Northwest Community Healthcare and Subsidiaries Quarter Ended June 30, 2016 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION Northwest Community Healthcare and Subsidiaries Quarter Ended June 30, 2016 UNAUDITED

2 Northwest Community Healthcare and Subsidiaries Consolidated Balance Sheets Unaudited Audited 06/30/16 09/30/15 Assets Current assets: Cash and cash equivalents $ 7,973,170 $ 14,096,824 Investments restricted under bond financings 16,018, Patient accounts receivable, less allowances for uncollectible accounts (June 2016 $9,718,000; September 2015 $11,353,000) 75,075,508 72,887,321 Other receivables 28,315,686 22,669,534 Prepaid expenses and other 18,127,768 14,513,602 Total current assets 145,510, ,167,378 Assets limited as to use, at fair value: Internally designated for operations and liquidity 51,297,540 70,096,536 Internally designated for capital replacement 335,794, ,156,547 Internally designated for insurance 28,479,506 26,643,257 Internally designated for deferred comp 3,933,945 Internally designated for endowment 1,817,009 2,135,552 Externally designated for endowment 1,645,656 1,932, ,968, ,964,863 Property and equipment, at cost: Land and land improvements 22,938,255 22,938,254 Buildings 356,151, ,475,241 Fixed equipment and leasehold improvements 228,697, ,188,263 Major movable equipment 212,369, ,189,387 Construction-in-progress 13,322,314 10,123, ,479, ,914,987 Less accumulated depreciation (391,997,559) (362,353,882) 441,481, ,561,105 Reinsurance receivable 7,376,473 16,893,152 Other long term assets 11,438,122 7,079,770 Interest rate swap 39,814 Total assets $ 1,028,774,800 $ 1,034,706,083 1

3 Northwest Community Healthcare and Subsidiaries Consolidated Balance Sheets Unaudited Audited 06/30/16 09/30/15 Liabilities and net assets Current liabilities: Accounts payable $ 13,824,689 $ 25,431,957 Accrued expenses and other 62,669,464 64,725,280 Current maturities of long-term debt obligations 6,910,000 6,705,000 Due to third-party payors 37,031,370 47,736,574 Total current liabilities 120,435, ,598,811 Long-term debt obligations, less current maturities: Series 2008A bonds 2,075, ,515,000 Series 2008B bonds 31,805,000 31,805,000 Series 2008C bonds 31,805,000 31,805,000 Series 2011 bonds 43,400,000 45,200,000 Series 2016 bonds 136,690,000 Series 2016 bonds premium 20,646, ,421, ,325,000 Asset retirement obligation 829, ,743 Other long term liabilities 4,884,349 2,119,265 Interest rate swap 404,855 Reserve for self insurance 47,804,665 50,654,380 Pension obligation 11,055,803 16,957,136 Total noncurrent liabilities 331,400, ,865,524 Total liabilities 451,836, ,464,335 Net assets: Unrestricted 568,392, ,002,751 Temporarily restricted 7,473,298 6,189,997 Permanently restricted 1,072,429 1,049,000 Total net assets 576,938, ,241,748 Total liabilities and net assets $ 1,028,774,800 $ 1,034,706,083 2

4 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets Unaudited Audited For the Quarter Ended For the Nine Months Ended For the Year Ended June 30, June 30, September 30, Revenue Net patient service revenue (net of contractual allowances) $ 136,301,235 $ 127,415,594 $ 408,001,062 $ 383,305,605 $ 506,087,203 Provision for uncollectible accounts (4,484,135) (2,567,382) (10,050,787) (8,545,371) (9,330,444) Net patient service revenue after provision for uncollectible 131,817, ,848, ,950, ,760, ,756,759 Other operating revenue 8,088,993 4,940,601 16,678,973 16,784,097 22,708,704 Total revenue 139,906, ,788, ,629, ,544, ,465,463 Expenses Salaries and employee benefits 73,293,933 74,393, ,275, ,446, ,444,232 Supplies and other 29,589,011 27,002,032 84,226,277 68,045,160 89,709,499 Professional fees and purchased services 19,017,112 18,087,783 55,157,002 53,964,708 75,377,367 Depreciation and amortization 9,718,175 9,406,728 29,848,615 28,222,775 37,443,934 Illinois hospital assessment 4,101,875 4,477,072 12,305,615 12,680,812 16,782,682 Interest 2,050,238 2,314,525 6,723,438 6,842,358 9,280,558 Total expenses 137,770, ,681, ,536, ,202, ,038,272 Operating income 2,135,749 (5,892,975) 5,092,687 5,341, ,191 Nonoperating revenue (expenses) Investment income (expense) 2,840,029 1,954,812 8,131,558 15,505,525 (5,089,436) Early Extinquishment of Debt (3,809,642) (3,809,642) Change in value of interest rate swap (145,779) 418,298 (444,669) 655, ,397 Other (196,202) (63,862) (767,677) (306,506) (549,974) Net nonoperating revenue (expense) (1,311,594) 2,309,247 3,109,570 15,854,590 (4,957,013) Excess (Deficit) of revenue over expenses $ 824,155 $ (3,583,727) $ 8,202,257 $ 21,196,194 $ (4,529,820) 3

