$32,580,000 Orange County Health Facilities Authority Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012A

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY Moody s A2 S&P A Fitch A See RATINGS herein Subject to compliance by the Authority and the Corporation (each as defined herein) with certain covenants, in the opinion of Chapman and Cutler LLP, Bond Counsel, under present law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. See TAX MATTERS herein for a more detailed discussion of some of the tax consequences of owning the Bonds and APPENDIX D hereto for the proposed form of opinion of Bond Counsel. $152,295,000 Orange County Health Facilities Authority $32,580,000 Orange County Health Facilities Authority Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012A Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012B Dated: Due: October 1, as shown on inside front cover Date of Delivery The Orange County Health Facilities Authority (the Authority ) is offering $152,295,000 of its Hospital Revenue Bonds (Orlando Health, Inc.), Series 2012A (the Series 2012A Bonds ) and $32,580,000 of its Hospital Revenue Bonds (Orlando Health, Inc.), Series 2012B (the Series 2012B Bonds and, together with the Series 2012A Bonds, the Bonds ). The Bonds will mature on the dates and in the principal amounts as shown on the inside front cover. The Bonds are issuable in fully registered form in denominations of $5,000 or any integral multiple thereof, as described herein, and when issued will be initially registered in the name of CEDE & CO., as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds (the Securities Depository ). Purchasers will not receive certificates representing their interest in the Bonds purchased. Purchases of the Bonds may be made only in book-entry form in authorized denominations by credit to participating broker-dealers and other institutions on the books of DTC as described herein. The principal of, premium, if any, and interest on the Bonds will be payable by U.S. Bank National Association, Orlando, Florida, as trustee (the Trustee ), to the Securities Depository, which will remit such payments in accordance with its normal procedures, as described herein. Interest on the Bonds is payable semi-annually on April 1 and October 1 of each year, commencing October 1, The Bonds will be issued under a Trust Indenture dated as of May 1, 2012 between the Authority and the Trustee (the Indenture ), and the proceeds thereof will be loaned by the Authority to Orlando Health, Inc., a Florida not-for-profit corporation (the Corporation ), pursuant to a Loan Agreement dated as of May 1, 2012 between the Authority and the Corporation (the Loan Agreement ) for the purposes set forth herein. See PLAN OF FINANCE and SOURCES AND USES OF FUNDS herein. The obligations of the Corporation with respect to the Series 2012A Bonds and the Series 2012B Bonds under the Loan Agreement will be evidenced by the Series 2012 Notes (as defined herein) each issued by the Corporation, as the sole Member of an Obligated Group, pursuant to the Master Indenture (defined herein) between the Corporation and The Bank of New York Mellon, as master trustee (the Master Trustee ), and will require payments by the Corporation sufficient to provide for the payment of the principal of, premium, if any, and interest on the Bonds. See SECURITY FOR THE BONDS herein for a description of the security for the Series 2012 Notes and all other Obligations issued under the Master Indenture, including, without limitation, the Mortgage and the assignment of accounts and Gross Revenues (defined herein) of the Obligated Group. THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF ORANGE COUNTY, FLORIDA ( ORANGE COUNTY ), THE STATE OF FLORIDA (THE STATE ) OR ANY POLITICAL SUBDIVISION THEREOF, OR A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY, ORANGE COUNTY OR THE STATE OR THE TAXING POWERS OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS EXCEPT FROM THE INCOME, REVENUES AND RECEIPTS DERIVED OR TO BE DERIVED FROM THE TRUST ESTATE, INCLUDING, WITHOUT LIMITATION, THE PAYMENTS MADE PURSUANT TO THE LOAN AGREEMENT (OTHER THAN CERTAIN UNASSIGNED RIGHTS) AND THE SERIES 2012 NOTES, AND FROM ANY MONEYS RECEIVED BY THE TRUSTEE UNDER THE MORTGAGE. THE AUTHORITY HAS NO TAXING POWER. The Bonds are subject to mandatory sinking fund, optional and extraordinary optional redemption prior to maturity, as more fully described herein. See THE BONDS - Redemption herein. Digital Assurance Certification has been retained as dissemination agent on behalf of the Corporation in connection with filing its Annual Reports pursuant to its undertaking in accordance with Securities Exchange Commission Rule 15c2-12(b)(5). See CONTINUING DISCLOSURE herein. This cover page contains certain information for quick reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2012A Bonds are being purchased for reoffering by Morgan Stanley & Co. LLC, on behalf of itself, Goldman, Sachs & Co., SunTrust Robinson Humphrey, Inc., Raymond James & Associates, Inc., J.P.Morgan Securities Inc. and BB&T Capital Markets, a division of Scott & Stringfellow, LLC (collectively, the Series 2012A Underwriters ). The Series 2012B Bonds are being purchased for reoffering by Raymond James & Associates, Inc., on behalf of itself and Morgan Stanley & Co. LLC (collectively, the Series 2012B Underwriters and, together with the Series 2012A Underwriters, the Underwriters ). See UNDERWRITING herein. The Bonds are offered when, as and if issued by the Authority and accepted by the Underwriters, subject to prior sale and to the approval of legality by Chapman and Cutler LLP, Chicago, Illinois, Bond Counsel, and the approval of certain matters for the Authority by its general counsel, Lowndes Drosdick Doster Kantor & Reed, P.A., Orlando, Florida; for the Corporation by its counsel, Mateer & Harbert, P.A., Orlando, Florida, and for the Underwriters by their counsel, Adams and Reese LLP, Baton Rouge, Louisiana. It is expected that the Bonds in definitive form will be available for delivery through the facilities of DTC on or about May 23, Series 2012A Bonds Series 2012B Bonds MORGAN STANLEY GOLDMAN, SACHS & CO. SUNTRUST ROBINSON HUMPHREY RAYMOND JAMES MORGAN KEEGAN J.P. MORGAN BB&T CAPITAL MARKETS RAYMOND JAMES MORGAN KEEGAN MORGAN STANLEY The date of this Official Statement is May 4, 2012.

