Montefiore T H E UNI VERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF MEDICINE

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1 Montefiore T H E UNI VERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF MEDICINE November 13, 2013 Ms. Rhonda Neal Client Service Manager Digital Assurance Certification 390 North Orange Avenue, Suite 1750 Orlando, FL Dear Ms. Neal: Re: FHA Insured Mortgage and related Hospital Revenue Bonds Enclosed are the following documents for Montefiore Medical Center for the period ended September 30, 2013: Interim Un-audited Financial Statements Utilization and Payor Mix Statistics Certificate of Compliance These documents satisfy the reporting requirements under the following agreements: DASNY Loan Agreement, dated as of October 27, 2004 DASNY Loan Agreement, dated as of July 27, 2005 DASNY Loan Agreement, dated as of November 28,2007 If you have any questions, please call me at (71 8) Sincerely, Carmen Vargas Administrative Assistant Enclosures cc: Lindsay Baker 111 East 21 Oth Street Bronx, Ne\'' York

2 MONTEFIORE MEDICAL CENTER UTILIZATION AND PAYOR MIX STATISTICS (FHA Insured Mortgages and related Hospital Revenue Bonds) LICENSED BEDS ADMISSIONS (1) DISCHARGES (1) PATIENT DAYS (1) AVG LENGTH OF STAY (1) MEDICARE-CMI (1) NON-MEDICARE-CMI (1) AVG. OCCUPANCY% OUTPATIENT VISITS ER VISITS-NET (2) AMBULATORY SURGERY VISITS UTILIZATION STATISTICS SEPT ,491 61,937 62, , % 184, ,305 25,724 SEPT ,491 62,111 62, , % 184, ,624 23,989 (1) EXCLUDES NEWBORN (2) EXCLUDES EMERGENCY ROOM PATIENTS ADMITTED TO THE MEDICAL CENTER. MEDICARE MEDICARE HMO MEDICAID MEDICAID HMO COMMERCIAL COMMERCIAL HMO OTHER TOTAL (1) MEDICARE MEDICARE HMO MEDICAID MEDICAID HMO COMMERCIAL COMMERCIAL HMO OTHER TOTAL (1) MED SURG MATERNITY PSYCHIATRY REHAB TOTAL DISCHARGES- DETAIL SEPT ,014 12,144 6,359 18,153 6,427 5,168 1 '112 62,377 PERCENT OF DISCHARGES BY PAYOR SOURCE SEPT % 19.47% 10.19% 29.10% 10.30% 8.29% 1.79% % AVG. OCCUPANCY%- DETAIL SEPT % 86.79% 98.35% 79.15% 95.03% SEPT ,288 11,202 7,270 17,069 6,304 5, ,055 SEPT % 18.05% 11.72% 27.51% 10.16% 9.29% 1.86% % SEPT % 83.82% % 79.73% 88.02%

3 Montefiore THE UNIVERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF M EDICINE CERTIFICATE OF COMPLIANCE Montefiore Medical Center Re: FHA Insured Mortgage Revenue Bonds 1995A,l999,2000,2004,2005,2008 The undersigned, an authorized officer ofmontefiore Medical Center (the "Institution") hereby certifies as follows: 1. I am the chief financial officer ofthe Institution, and am an authorized officer ofthe Institution. 2. I am familiar with the Loan Agreements (the "Agreements") and the Tax Certificates (the "Certificates") executed on behalf of the Institution in cormection with the above referenced financings. 3. By virtue of my position at the Institution, I would expect to become aware in the ordinary course of business of any breach of the terms, conditions, and covenants in the Agreements and the Certificates. 4. To the best of my knowledge, there has not been and is not now existing any breach of any of the terms, conditions, or covenants contained in the Agreements or the Certificates. 5. The Institution has not received an insurance payment, eminent domain award or property damage award for any part of the Project or Mortgaged Property. 6. Except as permitted by the Loan Agreements or Tax Certificates executed in connection with the issuance of the Bonds or as subsequently consented to by the Authority and any other parties required to consent thereto, (1) the Institution owns, occupies and uses for its tax exempt purposes all of the Project financed with the proceeds of the referenced Bond issue(s); (2) no other party has the right to use of occupy any portion of such Project; (3) the Institution receives no payment from any party or parties for occupying all or any part of such Project; ( 4) the Institution has not entered into any contract for the management of any part ofthe Project by another party or person. 7. The Institution has not received any correspondence from the Internal Revenue Service questioning its tax-exempt status and hereby reaffirms its status as a not-for-profit corporation, which is exempt from federal income tax pursuant to Section 501 (c)(3) of the Internal Revenue Code. 8. The Institution has implemented adequate policies and procedures to enable the Institution to comply with any reporting requirements of the Internal Revenue Service applicable to the Bonds, including but not limited to Schedule K (Form 990). 9. To the best of my knowledge, the Institution has not granted or permitted any liens against the Mortgaged Property or leases of any part thereof except those which were filed prior to, or in cormection, with the issuance of the Bonds or those which were subsequently consented to by the authority and any other parties required to consent thereto. ~~er7~-a~n~ Office of the President 111 East 21 Oth Street Bronx, New York Office Fax jperlman@montefiore.org Joel A. Perlman Executive Vice President Chief Financial Officer

