounts — To provide for accounts receivable that could become uncollectible in the future, the Hospital establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. In evaluating the collectability of accounts receivable, the Hospital analyzes its past history and identifies trends for each of its major payor sources of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts. Management regularly reviews data about these major payor sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts. For receivables associated with services provided to patients who have third-party coverage, the Hospital analyzes contractually due amounts and provides an allowance for doubtful accounts and a provision for bad debts, if necessary (for example, for expected uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid). For receivables associated with self-pay patients (which includes both patients without insurance and patients with deductible and copayment balances due for which third-party coverage exists for part of the bill), the Hospital records a significant provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. The difference between the standard rates (or discounted rates if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for doubtful accounts.

The Hospital’s allowance for doubtful accounts for self-pay patients with no insurance and for patient responsibility for insured patients was approximately 16 percent and 13 percent of patient accounts receivable at December 31, 2012 and 2011, respectively. In addition, the Hospital’s write-offs and net referrals to collection agencies for these accounts increased from $3,782,000 in 2011 to $3,909,000 in 2012. The increase reflects the negative trends experienced in the collection of amounts from these patients. The Hospital has not changed its charity care or uninsured discount policies during fiscal years 2011 or 2012.

Electronic Health Records Incentives — Under the Health Information Technology for Economic and Clinical Health (HITECH) Act, acute care hospitals are eligible for incentive payments for achieving meaningful use of electronic health records (EHR) from both Medicare and Medicaid. The Hospital reports amounts awarded to it under the EHR program as other operating revenue when the Hospital has completed the compliance requirements as set forth by Medicare and Medicaid. During 2012, the Hospital recorded as other operating revenue an estimated $1,699,000 from Medicare and $289,000 from Medicaid, respectively.

Accounting for Asset Retirement Obligations — The Hospital recognizes a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation is factored into the measurement of the liability when sufficient information exists. The types of asset retirement obligations that the Hospital considers are those for which it has a legal obligation to perform an asset retirement activity, however, the timing and/or method of settling the obligation are conditional on a future event that may or may not be within its control. The New York State Department of Labor Industrial Code Rule 56 requires the controlled removal or encapsulation of asbestos by a licensed contractor in commercial and public buildings, including renovation and partial or complete demolition activities; such legislation is applicable to the Hospital. The fair value of a liability for the legal obligation associated with an asset retirement is recorded in the period in which the obligation is incurred. When the liability is initially recorded, the cost of the asset retirement is capitalized.

At December 31, 2012 and 2011, the Hospital has recorded a liability for the removal of asbestos of approximately $1,024,800 and $878,000, respectively, which is included in other liabilities in the accompanying consolidated balance sheets.

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Accounting for Postretirement Benefit Plans — The Hospital recognizes the overfunded or underfunded status of its defined benefit pension and other postretirement benefit plans (collectively, “postretirement benefit plans”) in the consolidated balance sheets. Changes in the funded status of the plans are reported in the year in which the changes occur as a change in unrestricted net assets presented below the excess of revenues and nonoperating items over expenses in its consolidated statements of operations and changes in net assets.

Recent Accounting Pronouncements — In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. The purpose of this ASU is to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. In addition, some of the amendments could change how the fair value measurements guidance in Accounting Standards Codification (ASC) 820 is applied. The amendments in this ASU are to be applied prospectively. The provisions of ASU 2011-04 were adopted by the Hospital on January 1, 2012. The adoption of ASU 2011-04 had no impact on the consolidated financial statements and no additional disclosures were required in the notes to the consolidated financial statements.

In July 2011, the FASB issued ASU 2011-07, Health Care Entities (Topic 954), Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. The adoption of ASU 2011-07 requires the Hospital change the presentation of its consolidated statements of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). Additionally, the ASU requires the Hospital to provide enhanced disclosures about its sources of patient service revenue, policies for recognizing revenue and assessing bad debts, as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. The provisions of ASU 2011-07 were effective for the Hospital beginning January 1, 2012. The adoption of this ASU decreased net patient service revenue by $4,421,000 for 2012 and $4,400,000 for 2011. There was no impact on total revenues and excess of revenues and nonoperating items over expenses for the years ended December 31, 2012 and 2011. The Hospital has included the enhanced disclosures in Note 1 to the consolidated financial statements.

In September 2011, the FASB issued ASU 2011-09, Disclosures About an Employer’s Participation in a Multiemployer Plan, which amends ASC 715-80, Compensation — Retirement Benefits — Multiemployer Plans, by increasing the quantitative and qualitative disclosures an employer is required to provide about its participation in significant multiemployer plans that offer pension or other postretirement benefits. The Hospital adopted the provisions of ASU 2011-09 on January 1, 2012. The adoption of this accounting standard had no impact on the Hospital’s consolidated financial statements. Additional disclosures required under this ASU are included in Note 8 to the consolidated financial statements.

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2. ASSETS WHOSE USE IS LIMITED

Assets whose use is limited at December 31, 2012 and 2011, consist of the following:

2012 2011

Cash investments 13,126,188$ 14,907,696$Alternative investments — limited liability partnerships and corporations 14,628,010 13,058,812 Corporate and U.S. government bonds 1,091,128 909,625 Pledges receivable — net 6,847,102 1,299,471

Total assets whose use is limited 35,692,428 30,175,604

Less current portion of assets whose use is limited (6,145,356) (7,034,910)

Assets whose use is limited — noncurrent 29,547,072$ 23,140,694$

Assets whose use is limited consist of construction funds of $2,411,000 and $4,917,000 at December 31, 2012 and 2011, respectively; malpractice trust and debt service reserve funds of approximately $9,000,000 and $11,606,000 at December 31, 2012 and 2011, respectively; and Board designated funds of approximately $6,790,000 and $4,782,000 at December 31, 2012 and 2011, respectively. The remaining assets whose use is limited have been restricted by donors.

The pledges receivable at December 31, 2012 and 2011, which are included in assets whose use is limited in the accompanying consolidated balance sheets, are as follows:

2012 2011

Due in less than one year 1,840,841$ 643,559$ Due in one to five years 5,352,261 830,912 Discount on pledges (137,000) (102,000)

7,056,102 1,372,471

Allowance for uncollectible pledges (209,000) (73,000)

Total 6,847,102$ 1,299,471$

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Return on investments for the years ended December 31, 2012 and 2011, are as follows:

2012 2011

Unrestricted net assets: Other operating income (loss) 814,644$ (567,063)$ Nonoperating items — equity (losses) earnings on limited liability partnerships and corporations and other investment income — net 545,488 (1,016,611) Temporarily restricted net assets — investment income and (losses) gains on investments 816,552 (478,238)

Total return on investments 2,176,684$ (2,061,912)$

3. FAIR VALUE MEASUREMENTS

GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The fair value hierarchy is as follows:

Level 1 — Quoted (unadjusted) prices for identical assets in active markets.

Level 2 — Other observable inputs, either directly or indirectly, including:

• Quoted prices for similar assets in active markets;

• Quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc.);

• Inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc.); and

• Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data.