2 $152,295,000 ORANGE COUNTY HEALTH FACILITIES AUTHORITY Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012A Maturity Schedule $5,210,000 Serial Bonds PRINCIPAL INTEREST MATURITY AMOUNT RATE YIELD CUSIP* October 1, 2028 $5,210, % 4.125% 68450LCJ2 $23,315, % Term Bonds due October 1, 2032, Yield 4.273% CUSIP* 68450LCG8 $123,770, % Term Bonds due October 1, 2042, Yield** 4.450% CUSIP* 68450LCH6 $32,580,000 ORANGE COUNTY HEALTH FACILITIES AUTHORITY Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012B Maturity Schedule $1,075,000 Serial Bonds PRINCIPAL INTEREST MATURITY AMOUNT RATE YIELD CUSIP* October 1, 2028 $1,075, % 4.125% 68450LCE3 $4,780, % Term Bonds due October 1, 2032, Yield 4.273% CUSIP* 68450LCC7 $26,725, % Term Bonds due October 1, 2042, Yield** 4.450% CUSIP* 68450LCD5 * CUSIP is a registered trademark of the American Bankers Association. CUSIP data contained herein is provided by Standard & Poor s, CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. The CUSIP numbers are provided for convenience of reference only. Neither the Authority nor the Underwriters take any responsibility for the accuracy of such CUSIP numbers. ** Yield to the first call date.

3 REGARDING USE OF THIS OFFICIAL STATEMENT NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED BY THE AUTHORITY, THE CORPORATION OR THE UNDERWRITERS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY OF THE FOREGOING. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THE BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. THE INFORMATION SET FORTH HEREIN HAS BEEN OBTAINED FROM THE CORPORATION AND OTHER SOURCES WHICH ARE BELIEVED TO BE RELIABLE. THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. EXCEPT UNDER THE HEADINGS THE AUTHORITY AND LITIGATION - The Authority, THE INFORMATION CONTAINED HEREIN IS NOT TO BE CONSTRUED AS A REPRESENTATION BY THE AUTHORITY. THE INFORMATION ON THE CORPORATION IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS BY, AND IS NOT TO BE CONSTRUED AS A REPRESENTATION OF, THE AUTHORITY. THE INFORMATION REGARDING DTC HAS BEEN OBTAINED FROM DTC, BUT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS BY THE AUTHORITY OR THE CORPORATION. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE, AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE AUTHORITY, THE CORPORATION OR ANY OTHER ENTITY DESCRIBED HEREIN. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE A CONTRACT BETWEEN THE AUTHORITY, THE CORPORATION OR THE UNDERWRITERS AND ANY ONE OR MORE OF THE PURCHASERS OR REGISTERED OWNERS OF THE BONDS. Neither the Authority, its counsel, nor any of its members, agents, employees or representatives has reviewed this Official Statement or investigated the statements or representations contained herein, except for those statements relating to the Authority set forth under the captions THE AUTHORITY and LITIGATION - The Authority herein. Except with respect to the information contained under such captions, neither the Authority, its counsel, nor any of its members, agents, employees or representatives makes any representation as to the completeness, sufficiency and truthfulness of the statements set forth in this Official Statement. Members of the Authority and any other persons executing the Bonds are not subject to personal liability by reason of the issuance of the Bonds. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. i

4 This Official Statement contains forward-looking statements, which generally can be identified with words or phrases such as anticipates, believes, could, estimates, foresees, may, plan, predict, should, will, or other words or phrases of similar import. All statements included in this Official Statement that any person expects or anticipates will, should or may occur in the future are forward-looking statements. These statements are based on assumptions and analyses made by the Corporation in light of its experience and perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments conform with expectations and predictions is subject to a number or risks and uncertainties, including without limitation, the information discussed under BONDHOLDERS RISKS in this Official Statement as well as additional factors beyond Corporation s and the Authority s control. The important risk factors and assumptions described under that caption and elsewhere herein could cause actual results to differ materially from those expressed in any forward-looking statement. All of the forward-looking statements made in this Official Statement are qualified by these cautionary statements. There can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on Corporation s business or operations. All subsequent forward-looking statements attributable to Corporation or the Authority or persons acting on their behalf are expressly qualified in their entirety by the factors and assumptions described above and in any documents containing those forward-looking statement. No person has any obligation to prepare or release any updates or revisions to any forward-looking statement. Furthermore, any forward looking statements included in this Official Statement, including the Appendices attached hereto, have not been compiled or examined by any independent accountants, including those of the Corporation or West Orange Healthcare District. THIS OFFICIAL STATEMENT IS BEING PROVIDED TO PROSPECTIVE PURCHASERS IN EITHER IN BOUND FORM ( ORIGINAL BOUND FORMAT ) OR IN ELECTRONIC FORMAT ON THE FOLLOWING WEBSITE: ( ELECTRONIC FORMAT ). THIS FINAL OFFICIAL STATEMENT MAY BE RELIED UPON ONLY IF IT IS IN ITS ORIGINAL BOUND FORMAT OR AS PRINTED IN ITS ENTIRETY DIRECTLY FROM SUCH WEBSITE. ii

5 TABLE OF CONTENTS INTRODUCTION...1 THE AUTHORITY...6 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY LAWS...6 THE CORPORATION...7 PLAN OF FINANCE...8 ESTIMATED SOURCES AND USES OF FUNDS...9 ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION...10 HISTORICAL ACTUAL AND PRO FORMA DEBT SERVICE COVERAGE RATIOS...11 HISTORICAL AND PRO FORMA SUMMARY CAPITALIZATION...12 HISTORICAL COVERAGE OF EXPENSES AND DAYS CASH ON HAND...13 THE BONDS...13 SECURITY FOR THE BONDS...18 EXISTING INDEBTEDNESS...23 BONDHOLDERS RISKS...24 TAX MATTERS...48 RATINGS...49 LEGAL MATTERS...50 FINANCIAL ADVISOR...50 FINANCIAL STATEMENTS...50 CONTINUING DISCLOSURE...50 UNDERWRITING...51 LITIGATION...52 BONDS ELIGIBLE FOR INVESTMENT AND SECURITY FOR PUBLIC DEPOSITS...52 MISCELLANEOUS...52 APPENDIX A - INFORMATION REGARDING THE CORPORATION... A-1 APPENDIX B - CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION AND ITS CONTROLLED AFFILIATES...B-1 APPENDIX C - WEST ORANGE HEALTHCARE DISTRICT FINANCIAL STATEMENTS...C-1 APPENDIX D - DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS... D-1 APPENDIX E - FORM OF OPINION OF BOND COUNSEL... E-1 APPENDIX F - FORM OF CONTINUING DISCLOSURE AGREEMENT OF THE CORPORATION... F-1 iii