4 Montefiore Medical Center Quarterly Financial Disclosure For the Period Ended September 30, 2013 Contents Consolidated Statements of Financial Position Page 2 Consolidated Statements of Operations Page 3 Consolidated Statements of Changes in Net Assets Page 4 Consolidated Statements of Cash Flows Page 5 Condensed Footnotes to Consolidated Financial Statements Page 6

5 Montefiore Medical Center Consolidated Statements of Financial Position Unaudited Audited September 30, 2013 December 31, 2012 (In Thousands) Assets Current assets: Cash and cash equivalents $ 76,107 $ 30,779 Marketable and other securities 990, ,410 Assets limited as to use marketable securities 45,701 48,867 Receivables for patient care, less allowances for doubtful accounts 178, ,831 Other receivables 47,093 52,456 Estimated insurance claims receivable, current portion 72,751 73,189 Other current assets 35,535 29,548 Total current assets 1,446,718 1,309,080 Assets limited as to use: Marketable and other securities: Sinking funds 74,069 68,706 Employee deferred compensation plan 18,949 15,220 Marketable and other securities externally designated 168, ,929 Total non-current assets limited as to use 261, ,855 Marketable securities held as collateral 5,863 5,880 Property, buildings and equipment, at cost, net 896, ,882 Estimated insurance claims receivable, net of current portion 412, ,740 Deferred financing costs and other non-current assets 158, ,965 Total assets $ 3,181,559 $ 2,841,402 Liabilities and net assets Current liabilities: Trade accounts payable $ 81,578 $ 93,992 Other payables and accrued expenses 160, ,521 Accrued salaries, wages and related items 267, ,927 Current malpractice insurance premiums payable 73,177 66,638 Estimated insurance claims liabilities, current portion 72,751 73,189 Current portion of long-term debt 40,896 41,742 Total current liabilities 696, ,009 Long-term debt, less current portion 563, ,025 Non-current defined benefit and postretirement health plan and insurance liabilities 266, ,537 Employee deferred compensation 18,949 15,220 Estimated insurance claims liabilities, net of current portion 412, ,740 Other non-current liabilities 412, ,834 Total liabilities 2,369,869 2,149,365 Commitments and contingencies Net assets: Unrestricted 711, ,387 Temporarily restricted 74,511 74,300 Permanently restricted 25,350 25,350 Total net assets 811, ,037 Total liabilities and net assets $ 3,181,559 $ 2,841,402 See accompanying notes. 2

6 Montefiore Medical Center Consolidated Statements of Operations Unaudited 9 Months ended September 30, (In Thousands) Operating revenue Net patient service revenue $ 2,330,637 $ 2,181,913 Grants and contracts 60,259 54,279 Contributions 2,067 1,487 Other revenue 99,869 77,854 Total operating revenue 2,492,832 2,315,533 Operating expenses Salaries and wages 1,117,532 1,029,277 Employee benefits 347, ,946 Supplies and other expenses 849, ,644 Depreciation and amortization 87,658 81,377 Interest 20,431 20,151 Total operating expenses 2,422,701 2,241,395 Income from operations before certain items 70,131 74,138 Net realized and changes in unrealized gains on marketable and other securities 47,466 29,127 Malpractice insurance program adjustments associated with investment gains 1,845 10,981 Income from operations $ 119,442 $ 114,246 See accompanying notes.

7 Montefiore Medical Center Consolidated Statements of Changes in Net Assets Period Ended September 30, 2013 and Year Ended December 31, 2012 Unrestricted Net Assets Temporarily Restricted Net Assets Unaudited (In Thousands) Permanently Restricted Net Assets Total Net assets at January 1, 2012 $ 455,208 $ 72,794 $ 25,350 $ 553,352 Increase in unrestricted net assets 137, ,179 Restricted gifts, bequests and similar items 6,226 6,226 Investment income Net assets released from restrictions (5,290) (5,290) Changes in net assets 137,179 1, ,685 Net assets at December 31, ,387 74,300 25, ,037 Increase in unrestricted net assets 119, ,442 Restricted gifts, bequests and similar items 2,713 2,713 Investment income Net assets released from restrictions (3,206) (3,206) Changes in net assets 119, ,653 Net assets at September 30, 2013 $ 711,829 $ 74,511 $ 25,350 $ 811,690 See accompanying notes. 4