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The following table presents information as of December 31, 2012 and 2011, about the Hospital’s financial assets that are measured at fair value on a recurring basis:

QuotedPrices in Other

Active Observable UnobservableMarkets Inputs Inputs

December 31, 2012 (Level 1) (Level 2) (Level 3) Fair Value

Assets whose use is limited: Cash investments 13,126,188$ - $ - $ 13,126,188$ Corporate and U.S. government bonds - 1,091,128 - 1,091,128 Alternative investments - limited liability partnerships and corporations - - 14,628,010 14,628,010

Total assets whose use is limited 13,126,188 1,091,128 14,628,010 28,845,326

Assets held in pension plan: Cash investments 12,739,621 - - 12,739,621 Alternative investments - limited liability partnerships and corporations - - 60,298,316 60,298,316

Total assets held in pension plan 12,739,621 - 60,298,316 73,037,937

Total 25,865,809$ 1,091,128$ 74,926,326$ 101,883,263$

QuotedPrices in Other

Active Observable UnobservableMarkets Inputs Inputs

December 31, 2011 (Level 1) (Level 2) (Level 3) Fair Value

Assets whose use is limited: Cash investments 14,907,696$ - $ - $ 14,907,696$ Corporate and U.S. government bonds - 909,625 - 909,625 Alternative investments - limited liability partnerships and corporations - - 13,058,812 13,058,812

Total assets whose use is limited 14,907,696 909,625 13,058,812 28,876,133

Assets held in pension plan: Cash investments 14,506,443 - - 14,506,443 Equity securities 2,182,707 - - 2,182,707 Alternative investments - limited liability partnerships and corporations - - 51,971,170 51,971,170

Total assets held in pension plan 16,689,150 - 51,971,170 68,660,320

Total 31,596,846$ 909,625$ 65,029,982$ 97,536,453$

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At December 31, 2012 and 2011, Level 1 investments include cash investments and equity securities, Level 2 investments include corporate and U.S. government bonds, and Level 3 investments are comprised of investments in limited partnerships. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash Investments — The carrying value of cash investments approximates fair value as maturities are less than three months and/or include money market funds that are based on quoted prices and actively traded.

Equity Securities — Fair value estimates for publicly traded equity securities are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices.

Debt Securities — The estimated fair values of debt securities are based on quoted market prices and/or other market date for the same or comparable instruments and transactions in establishing the prices. Fair value of debt securities that do not trade on a regular basis in active markets are classified as Level 2.

Limited Liability Partnerships and Corporations — Investments in limited partnerships do not have readily determinable market values. Fair value estimates are based on information provided by each fund manager. As a practical expedient, the Hospital measures the fair value of these investments on the basis of the net asset value per share (or its equivalent). Such investments are accounted for under the equity method of accounting and any adjustments to the estimated fair value are recorded as changes in the value of the investment.

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Included within the assets above are investments in certain limited liability partnerships and corporations and mutual funds that report fair value using a calculated net asset value or its equivalent. Attributes relating to the nature and risk of such investments as of December 31, 2012 and 2011, are as follows:

Fair Value Fair Valueas of as of Other Redemption

December 31, December 31, Unfunded Redemption Redemption Notice2012 2011 Commitment Frequency Restrictions Period

Assets whose use is limited — Limited liability partnerships and corporations: Andor Technology (a) 44,837$ 68,846$ None - None - Canyon (b) 2,792,297 2,364,127 None Quarterly None 60 Days Moore Global (c) 2,779,107 2,549,477 None Quarterly None 60 Days Empyrean (d) 2,436,042 2,194,186 None Quarterly None 65 Days TPG Axon Partners (e) 2,322,722 2,004,919 None Quarterly None 90 Days D.C. Capital (f) 962,135 800,724 None Annual None 45 Days Seneca (g) 84,991 118,298 None Annual None 90 Days Wexford (h) 1,875,972 1,755,731 None Bi-annual None 90 Days Eton Park (i) 1,329,907 1,202,504 None Quarterly None 65 Days

Total 14,628,010$ 13,058,812$

Limited liability partnerships and corporations: Brevan Howard Limited Fund (j) 2,829,267$ 2,809,267$ None Monthly None 3 Months D.E. Shaw Multi-Asset International Fund (k) 77,445 1,350,171 None Quarterly None 75 Days D.E. Shaw Composite (v) 1,685,716 - None Quarterly None 75 Days D.E.Shaw Oculus (u) 1,816,958 1,500,000 None Quarterly None 75 Days Chatham Special Situations (l) 1,687,293 1,563,197 None Quarterly None 45 days Davidson Kempner Institutional Partners (m) 1,702,257 1,577,423 None Quarterly None 65 Days Davidson Kempner LT Distressed (t) 1,827,727 1,191,092 None Quarterly None 65 Days Indus Asia Pacific (n) 3,314,794 3,069,049 None Quarterly None 30 Days Indus Japan (o) 2,518,517 2,328,631 None Quarterly None 30 Days Kingdon Capital (p) 3,858,700 3,451,918 None Quarterly None 30 Days Canyon (b) 4,181,581 3,540,378 None Quarterly None 60 Days Moore Global (c) 2,677,019 2,455,824 None Quarterly None 60 Days Empyrean (d) 2,511,262 2,261,936 None Quarterly None 65 Days TPG Axon Partners (e) 2,998,334 2,556,177 None Quarterly None 90 Days D.C. Capital (f) 2,696,870 2,244,434 None Annual None 45 Days Eton Park (i) 3,659,902 4,728,953 None Annual None 65 Days Perry Partners International (q) 4,267,839 4,872,387 None Annual None 90 Days Seneca (g) 161,736 234,163 None Annual None 90 Days Wexford (h) 3,808,626 3,565,368 None Bi-annual None 90 Days Elliott Associates (r) 3,952,531 3,479,102 None Semi-annual None 60 Days Renaissance Institutional Diversified Alpha (w) 4,966,712 - None Quarterly None 45 Days Blackrock (s) 3,097,230 3,191,700 None Illiquid None N/A

Total 60,298,316$ 51,971,170$

(a) Andor Technology — Concentrated all-cap hedged equity fund designed to give the manager the flexibility to invest both long and short where they find attractive investment opportunities through their bottom-up research process. Historically, the manager has varied their net market exposure and concentrated their exposure in technology equities. The major technology subsectors include communications hardware, components and services, semiconductors and semiconductor capital equipment, the Internet, media computer services, software and hardware.

(b) Canyon — Multi-strategy credit oriented, event-driven value investment philosophy. The manager employs a fundamental credit approach to opportunistically allocate capital across a variety of credit driven strategies including bank debt, high yield, distressed investing, value equities, direct lending and convertible bond arbitrage.

(c) Moore Global — Multi-strategy, macro-oriented hedge fund. The manager makes top-down investment decisions on the direction of bond, equity, currency and/or commodity prices. In addition, the manager will utilize arbitrage strategies attempting to capture the pricing discrepancies between two related securities.

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(d) Empyrean — Multi-strategy manager that seeks to identify companies that are undergoing transforming events and to invest in the most attractive securities and instruments regardless of asset class. Long/short equities, merger and event strategies as well as convertible bond strategies comprise a vast majority of the portfolio’s exposure.

(e) TPG Axon Partners — Multi-strategy, opportunistic, concentrated, global-oriented hedge fund. The manager invests primarily in long/short equities employing a bottom-up investment philosophy. Typically more than 50% of the exposure is in non-U.S. securities (Europe, Japan, Asia).

(f) D.C. Capital — Long-only equity manager with a long-term, value biased investment philosophy. The manager will take a concentrated approach in 15-20 securities that they feel are poised for a turnaround or may be in distress but have a strong management and strategy for a possible recovery.

(g) Seneca — Multi-strategy, opportunistic, value-oriented, event-driven hedge fund. The manager invests primarily in special situation equities which may include spin-offs, split-offs, recapitalizations, restructurings, divestitures, bankruptcies, etc. A smaller portion of the portfolio historically has been invested in distressed securities as well as risk and capital structure arbitrage strategies.

(h) Wexford — Multi-strategy, opportunistic fund that will typically concentrate the portfolio in distressed, energy/natural resources, real estate, technology/telecommunications and transportation related securities.

