1 st Quarter FY2013. Senior Management. David J. Kilarski Chief Executive Officer

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1 Senior Management David J. Kilarski Chief Executive Officer Executive Summary Lynn DeJaco Chief Financial Officer FirstHealth of the Carolinas, Inc. ( FirstHealth ) is a private North Carolina nonprofit health care system headquartered in Pinehurst, North Carolina. FirstHealth and its six affiliates own and operate a health care delivery system (the Health System ) that provides health care services to patients throughout a 15-county service area in North Carolina and South Carolina (the "Total Service Area"). The Total Service Area includes a smaller 5-county primary service area (the "Primary Service Area") and larger 10-county secondary service area (the "Secondary Service Area"). FirstHealth operates two hospitals: FirstHealth Moore Regional Hospital ( FirstHealth Moore Regional ), and FirstHealth Montgomery Memorial Hospital ( FirstHealth Montgomery Memorial ). FirstHealth Moore Regional operates in two locations; the main campus in Pinehurst, North Carolina and a remote location in Rockingham, North Carolina. FirstHealth also provides primary care services at nine medical clinics and one convenient care clinic, specialty services at thirteen medical clinics (including neurosurgery, cardiology, cardiothoracic surgery, women's care, wound care, infectious disease, back and neck pain and medical oncology), home health services, health and fitness centers, dental clinics, inpatient and outpatient behavioral programs, occupational health programs, mobile health services, 11-bed inpatient hospice facility and in-home hospice services, inpatient and outpatient rehabilitation, and regional emergency medical transport services. FirstHealth Moore Regional is the sole tertiary care hospital in its Primary Service Area and competes with only two other tertiary care hospitals in its Total Service Area. Those hospitals are located in Cumberland (Cape Fear Valley Medical Center) and Robeson (Southeastern Regional Medical Center) counties, approximately 43 and 52 miles away, respectively. Other competing tertiary care facilities are academic medical centers (Duke University Hospital and UNC Hospitals) located more than 60 miles away. FirstHealth is the leader in cardiology, oncology, orthopedic and neuroscience services in the Total Service Area. FirstHealth operates the only dedicated comprehensive heart and vascular hospital in the Primary Service Area - The Reid Heart Center, as well as a comprehensive community cancer center, and offers a full array of neurology and neurosurgery services. FirstHealth provides treatments for a multitude of devastating neurological disorders, as well as for those neurosurgical conditions affecting the brain and spinal cord. FirstHealth is a leader in medical innovation and an early adopter of medical technology, including: davinci robot, hybrid ORs, 64 Slice CT, 3D mammography, PACs, and PET/CT. FirstHealth has implemented Electronic Medical Records (EMR), computerized physician order entry (CPOE) and related information technology initiatives eligible for Federal stimulus payments under the Patient Protection and Affordable Care Act. 1

2 The following chart summarizes the organizational structure of the Health System: FirstHealth of the Carolinas, Inc. 1 (501(c)(3) non-profit) The Foundation of FirstHealth, Inc. 1 (501(c)(3) non-profit) (FirstHealth is sole member) Montgomery County Primary Care Corp. (501(c)(3) non-profit) (FirstHealth is sole member) FirstHealth Professional Services, Inc. (for-profit) (100% ownership by FirstHealth) MCPC-1, MCPC-2, MCPC-3, MCPC-4, MCPC-5, MCPC-6, MCPC-7, MCPC-8, MCPC-9, MCPC-10, Surgery Center of Pinehurst Properties (SCOPP) () 2 (92% ownership by FirstHealth) Surgery Center of Pinehurst (SCOP) () 2 (40% ownership by FirstHealth) FirstImaging, 2 (50% ownership by FirstHealth) StarFirst, (100% ownership by FirstHealth) FirstCarolinaCare Insurance Company (FCCI) (non-profit) (100% ownership by FirstHealth) Cardiovascular Center of Scotland County () 2 (50% ownership by FirstHealth) FirstCarolinaCare Insurance Services () 2 (51% ownership by FirstHealth) (49% ownership by FCCI) Sanford Hematology & Oncology () 2 (50% ownership by FirstHealth) 1 Member of the Restricted Group. 2 Financial results are included with Moore Regional Hospital - Pinehurst results. * MCPC-1, - FirstHealth Richmond Medical Group Women's Center * MCPC-2, - FirstHealth Richmond Medical Group Internal Medicine * MCPC-3, - FirstHealth Neurology Consultants * MCPC-4, - FirstHealth Richmond Medical Group - General Surgery * MCPC-5, - FirstHealth Cardiology Services * MCPC-6, - FirstHealth Back and Neck Pain Center * MCPC-7, - FirstHealth Richmond Anesthesiologists * MCPC-8, - FirstHealth FirstCare Convenient Care Center * MCPC-9, - FirstHealth Surgical Specialties * MCPC-10, - FirstHealth Cardiovascular and Thoracic Services 2