5 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Operations and Changes in Net Assets (continued) Unrestricted net assets Unaudited Audited For the Quarter Ended June 30, For Nine Months Ended June 30, For the Year Ended September 30, Excess of revenue over expenses $ 824,155 $ (3,583,727) $ 8,202,257 $ 21,196,194 $ (4,529,820) Pension-related changes other than net periodic pension cost (11,090,588) Net assets released from restrictions used for purchase of property and equipment 11, , , , ,828 Capital from DSC and Cyberknife investors (92,000) (226,480) - Increase in unrestricted net assets 743,375 (3,274,168) 8,573,898 21,867,568 (14,913,580) Temporarily restricted net assets Contributions 2,103, ,706 2,598, ,072 2,041,787 Investment income 331,059 Net assets released from restrictions used for: Purchase of property and equipment (11,220) (309,560) (598,122) (671,375) (706,828) Operations (604,112) (80,490) (901,073) (307,080) (750,549) (Decrease) Increase in temporarily restricted net assets 1,487,938 (218,343) 1,099,300 (89,382) 915,469 Permanently restricted net assets Contributions , ,388 Transfers to affiliates (69,589) (69,589) (69,589) Increase (decrease) in permanently restricted net assets (69,184) 23,429 (68,824) (68,201) Increase (decrease) in net assets 2,231,315 (3,561,695) 9,696,627 21,709,363 (14,066,312) Net assets at beginning of period 574,707, ,579, ,241, ,308, ,308,060 Net assets at end of period $ 576,938,375 $ 603,017,423 $ 576,938,375 $ 603,017,423 $ 567,241,748 4

6 Northwest Community Healthcare and Subsidiaries Consolidated Statements of Cash Flows Unaudited Audited For the Quarter Ended For the Nine Months Ended For the Year Ended June 30, June 30, September 30, Operating activities Decrease/Increase in net assets $ 2,231,315 $ (3,561,695) $ 9,696,627 $ 21,709,362 $ (14,066,312) Adjustments to reconcile change in net assets to net cash provided by operating activities: Pension-related changes other than net periodic pension cost 11,090,588 Restricted contributions (2,094,745) (172,111) (2,601,467) (807,682) (2,043,175) Depreciation and amortization 9,718,175 9,406,638 29,848,615 28,222,775 37,443,934 Provision for uncollectible accounts 4,484,135 2,567,382 10,050,787 8,545,371 9,330,444 Loss on disposal of fixed assets 12 3, ,978 Unrealized loss (gain) on investments 2,757,834 (4,048,685) (12,854,026) 7,720,131 28,371,898 Change in value of interest rate swap 145,779 (418,298) 444,669 (655,571) (682,397) Changes in other assets and liabilities: Accounts receivable, other receivables, due to third-party payors and due to affiliates (2,253,955) (19,479,827) (19,965,522) (23,171,258) (31,285,421) Accounts payable and accrued expenses (14,672,739) 4,137,669 (13,458,084) (1,259,357) 14,173,559 Investments (23,216,164) 34,823, ,503 8,428,065 17,869,635 Other assets and liabilities 4,577,731 (6,827,569) (13,046,360) (6,678,955) (2,627,865) Net cash (used in) provided by operating activities (18,322,622) 16,427,307 (11,049,033) 42,052,881 67,831,866 Investing activities Property and equipment additions, net (4,271,231) (26,597,416) (11,772,325) (55,093,495) (72,886,931) Net cash used in investing activities (4,271,231) (26,597,416) (11,772,325) (55,093,495) (72,886,931) Financing activities Issuance of long-term obligations 157,336, ,336,237 - Payments on long-term obligations (143,240,000) (80,474) (143,240,000) (237,853) (6,741,738) Restricted contributions 2,094, ,111 2,601, ,682 2,043,175 Net cash provided by (used in) financing activities 16,190,982 91,637 16,697, ,829 (4,698,563) Net (decrease) increase in cash and cash equivalents (6,402,871) (10,078,472) (6,123,654) (12,470,785) (9,753,628) Cash and cash equivalents at beginning of period 14,376,041 21,458,141 14,096,824 23,850,452 23,850,452 Cash and cash equivalents at end of period $ 7,973,170 $ 11,379,668 $ 7,973,170 $ 11,379,668 $ 14,096,824 Supplemental disclosure of cash flow information Cash paid for interest $ 415,655 $ 199,374 $ 4,715,445 $ 4,529,985 $ 8,663,014 5