6 [THIS PAGE INTENTIONALLY LEFT BLANK]

7 OFFICIAL STATEMENT $152,295,000 Orange County Health Facilities Authority Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012A $32,580,000 Orange County Health Facilities Authority Hospital Revenue Bonds (Orlando Health, Inc.) Series 2012B INTRODUCTION General This Official Statement, including the cover page and Appendices hereto, is provided to furnish information with respect to the sale and delivery by the Orange County Health Facilities Authority (the Authority ) of its $152,295,000 Hospital Revenue Bonds (Orlando Health, Inc.), Series 2012A (the Series 2012A Bonds ) and its $32,580,000 Hospital Revenue Bonds (Orlando Health, Inc.), Series 2012B (the Series 2012B Bonds and, together with the Series 2012A Bonds, the Bonds ). The Authority is a public body corporate and politic created and existing under the laws of the State of Florida (the State ), particularly the Health Facilities Authorities Law of the State (the Act ), as a conduit issuer of revenue bonds. The Bonds are being issued pursuant to the Act and a Trust Indenture dated as of May 1, 2012 (the Indenture ) between the Authority and U.S. Bank National Association, a national banking association, as trustee (the Trustee ). The proceeds from the sale of the Bonds will be loaned by the Authority to Orlando Health, Inc., a Florida not-for-profit corporation (the Corporation ), pursuant to a Loan Agreement dated as of May 1, 2012 (the Loan Agreement ) between the Authority and the Corporation. The proceeds from the sale of the Series 2012A Bonds will be used by the Corporation to (i) finance, refinance or reimburse the costs of certain capital improvements to and equipment for its health facilities described herein (the Project ) and (ii) pay the costs of issuance of the Series 2012A Bonds. The proceeds from the sale of the Series 2012B Bonds will be used by the Corporation to (i) refinance the outstanding balance of a taxable loan (the Heart Institute Loan ) made by Regions Bank, N.A. (the Heart Institute Lender ), the proceeds of which were used to finance the costs of the acquisition, construction and equipping of the Orlando Health Heart Institute located on the Corporation s downtown Orlando campus and (ii) pay the costs of issuance of the Series 2012B Bonds. See PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS herein. Security for the Bonds The Master Indenture. The Corporation has previously entered into a Master Trust Indenture, dated as of September 1, 1987 (as previously supplemented and amended, the Original Master Indenture ). Subsequently, the Corporation and The Bank of New York Mellon, as master trustee (the Master Trustee ), amended and restated the Original Master Indenture in its entirety by an Amended and Restated Master Trust Indenture dated as of August 1, 1999 (as supplemented by any Related Supplemental Indentures, the Amended and Restated Master Indenture ). The Amended and Restated Master Indenture will be supplemented in connection with the issuance of the Bonds by Supplemental Indenture Number 61 ( Supplemental Indenture No. 61 ) and Supplemental Indenture Number 62 ( Supplemental Indenture No. 62" and, together with Supplemental Indenture No. 61, the Amended and Restated Master Indenture and any other Related Supplemental Indentures, the Master Indenture ), each dated as of May 1, 2012 between the Corporation and the Master Trustee. The Master Indenture provides for the issuance of obligations thereunder (the Obligations ) which are secured by a security interest in the accounts (as defined in Article 9 of the Florida Uniform Commercial Code (the UCC )) (the Accounts ) and the Gross Revenues (defined herein) of each entity which is obligated under the Master Indenture (each a Member and, collectively, the Obligated Group ). The Obligations are also secured by a mortgage and security interest in certain real and tangible personal property of the Corporation (the Mortgaged Property ) pursuant to a Mortgage and Security Agreement dated as of August 1, 1999, as supplemented and amended (collectively, the Mortgage ) between the Corporation and the Master Trustee. See SECURITY FOR THE BONDS - The Mortgage herein and THE MORTGAGE in APPENDIX D attached hereto for a general description of property and facilities constituting the Mortgaged Property and the conditions under which the Mortgage may be cancelled. Not all property owned by the Corporation is subject to the Mortgage. Currently, the Corporation (which owns and operates five hospitals and related health care facilities) is the sole Member of the Obligated Group. See THE CORPORATION herein and ORGANIZATIONAL STRUCTURE in APPENDIX A hereto.

8 Simultaneously with the issuance of the Bonds, the Obligated Group will issue pursuant to Supplemental Indenture No. 61, Orlando Health Series HHH Note No. 1 (Orlando Health Series 2012A Financing), Class B in a principal amount equal to the principal amount of the Series 2012A Bonds (the Series HHH Note ) and pursuant to Supplemental Indenture No. 62, Orlando Health Series III Note No. 1 (Orlando Health Series 2012B Financing), Class B in a principal amount equal to the principal amount of the Series 2012B Bonds (the Series III Note and, together with the Series HHH Note, the Series 2012 Notes ). The Series 2012 Notes will be equally and ratably secured under the Master Indenture with a number of Obligations which have been issued under the Master Indenture to secure various bonds and other Indebtedness issued on behalf of the Corporation, including the Series 2011 Bonds, the Series 2009 Bonds, the Series 2008A Bonds, the Series 2008B Bonds, the Series 2008C Bonds, the Series 2008E Bonds, Series 2006B Bonds, the Series 1996A Bonds and the Series 1996C Bonds (each as defined herein), which are hereinafter referred to collectively as the Prior Bonds, and including the 2010 South Lake Guaranty (as defined herein), the Health Central Guaranty (as defined herein) and the swap obligations with respect to the Series 2008E Bonds and the Series 2011 Bonds. See EXISTING INDEBTEDNESS herein for a detailed descriptions of the Obligations Outstanding under the Master Indenture which are secured on a parity with the Series 2012 Notes. The Master Indenture creates two classes of Obligations known, respectively, as Class A Obligations and Class B Obligations, which have the benefit of certain particular covenants known, respectively, as the Class A Covenants and the Class B Covenants. The Series 2012 Notes are Class B Obligations. The Class B Covenants are more restrictive than the Class A Covenants. The Class A Obligations will have the benefit only of the Class A Covenants, while the Class B Obligations will have the additional benefit of the Class B Covenants, as well as the Class A Covenants. The classification of Obligations under the Master Indenture is only with respect to the covenants of the Corporation, and not with respect to priority of security for the Obligations. All Obligations issued under the Master Indenture will be equally and ratably secured on a parity by the Accounts and the Gross Revenues of the Corporation and by the Mortgage. Certain characteristics of certain of the Class A Covenants and Class B Covenants are described in the table below. See SECURITY FOR THE BONDS - The Master Indenture herein and THE OBLIGATIONS AND THE MASTER INDENTURE - The Obligations; Payment of the Obligations in APPENDIX D hereto for a detailed description of the Class A Covenants and Class B Covenants. [remainder of this page intentionally left blank] 2