(i) Eton Park — Multi-strategy manager that attempts to capitalize on the ‘best ideas” across asset classes and geography. A majority of their exposure is equity-oriented, both concentrated in long/short equities and event driven strategies.

(j) Brevan Howard Limited Fund — Global macro and relative value manager with focus on interest rates and FX markets. The manager seeks absolute return by allocating to more than 30 in-house traders who invest in a wide range of asset classes and employ a variety of trading styles.

(k) D.E. Shaw Multi-Asset International Fund — Quantitatively focused multi-strategy manager, investing in both quantitative and fundamental strategies via funds managed by companies in the D.E. Shaw group. The Fund invests primarily in the following strategies: direct lending/special situations, relative value, market neutral, directional equity, event driven and distressed.

(l) Chatham Special Situations — Long/short distressed/credit manager investing in U.S. corporate debt and leveraged loans across companies capital structures. Manager focused on attractive risk-adjusted returns over a credit cycle with a focus on liquidity and capital preservation.

(m) Davidson Kempner Institutional Partners — Multi-strategy manager primarily invested in event-driven investments which seek to exploit situations in which announced or anticipated events create inefficiencies in the pricings of securities.

(n) Indus Asia Pacific — Long-biased, all-cap hedged equity fund designed to give the manager the flexibility to invest both long and short where they find attractive opportunities through their bottom-up research process. Country exposure is primarily expressed through equity investments in China, Hong Kong, Australia, Malaysia, Singapore and India.

(o) Indus Japan — Long-biased, all-cap hedged equity fund designed to give the manager the flexibility to invest both long and short where they find attractive opportunities through their bottom-up research process. Country exposure is typically expressed through equity investments in Japan.

(p) Kingdon Capital — Long biased, hedged equity fund designed to give the manager the flexibility to invest both long and short in accordance with their global approach embracing a combination of growth, value, fundamental and technical elements.

(q) Perry Partners International — Multi-strategy manager with a bottom-up, value bias searching for opportunities across the capital structure and geography. Strategies employed include long/short equities, merger/event driven strategies as well as credit and private equity investments.

(r) Elliott Associates — Multi-strategy fund with a value-oriented investment strategy. The fund is diversified across many investment strategies and securities and portfolio managers invest opportunistically based on market conditions. The fund tends to focus on distressed opportunities.

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(s) Blackrock — Long-only closed-end fund that seeks to achieve attractive income and total return potential by investing in a diversified portfolio of assets currently trading at distressed levels. The anticipated portfolio composition is as follows: 25% Investment Grade Corporate Debt, 20% Bank Loans, 20% CMBS, 15% Alt-A RMBS, 10% Prime RMBS, 10% Subprime RMBS. The fund closed in February 2009 with $308MM of capital. The fund will have a two-year lock-up followed by annual tenders of 25% in 2012, 2013, 2014, 2015, and 2016 allowed by market conditions. The term of the fund is six years.

(t) Davidson Kempner LT Distressed — Specialized closed-end fund focused on less liquid and complex public and private investments in North America, Europe and Asia. The manager primarily invests in distressed securities, longer-dated liquidations, asset-backed and structured products, commercial real estate loans, hard assets, and private lending and FDIC-assisted transactions.

(u) D.E. Shaw Oculus — Invests in both quantitative and fundamental strategies via funds managed by companies in the D.E. Shaw group. The Fund employs a quant focus with higher volatility strategies and various types of macro trades. The fund seeks to exploit certain market anomalies currently targeted through the futures and currencies sub-fund and the equity arbitrage sub-fund, as well as other, quantitatively-based investment strategies.

(v) D.E. Shaw Composite – Quantitatively focused multi-strategy manager, investing in both quantitative and fundamental strategies via funds managed by companies in the D.E. Shaw group. The composite portfolio is allocated to several underlying strategies and sub-funds, such as: equity arbitrage, converts, energy-related strategies, credit-related opportunities, futures and currency strategies, direct capital activity, long/short equity strategies, insurance related strategies, real estate and private investments.

(w) Renaissance Institutional Diversified Alpha – Quantitative, global investment strategy with exposure to long/short equity-trading strategies as well as futures and forward strategies. The fund uses longer-term alpha signals to maximize returns with targeted volatility between 8-16% and has a relatively low correlation to other asset classes.

The Hospital assesses the valuation of hierarchy for each asset on an annual basis. From time to time, assets will be transferred within hierarchy levels. The Hospital’s policy is to recognize such transfers at the end of the reporting period. For the year ended December 31, 2012 and 2011, there were no significant transfers in or out of levels.

The following table presents the fair value measurements for the investments in limited partnerships included in assets whose use is limited that have unobservable inputs at December 31, 2012 and 2011:

Assets Whose Use is Limited 2012 2011

Balance — January 1 13,058,812$ 14,243,930$Change in the value of investments accounted for on the equity basis of accounting 1,617,266 (1,055,019) Distributions (48,068) (130,099)

Balance — December 31 14,628,010$ 13,058,812$

Assets Held in Pension Plan 2012 2011

Balance — January 1 51,971,170$ 50,769,863$ Purchases 7,513,000 5,035,580 Change in value of investments 5,914,132 (3,181,988) Distributions (5,099,986) (652,285)

Balance — December 31 60,298,316$ 51,971,170$

Long-Term Debt — The carrying value of the Hospital’s long-term debt approximates fair value.

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Interest Rate Swap — The Hospital uses inputs other than quoted prices that are observable to value the interest rate swap. The Hospital considers these inputs to be Level 2 inputs in the context of the fair value hierarchy.

4. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment, at cost, and the related accumulated depreciation and amortization at December 31, 2012 and 2011, are as follows:

2012 2011

Land 1,975,018$ 1,975,018$ Land improvements 2,684,106 2,682,506 Buildings and fixed equipment 192,272,035 181,223,203 Furniture and equipment 124,070,741 116,528,275

321,001,900 302,409,002

Less accumulated depreciation and amortization (184,132,486) (171,218,895)

136,869,414 131,190,107

Construction in progress 12,862,932 6,308,601

149,732,346$ 137,498,708$

The majority of the construction in progress is for construction of the Hospital’s parking garage. The date of completion for this project is May 2013. As of December 31, 2012, the Hospital has construction commitments for this and other projects totaling approximately $15 million.

Property, plant, and equipment under capital leases as of December 31, 2012 and 2011, is as follows:

2012 2011

Land improvements 453,985$ 453,985$ Buildings and fixed equipment 3,423,000 3,423,000 Furniture and equipment 725,166 725,166 Less accumulated amortization (1,586,475) (818,008)

Total 3,015,676$ 3,784,143$

5. GOODWILL AND OTHER INTANGIBLE ASSET

The Hospital recorded goodwill of approximately $1,553,000 in connection with the acquisition of the remaining ownership interest in Yorktown Radiology on October 1, 2010.

During 2001, the Hospital entered into a non-compete agreement with Mount Kisco Medical Group (MKMG). The non-compete agreement prevents MKMG from providing certain services within the “service area” that includes Mount Kisco. The value assigned to this non-compete agreement ($1,650,000) is being amortized over 20 years, the term of the agreement, on a straight-line basis. The

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balance of the intangible asset at December 31, 2012 and 2011, is approximately $717,000 and $799,000, respectively.