7 1. Organization and Nature of Operations Northwest Community Healthcare and Subsidiaries (Healthcare) was established to own, operate, control, and otherwise coordinate the delivery of health care within the service area of Northwest Community Hospital (the Hospital) and coordinate the activities of the various corporations affiliated with Healthcare. Subsidiaries of Healthcare include the Hospital, Northwest Community Hospital Foundation (the Foundation), and Northwest Community Day Surgery Center, Inc. (DSC), which are not-for-profit entities; Northwest Community Health Services, Inc. (Health Services), NPC-CyberKnife, LLC (CyberKnife), and Northwest Community Day Surgery Center II, LLC (DSC-II) which are taxable entities; and NCH Casualty Insurance SPC Limited (NCHCI), a Cayman Islands corporation. The Hospital, located in Arlington Heights, Illinois, is a 489-bed acute care facility providing inpatient, outpatient, and emergency care services primarily to residents of Arlington Heights and the surrounding communities. Northwest Community Capco, Inc. (Capco), an Illinois for-profit corporation; Northwest Community Physicians Association, LLC (NCPA), a limited liability company; and NCH Physicians Cooperative (NCHPC), an Illinois not-for-profit corporation, are subsidiaries of the Hospital. NCH Service Company, LLC (NCHSC), a limited liability company, is a subsidiary of NCPA. Central Insurance Company, Ltd is the new Cayman Island not-for-profit captive insurance company established on January 1, 2013 to provide general and professional liability coverage for the risks of Northwest Community Healthcare and Subsidiaries. Health Services owns and operates the NCH Medical Group (NCHMG), a multi-specialty physician practice that was established in NCHMG has offices in Arlington Heights, Buffalo Grove, Mt. Prospect, Lake Zurich, Palatine, and Schaumburg, Illinois. CyberKnife was formed in June 2006 for the purpose of purchasing and owning a stereotactic radiosurgery system an d leasing it to the Hospital. CyberKnife is a limited liability corporation that is owned by Healthcare (74% at June 30, 2016 and 2015) and physician investors (26% at June 30, 2016 and 2015). Healthcare consolidates CyberKnife, as Healthcare owns a majority of the units outstanding. DSC ceased operating as of December 31, 2013, and Healthcare, as the sole corporate member of DSC, effectuated the transfer of substantially all of the assets and liabilities of DSC, excluding the facility, from DSC to DSC-II. DSC-II was formed in 2014 for the purpose of owning and operating an ambulatory surgery center. DSC- II is a limited liability company that is owned by Healthcare (56.0% at June 30, 2016) and physician investors (44.0% at June 30, 2016). Healthcare consolidates DSC-II, as Healthcare owns a majority of the units outstanding. 2. Investments Healthcare has designated all of its investments as trading. Investments in equity and debt securities and mutual funds with readily determinable fair values are reported at fair value using quoted market prices. 6

8 Alternative investments, primarily limited partnerships that invest in hedge funds are reported using the equity method of accounting based on information provided by the partnership Income earned, realized gains (losses) and changes in unrealized gains (losses) on funds internally designed for operations and liquidity are reported as other operating revenue. All other investment income, realized gains (losses) and changes in unrealized gains (losses) are reported as nonoperating income. The composition and presentation of investment income are as follows for the quarter and nine months ended June 30 (in thousands): For the Quarter Ended June 30 For the Nine Months Ended June Interest and dividends $ 2,009 $ 1,287 $ 10,428 $ 6,540 Net realized gain/(losses) on investments (383) 4,716 13,217 17,130 Change in net unrealized gains and (losses) on investments 2,758 (4,048) (12,854) (7,720) $ 4,384 $ 1,955 $ 10,791 $ 15,950 Reported as: Other operating revenue $ 1,544 $ - $ 2,660 $ 363 Investment income 2,840 1,955 8,131 15,506 Temporarily restricted investment income Fair Value Measurements $ 4,384 $ 1,955 $ 10,791 $ 15,950 All investments in marketable securities are reported at fair value as defined in ASC 820, Fair Value Measurements and Disclosures. ASC establishes a three-level valuation hierarchy. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. 7

9 Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table presents the financial instruments carried at value, except certain alternative investments, as of June 30, 2016, by caption on the consolidated balance sheet by the valuation hierarchy defined above (in thousands): Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 7,973 $ $ $ 7,973 Investments restricted under bond financings: Cash and cash equivalents Internally designated for operations and liquidity: Cash and money market fund U.S. government and agency obligations 14,095 14,095 Corporate bonds 31,478 31,478 Municipal bonds 5,020 5, ,593 51,297 Internally designated for capital replacement: Cash and short term investments 2,660 2,660 Mutual funds: U.S. equity 193, ,915 Fixed income 68,581 68, , ,156 Internally designated for insurance: Mutual funds short-term fixed income 28,480 28,480 Internally designated for deferred comp: Mutual funds fixed income 3, ,934 8

10 Internally and externally designated for endowment: Mutual funds: U.S. equity 1,442 1,442 International equity Fixed income 1,384 1,384 3,463 3,463 Assets at fair value $ 309,710 $ 50, $ 360,303 Liabilities: Interest rate swap $ 405 $ - $ - $ 405 The following table presents the financial instruments carried at fair value, except certain alternative investments, as of September 30, 2015, by caption on the consolidated balance sheet by the valuation hierarchy defined above (in thousands): Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 14,097 $ $ $ 14,097 Investments restricted under bond financings: Cash and cash equivalents Internally designated for operations and liquidity: Cash and money market funds U.S. government and agency obligations 16,976 16,976 Corporate bonds 49,081 49,081 Municipal bonds 3,940 3, ,997 70,097 Internally designated for capital replacement: Cash and cash equivalents 2,643 2,643 Mutual funds: U.S. equity 185, ,571 Fixed income 64,675 64, , ,889 Internally designated for insurance: Mutual funds short-term fixed income 26,643 26,643 9