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4 FirstHealth of the Carolinas Results of Operations (In $000's) 3 Months Ended December 31, 2012 December 31, 2011 Revenues: Inpatient Revenue 176, ,640 Outpatient Revenue 156, ,493 Gross Patient Revenue 333, ,133 Deductions from Revenue (204,839) (173,571) Net Patient Revenue 128, ,562 Other Operating Revenue 21,098 19,903 Net Revenue 149, ,466 Operating Expenses: Salary & Wages 51,239 47,205 Fringe Benefits 11,713 10,646 Supplies 26,791 22,754 Provision for Bad Debt 12,214 9,344 Other Operating Expense 33,281 27,786 Depreciation 8,399 8,129 Interest 1,570 1,844 Total Operating Expense 145, ,709 Income(Loss) from Operations 4,139 1,756 Nonoperating Gains: Unrestricted Investment Income 7,507 2,704 Loss on Bond Refunding (283) - Total Nonoperating Gains 7,224 2,704 Excess of Revenue Over Expenses : 11,363 4,460 Unrealized Gains/Losses (1,828) 11,715 Other Changes (124) (91) Increase in Unrestricted Net Assets 9,411 16,084 Restricted Net Asset Changes: Restricted Contributions Other Changes - - Restricted Investment Income Net Assets Released From Restriction (239) (172) Total Restricted Gains Unrealized Gains/Losses (740) 359 Increase in Restricted Net Assets Operating Metrics: Operating Margin % 2.8% 1.4% Operating Cash Flow Margin % 9.4% 9.1% Excess Margin % 7.3% 3.4% 4

5 FirstHealth of the Carolinas Consolidated Statement of Cash Flows (In $000's) 3 Months Ended December 31, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Increase in Net Assets $ 9,644 Adjustments to Reconcile Increase in Net Assets to Net Cash Provided by Operating Activities: Depreciation 8,399 Provision for Bad Debts 12,214 Amortization of Premium/Discount (3) Income and Unrealized (Gains) Losses on Investments and Derivatives (5,882) Loss on Refunding of Long Term Debt 283 Patient Accounts Receivable (18,088) Other Assets (6,375) Accounts Payable (4,401) Employee Compensation and Other (2,419) Estimated Settlements Due to Third-Party Payors (81) Net Cash Provided by Operating Activities (6,711) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property and Equipment (11,374) Purchase of Assets Whose Use is Limited, Net 6,350 Net Cash Used in Investing Activities (5,024) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Issuance of Bonds 28,435 Bond Discount 116 Refunding of Bonds (28,235) Cash paid for Issue Costs (172) Principal Payments of Long-Term Debt (4,930) Net Cash Used in Financing Activities (4,786) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,520) Cash and Cash Equivalents - Beginning of Year 37,617 CASH AND CASH EQUIVALENTS - END OF YEAR $ 21,097 5