6. LONG-TERM DEBT

Long-term debt as of December 31, 2012 and 2011, consists of the following:

2012 2011

Bonds payable — 2004 (a) 11,540,000$ 12,260,000$Bonds payable — 2009 (b) 15,910,000 16,460,000 Loan payable (c) 4,019,515 - Capital lease (d) 2,751,986 3,320,524 Equipment lease (e) 97,289 268,630

Total long-term debt 34,318,790 32,309,154

Less current installments 4,821,356 4,729,979

29,497,434$ 27,579,175$

(a) In April 2004, the County of Westchester Industrial Development Agency (the “Agency”) bonds, Northern Westchester Hospital Association Project, Series 1998 were redeemed and a $7,500,000 mortgage loan note was executed. In November 2004, the mortgage loan note was paid off with the issuance of $16,000,000 of Agency bonds (the “2004 Bonds”). The proceeds from the 2004 Bonds were used to (1) repay the mortgage loan note, the proceeds of which were used to renovate and upgrade patient rooms, modernize various mechanical systems, and install a new chiller plant and steam generation plant; (2) construct and equip the Hospital’s Cancer Treatment and Wellness Center; and (3) pay certain costs in connection with the issuance of the 2004 Bonds.

The 2004 Bonds are payable through November 2024 with a weekly variable interest rate, which was 0.12% at December 31, 2012, and 0.11% at December 31, 2011. The 2004 Bonds are secured by a first mortgage lien on and security interest in the Hospital improvements and equipment referred to above. In addition, the 2004 Bonds are secured by a letter of credit issued by TD Bank expiring November 4, 2014. The letter of credit is secured by a first mortgage on the Hospital’s main premises.

The bondholders have the option to put the bonds back to the Hospital. Such bonds would be subject to remarketing efforts by a remarketing agent. To the extent that such remarketing efforts were unsuccessful, the bonds would be purchased from the proceeds of the letter of credit. Monthly interest payments on the letter of credit borrowings would commence on the first day of the month following the borrowing and principal payments would be due in accordance with the maturation schedule of the bonds, however, the entire principal amount would come due at the date of the expiration of the letter of credit. The bonds have been classified in accordance with the terms of the letter of credit in the accompanying consolidated balance sheets and in accordance with the terms of the bonds in the table of scheduled maturities of long-term debt.

On January 1, 2009, in conjunction with the 2004 Bonds, the Hospital entered into an interest rate swap agreement whereby the Hospital pays a fixed rate of 2.79% and received payments based on the SIFMA Muni swap index. The original notional amount of the swap is $13,610,000 and it

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matures on November 1, 2024. The fair value of the swap as of December 31, 2012 and 2011, was approximately $1,206,000 and $1,031,000, respectively, and is recorded in other liabilities.

The provisions of the mortgage and related agreements require the Hospital to maintain a specified amount of cash on hand and comply with various debt service coverage ratios. For the years ended December 31, 2012 and 2011, the Hospital was in compliance with its required covenants.

(b) In December 2009, The Dormitory Authority of The State of New York (the “Dormitory”) issued $17,000,000 in variable rate demand obligation bonds (the “2009 Bonds”). The proceeds from the 2009 Bonds were used to (1) construct a new two-story building contiguous to the Hospital’s existing main building: on the first floor, expand the size of the current Hospital’s Emergency room Department; the second floor, for future expansion of the Hospital’s clinical and support services; (2) renovation of the Hospital’s current Emergency Department, a relocation of the CT scanner, x-ray room and support staff space; and (3) pay certain costs in connection with the issuance of the 2009 Bonds.

The 2009 Bonds are payable through November 2034 with a weekly variable interest rate, which was 1.120% at December 31, 2012, 0.08% at December 31, 2011. The 2009 Bonds are secured by a security interest in the Hospital improvements and equipment referred to above. In addition, the 2009 Bonds are secured by a letter of credit issued by TD Bank which expires December 17, 2016.

The bondholders have the option to put the bonds back to the Hospital. Such bonds would be subject to remarketing efforts by a remarketing agent. To the extent that such remarketing efforts were unsuccessful, the bonds would be purchased from the proceeds of the letter of credit. Monthly interest payments on the letter of credit borrowings would commence on the first day of the month following the borrowing and principal payments would be on a five year amortization schedule, however, the entire principal amount would come due at the date of the expiration of the letter of credit. Therefore, the bonds have been classified in accordance with the terms of the letter of credit in the accompanying consolidated balance sheets and in accordance with the terms of the bonds in the table of scheduled maturities of long-term debt. The Hospital recorded approximately $892,000 in financing costs in relation to the issuance of the 2009 Bonds. These costs are being amortized over the life of the bonds.

The provisions of the mortgage and related agreements require the Hospital to maintain a specified amount of cash on hand and comply with various debt service coverage ratios. For the years ended December 31, 2012 and 2011, the Hospital was in compliance with its required covenants.

(c) As of December 2012, the Hospital has drawn down $4,019,515 on a $9,000,000 loan from TD Bank to finance the construction of the Hospital’s new parking garage. During the construction period, the loan bears interest at a rate of LIBOR plus 150 basis points, which was 1.71% at December 31, 2012. The loan will then convert to a 10 year term loan maturing in December 2022 bearing interest at a rate of LIBOR plus 150 basis points.

(d) In October 2010, the Hospital entered into a $4,000,000 Equipment Lease with TD Equipment Finance, Inc. for various equipment that has been installed at Chappaqua Crossings. The lease bears interest at a fixed rate of 4.0% and matures in October 2016.

(e) In October 2010, the Hospital acquired 100% of Yorktown Radiology. Yorktown Radiology maintains several equipment loans with interest rates ranging from 7.03% to 10.76% and various maturity dates from February 2011 to October 2013. In February 2012, Yorktown Radiology

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received approval to operate as an article 28 facility, and as such is operating as a department of the hospital.

Principal Payments — Principal payments on debt obligations are due as follows:

2004 2009 Loan Capital EquipmentYear Bonds Bonds Payable Lease Lease Total

2013 750,000$ 565,000$ 200,367$ 591,700$ 97,289$ 2,204,356$ 2014 785,000 575,000 352,436 615,807 - 2,328,243 2015 820,000 590,000 364,063 640,895 - 2,414,958 2016 855,000 605,000 376,073 903,584 - 2,739,657 2017 890,000 615,000 388,479 - - 1,893,479 Thereafter 7,440,000 12,960,000 2,338,097 - - 22,738,097

11,540,000$ 15,910,000$ 4,019,515$ 2,751,986$ 97,289$ 34,318,790$

7. PROFESSIONAL LIABILITY CLAIMS

The Hospital began self-insuring its professional liability exposure on a claims-made basis on July 1, 1980, and its general liability exposures on a claims-made basis on January 1, 1985, subject to stop-loss limitations. The per occurrence retentions are $2 million for professional liability claims and $1 million for general liability claims. Annual aggregate coverage is $5 million for professional liability and $1 million for general liability. Excess coverage is provided by a commercial insurance carrier.

Professional liability claims have been asserted against the Hospital by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. There are known incidents occurring through December 31, 2012, that may result in the assertion of additional claims, and other claims may be asserted arising from services provided to patients in the past. It is the opinion of the Hospital’s management that such claims will not have a material adverse effect on the Hospital’s consolidated financial statements. The Hospital has accrued its best undiscounted estimate of the ultimate cost of losses payable under its self-insurance program.

The estimated insurance claims payable consists of $3,500,000 and $5,500,000 as of December 31, 2012 and 2011, respectively, related to claims covered by excess insurance carrier. A corresponding estimated insurance recovery has also been recorded.

8. RETIREMENT PLANS

The Hospital’s accrued pension liability at December 31, 2012 and 2011, is as follows:

2012 2011

Defined benefit plan 34,850,030$ 24,556,566$IRC 457 plan and other 3,632,525 2,954,582

38,482,555$ 27,511,148$

Defined Benefit Plan — The Hospital has a noncontributory defined benefit cash balance retirement plan covering noncollective bargaining employees who attain the age of 21 and have completed a “year

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of eligible service” as defined by the Employee Retirement Income Security Act of 1974 (ERISA). Although contributions to the plan may be reduced or suspended at any time, it is the Hospital’s policy to fund the contribution required under ERISA.