11 Internally and externally designated for endowment: Mutual funds: U.S. equity 1,377 1,377 International equity Fixed income 2,067 2,067 4,068 4,068 Interest rate swap Assets at fair value $ 297,797 $ 70,037 $ $ 367,834 The fair value of Level 1 investments is based on quoted market prices and is valued on a daily basis. The fair value of the interest rate swap is based on discounted cash flows adjusted for nonperformance risk. The adjustment is based on bond pricing for equivalent credit-related entities. Level 2 pricing is based on the custodian s pricing methodologies which are based on institutional bid evaluations. Institutional bid evaluations are estimated prices computed by pricing vendors. These prices are determined using observable inputs for similar securities as of the measurement date. Redemption frequency is monthly. Hedge funds and fund-of-fund investments of $70,638,000 and $73,268,000 at June 30, 2016 and September 30, 2015, respectively, are not included in the table. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value because of the short maturity of those assets and liabilities. The estimated fair value of long-term debt (including current portion) based on quoted market prices for the same or similar issues was $416,338,000 and $270,742,000 at June 30, 2016 and September 30, 2015, respectively. Healthcare s investments are exposed to various kinds and levels of risk. Equity securities and mutual funds expose Healthcare to market risk, performance risk, and liquidity risk. Market risk is the risk associated with major movements of the equity markets. Performance risk is the risk associated with a company s operating performance. Fixed income securities and mutual funds expose Healthcare to interest rate risk, credit risk, and liquidity risk. As interest rates change, the values of many fixed income securities are affected, including those with fixed interest rates. Credit risk is the risk that the obligor of the security will not fulfill its obligations. Liquidity risk is affected by the willingness of market participants to buy and sell particular securities and tends to be higher for equities related to small capitalization companies. Due to the volatility in the capital markets, there is a reasonable possibility of subsequent changes in fair value resulting in additional gains and losses in the near term. 3. Long-Term Obligations Healthcare s long-term debt is issued pursuant to a master trust indenture dated February 1, The master trust indenture establishes an Obligated Group, consisting of the Hospital and Healthcare. All members of the Obligated Group are jointly and severally obligated to pay all debt under the master trust indenture and are required to maintain their status as tax-exempt, not-for-profit health care providers. All obligations issued under the master trust indenture are secured by a security interest in the receivables of the Obligated Group as defined in the master trust indenture. 10

12 Under the terms of the master trust indenture, the Obligated Group must meet certain financial covenants, including minimum debt service coverage levels. As of June 30, 2016, the Obligated Group was in compliance with these covenants. In June 2016, the Illinois Finance Authority (IFA) issued $136,690,000 of fixed interest rate bonds (annual rate of approximately 4.75%) which were sold at a premium of $20,646,000. These bonds were used to refund the majority of the 2008A variable rate demand revenue bonds. The 2008A bonds which remained outstanding after the financing were the Series 2016, 2017 and 2018 at a value of $5,890,000. The bonds are payable annually with interest payments twice a year. In December 2011, the IFA issued $53,100,000 of variable rate demand revenue bonds (the Series 2011 debt) on behalf of the Hospital. The proceeds were used to currently refund the Series 2002B debt. The bonds were purchased directly by a bank for an initial term of ten years and bear interest based on a percentage of LIBOR plus an agreed-upon spread. The bonds have a final maturity date of July 1, In September 2008, the IFA issued $154,765,000 of revenue bonds (the Series 2008A) to fund certain capital projects. The bonds are payable in varying installments through July 1, 2038 and bear interest at fixed rates ranging from 4.0% to 5.5% annually. In October 2008, the IFA issued $86,820,000 of variable rate demand revenue bonds (the Series 2008B and Series 2008C debt) on behalf of the Hospital. The proceeds were used to refinance a taxable bank loan obtained to refund Series 2002A debt. The bonds are payable in varying installments through July 1, 2032 and bear interest at a variable rate not to exceed 12%. The direct pay letter of credit securing the Series 2008 B/C debt was replaced on February 17, 2016, with irrevocable transferable letters of credit that expire on October 5, The letters of credit provide a commitment to provide funds for the purchase of Series 2008 B/C bonds that may be tendered pursuant to an optional or a mandatory tender and that have not been remarketed. Such advances convert to term loans, with principal payments payable no earlier than a year and a day from the date of the advance. 4. Derivatives The Hospital has an interest rate-related derivative instrument to manage its exposure on its variable rate debt and does not enter into derivative instruments for any purpose other than risk management purposes. By using a derivative financial instrument to manage the risk of changes in interest rates, the Hospital exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Hospital, which creates credit risk for the Hospital. When the fair value of a derivative contract is negative, the Hospital owes the counterparty and therefore does not possess credit risk. The Hospital minimizes the credit risk in its derivative instrument by requiring that the counterparty post collateral for the benefit of the Hospital based on the credit rating of the counterparty and the fair value of the derivative contract. Market risk is the adverse effect on the value of a financial instrument that results from change in interest rates. The market risk associated with interest rate changes is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Hospital also mitigates risk through periodic review of its derivative position in the context of the total blended cost of capital. 11