6 FIRSTHEALTH OF THE CAROLINAS, INC. CONSOLIDATING BALANCE SHEET - RESTRICTED GROUP December 31, 2012 (in $000s) Moore Moore Regional Regional Montgomery The Restricted Hospital Hospital Memorial Foundation Group Pinehurst Richmond Hospital of FirstHealth Eliminations Combined ASSETS CURRENT ASSETS: Cash and Cash Equivalents 10,477 (2) 10 2,246-12,730 Accounts Receivable, net 47,578 20,150 2, ,722 Other Receivables 5, ,582 Inventories 7,010 1, ,543 Prepaid Expenses 7, ,286 Due From Affiliates 122,648 2, (128,557) (3,100) Total Current Assets 200,304 24,048 3,682 2,285 (128,557) 101,762 ASSETS LIMITED AS TO USE: By Board for Projects 363, ,815 Under Indenture Agreements-Held by Trustees 7, ,881 Self-Insurance Reserves 14, ,327 Contributions by Donors to Foundations ,637 55,637 Non Current Assets Limited as to Use 386, , ,659 PROPERTY AND EQUIPMENT, net 278,976 29,151 3,057 5, ,055 OTHER ASSETS 8, ,301 TOTAL ASSETS 873,521 53,200 6,738 63,875 (128,557) 868,777 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable 15, ,961 Accrued Expenses and Other Liabilities 29,108 1, ,427 Due To Affiliates 56,050 26,439 11,337 1,183 (128,557) (33,549) Estimated Settlements Due Third Party 9, ,013 Current Portion of Long Term Debt 4, ,950 Total Current Liabilities 115,527 27,784 12,132 1,917 (128,557) 28,802 LONG TERM DEBT, less current portion 223, ,474 OTHER LIABILITIES 20, ,986-25,819 Total Liabilities 359,833 27,784 12,132 6,904 (128,557) 278,095 NET ASSETS: Unrestricted 512,748 25,416 (6,093) 26, ,281 Temporarily Restricted ,986-17,624 Permanently Restricted ,777-14, ,688 25,416 (5,394) 56, ,682 Total Liabilities and Net Assets 873,521 53,200 6,738 63,875 (128,557) 868,777 6

7 FIRSTHEALTH OF THE CAROLINAS, INC. COMBINING SCHEDULE OF EXCESS REVENUES OVER EXPENSE - RESTRICTED GROUP Three Months Ended December 31, 2012 (in $000s) Moore Moore Regional Regional Montgomery The Restricted Hospital Hospital Memorial Foundation Group Pinehurst Richmond Hospital of FirstHealth Eliminations Combined REVENUES, GAINS AND OTHER SUPPORT: Net patient service revenue 110,323 12,271 4,266 - (46) 126,814 Other Operating Revenue 7, ,133 (988) 8,031 Total revenues, gains and other support 117,734 12,705 4,306 1,133 (1,034) 134,845 OPERATING EXPENSES: Salaries 40,626 4,783 1, ,014 Fringe benefits 9,606 1, (17) 11,089 Supplies 24,879 1, (1) 26,548 Depreciation and amortization 7, ,349 Interest 1, ,570 Provision for bad debts 8,984 2, ,077 Other 19,836 2, (1,015) 22,717 Total operating expense 112,958 12,311 4, (1,034) 129,364 INCOME (LOSS) FROM OPERATIONS 4, ,481 NONOPERATING INCOME: Unrestricted investment income 6,756 (1) ,281 Loss on Advanced Refunding (283) (283) 6,473 (1) ,999 EXCESS OF REVENUES OVER (UNDER) EXPENSES 11, ,479 7