The Hospital uses a December 31 measurement date.

Effective December 31, 2012, the defined benefit plan was closed to new entrants, and accrued benefits were frozen for all members except those grandfathered participants who entered the plan before January 1, 2011. All employees hired on or after January 1, 2013 will be offered a defined contribution plan.

The plan’s obligation and fair value of plan assets at December 31, 2012 and 2011, is set forth in the following table:

2012 2011

Reconciliation of the benefit obligation: Projected benefit obligation — beginning of year 93,216,886$ 81,546,989$ Service cost 3,683,259 3,405,264 Interest cost 4,814,997 4,678,107 Plan curtailment (3,057,095) - Special termination benefits 101,471 - Actual benefits paid (5,482,273) (3,227,405) Actuarial loss 14,610,722 6,813,931

Projected benefit obligation — end of year 107,887,967 93,216,886

Change in plan assets: Fair value of plan assets — beginning of year 68,660,320 67,498,449 Actual return on plan assets 5,959,890 (3,410,724) Employer contributions 3,900,000 7,800,000 Actual benefits paid (5,482,273) (3,227,405)

Fair value of plan assets — end of year 73,037,937 68,660,320

Accrued pension obligation 34,850,030$ 24,556,566$

Accumulated benefit obligation — end of year 96,283,502$ 80,912,920$

Unrestricted net assets include unamortized actuarial losses of $49,129,735 and $39,091,968, and unamortized prior service costs of $271,814 and $1,020,053 at December 31, 2012 and 2011, respectively.

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The estimated amounts that will be amortized from unrestricted net assets into net periodic pension cost in 2013 are as follows:

Net actuarial loss 48,722$ Prior service cost 2,723,162

2,771,884$

The components of net periodic pension cost for the years ended December 31, 2012 and 2011, is as follows:

2012 2011

Components of net periodic benefit cost: Service cost 3,683,259$ 3,405,264$ Interest cost 4,814,997 4,678,107 Expected return on plan assets (5,964,908) (6,305,271) Amortization of prior service cost 179,780 179,780 Amortization of net loss 1,520,878 766,027 Curtailment loss 568,459 - Special termination benefits 101,471 -

Net periodic benefit cost 4,903,936$ 2,723,907$

Assumptions — The following assumptions were used to determine the benefit obligations as of December 31, 2012 and 2011, respectively:

2012 2011

Discount rate 4.68 % 5.31 % Rate of compensation increase 3.00 3.00

For the years ended December 31, 2012 and 2011, the following assumptions were used to determine net periodic benefit cost:

2012 2011

Discount rate 5.31 % 5.92 %Expected return on plan assets 7.75 8.50 Rate of compensation increase 3.00 3.00

The discount rate utilized in the determination of the projected benefit obligation at December 31, 2012, was based on the bond model approach. The Hospital’s expected rate of return on plan assets is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.

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Plan Assets — The weighted-average asset allocation of the Hospital’s defined benefit plan assets is as follows:

2012 2011

Asset category: Alternative investments 83 % 76 % Corporate and U.S. government bonds - 3 Cash 17 21

Total 100 % 100 %

December 31,Plan Assets at

Pension Benefit

The Hospital’s financial and investment objectives are to meet present and future obligations to beneficiaries while minimizing the Hospital’s contributions over the long term, by earning an adequate return on assets with moderate volatility. The Hospital does not have specified investment target allocations to meet these objectives.

Cash Flows — The Hospital expects to contribute $3,900,000 to the pension plan in 2013.

The benefits expected to be paid in each of the years 2013–2017 are $3,741,000, $4,067,000, $4,195,000, $4,670,000, and $4,903,000. The aggregate benefits expected to be paid in the next five years is $29,046,000. The expected benefits are based on the same assumptions used to measure the Hospital’s benefit obligation at December 31 and include estimated future employee service.

457 and Other Plans— During 2003, the Hospital began to offer employees the option of contributing pretax funds to a 457 Plan fund. The 457 Plan, was established under the guidance provided by the IRC and relates specifically to not-for-profit and governmental agencies. The balance of employee funds in this plan at December 31, 2012 and 2011, is $1,093,000 and $930,000, respectively, and is recorded in assets whose use is limited and accrued pension liability. The Hospital also maintains a nonqualified senior executive retirement plan. The Hospital expensed $515,000 and $165,000 for the years ended December 31, 2012 and 2011, respectively, related to this plan. At December 31, 2012 and 2011, the plan liabilities related to this plan were $2,540,000 and $2,025,000, respectively.

Multiemployer Plan — Certain Hospital employees represented by a bargaining unit participate in a multiemployer pension plan. For these employees, the Hospital contributes to the 1199SEIU Health Care Employees Pension Fund (the “Multiemployer Pension Plan”). Participation in the Multiemployer Pension Plan commences on the first day on which a contributing employer is required to contribute to the Multiemployer Pension Plan on behalf of that employee. Contributions to the Multiemployer Pension Plan are calculated on union employee gross wages and a negotiated contribution rate in accordance with the union contractual arrangement.

Under the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, the risks of participating in multiemployer plans are different from single-employer plans in the following respects:

• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

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• If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

• If the employer chooses to stop participating in some of its multiemployer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Until such events above occur, the Hospital’s share, if any, of the unfunded vested liabilities cannot be determined. As of December 31, 2012, the Hospital has no plans to withdraw from the Multiemployer Pension Plan.

The Hospital’s participation in the Multiemployer Pension Plan for the years ended December 31, 2012 and 2011, is outlined below:

• The Employee Identification Number is 13-3604862 and the three-digit plan number is 001.

• The Pension Plan Protection Act of 2006 (PPA) zone status is based on information that the Hospital received from the Multiemployer Pension Plan’s sponsor and is certified by the Multiemployer Pension Plan’s actuary. The Multiemployer Pension Plan is in the green zone indicating that it is at least 80% funded. The most recent PPA zone status available in 2012 and 2011 is for the Multiemployer Pension Plan years ended December 31, 2011 and December 31, 2010, respectively.

• A financial improvement plan or a rehabilitation plan is neither pending nor has one been implemented for the Multiemployer Pension Plan.

• The Hospital was not required to pay a surcharge to the Multiemployer Pension Plan.

• The collective bargaining agreement to which the Multiemployer Pension Plan is subject to expires on April 30, 2015.

• The Hospital contributed $2,917,000 and $2,470,000 to the Multiemployer Pension Plan for the years ended December 31, 2012 and 2011, respectively. The Hospital did not contribute greater than 5% of the total contributions to the Multiemployer Pension Plan and was not listed in the Form 5500 for the Multiemployer Pension Plan years ended December 31, 2011 and 2010.

At the date the consolidated financial statements were issued, the Form 5500 was not available for the Multiemployer Pension Plan year ended December 31, 2012.

9. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS

Temporarily restricted net assets are those whose use by the Hospital has been limited by donors to a specific time period or purpose. Temporarily restricted net assets as of December 31, 2012 and 2011, are available for the following purposes:

2012 2011

Capital acquisitions 8,380,914$ 49,394$ Other 1,092,220 817,449

Total 9,473,134$ 866,843$

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Permanently restricted net assets have been restricted by donors to be maintained by the Hospital in perpetuity. Permanently restricted net assets as of December 31, 2012 and 2011, are invested for the following purposes:

2012 2011

Health care services 4,011,081$ 3,997,187$Health education services 2,462,398 2,460,698 Indigent care 1,544,990 1,545,584

Total 8,018,469$ 8,003,469$

The Board of Trustees has determined that donor-restricted endowment funds will be governed by specific policies with the objective that the original gift shall be protected in perpetuity as the endowed corpus and distributions will not be made if it were to bring the value below that threshold. Policies have been developed that explain the calculation used to determine funds available for expenditure, and the process for expenditure of funds in accordance with donor restrictions.