9 Type of Covenant Class A Covenant Class B Covenant Permitted Indebtedness and Parity Indebtedness for Long-Term Debt Rate Covenant Historical coverage of Consolidated Covered Debt, including Long-Term Debt to be incurred, for the two Fiscal Years of the Obligated Group next preceding the issuance of such Long-Term Debt for which audited financial statements are available is at least 110% OR Historical coverage of Consolidated Covered Debt, excluding Long-Term Debt to be incurred, for the two Fiscal Years of the Obligated Group next preceding the issuance of such Long-Term Debt for which audited financial statements are available is at least 110% AND Pro forma coverage of Consolidated Covered Debt is not less than 125% after giving effect to the issuance of Long-Term Debt to be incurred and to application of proceeds thereof, (i) for each of the two Fiscal Years of the Obligated Group following the completion of the project being financed with any of the Long-Term Debt or (ii) if none of the proceeds of such Long-Term Debt are being used to finance such a project, then for each of the two Fiscal Years of the Obligated Group following the issuance of such Long Term Debt, including the then current Fiscal Year OR An Officer s Certificate of the Obligated Group to the effect that the Covered Debt Ratio of the Obligated Group, after giving effect to the issuance of the Long-Term Debt proposed to be issued and to the application of the proceeds thereof does not exceed 0.65:1. Consolidated Net Income Available for Debt Service shall be maintained in an amount not less than 110% of Consolidated Maximum Annual Debt Service Requirement on all Consolidated Covered Debt. Except as otherwise provided in the Master Indenture, if such ratio is not being maintained, the Obligated Group must employ a Management Consultant to prepare a recommendation report and, if Obligated Group follows recommendations, an Event of Default will not be deemed to have occurred under the Master Indenture. Historical coverage of Consolidated Covered Debt, including Long-Term Debt to be incurred, for the Fiscal Year of the Obligated Group next preceding the issuance of such Long-Term Debt for which audited financial statements are available is at least 120% OR Historical coverage of Consolidated Covered Debt, excluding Long-Term Debt to be incurred, for the Fiscal Year of the Obligated Group next preceding the issuance of such Long-Term Debt for which audited financial statements are available is at least 110% AND Pro forma coverage of Consolidated Covered Debt is not less than 125% after giving effect to the issuance of Long-Term Debt to be incurred and to application of proceeds thereof, (i) for each of the two Fiscal Years of the Obligated Group following the completion of the project being financed with any of the Long-Term Debt or (ii) if none of the proceeds of such Long-Term Debt are being used to finance such a project, then for each of the two Fiscal Years of the Obligated Group following the issuance of such Long Term Debt, including the then current Fiscal Year. Consolidated Net Income Available for Debt Service shall be maintained in an amount not less than 110% of Consolidated Maximum Annual Debt Service Requirement on all Consolidated Covered Debt. If such ratio is not being maintained, and Consolidated Net Income Available for Debt Service is less than 100% of the Consolidated Maximum Annual Debt Service Requirement on all Consolidated Covered Debt Outstanding, such event shall be deemed an Event of Default under the Master Indenture if the holders of not less than 51% in aggregate principal amount of the Class B Obligations then Outstanding notify the Master Trustee that such event shall be an Event of Default under the Master Indenture. 3