13 During 2003, the Hospital entered into an interest rate swap agreement (the swap agreement) with a notional amount of $100,000,000 to hedge against changing interest rates. Under the terms of the swap agreement, the Hospital receives semiannual payments based upon 81% of the one-month LIBOR and makes semiannual payments based upon the SIFMA Index. The scheduled termination date of the swap agreement is July 1, During 2015, the notional amount was reduced to $66,725,000. There was no change for the first nine months ended June 30, The Hospital s swap agreement contains a provision requiring posting of collateral to the counterparty if the swap is in a liability position and the liability amount exceeds certain specific threshold amounts. The threshold amounts are determined based on the credit rating assigned by Moody s or Standard & Poor s to the Hospital s variable rate bonds. As of June 30, 2016, the liability of $405,000 is below the threshold, and as such, no collateral has been posted. Similarly, the swap agreement requires the counterparty to post collateral to the Hospital if the swap is in an asset position and exceeds certain threshold amounts. Threshold has not been met and no collateral has been posted. Net amounts paid or received under the swap agreement are included in interest expense. The change in the fair value of the swap agreement was approximately $(437,000) and $237,000 for the nine months ended June 30, 2016 and 2015, respectively, and is recorded as a nonoperating item. The fair value of the swap agreement approximates $(405,000) and $40,000 at June 30, 2016 and September 30, 2015, respectively, and is recognized as a noncurrent liability for 2016 and as a noncurrent asset for Following is a summary of the swap agreement as of June 30, 2016 and September 30, 2015: Date Notional Amount Maturity Date Rate Paid Rate Received June 30, 2016 $ 66,725,000 July 2032 September 2015 $ 66,725,000 July 2032 USD-SIFMA Municipal Swap Index USD-SIFMA Municipal Swap Index 81% of LIBOR 81% of LIBOR The fair value of derivative instruments at June 30, 2016 and September 30, 2015 is as follows (in thousands): Balance Sheet Location June Sept Derivative not designated as hedging instrument under ASC 815: Interest rate contract Interest rate swap $ (405) $ 40 The effects of derivative instruments on the consolidated statements of operations and changes in net assets for the nine months ended June 30, 2016 and 2015 are as follows (in thousands): 12

14 Amount of Gain Location of Gain (Loss) Derivative not designated as hedging instrument under ASC 815: Included in excess of revenue over expenses Interest rate contract Interest income $ (348) $ Employee Retirement Plans Change in value of interest rate swap (nonoperating expense) $ (445) $ 656 Substantially all employees of Healthcare participate in one of two retirement plans. The Northwest Community Hospital Employees Retirement Plan (the Plan) is a trusteed, noncontributory, definedbenefit plan. The Northwest Community Healthcare Employees Retirement Plan (the DC Plan) is a defined-contribution plan. Defined-Benefit Plan ASC 715 requires plan sponsors of defined-benefit pension plans to recognize the funded status of their plans in the balance sheet, measure the fair value of plan assets and benefit obligations as of the date of the fiscal year-end balance sheet, and provide additional disclosures. A September 30 measurement date was utilized for 2016 and During fiscal 2010, the Hospital elected to freeze benefit accruals for all participants in the Plan. An amendment to the Plan eliminated all future benefit accruals, including participants credited service, final average earnings, and final average compensation amounts used to calculate Plan benefits. Net periodic pension cost for the quarter and nine months ended June 30, 2016 and 2015 for all of the Plan s participants consists of the following (in thousands): For The Quarter For the Nine Months Ended June 30 Ended June Service cost for benefits earned during the year $ -- $ -- $ _ $ _ Interest cost on projected benefit obligation (1,647) 1,579 (4,942) 4,876 Expected return on plan assets 3,377 (3,452) 10,130 (10,258) Net amortization and deferral (297) 318 (899) 882 Settlement charge (2,292) 2,549 (6,876) 6,367 Net periodic pension cost $ (859) $ 994 $ (2,587) $ 1,867 13

15 The total amount of employer contributions paid during the nine months ended June 30, 2016 was $6,300,000. Defined-Contribution Plan (DC Plan) As of January 1, 2005, substantially all new employees are eligible for the DC Plan. Total DC Plan expense was approximately $2,191,000 and $2,796,000 for the quarters ending June 30, 2016 and 2015 and $6,887,000 and $7,403,000 for the nine months ended June 30, 2016 and 2015 respectively. 6. Illinois Hospital Assessment Program In December 2008, the Illinois Hospital Assessment Program (HAP) was approved by the Federal Centers for Medicare and Medicaid Services. In fiscal years 2014 and 2013, the Hospital was subject to and paid the inpatient assessment and during fiscal 2014 was assessed a new outpatient assessment for the period June 10, 2012 through June 30, In June 2014, the Hospital was notified of inpatient and outpatient assessments for July 1, 2014 through June 30, Under HAP, Illinois receives additional federal Medicaid funds for the state s healthcare system administered by the Illinois Department of Healthcare and Family Services. HAP includes both a payment to the Hospital from the state, and an assessment against the Hospital, which is paid to the state in the same year. The Hospital recognized the following amounts in the quarter and nine months ended June 30, 2016 and 2015 (in thousands): For The Quarter For the Nine Months Ended June 30 Ended June HAP revenue in net patient service revenue $ 4,711 $ 4,908 $14,548 $ 15,628 HAP assessment expense 4,102 4,477 12,306 12,681 Net excess from HAP $ $ 2,242 $ 2, Subsequent Events Healthcare and subsidiaries evaluated events and transactions occurring subsequent to June 30, 2016 through August 25, 2016, the date of issuance of these unaudited financial statements. There was one subsequent event which occurred in July 2016 which was the repurchase of the outstanding Swaps (discussed in the Long-term Obligations footnote number 3) resulting in a loss of $511,000 which is included as part of non-operating income. 14