8 Montefiore Medical Center Consolidated Statements of Cash Flows Unaudited Nine Months Ended September (In Thousands) Operating activities Increase in net assets $ 119,653 $ 111,755 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation and amortization 87,658 81,377 Net realized (gains) (3,448) (4,608) Change in net unrealized (gains) (44,019) (24,519) Equity earnings from investments (11,559) (9,201) Amortization of long-term mortgage premium (700) (739) Changes in operating assets and liabilities: Receivables for patient care (18,858) (14,441) Net change in all other operating assets and liabilities 148,909 73,034 Net cash provided by operating activities 277, ,658 Investing activities Acquisition of property, buildings and equipment, net (166,320) (91,886) Increase in marketable and other securities, net (28,965) (19,869) Decrease in marketable securities held as collateral, net 17 8 Increase in assets limited to use, net (62,909) (4,481) Net cash used in investing activities (258,177) (116,228) Financing activities Payments of long-term debt (29,492) (27,909) Proceeds from long-term debt 55,361 3,200 Net cash used in financing activities 25,869 (24,709) Net increase in cash and cash equivalents 45,328 71,721 Cash and cash equivalents at beginning of year 30,779 26,855 Cash and cash equivalents at end of period $ 76,107 $ 98,576 Supplemental disclosure of noncash investing activities Assets acquired as lessee involvement in construction $ 49,433 $ n/a See accompanying notes. 5

9 Basis of Financial Statement Presentation: The accompanying interim consolidated financial statements as of September 30, 2013 include the accounts of Montefiore Medical Center and its controlled tax exempt and taxable organizations: MMC Corporation ( MCORP ), CMO The Care Management Company, LLC ( CMO ), Montefiore IPA, Inc. ( MIPA ), Bronx Accountable Healthcare Network IPA, Inc. ( ACO-IPA ), University Behavioral Associates, Inc. ( UBA ), Montefiore Behavioral Care IPA No. 1, Inc. ( MBCIPA ), Gunhill MRI P.C. ( Gunhill ), MMC Residential Corp. 1, Inc. ( Housing 1 ), Montefiore Hospital Housing Section II, Inc. ( Housing II ), Mosholu Preservation Corporation ( MPC ), Emerging Health Information Technology, LLC ( EHIT ), MMC GI Holdings East, Inc. ( GI East ), MMC GI Holdings West, Inc. ( GI West ), Montefiore North Ambulatory Care Center, Inc. ( NAMB ), Montefiore HMO, LLC ( MHMO ) and Montefiore Proton Acquisition, LLC ( MPRO ). For purposes of financial statement presentation, the entities described above are collectively termed the Medical Center except as explicitly specified. All intercompany transactions have been eliminated in consolidation. Captive insurance companies in which the Medical Center has an equity interest of 20% but less than 50% are accounted for under the equity method of accounting. The interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles applied on a basis substantially consistent with that of the 2012 audited consolidated financial statements except as discussed below in Subsequent Events. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Health care operations and the financial results thereof are subject to seasonal variations. Quarterly and other periodic operating results are not necessarily representative of operations for a full year for various reasons including patient volumes associated with seasonal illnesses, elective services, infrequent or one-time events and changes in regulatory or industry policies. Use of Estimates: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of the consolidated financial statements. Estimates also affect the amounts of revenue and expenses reported during the period. Management believes that amounts recorded based on estimates and assumptions are reasonable and any differences between estimates and actual should not have a material effect on the Medical Center s consolidated financial position. 6

10 Net Patient Service Revenue The Medical Center has agreements with third-party payors that provide for payments to the Medical Center at amounts different from its established rates. Net patient service revenue is reported at estimated net realizable amounts due from patients, third party payors and others for services rendered and includes estimated retroactive revenue adjustments due to future audits, reviews and investigations. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period that related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews and investigations. The Medical Center is committed to serving all patients in need of health care services. Consistent with its mission and values, and taking into account an individual s ability to pay for medically necessary health care services, the Medical Center provides charity care, including free or discounted care, to all patients not covered by insurance. Patient service revenue, as presented below, is net of $38.1 million for estimated charity care provided to patients, at cost, not covered by insurance. Bad Debt Expense: The collection of patient service revenue due from patients, including copayments and deductibles, from those who are ineligible for charity care, is subject to uncertainty. The Medical Center records bad debt expense in the period services are rendered based on past experience, to account for amounts that patients may ultimately be unable or unwilling to pay. For self-pay patients, which includes both patients without insurance and patients with copayments and deductibles after third party coverage, the Medical Center records an estimate for bad debt expense in the current period based on past experience. Amounts ultimately written off as uncollectible and recoveries of such amounts are deducted from, or added to the allowance for doubtful accounts. Net patient service revenue, net of contractual allowances and discounts, for the nine months ended September 30, 2013 by major payor source, is as follows: Third Party Payors Self-Pay Total (In Thousands) Patient service revenue (net of contractual allowances and discounts) $ 2,312,123 $ 30,462 $ 2,342,585 Bad debt expense (2,481) (9,467) (11,948) Net patient service revenue $ 2,309,642 $ 20,995 $ 2,330,637 7