10 Type of Covenant Class A Covenant Class B Covenant Liquidity Covenant None The Obligated Group must maintain Consolidated cash, cash equivalents and Unrestricted Investments in an amount at least equal to 60 days Consolidated Covered Expenses determined as of the end of each Fiscal Year; provided if such amount is not maintained as of the end of any Fiscal Year, no Event of Default will be deemed to have occurred under the Master Indenture if such amount is attained as of the end of the next succeeding fiscal quarter. Disposition of Assets The Obligated Group will not, in any Fiscal Year, sell, lease, dispose of or otherwise transfer in excess of 10% of the Consolidated Book Value of all Consolidated Property (except for transfers or other dispositions in the ordinary course of business) except as otherwise provided in the Master Indenture. In addition to the Class A Covenant, the Obligated Group will not, in any Fiscal Year, sell, dispose of, or otherwise transfer any Property comprising Orlando Regional Medical Center, other than in the ordinary course of its operations, in excess of 3% of the Book Value of Orlando Regional Medical Center determined as of the end of the most recent Fiscal Year. In addition, the Corporation shall demonstrate that the ratio of Consolidated Net Income Available for Debt Service to the Consolidated Maximum Annual Debt Service Requirement set forth therein is not less than 65% of what such ratio would have been had such transfer or other disposition not occurred The foregoing table merely summarizes a few of the covenants of the Obligated Group, the sole member of which currently is the Corporation, under the Master Indenture. Certain other supplemental indentures provide additional covenants and restrictions (the Bond Insurer Covenants ) for the benefit of the Assured Guaranty Municipal Corp. (formerly Financial Security Assurance Inc.) ( 2008A and 2008B Bond Insurer ) that apply in addition to, not in substitution for, the terms and provisions of the Master Indenture. The Bond Insurer Covenants shall only be applicable during the period any Bonds are outstanding and the 2008A and 2008B Bond Insurer has not lost its consent rights pursuant to the each applicable Indenture. Any one or more of the Bond Insurer Covenants may be modified, amended or waived at any time with the prior written consent of the 2008A and 2008B Bond Insurer and without the consent of the Master Trustee, the Trustee, any holder of the Series 2012 Notes or any other Notes or any owner of any Bonds or any other Related Bonds. Potential investors must read SECURITY FOR THE BONDS - The Master Indenture ; THE OBLIGATIONS AND THE MASTER INDENTURE - The Obligations; Payment of the Obligations in APPENDIX D hereto for a more complete description of the Class A Covenants and Class B Covenants and THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer and --Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008B Bond Insurer in APPENDIX D hereto for a more complete description of the Bond Insurer Covenants. Security Interest in the Gross Revenues and Tangible Personal Property of the Corporation. The Series 2012 Notes and all other Obligations outstanding under the Master Indenture will be secured by a security interest in the Accounts and the Gross Revenues of each Member of the Obligated Group, as well as certain tangible personal property of the Corporation pursuant to the Mortgage, subject to the limitations set forth below. Such security interest is subject to prior security interests in Accounts and is perfected only to the extent it can be perfected by a filing meeting the requirements of the UCC. Continuation statements meeting the requirements of the UCC must be filed every five years to continue the perfection of the security interest in the Accounts, Gross Revenues and tangible personal property. The Corporation has covenanted and each future Member will be required to covenant under the Master Indenture to file or cause to be filed such continuation statements. Current or future federal or state laws may proscribe or restrict the assignment of rights arising out of Medicare, Medicaid or other federal or state programs. See BONDHOLDERS RISKS herein. The Mortgage. The Series 2012 Notes are secured by the Mortgage, which creates a first mortgage lien on and/or security interest in the Mortgaged Property. The Corporation covenants in the Mortgage to maintain a first lien and security 4

11 interest upon the Mortgaged Property in favor of the Master Trustee, subject to Permitted Encumbrances, and to not create, or permit to be created or remain, and to, at its cost and expense, promptly discharge all Liens, encumbrances and charges on all or any part of the Mortgaged Property, other than Permitted Encumbrances. Under certain conditions, items of equipment may be released from the lien of the Mortgage. With the consent of the Controlling Bond Insurer (as defined in APPENDIX D hereto), other Mortgaged Property may be released from the lien of the Mortgage if such Mortgaged Property could otherwise be disposed of under the Master Indenture and the Mortgage. All property owned by the Corporation is not subject to the Mortgage. See SECURITY FOR THE BONDS - The Mortgage herein and THE MORTGAGE in APPENDIX D hereto for the terms of the Mortgage, a general description of property and facilities constituting the Mortgaged Property and the conditions under which the Mortgage may be cancelled. The System and the Obligated Group. The Corporation and other related entities form the Orlando Health System (the System ). The Corporation owns and operates five hospitals and related healthcare facilities as more particularly described in APPENDIX A and B hereto. The physical facilities of the System are herein referred to as the Facilities. The Corporation is the sole member of the Obligated Group. Only the Corporation is liable with respect to the Bonds and the Series 2012 Notes, and the other entities included within the System have no liability with respect to the Bonds or the Series 2012 Notes. See SECURITY FOR THE BONDS herein. Limitation of Liability THE BONDS, TOGETHER WITH INTEREST THEREON, WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY AND WILL NOT CONSTITUTE A DEBT OR LIABILITY OR OBLIGATION OF ORANGE COUNTY, FLORIDA ( ORANGE COUNTY ), THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, OR A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY, ORANGE COUNTY, THE STATE OR TAXING POWERS OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS EXCEPT FROM THE INCOME, REVENUES AND RECEIPTS DERIVED FROM THE TRUST ESTATE CREATED UNDER THE INDENTURE, INCLUDING, WITHOUT LIMITATION, THE PAYMENTS MADE PURSUANT TO THE LOAN AGREEMENT (OTHER THAN CERTAIN UNASSIGNED RIGHTS) AND THE SERIES 2012 NOTES AND CERTAIN OTHER MONEYS PLEDGED THEREFOR, INCLUDING AMOUNTS RECEIVED BY THE MASTER TRUSTEE UNDER THE MORTGAGE. THE AUTHORITY HAS NO TAXING POWER. Redemption of Bonds The Bonds are subject to mandatory sinking fund, optional and extraordinary optional redemption prior to maturity, as more fully described herein under THE BONDS - Redemption. Appendices Definitions of certain terms used in this Official Statement are set forth herein under the captions DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS in APPENDIX D hereto. This Official Statement contains brief descriptions of, among other things, the Bonds, the Corporation, the Loan Agreement, the Indenture, the Master Indenture, the Mortgage and the Series 2012 Notes. Such descriptions do not purport to be comprehensive or definitive, and references in this Official Statement to documents are qualified in their entirety by references to each such document, and references in this Official Statement to the Bonds are qualified in their entirety by reference to the forms of the Bonds included in the Indenture. Until the issuance and delivery of the Bonds, draft copies of such documents may be obtained from Morgan Stanley & Co. LLC, 1221 Avenue of the Americas, 30 th Floor, New York, NY 10020, with respect to the Series 2012A Bonds, and from Raymond James & Associates, Inc., 550 W. Washington Blvd., Suite 1650, Chicago, IL 60661, with respect to the Series 2012B Bonds, and from the Trustee, U.S. Bank National Association, 225 East Robinson Street, Suite 250, Orlando, Florida Attention: Corporate Trust. After the issuance and delivery of the Bonds, copies of such documents will be available for inspection at the principal corporate trust office of the Trustee. Information concerning the Corporation, the System and its facilities and operations and certain financial information is included in APPENDIX A hereto. The audited consolidated financial statements of the Corporation and its controlled affiliates for each of the three fiscal years ended September 30, 2011, 2010 and 2009 are included in APPENDIX B hereto. Certain unaudited interim condensed consolidated financial information of the Corporation and its controlled affiliates for the six-month periods ended March 31, 2012 and March 31, 2011 are included in APPENDIX A and B hereto. The audited consolidated financial statements of West Orange Healthcare District (as hereinafter defined) as of and for the fiscal years ended September 30, 2011 and 2010 are included in APPENDIX C hereto. The Proposed Form of Opinion of Bond Counsel is included as APPENDIX E hereto. The form of the Continuing Disclosure Agreement of the Corporation is included as APPENDIX F hereto. 5