During 2010, the State of New York passed the Prudent Management of Institutional Funds Act. The Hospital has interpreted this law as requiring realized and unrealized gains of permanently restricted net assets to be retained in a temporarily restricted net asset classification until appropriated by the Board of Trustees (the “Board”) and expended. This law allows the Board to appropriate so much of the net appreciation of permanently restricted net assets as is prudent considering the Hospital’s long- and short-term needs, present and anticipated financial requirements, and expected total return on its investments, price level trends, and general economic conditions. No amounts were appropriated in 2012 or 2011. Accumulated gains are not material

10. CONCENTRATION OF CREDIT RISK

The Hospital provides health care services through its inpatient and outpatient care facilities located in Mount Kisco, New York. Credit is granted to patients, substantially all of whom are local residents. In extending credit to patients, collateral or other security is generally not required; however, an assignment of patients’ benefits payable under their health insurance programs, plans, or policies (e.g., Medicare, Medicaid, Blue Cross, health maintenance organizations, and commercial insurance policies) is routinely obtained.

Patient accounts receivable by financial class at December 31, 2012 and 2011, as a percentage of total patient accounts receivable, are as follows:

2012 2011

Managed care 35 % 33 % Medicare 12 17 Blue Cross 13 15 Medicaid 11 8 Oxford 9 8 Self-pay 18 15 Other third-party payors 2 4

Total 100 % 100 %

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11. FUNCTIONAL EXPENSES

The Hospital and its subsidiaries provide general health care services to residents primarily within its geographic location. Expenses related to providing these services are as follows:

2012 2011

Health care services 182,395,778$ 169,580,183$ General and administrative 58,212,194 55,595,298

Total 240,607,972$ 225,175,481$

12. AFFILIATION WITH STELLARIS

As discussed in Note 1, Stellaris is the sole member of the Hospital, subject to certain terms and conditions. Stellaris provides certain administrative information technology, contracting services, and health plan services to its members, including the Hospital.

Information Technology Lease — In 2003, Stellaris entered into a Master Lease Agreement (the “Master Lease”) with a leasing company to finance hardware, software, and implementation costs of new information technology systems. The Hospital guarantees 35% of Stellaris’ total obligation under the terms of the Master Lease and subsequent schedules.

In 2010, Stellaris entered into Master Lease Schedule No. 4 to finance purchases and installations of information technology equipment and software. The total financed amount is not to exceed $29,250,893 with monthly lease payments through June 1, 2016.

Payments made to Stellaris under this agreement was approximately $1,245,000 and $1,140,000 in 2012 and 2011, respectively, and are included in supplies and other expenses.

The Hospital’s estimated future funding requirements to Stellaris for Master Lease Schedule No. 4 at December 31, 2012, is as follows:

Years EndingDecember 31 Amount

2013 1,320,000$2014 1,423,000 2015 1,496,000 2016 623,000

Total 4,862,000$

Shared Services Agreement — The Hospital shares certain administrative, information technology, contracting, and health plan services with other Stellaris members. Stellaris and its members contract with Empire Blue Cross to provide health plan services. Under these shared service agreements, approximately $6,802,000 and $5,020,000 are included in supplies and other expenses for the years ended December 31, 2012 and 2011, respectively.

Workers’ Compensation — Stellaris became an approved self-insurer under the State of New York Workers’ Compensation Board’s guidelines as of October 1, 2002. Each member hospital retains the

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first $350,000 for any one occurrence and Stellaris has purchased excess insurance to pay any losses above the $350,000 per occurrence to the statutory limits required by the State of New York. Effective October 1, 2012, the retention limit increased to $450,000 per accident. Under this arrangement, each Stellaris member hospital guarantees Stellaris’ obligation under a surety bond totaling $15,000,000 required by the State of New York Workers’ Compensation Board and is jointly and severally liable. In addition, the member hospitals have entered into a cross indemnification agreement with each other.

13. COMMITMENTS AND CONTINGENCIES

Litigation and Claims — The Hospital is involved in litigation and claims, which are considered normal to its business. It is the opinion of Hospital’s management that such claims will not have a material adverse effect on the consolidated financial statements.

Operating Leases — The Hospital leases equipment under operating leases. Total rental expense (exclusive of affiliate leases described in Note 12) amounted to approximately $1,460,000 and $1,790,000 for the years ended December 31, 2012 and 2011, respectively. The Hospital recognizes rent expense ratably over the term of the lease.

The following is a schedule by year of future minimum lease payments under operating leases as of December 31, 2012, that have initial remaining lease terms in excess of one year:

Years EndingDecember 31 Amount

2013 1,061,000$2014 875,000 2015 980,000 2016 980,000 2017 1,085,000 Thereafter 2,170,000

Total 7,151,000$

14. SUBSEQUENT EVENTS

The Hospital has evaluated subsequent events through May 31, 2013, which is the date the financial statements were issued.

* * * * * *

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ADDITIONAL INFORMATION

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SUPPLEMENTAL CONSOLIDATING SCHEDULE — BALANCE SHEET INFORMATIONAS OF DECEMBER 31, 2012

Eliminating/NWHC Holding Surgical Management Reclassifying Consolidated

Hospital Foundation NORCORP Corp. Services Services Total Entries BalanceASSETS

CURRENT ASSETS: Cash and cash equivalents 8,293,738$ - $ 148,004$ - $ 329,830$ - $ 8,771,572$ - $ 8,771,572$ Patient accounts receivable — net 26,139,310 - - - 344,308 - 26,483,618 - 26,483,618 Estimated insurance recoveries 3,500,000 - - - - - 3,500,000 - 3,500,000 Other receivables 6,071,757 - - - - - 6,071,757 (5,136,528) 935,229 Inventory 3,779,389 - - - - - 3,779,389 - 3,779,389 Prepaid expenses 1,411,236 - 47,662 17,785 127,919 - 1,604,602 - 1,604,602 Current portion of assets whose use is limited 6,145,356 - - - - - 6,145,356 - 6,145,356

Total current assets 55,340,786 - 195,666 17,785 802,057 - 56,356,294 (5,136,528) 51,219,766

ASSETS WHOSE USE IS LIMITED — Net of current portion 7,418,411 22,128,661 - - - - 29,547,072 - 29,547,072

PROPERTY, PLANT, AND EQUIPMENT — Net 144,398,835 - 480,176 4,685,926 167,409 - 149,732,346 - 149,732,346

GOODWILL AND INTANGIBLE ASSET — Net 2,269,914 - - - - - 2,269,914 - 2,269,914

DEFERRED FINANCING COSTS — Net 1,514,336 - - - - - 1,514,336 - 1,514,336

OTHER ASSETS 738,558 - 3,267 140,001 - - 881,826 - 881,826

TOTAL 211,680,840$ 22,128,661$ 679,109$ 4,843,712$ 969,466$ - $ 240,301,788$ (5,136,528)$ 235,165,260$

The Hospital discloses it interest in its controlled affiliates using the cost method of accounting. (Continued)