8 FIRSTHEALTH OF THE CAROLINAS, INC. CONSOLIDATING BALANCE SHEET December 31, 2012 (in $000s) Montgomery Restricted County FirstHealth Group Primary Care Professional FirstCarolinaCare Combined Corporation Services Inc. Insurance Co. StarFirst Eliminations Consolidated ASSETS CURRENT ASSETS: Cash and Cash Equivalents 12,730 1,097-6,070 1,201-21,097 Accounts Receivable, Less Allow Uncoll Accts 70, (0) ,605 Other Receivables 5, ,074-7,526 Inventories 8, ,543 Prepaid Expenses 7, ,327 Due From Affiliates (3,100) (2,995) (119) 14-6,201 0 Total Current Assets 101,762 (804) 80 6,584 2,275 6, ,098 ASSETS LIMITED AS TO USE: By Board for Projects 363, , ,570 Under Indenture Agreements-Held by Trustees 7, ,881 Self-Insurance Reserves 14, ,893 9,571 37,791 Contributions by Donors to Foundations 55, ,637 Non Current Assets Limited as to Use 441, ,893 25, ,878 PROPERTY AND EQUIPMENT, net 317,055 1, ,786 OTHER ASSETS 8, (4,582) 4,428 TOTAL ASSETS 868,777 1, ,709 27,601 1, ,191 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable 15, ,376 Accrued Expenses and Other Liabilities 31, ,904 10,729 48,546 Due To Affiliates (33,549) 26,737 (109) ,201 0 Estimated Settlements Due Third Party 10, ,087 Current Portion of Long Term Debt 4, ,950 Total Current Liabilities 28,802 27,297 (109) 6,963 10,805 6,201 79,959 LONG TERM DEBT, less current portion 223, ,474 OTHER LIABILITIES 25, ,827 Total Liabilities 278,095 27,297 (109) 6,971 10,805 6, ,260 NET ASSETS: Unrestricted 558,281 (26,066) ,738 16,796 (4,582) 558,530 Temporarily Restricted 17, ,624 Permanently Restricted 14, , ,682 (26,066) ,738 16,796 (4,582) 590,931 Total Liabilities and Net Assets 868,777 1, ,709 27,601 1, ,191 8

9 FIRSTHEALTH OF THE CAROLINAS, INC. COMBINING SCHEDULE OF EXCESS REVENUES OVER EXPENSE Three Months Ended December 31, 2012 (in $000s) Montgomery Restricted County FirstHealth Group Primary Care Professional FirstCarolinaCare FirstHealth Combined Corporation Services, Inc. Insurance Co. StarFirst Eliminations Consolidated REVENUES, GAINS AND OTHER SUPPORT: Net patient service revenue 126,814 3, (2,281) 128,247 Other Operating Revenue 8, , (1,181) 21,098 Total revenues, gains and other support 134,845 3,897-13, (3,463) 149,345 OPERATING EXPENSES: Salaries 47,014 3, ,239 Fringe benefits 11, ,713 Supplies 26, ,791 Depreciation and amortization 8, ,399 Interest 1, ,570 Provision for bad debts 12, ,214 Other 22,717 1, , (3,463) 33,281 Total operating expense 129,364 5, , (3,463) 145,206 INCOME (LOSS) FROM OPERATIONS 5,481 (1,678) (0) ,139 NONOPERATING INCOME: Unrestricted investment income 7, ,507 Loss on Advanced Refunding (283) (283) 6, ,224 EXCESS OF REVENUES OVER (UNDER) EXPENSES 12,479 (1,678) (0) ,363 9

10 Summary of Operating Statistics Years Ending September 30 YTD QTR FY12 FY13 Total Licensed Beds * Total Staffed Beds Discharges 25,902 25,575 26,333 6,318 6,631 Patient Days 106, , ,173 26,567 28,790 Average Daily Census Percent Occupancy 61.9% 60.3% 60.9% 58.5% 63.3% Medicare Case Mix Index Emergency Room Visits 105, , ,476 25,726 28,230 Hospitalist Encounters 75,874 89, ,468 22,654 25,862 Hospitalist Admissions 10,616 13,016 15,257 3,464 4,027 Surgical Cases 12,141 11,804 11,567 2,830 2,905 Hospice ADC Total EMS Transports 18,130 18,653 19,390 4,599 4,925 FCCI Average Members 14,695 16,698 16,691 17,449 16,939 FamilyCareCenter RVUs ,807 33,165 53,437 Long Term Care: Licensed Beds Patient Days ** ** ** ** ** * Additional 23 beds became operational February 1, 2011 ** Closed (2/6/2009) FirstHealth of the Carolinas Acute Care Payor Mix Years Ending September 30 YTD Qtr FirstHealth of the Carolinas Medicare 56.1% 57.2% 56.6% 57.0% 56.9% Medicaid 11.2% 11.2% 12.2% 11.6% 11.9% Commercial Insurance/Third Party 24.4% 23.3% 22.4% 23.3% 22.0% Self Pay and Other (Tricare) 8.3% 8.3% 8.8% 8.1% 9.2% Total % % % % % 10