12 General THE AUTHORITY The Authority is a public body corporate and politic created under the Act. Pursuant to the Act, the Authority is authorized to issue revenue bonds and to loan the proceeds thereof to private not-for-profit health care corporations in Orange County, Florida in order to finance and refinance or provide reimbursement for the acquisition, construction or installation of qualifying projects, as defined under the Act. The Bonds are limited obligations of the Authority payable by the Authority solely out of the revenues of the Authority received under the Loan Agreement (except certain unassigned rights), the Series 2012 Notes, and other moneys pledged therefor under the Indenture and any moneys received by the Trustee pursuant to the Mortgage. The Authority has no taxing power. The obligations of the Authority are not a debt, liability or obligation of Orange County, the State or any political subdivision thereof. The Authority was created on December 20, 1977, by the Board of County Commissioners of Orange County, Florida, pursuant to the Act. The Board of County Commissioners designates the five members of the Authority. Members serve staggered terms of four years. Members receive no compensation, but are paid necessary expenses. Members may be directors, officers or employees of health facilities or banks. However, any member who is employed by or receives income from a health facility may not vote on any matter related to such facility. In authorizing the Bonds, the members of the Authority have relied upon information furnished by the Corporation and have made no independent investigation of the matters set forth in this Official Statement. Limitation of Liability THE BONDS, TOGETHER WITH INTEREST THEREON, WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY AND WILL NOT CONSTITUTE A DEBT OR LIABILITY OR OBLIGATION OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, OR A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY, ORANGE COUNTY, THE STATE OR TAXING POWERS OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS EXCEPT FROM THE INCOME, REVENUES AND RECEIPTS DERIVED FROM THE TRUST ESTATE CREATED UNDER THE INDENTURE, INCLUDING, WITHOUT LIMITATION, PAYMENTS MADE PURSUANT TO THE LOAN AGREEMENT (OTHER THAN CERTAIN UNASSIGNED RIGHTS) AND THE SERIES 2012 NOTES AND CERTAIN OTHER MONEYS PLEDGED THEREFOR, INCLUDING AMOUNTS RECEIVED BY THE MASTER TRUSTEE UNDER THE MORTGAGE. THE AUTHORITY HAS NO TAXING POWER. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY LAWS Section of the Florida Statutes 1991, as amended, provides for the exemption from registration of certain governmental securities, provided that if an issuer or guarantor of governmental securities has been in default at any time after December 31, 1975 as to principal and interest on any obligation, its securities may not be offered or sold in Florida pursuant to the exemption except by means of an offering circular containing full and fair disclosure, as prescribed by rules of the Florida Department of Banking and Finance (the Department ). Under the rules of the Department, the prescribed disclosure is not required if the information is not an appropriate disclosure because the information would not be considered material by a reasonable investor. The Authority has the power to issue, and has issued, bonds for the purpose of financing projects for other facilities. Bonds issued by the Authority for parties other than the Corporation may have been, or may be, in default as to principal and interest. The source of payment, however, for any such defaulted bonds is separate and distinct from the source of payment for the Bonds and, therefore, the default on such bonds is not considered a material fact with respect to the payment of the Bonds. The Corporation is not and has not been in default at any time after December 31, 1975 as to principal or interest with respect to any of its obligations, including the Corporation s obligations to make payments of principal and interest for obligations issued by the Authority for the benefit of the Corporation. 6

13 General THE CORPORATION Orlando Health, Inc. is a Florida not-for-profit corporation headquartered in Orlando, Florida. The Corporation was formed in 1977, but traces its origins and history of serving residents of Orange County, Florida, and the surrounding counties to The Corporation owns and operates four hospitals and related healthcare facilities located in Orange County, Florida, known as Orlando Regional Medical Center ( ORMC ) (includes Lucerne Pavilion of ORMC, which was formerly separately licensed and known as Orlando Regional Lucerne Hospital see APPENDIX A - INFORMATION REGARDING THE CORPORATION for more information), Arnold Palmer Hospital for Children ( Arnold Palmer Hospital ), Winnie Palmer Hospital for Women and Babies ( Winnie Palmer Hospital ) and Dr. P. Phillips Hospital ( Dr. P. Phillips Hospital, formerly known as Sand Lake Hospital) and one hospital and related healthcare facilities located in Seminole County, Florida, known as South Seminole Hospital ( South Seminole Hospital ). The five hospitals described in the immediately preceding sentence are unincorporated divisions of the Corporation. In addition, the Corporation has a 50% board membership interest in South Lake Hospital, located in south Lake County, Florida, and Healthnet Services, Inc., a controlled affiliate of the Corporation, has a 20% ownership interest in St. Cloud Hospital located in Osceola County, Florida. See APPENDIX A - INFORMATION REGARDING THE CORPORATION and APPENDIX B - CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION AND ITS CONTROLLED AFFILIATES hereto for more information on the Corporation s membership interest in South Lake Hospital and Healthnet Services, Inc. s ownership interest in St. Cloud Hospital. On April 1, 2012, pursuant to an Asset Purchase Agreement (the Health Central Asset Purchase Agreement ) with the West Orange Healthcare District, an independent special district and political subdivision of the State ( West Orange Healthcare District ), the Corporation, through a controlled affiliate, Orlando Health Central, Inc., acquired all the healthcare assets of the West Orange Healthcare District, including a 171-bed acute care hospital known as Health Central, a 228-bed skilled nursing facility known as Health Central Park and other outpatient clinics and physician practices, all located in Orange County, Florida west of the Corporation s main campus. In connection with the acquisition, the Corporation executed a Guaranty Agreement dated as of April 1, 2012 (the Health Central Guaranty ) pursuant to which the Corporation guaranteed the payment of the obligations of Orlando Health Central, Inc. relating to $181,300,000 acquisition of the healthcare assets of West Orange Healthcare District. For more information on the acquisition of the healthcare assets of West Orange Healthcare District and the Health Central Guaranty see EXISTING INDEBTEDNESS herein and APPENDIX A - INFORMATION REGARDING THE CORPORATION-Organizational Structure - Controlled Affiliates - Orlando Health Central, Inc. and - Management Discussion and Analysis - Health Central Acquisition. Additionally, the audited consolidated financial statements of West Orange Healthcare District as of and for the fiscal years ended September 30, 2011 and 2010 are included in APPENDIX C hereto. The audited consolidated financial statements of West Orange Healthcare District are attached hereto for informational purposes only in order to provide information regarding the operating history of West Orange Healthcare District and its facilities. Please note that the audited financial statements of West Orange Healthcare District were prepared in accordance with Governmental Accounting Standards Board (GASB) principles and not Financial Accounting Standards Board (FASB) principles, so such financial statements are not strictly comparable with the Corporation s financial statements. Orlando Health Central, Inc. is a controlled affiliate of the Corporation and is not a Member of the Obligated Group. The Corporation is currently the only Member of the Obligated Group under the Master Indenture. Related Organizations The Corporation also controls Orlando Health Foundation, Inc., Orlando Health Physician Group, Inc. (formerly known as Orlando Health Network, Inc.), Orlando Physicians Network, Inc. (formerly known as Orlando Health Physician Partners, Inc.), Healthnet Services, Inc., Health Purchasing Alliance, Inc., Orlando Health Physician Partners, Inc., Orange Indemnity Ltd. and M.D. Anderson Cancer Center Orlando. For more information on the Related Organizations of the Corporation see APPENDIX A - INFORMATION REGARDING THE CORPORATION-Organizational Structure. Only the Corporation is obligated with respect to the Master Indenture, and the other entities included within the System have no liability with respect to the Master Indenture. 7