16 Details of Consolidation 15

17 Northwest Community Healthcare and Subsidiaries Details of Consolidated Balance Sheet June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center II LLC PHO, LLC Services Insurance Eliminations Total Assets Current assets: Cash and cash equivalents $ 353,002 $ 2,560,455 $ 1,912,867 $ 1,133,188 $ 217,102 $ 373,005 $ 501,073 $ 922,478 $ 7,973,170 Investments restricted under bond financing 16,018,373 16,018,373 Patient accounts receivable, less allowance for uncollectible accounts $110,379,000 63,725,126 3,845,644 7,504,738 75,075,508 Other receivables 373,342 13,452,893 2,044,928 4,552, ,415 7,483,076 28,315,684 Prepaid expenses and other 1,933,152 15,198,843 62, , , ,900 6,432 18,127,768 Interest rate swap - Due from affiliates 3,091,164 19,334,652 1,394,430 1,253, ,382 (25,252,478) 2 Total current assets 5,750, ,290,342 5,414,616 5,372, ,480 6,178,887 8,664,126 8,590,368 (25,252,478) 145,510,505 Assets limited as to use, at fair value: Internally designated for operations and liquidity 51,297,540 51,297,540 Internally designated for capital replacement 335,794, ,794,454 Internally designated for insurance 28,479,506 28,479,506 Internally designated for deferred comp 3,933,945 3,933,945 Internally designated for endowment 1,817,009 1,817,009 Externally designated for endowment 1,645,656 1,645, ,794,454 51,297,540 3,462,665 3,933,945 28,479, ,968,110 Property and equipment, at cost: Land and land improvements 8,524,873 14,413,382 22,938,255 Buildings 51,635, ,516, ,151,305 Fixed equipment and leasehold improvements 14,940, ,993,734 1,763, ,697,545 Major movable equipment 1,037, ,493,504 4,335,193 3,555,000 5,948, ,369,730 Construction in progress 214,077 12,905, ,418 13,322,314 76,352, ,322,636 4,335,193 3,555,000 7,913, ,479,149 Less accumulated depreciation (41,881,633) (339,503,568) (2,775,498) (3,555,000) (4,281,860) (391,997,559) 34,470, ,819,068 1,559,695 3,632, ,481,590 Interest in net assets of Foundation 6,582,121 (6,582,121) Interest in affiliate Reinsurance receivable 7,376,473 7,376,473 Other long term assets (3,071,014) 6,694, ,429 3,071,014 6,513,045 (2,442,652) 11,438,122 Investment in subsidiaries 70,504,004 (70,504,004) 67,432,990 20,652, ,429 3,071,014 6,513,045 (79,528,777) 18,814,595 Total assets $ 443,448,894 $ 604,059,844 $ 9,550,710 $ 10,003,213 $ 501,480 $ 6,178,887 $ 22,743,153 $ 37,069,874 $ (104,781,255) $ 1,028,774,800 16

18 Northwest Community Healthcare and Subsidiaries Details of Consolidated Balance Sheet (continued) June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center LLC PHO, LLC Services Insurance Eliminations Total Liabilities, net assets, and equity Current liabilities: Accounts payable $ 45,548 $ 12,239,722 $ 385 $ 381,498 $ 41,923 $ 83 $ 1,115,530 $ $ $ 13,824,689 Accrued expenses and other 1,408,059 37,089, , ,215 5,318,574 11,845,036 5,673,723 62,669,464 Current maturities of long-term obligations 6,910,000 6,910,000 Due to third-party payors 37,087,746 (56,376) 37,031,370 Due to affiliates 872,104 4,232,188 43,813 20,104,374 (25,252,479) - Total current liabilities 1,453,607 94,199, ,380 5,321,525 85,736 5,318,657 33,064,940 5,673,723 (25,252,479) 120,435,523 Long-term obligations, less current maturities: Series 2008A bonds 2,075,000 2,075,000 Series 2008B bonds 31,805,000 31,805,000 Series 2008C bonds 31,805,000 31,805,000 Series 2011 bonds 43,400,000 43,400,000 Series 2016 bonds 136,690, ,690,000 Series 2016 bond premium 20,646,237 20,646,237 Capital lease obligation 266,421, ,421,237 Asset retirement obligation 829, ,993 Other long term liabilities 2,098,242 2,786,107 4,884,349 Interest rate swap 404, ,855 Reserve for self-insurance 16,528,514 31,276,151 47,804,665 Pension obligation 11,055,803 11,055,803 Total noncurrent liabilities 2,098, ,026,509 31,276, ,400,902 Total liabilities 3,551, ,225, ,380 5,321,525 85,736 5,318,657 33,064,940 36,949,874 (25,252,479) 451,836,425 Net assets and equity: Unrestricted 439,897, ,251, ,603 4,681, , ,230 (10,321,787) 120,000 (73,130,655) 568,392,648 Temporarily restricted 5,243,838 7,289,298 (5,059,838) 7,473,298 Permanently restricted 1,338,283 1,072,429 (1,338,283) 1,072,429 Common shares Retained earnings Total net assets and equity 439,897, ,833,901 8,980,330 4,681, , ,230 (10,321,787) 120,000 (79,528,776) 576,938,375 Total liabilities, net assets, and equity $ 443,448,894 $ 604,059,844 $ 9,550,710 $ 10,003,213 $ 501,480 $ 6,178,887 $ 22,743,153 $ 37,069,874 $ (104,781,255) $ 1,028,774,800 17