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Hospital Foundation NORCORP Corp. Services Services Total Entries BalanceLIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Accounts payable and accrued expenses 32,019,623$ 294,655$ 1,808,829$ 3,022,201$ 2,059,105$ - $ 39,204,413$ (5,136,528)$ 34,067,885$ Accrued salaries and other related benefits 7,539,728 - - - 251,639 - 7,791,367 - 7,791,367 Due to third-party payors 2,177,001 - - - - - 2,177,001 - 2,177,001 Current portion of long-term debt 4,821,356 - - - - - 4,821,356 - 4,821,356 Estimated insurance claims payable 3,500,000 - - - - - 3,500,000 - 3,500,000 Current portion of estimated liability for self-insurance 3,941,000 - - - - - 3,941,000 - 3,941,000

Total current liabilities 53,998,708 294,655 1,808,829 3,022,201 2,310,744 - 61,435,137 (5,136,528) 56,298,609

LONG-TERM DEBT — Net of current portion 29,497,434 - - - - - 29,497,434 - 29,497,434

ESTIMATED LIABILITY FOR SELF-INSURANCE — Net of current portion 10,351,401 - - - - - 10,351,401 - 10,351,401

ACCRUED PENSION LIABILITY 38,482,555 - - - - - 38,482,555 - 38,482,555

DUE TO THIRD-PARTY PAYORS — Net of current portion 2,000,000 - - - - - 2,000,000 - 2,000,000

OTHER LIABILITIES 2,980,730 - 129,267 854,001 - - 3,963,998 - 3,963,998

Total liabilities 137,310,828 294,655 1,938,096 3,876,202 2,310,744 - 145,730,525 (5,136,528) 140,593,997

NET ASSETS: Unrestricted (deficit) 73,205,462 5,506,953 (1,258,987) 967,510 (1,341,278) - 77,079,660 - 77,079,660 Temporarily restricted 254,925 9,218,209 - - - - 9,473,134 - 9,473,134 Permanently restricted 909,625 7,108,844 - - - - 8,018,469 - 8,018,469

Total net assets 74,370,012 21,834,006 (1,258,987) 967,510 (1,341,278) - 94,571,263 - 94,571,263

TOTAL 211,680,840$ 22,128,661$ 679,109$ 4,843,712$ 969,466$ - $ 240,301,788$ (5,136,528)$ 235,165,260$

The Hospital discloses it interest in its controlled affiliates using the cost method of accounting. (Concluded)

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Hospital Foundation NORCORP Corp. Services Services Total Entries BalanceASSETS

CURRENT ASSETS: Cash and cash equivalents 5,550,654$ - $ 118,166$ - $ 155,447$ 88,701$ 5,912,968$ - $ 5,912,968$ Patient accounts receivable — net 28,636,423 - - - 376,914 - 29,013,337 - 29,013,337 Estimated insurance recoveries 5,500,000 - - - - - 5,500,000 - 5,500,000 Other receivables 5,150,030 942,995 - 33,555 - 333,701 6,460,281 (4,505,991) 1,954,290 Inventory 3,563,692 - - - - - 3,563,692 - 3,563,692 Prepaid expenses 1,313,546 - 38,070 29,004 115,814 22,939 1,519,373 - 1,519,373 Current portion of assets whose use is limited 7,034,910 - - - - - 7,034,910 - 7,034,910

Total current assets 56,749,255 942,995 156,236 62,559 648,175 445,341 59,004,561 (4,505,991) 54,498,570

ASSETS WHOSE USE IS LIMITED — Net of current portion 10,351,422 12,789,272 - - - - 23,140,694 - 23,140,694

PROPERTY, PLANT, AND EQUIPMENT — Net 131,352,612 - 511,515 5,012,695 96,248 525,638 137,498,708 - 137,498,708

GOODWILL AND INTANGIBLE ASSET — Net 799,429 - - - - 1,552,985 2,352,414 - 2,352,414

DEFERRED FINANCING COSTS — Net 1,611,550 - - - - - 1,611,550 - 1,611,550

OTHER ASSETS 6,706,966 - 1,778,459 136,049 - 28,024 8,649,498 (7,786,627) 862,871

TOTAL 207,571,234$ 13,732,267$ 2,446,210$ 5,211,303$ 744,423$ 2,551,988$ 232,257,425$ (12,292,618)$ 219,964,807$


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Hospital Foundation NORCORP Corp. Services Services Total Entries BalanceLIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Accounts payable and accrued expenses 33,558,639$ 8,245$ 1,759,404$ 3,637,879$ 931,197$ 6,022,805$ 45,918,169$ (10,517,423)$ 35,400,746$ Accrued salaries and other related benefits 7,599,875 - - - 409,996 - 8,009,871 - 8,009,871 Due to third-party payors 2,479,247 - - - - - 2,479,247 - 2,479,247 Current portion of long-term debt 4,580,538 - - - - 149,441 4,729,979 - 4,729,979 Estimated insurance claims payable 5,500,000 - - - - - 5,500,000 - 5,500,000 Current portion of estimated liability for self-insurance 3,849,000 - - - - - 3,849,000 - 3,849,000

Total current liabilities 57,567,299 8,245 1,759,404 3,637,879 1,341,193 6,172,246 70,486,266 (10,517,423) 59,968,843

LONG-TERM DEBT — Net of current portion 27,459,986 - - - - 119,189 27,579,175 - 27,579,175

ESTIMATED LIABILITY FOR SELF-INSURANCE — Net of current portion 11,438,000 - - - - - 11,438,000 - 11,438,000

ACCRUED PENSION LIABILITY 27,511,148 - - - - - 27,511,148 - 27,511,148

DUE TO THIRD-PARTY PAYORS — Net of current portion 2,000,000 - - - - - 2,000,000 - 2,000,000

OTHER LIABILITIES 2,886,993 - 108,000 748,049 - - 3,743,042 - 3,743,042

Total liabilities 128,863,426 8,245 1,867,404 4,385,928 1,341,193 6,291,435 142,757,631 (10,517,423) 132,240,208

NET ASSETS: Unrestricted (deficit) 77,492,107 6,069,411 578,806 825,375 (596,770) (3,739,447) 80,629,482 (1,775,195) 78,854,287 Temporarily restricted 306,076 560,767 - - - - 866,843 - 866,843 Permanently restricted 909,625 7,093,844 - - - - 8,003,469 - 8,003,469

Total net assets 78,707,808 13,724,022 578,806 825,375 (596,770) (3,739,447) 89,499,794 (1,775,195) 87,724,599

TOTAL 207,571,234$ 13,732,267$ 2,446,210$ 5,211,303$ 744,423$ 2,551,988$ 232,257,425$ (12,292,618)$ 219,964,807$


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SUPPLEMENTAL CONSOLIDATING SCHEDULE — STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS INFORMATIONFOR THE YEAR ENDED DECEMBER 31, 2012


Hospital Foundation NORCORP Corp. Services Services Total Entries Totals

REVENUES:

Net patient service revenue (after contractual allowances and discounts) 239,536,247$ - $ - $ - $ 4,313,813$ - $ 243,850,060$ - $ 243,850,060$

Provision for bad debts (4,421,216) - - - - - (4,421,216) - (4,421,216)

Net patient service revenue, net of provision for bad debts 235,115,031 - - - 4,313,813 - 239,428,844 - 239,428,844 Other operating revenue 5,145,707 1,190,381 235,966 1,805,415 - 175,641 8,553,110 (1,190,381) 7,362,729 Net assets released from restrictions — operations 784,438 261,475 - - - - 1,045,913 - 1,045,913

Total revenues 241,045,176 1,451,856 235,966 1,805,415 4,313,813 175,641 249,027,867 (1,190,381) 247,837,486