11 Benefit Plans The Medical Center is a contributing employer to two union multiemployer pension plans. In addition, the Medical Center also maintains two tax deferred annuity plans under Section 403(b) of the Internal Revenue Code as well as two noncontributory defined benefit pension plans. The Medical Center sponsors two unfunded defined benefit postretirement health and welfare plans that cover certain full-time and part-time employees and eligible dependents. Contributions to union multiemployer pension plans are made in accordance with contractual agreements under which contributions are based on a percentage of salaries or a negotiated amount. Contributions to the non-contributory tax deferred annuity plan are based on percentages of salary. Contributions to the noncontributory defined benefit plans are based on actuarial valuations. Benefits under the noncontributory defined benefit plans are based on years of service and salary levels. The Medical Center s policy is to contribute amounts sufficient to meet funding requirements in accordance with the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of Total expense, included in employee benefits expense in the consolidated statements of operations for the various pension plans aggregated approximately $79.2 million for the interim period ended September 30, Cash payments relative to the various pension plans aggregated $77.9 million for the same period. Fair Value Measurements For assets and liabilities required to be measured at fair value, the Medical Center measures fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are applied based on the unit of account from the Medical Center s perspective. The unit of account determines what is being measured by reference to the level at which the asset or liability is aggregated (or disaggregated) for purposes of applying other accounting pronouncements. The Medical Center follows a valuation hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs that are based on inputs not quoted in active markets, but corroborated by market data. 8

12 Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. 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. In determining fair value, the Medical Center uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers nonperformance risk in its assessment of fair value. Financial assets carried at fair value, including assets invested in the Medical Center s defined benefit plan, are classified in the table below in one of the three categories described above as of September 30, 2013: Level 1 Level 2 Level 3 Total (In Thousands) Assets Cash and cash equivalents $ 76,107 $ - $ - $ 76,107 Marketable and other securities: U.S. non-equity mutual funds 227, ,369 Equity mutual funds: 153, ,439 U.S. government agency mortgage backed securities 32,743 32,743 U.S treasury securities 143, ,250 U.S government agency-backed securities 28,650 28,650 U.S. equity securities 35,644 35,644 Corporate debt 416, ,920 Defined Benefit plan assets Cash and Cash Equivalents Alternative investments: Hedge funds 4,559 4,559 Private equity funds Equity securities 5,724 5,724 Equity mutual funds 2,108 2,108 Non-equity mutual funds 2,707 2,707 Collective trust funds 3,458 3,458 Debt securities 1,833 1,833 Total Financial instruments, at fair value $ 1,065,893 $ 69,410 $ 599 $ 1,135,902 9

13 Subsequent Events Generally accepted accounting principles establish standards for accounting for, and disclosure of, events that occur after the reporting period end date but before financial statements are issued or are available to be issued. The standards are to be applied to subsequent events not addressed in other applicable accounting principles generally accepted in the United States. The standards set forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosure an entity should make about events or transactions that occurred after the balance sheet date. On November 6, 2013, certain newly created affiliates of Montefiore Health System, Inc. ( MHS ), Montefiore Medical Center s (Hospital s) sole corporate member, acquired substantially all of the property, buildings and equipment of Sound Shore Medical Center of Westchester, The Mount Vernon Hospital, Inc. and Howe Avenue Nursing Home d/b/a Schaffer Extended Care Center (collectively Sound Shore ). The terms of the acquisition were set forth in an Asset Purchase Agreement between the newly created affiliates of MHS and Sound Shore dated May 29, 2013, the same day Sound Shore filed for bankruptcy protection under Title 11 of the U.S. Bankruptcy Code. The asset purchase was pursuant to Section 363 of the Bankruptcy Code. There are six (6) newly created affiliates of MHS: Montefiore New Rochelle Hospital, Montefiore Mount Vernon Hospital, Schaffer Extended Care Center, Montefiore SS Holdings, LLC, Montefiore MV Holdings, LLC, and Montefiore HA Holdings, LLC, each being either a New York not-for-profit corporation or a New York limited liability company (collectively, the MHS Affiliates ). At the closing of the acquisition, Montefiore SS Holdings, LLC, Montefiore MV Holdings, LLC, and Montefiore HA Holdings, LLC purchased certain of the properties and leased them to their respective operating entities. The acquisition occurred after receipt of all applicable regulatory, lender and bankruptcy court approvals. Certificate of Need approval was received on October 22, The Hospital loaned amounts through MHS to the MHS Affiliates to fund the acquisition price, working capital and equipment and renovation needs. 10