14 Financial Information Information concerning the Corporation, the System and its facilities and operations and certain financial information is included in APPENDIX A to this Official Statement. Audited consolidated financial statements of the Corporation and its controlled affiliates for each of the three fiscal years ended September 30, 2011, 2010 and 2009 are included in APPENDIX B hereto. Certain unaudited interim condensed consolidated financial information of the Corporation and its controlled affiliates for the six-month periods ended March 31, 2012 and March 31, 2011 are included in APPENDIX A hereto. The audited consolidated financial statements of West Orange Healthcare District as of and for the fiscal years ended September 30, 2011 and 2010 are included in APPENDIX C hereto. As stated above, the audited consolidated financial statements of West Orange Healthcare District are attached hereto for informational purposes only in order to provide information regarding the operating history of West Orange Healthcare District and its facilities. Please note that the audited financial statements of West Orange Healthcare District were prepared in accordance with Governmental Accounting Standards Board (GASB) principles and not Financial Accounting Standards Board (FASB) principles, accordingly such financial statements are not strictly comparable with the Corporation s financial statements. Orlando Health Central, Inc. is a controlled affiliate of the Corporation and is not a Member of the Obligated Group. General PLAN OF FINANCE The proceeds from the sale of the Series 2012A Bonds will be used by the Corporation to (i) finance, refinance or reimburse the costs of the Project and (ii) pay the costs of issuance of the Series 2012A Bonds. The proceeds from the sale of the Series 2012B Bonds will be used to (i) refinance the outstanding balance of the Heart Institute Loan made by Heart Institute Lender and (ii) pay the costs of issuance of the Series 2012B Bonds. See ESTIMATED SOURCES AND USES OF FUNDS herein. The Project A portion of the proceeds of the Series 2012A Bonds, together with the projected earnings on the Project Fund during construction of the Project, will be used to finance, refinance or reimburse the Corporation for construction and equipment costs for improvements at ORMC as described below. The Corporation is currently building an expansion at ORMC, which will include (i) a new ten-story patient bed tower that will be connected to ORMC and house 64 Intensive Care beds, 128 Progressive Care beds, 96 shelled beds, 9 operating rooms, 10 (1 shelled) interventional suites and (ii) an expansion to the emergency department of ORMC, as well as the renovation and equipping of various ancillary departments in ORMC. The total project cost is expected to be approximately $297,500,000 to be funded with the proceeds of the Series 2012A Bonds and the Corporation s unrestricted funds and philanthropy. Refinancing of the Heart Institute Loan In connection with the acquisition and build out of the five-story medical office building and outpatient services building, known as the Orlando Health Heart Institute, the Corporation incurred the Heart Institute Loan. For more information on the Orlando Health Heart Institute and the Heart Institute Loan see APPENDIX A - INFORMATION REGARDING THE CORPORATION - Notes to Interim Condensed Consolidated Financial Statements -5. Long-Term Debt - Construction Loan. The proceeds of the Series 2012B Bonds will be remitted to the Heart Institute Lender as payment in full of the Heart Institute Loan, including a prepayment penalty due by the Corporation in connection the refinancing thereof. In connection with the refinancing of the Heart Institute Loan, the Corporation plans on terminating an interest rate swap agreement relating to the Heart Institute Loan between the Corporation and Regions Bank, N.A. (the Heart Institute Loan Swap Agreement ). The Corporation will pay the termination fees of the Corporation relating to the termination of the Heart Institute Loan Swap Agreement from funds provided by the Corporation. See BONDHOLDERS RISKS Utilization of Derivative Markets herein and APPENDIX A - INFORMATION REGARDING THE CORPORATION - Notes to Interim Condensed Consolidated Financial Statements -6. Derivative Instruments and Hedging Activities. [remainder of the page intentionally left blank] 8

15 ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds related to the Bonds. Sources of Funds: Series 2012A Series 2012B Par Amount of the Bonds $152,295,000 $32,580,000 Net Original Issue Premium 4,833,109 1,049,413 TOTAL $157,128,109 $33,629,413 Uses of Funds: Deposit to the Project Fund (1) $155,500,000 Payment of Heart Institute Loan $33,276,112 Cost of Issuance (2) 1,628, ,301 TOTAL $157,128,109 $33,629,413 (1) Interest earnings on amounts on deposit in the Project Fund during the period of construction of the Project will be used to pay costs of the Project. (2) Costs of Issuance includes Underwriters discount and legal, printing and other costs incurred in connection with the issuance of the Bonds. [remainder of the page intentionally left blank] 9