EXPENSES: Salaries 97,715,062 518,006 - - 3,054,653 62,791 101,350,512 (518,006) 100,832,506 Employee benefits 30,270,665 134,418 - - 371,399 12,558 30,789,040 (134,418) 30,654,622 Supplies and other 91,513,172 1,361,890 267,225 1,224,357 1,632,914 194,220 96,193,778 (1,100,415) 95,093,363 Depreciation and amortization 12,586,888 - 31,339 438,924 - 21,387 13,078,538 - 13,078,538 Interest 946,981 - - - - 1,962 948,943 - 948,943

Total expenses 233,032,768 2,014,314 298,564 1,663,281 5,058,966 292,918 242,360,811 (1,752,839) 240,607,972

INCOME (LOSS) FROM OPERATIONS 8,012,408 (562,458) (62,598) 142,134 (745,153) (117,277) 6,667,056 562,458 7,229,514

NONOPERATING ITEMS: Unrestricted contributions and legacies 126,797 - - - - - 126,797 - 126,797 Equity earnings (losses) on limited liability partnerships and corporations and other investment income — net 544,822 - (1,775,195) - 646 20 (1,229,707) 1,775,195 545,488 Fundraising activities - - - - - - - (562,458) (562,458)

Total nonoperating items 671,619 - (1,775,195) - 646 20 (1,102,910) 1,212,737 109,827

EXCESS (DEFICIENCY) OF REVENUES AND NONOPERATING ITEMS OVER EXPENSES 8,684,027 (562,458) (1,837,793) 142,134 (744,507) (117,257) 5,564,146 1,775,195 7,339,341

NET ASSETS RELEASED FROM RESTRICTIONS — Capital acquisitions 285,000 - - - - - 285,000 - 285,000

TRANSFERS (3,856,704) - - - - 3,856,704 - - -

PENSION RELATED ADJUSTMENTS (9,398,968) - - - - - (9,398,968) - (9,398,968)

INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS (4,286,645)$ (562,458)$ (1,837,793)$ 142,134$ (744,507)$ 3,739,447$ (3,549,822)$ 1,775,195$ (1,774,627)$


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Hospital Foundation NORCORP Corp. Services Services Total Entries Totals

TEMPORARILY RESTRICTED NET ASSETS: Interest income and losses on investments - $ 816,552$ - $ - $ - $ - $ 816,552$ - $ 816,552$ Contributions 77,887 9,042,765 - - - - 9,120,652 - 9,120,652 Net assets released from restrictions for operating purposes (784,438) (261,475) - - - - (1,045,913) - (1,045,913) Net assets released from restrictions for capital purposes (285,000) - - - - - (285,000) - (285,000) Transfers 940,400 (940,400) - - - - - - -

DECREASE IN TEMPORARILY RESTRICTED NET ASSETS (51,151)$ 8,657,442$ - $ - $ - $ - $ 8,606,291$ - $ 8,606,291$

PERMANENTLY RESTRICTED NET ASSETS: Contributions - $ 15,000$ - $ - $ - $ - $ 15,000$ - $ 15,000$ Transfers - - - - - - - - -

INCREASE IN PERMANENTLY RESTRICTED NET ASSETS - $ 15,000$ - $ - $ - $ - $ 15,000$ - $ 15,000$


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Eliminating/NWHC Oncology Holding Surgical Management Reclassifying Consolidated

Hospital Foundation NORCORP Management Corp. Services Services Total Entries Totals

REVENUES: Net patient service revenue (after contractual allowances and discounts) 230,595,850$ - $ - $ - $ - $ 4,237,685$ - $ 234,833,535$ - $ 234,833,535$ Provision for bad debts (4,400,004) - - - - - - (4,400,004) - (4,400,004)

Net patient service revenue, net of provision for bad debts 226,195,846 - - - - 4,237,685 - 230,433,531 - 230,433,531 Other operating revenue 2,434,002 2,193,740 227,965 - 1,796,209 - 2,165,749 8,817,665 (2,193,740) 6,623,925 Net assets released from restrictions — operations 780,867 116,226 - - - - - 897,093 - 897,093

Total revenues 229,410,715 2,309,966 227,965 - 1,796,209 4,237,685 2,165,749 240,148,289 (2,193,740) 237,954,549

EXPENSES: Salaries 90,385,746 432,790 - - - 3,056,792 760,072 94,635,400 (432,790) 94,202,610 Employee benefits 25,505,120 114,769 - - - 466,947 136,648 26,223,484 (114,769) 26,108,715 Supplies and other 88,399,376 953,517 258,664 - 1,184,590 1,311,326 1,198,492 93,305,965 (837,291) 92,468,674 Depreciation and amortization 10,888,320 - 37,329 - 444,801 - 171,433 11,541,883 - 11,541,883 Interest 782,933 - - - 38,548 - 32,118 853,599 - 853,599

Total expenses 215,961,495 1,501,076 295,993 - 1,667,939 4,835,065 2,298,763 226,560,331 (1,384,850) 225,175,481

INCOME (LOSS) FROM OPERATIONS 13,449,220 808,890 (68,028) - 128,270 (597,380) (133,014) 13,587,958 (808,890) 12,779,068

NONOPERATING ITEMS: Unrestricted contributions and legacies 100,302 - - - - - - 100,302 - 100,302 Equity earnings (losses) on limited liability partnerships and corporations and other investment income — net (1,017,827) - - - - 610 606 (1,016,611) - (1,016,611) Fundraising activities - - - - - - - - 808,890 808,890

Total nonoperating items (917,525) - - - - 610 606 (916,309) 808,890 (107,419)

EXCESS (DEFICIENCY) OF REVENUES AND NONOPERATING ITEMS OVER EXPENSES 12,531,695 808,890 (68,028) - 128,270 (596,770) (132,408) 12,671,649 - 12,671,649

NET ASSETS RELEASED FROM RESTRICTIONS — Capital acquisitions 1,198,628 - - - - - - 1,198,628 - 1,198,628

TRANSFERS 533,677 - - (533,677) - - - - - -

PENSION RELATED ADJUSTMENTS (15,584,119) - - - - - - (15,584,119) - (15,584,119)

INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS (1,320,119)$ 808,890$ (68,028)$ (533,677)$ 128,270$ (596,770)$ (132,408)$ (1,713,842)$ - $ (1,713,842)$


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Eliminating/NWHC Oncology Holding Surgical Management Reclassifying Consolidated

Hospital Foundation NORCORP Management Corp. Services Services Total Entries Totals

TEMPORARILY RESTRICTED NET ASSETS: Interest income and losses on investments - $ (478,238)$ - $ - $ - $ - $ - $ (478,238)$ - $ (478,238)$ Contributions 633,471 792,468 - - - - - 1,425,939 - 1,425,939 Net assets released from restrictions for operating purposes (780,867) (116,226) - - - - - (897,093) - (897,093) Net assets released from restrictions for capital purposes (1,198,628) - - - - - - (1,198,628) - (1,198,628) Transfers 576,595 (1,207,010) - - - - - (630,415) - (630,415)

DECREASE IN TEMPORARILY RESTRICTED NET ASSETS (769,429)$ (1,009,006)$ - $ - $ - $ - $ - $ (1,778,435)$ - $ (1,778,435)$

PERMANENTLY RESTRICTED NET ASSETS: Contributions - $ 1,900$ - $ - $ - $ - $ - $ 1,900$ - $ 1,900$ Transfers - 630,415 - - - - - 630,415 - 630,415

INCREASE IN PERMANENTLY RESTRICTED NET ASSETS - $ 632,315$ - $ - $ - $ - $ - $ 632,315$ - $ 632,315$


Northern Westchester Hospital Association and … FY12...Northern Westchester Hospital Association and Subsidiaries Consolidated Financial Statements and Additional Information as

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