19 Details of Consolidated Statement of Operations and Changes in Net Assets Quarter Ended June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center II LLC PHO, LLC Services Insurance Eliminations Total Revenue Net patient service revenue $ $ 114,567,775 $ $ 3,860,375 $ $ $ 17,883,801 $ $ (10,716) $ 136,301,235 Provision for uncollectible accounts - (3,028,199) - (182,349) - - (1,273,587) - - (4,484,135) - 111,539,576-3,678, ,610,214 - (10,716) 131,817,100 Other operating revenue 2,403,556 4,177,469 62, ,000 1,397,255 1,170,168 3,020,816 (4,314,183) 8,088,993 Total revenue 2,403, ,717,045 62,638 3,678, ,000 1,397,255 17,780,382 3,020,816 (4,324,899) 139,906,093 Expenses Salaries and employee benefits 593,542 55,997, ,376 1,234,658 1, ,218 15,508,915 (351,161) 73,293,933 Supplies and other 400,781 24,191,310 47,021 1,693, ,888 3,983,770 2,894,617 (3,635,487) 29,589,011 Professional fees and purchased services 532,085 14,210,801 27, ,955 85, ,018 3,535, ,199 (383,902) 19,017,112 Depreciation and amortization 559,797 8,724,857 89, ,184 9,718,175 Illinois hospital assessment 4,101,875 4,101,875 Interest 2,050,238 2,050,238 Total expenses 2,086, ,277, ,592 3,295,761 87, ,124 23,372,381 3,020,816 (4,370,550) 137,770,344 Operating income (loss) 317,351 6,440,037 (194,954) 382,539 83, ,131 (5,591,999) 45,651 2,135,749 Nonoperating revenue (expense) Investment income 2,825,514 14,515 2,840,029 Early Extinquishment of Debt (3,809,642) (3,809,642) Change in value of interest rate swap (145,779) (145,779) Other (196,214) 45,662 (45,650) (196,202) Net nonoperating revenue (expense) 2,629,300 (3,909,759) 14,515 (45,650) (1,311,594) Excess (deficiency) of revenue over expenses $ 2,946,651 $ 2,530,278 $ (180,439) $ 382,539 $ 83,993 $ 653,131 $ (5,591,999) $ $ 1 $ 824,155 18

20 Northwest Community Healthcare and Subsidiaries Details of Consolidated Statement of Operations and Changes in Net Assets (continued) Quarter Ended June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center II LLC PHO, LLC Services Insurance Eliminations Total Unrestricted net assets Excess (deficiency) of revenue over expenses $ 2,946,651 $ 2,530,278 $ (180,439) $ 382,539 $ 83,993 $ 653,131 $ (5,591,999) $ $ $ 824,155 Transfers (to) from affiliates $ Pension-related changes other than net periodic pension cost $ Net assets released from restrictions used for purchase of property and equipment or operations 2,695 8,525 $ 11,220 Distribution to CyberKnife investors Distribution to DSC-II investors (92,000) (92,000) Increase (decrease) in unrestricted net assets 2,946,651 2,532,973 (171,914) 382,539 83, ,131 (5,591,999) (92,000) 743,375 Temporarily restricted net assets Contributions 2,094,746 2,094,746 Investment income Transfers (to) from affiliates (598,283) 598,283 Net assets released from restrictions used for: Purchase of property and equipment (2,695) (2,695) Operations (595,587) (8,525) (604,112) Change in interest in net assets of Foundation Increase in temporarily restricted net assets (598,282) 1,487, ,283 1,487,939 Permanently restricted net assets Contributions of Foundation Increase in permanently restricted net assets Increase (decrease) in net assets 2,946,651 1,934,691 1,316, ,539 83, ,131 (5,591,999) - 506,285 2,231,315 Net assets at beginning of period 437,170, ,907,557 8,572,562 4,299, , ,098 (8,663,734) 120,000 (77,237,566) 574,707,060 Net assets at end of period $ 440,116,892 $ 211,842,248 $ 9,888,586 $ 4,681,689 $ 415,744 $ 860,229 $ (14,255,733) $ 120,000 $ (76,731,280) 576,938,375 19

21 Details of Consolidated Statement of Operations and Changes in Net Assets Nine Months Ended June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center II LLC PHO, LLC Services Insurance Eliminations Total Revenue Net patient service revenue $ $ 346,146,147 $ $ 12,053,851 $ $ $ 50,308,541 $ $ (507,477) $ 408,001,062 Provision for uncollectible accounts - (7,954,072) - (339,843) - - (1,756,872) - - (10,050,787) - 338,192,075-11,714, ,551,669 - (507,477) 397,950,275 Other operating revenue 7,749,675 8,942, , ,000 2,731,754 2,571,082 6,518,402 (12,662,841) 16,678,973 Total revenue 7,749, ,134, ,416 11,714, ,000 2,731,754 51,122,751 6,518,402 (13,170,318) 414,629,248 Expenses Salaries and employee benefits 1,670, ,541, ,020 3,557,725 4, ,237 44,609,600 (1,063,013) 221,275,614 Supplies and other 1,230,823 69,449,219 87,010 5,420,262 2,352 43,728 11,757,429 6,204,869 (9,969,415) 84,226,277 Professional fees and purchased services 1,669,054 42,375,619 98, , ,748 1,664,051 9,556, ,533 (1,659,974) 55,157,002 Depreciation and amortization 1,679,391 26,868, ,011 1,032,552 29,848,615 Illinois hospital assessment 12,305,615 12,305,615 Interest 6,723,438 6,723,438 Total expenses 6,249, ,264, ,711 10,130, ,474 2,109,016 66,955,698 6,518,402 (12,692,402) 409,536,561 Operating income (loss) 1,500,228 17,870,042 (424,295) 1,584, , ,738 (15,832,947) (477,916) 5,092,687 Nonoperating revenue (expense) Investment income 8,449,907 (318,349) 8,131,558 Early Extinqishment of Debt (3,809,642) (3,809,642) Change in value of interest rate swap (444,669) (444,669) Other (770,901) 140,175 (136,951) (767,677) Net nonoperating revenue (expense) 7,679,006 (4,114,136) (318,349) (136,951) 3,109,570 Excess (deficiency) of revenue over expenses $ 9,179,234 $ 13,755,906 $ (742,644) $ 1,584,311 $ 250,526 $ 622,738 $ (15,832,947) $ $ (614,867) $ 8,202,257 20

22 Northwest Community Healthcare and Subsidiaries Details of Consolidated Statement of Operations and Changes in Net Assets (continued) Nine Months Ended June 30, 2016 (Unaudited) Northwest Northwest NWC NWC Day NPC- NWC NWC NCH Community Community Hospital Surgery CyberKnife, Healthcare Health Central Consolidating Healthcare Hospital Foundation Center II LLC PHO, LLC Services Insurance Eliminations Total Unrestricted net assets Excess (deficiency) of revenue over expenses 9,179,234 13,755,906 (742,644) 1,584, , ,738 (15,832,947) (614,866) $ 8,202,257 Transfers (to) from affiliates Pension-related changes other than net periodic pension cost Net assets released from restrictions used for purchase of property and equipment or operations 577,665 20, ,122 Distribution to CyberKnife investors (102,345) 75,680 (26,665) Distribution to DSC-II investors (923,001) 723,187 (199,814) Additional paid-in capital Capital from DSC investors Ownership interest in DSC Increase (decrease) in unrestricted net assets 9,179,234 14,333,571 (722,187) 661, , ,738 (15,832,947) 184,001 8,573,900 Temporarily restricted net assets Excess (deficiency) of revenue over expense 2,578,038 2,578,038 Investment income Transfers (to) from affiliates (1,458,281) 1,458,281 Net assets released from restrictions used for: Purchase of property and equipment (577,665) (577,665) Operations (880,616) (20,457) (901,073) Change in interest in net assets of Foundation Increase in temporarily restricted net assets (1,458,281) 1,099,300 1,458,281 1,099,300 Permanently restricted net assets Excess (deficiency) of revenue over expense 23,429 23,429 Transfers (to) from affiliates Change in interest in net assets of Foundation Increase in permanently restricted net assets 23,429 23,428 Increase (decrease) in net assets 9,179,234 12,875, , , , ,738 (15,832,947) 1,642,282 9,696,627 Net assets at beginning of period 438,852, ,899,211 8,579,788 4,020, , ,493 1,577, ,000 (80,055,744) 567,241,748 Net assets at end of period $ 448,031,656 $ 222,774,501 $ 8,980,331 $ 4,681,688 $ 415,744 $ 860,231 $ (14,255,732) $ 120,000 $ (78,413,462) $ 576,938,375 21

23 UTILIZATION AND PAYOR MIX Quarter Ended June 30 Year Ended June Hospital Licensed Beds Average Staffed Beds Average Daily Census Average % Occupancy % % % % Discharges Average Length of Stay Patient Days 4, ,402 4, ,384 14, ,470 15, ,897 Medicare Case-Mix Index Total Case-Mix Index Adjusted Discharges 11,237 10,771 33,425 32,961 Surgeries Inpatient surgeries Outpatient Surgeries (Note 1) Total Surgeries 1,077 2,926 4, ,824 3,820 3,119 8,719 11,838 3,117 8,717 11,834 Emergency Department Visits 18,693 18,569 55,752 55,321 Outpatient Discharge Equivalents 6,272 5,872 18,703 17,940 Outpatient Registrations 103,639 85, , ,848 Hospital Payor Mix (Based on Gross Revenue) Medicare Managed Care Medicaid Commercial Insurance Self Pay and Other 48.2% 39.1% 8.5% 1.0% 3.2% 100% 47.8% 39.2% 9.1% 1.0% 2.9% 100% Note 1: Outpatient surgical procedures at Hospital and DSC