16 ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION The following table sets forth, for each Fiscal Year ending September 30 of the Corporation, the debt service requirements of the Corporation for the Bonds and other Consolidated Covered Debt to be outstanding. Numbers may not add due to rounding. Series 2012A Bonds Series 2012B Bonds Fiscal Year Principal Interest Principal Interest Existing Debt Service (1) Total Combined Debt Service 2013 $6,295,729 $1,348,719 55,673,950 63,318, ,358,644 1,576,425 55,644,383 64,579, ,358,644 1,576,425 55,650,830 64,585, ,358,644 1,576,425 55,642,142 64,577, ,358,644 1,576,425 55,821,018 64,756, ,358,644 1,576,425 56,003,561 64,938, ,358,644 1,576,425 55,987,656 64,922, ,358,644 1,576,425 55,780,752 64,715, ,358,644 1,576,425 55,673,094 64,608, ,358,644 1,576,425 55,588,513 64,523, ,358,644 1,576,425 55,522,918 64,457, ,358,644 1,576,425 55,517,976 64,453, ,358,644 1,576,425 55,524,685 64,459, ,358,644 1,576,425 55,514,464 64,449, ,358,644 1,576,425 55,513,242 64,448, ,358,644 1,576,425 45,146,176 54,081, $5,210,000 7,254,444 $1,075,000 1,554,925 34,197,667 49,292, ,450,000 7,037,837 1,115,000 1,510,428 34,175,857 49,289, ,695,000 6,807,972 1,170,000 1,463,300 34,155,874 49,292, ,955,000 6,567,691 1,220,000 1,414,006 34,133,289 49,289, ,215,000 6,316,684 1,275,000 1,362,547 34,120,932 49,290, ,530,000 6,025,250 1,335,000 1,302,875 34,096,870 49,289, ,880,000 5,690,000 1,405,000 1,234,375 34,079,735 49,289, ,255,000 5,336,625 1,480,000 1,162,250 34,055,399 49,289, ,630,000 4,964,500 1,565,000 1,086,125 34,045,527 49,291, ,620,000 4,558,250 1,770,000 1,002,750 33,340,530 49,291, ,385,000 4,108,125 1,925, ,375 32,963,096 49,291, ,055,000 3,697,125 2,835, ,375 34,911,157 49,289, ,615,000 3,155,375 2,990, ,750 27,882,610 49,288, ,885,000 2,392,875 3,250, ,750 27,269,886 49,287, ,915, ,875 8,170, , ,287,125 Total $152,295,000 $191,586,013 $32,580,000 $41,130,175 $1,343,633,788 $1,761,224,976 (1) Includes debt service on Consolidated Covered Debt (excluding the debt service on the Heart Institute Loan which is being refinanced with the proceeds of the Series 2012B Bonds) including, but not limited to, 20% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the 2010 South Lake Guaranty, which is secured by the Series DDD Note and 20% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the Health Central Guaranty, which is secured by the Series GGG Note (calculated in accordance with the Master Indenture). For purposes of calculating interest on the Series 2008E Bonds, an average interest rate of 3.425% is assumed which is the fixed rate of interest based upon the related interest rate swap agreement. For purposes of calculating interest on the Series 2011 Bonds, an average interest rate of 3.86% is assumed which is the fixed rate of interest based upon the related interest rate swap agreement. See EXISTING INDEBTEDNESS herein. 10

17 HISTORICAL ACTUAL AND PRO FORMA DEBT SERVICE COVERAGE RATIOS The following table presents, in summary form, the Corporation s historical coverage of the actual and the pro forma Maximum Annual Debt Service Requirement (as defined in the Master Indenture) for the two fiscal years ended September 30, 2010 and Certain other supplemental indentures provide additional Bond Insurer Covenants for the benefit of the 2008A and 2008B Bond Insurer that apply in addition to, not in substitution for, the terms and provisions of the Master Indenture. See THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Debt Service Coverage Ratio in APPENDIX D hereto. Fiscal Year Ended September 30, (000's omitted) Adjusted Annual Revenue (1) $1,572,514 $1,580,702 Less Total Expenses (2) (1,319,229) (1,315,041) Net Income Available for Debt Service $253,285 $265,661 Actual Maximum Annual Debt Service Requirement (3) $54,506 $54,818 Actual Debt Service Coverage Ratio 4.65x 4.85x Pro Forma Maximum Annual Debt Service Requirement (4) $64,939 $64,939 Pro Forma Debt Service Coverage Ratio 3.90x 4.09x (1) As defined in the Master Indenture. See the definition of Adjusted Annual Revenue under DEFINITION OF CERTAIN TERMS in APPENDIX D hereto. (2) Determined in accordance with generally accepted accounting principles from time to time in effect. Excludes interest expense, depreciation expense, amortization expense, impairment expense, gains or losses from the extinguishment of debt or any other extraordinary item, proceeds of insurance policies (other than policies for use and occupancy or business interruption insurance), earnings resulting from any reappraisal, revaluation or write-up of assets, any change in the fair market value of derivatives, and all other changes in unrestricted net assets, all changes in temporarily restricted net assets and all changes in permanently restricted net assets. (3) Includes debt service on Consolidated Covered Debt including, but not limited to, 20% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the 2010 South Lake Guaranty, which is secured by the Series DDD Note (calculated in accordance with the Master Indenture). For purposes of calculating interest on the Series 2008E Bonds, an average interest rate of 3.425% is assumed which is the fixed rate of interest based upon the related interest rate swap agreement. For purposes of calculating interest on the Series 2011 Bonds, an average interest rate of 3.86% is assumed which is the fixed rate of interest based upon the related interest rate swap agreement See ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION and EXISTING INDEBTEDNESS herein. (4) Includes estimated debt service on the Series 2012A Bonds and the Series 2012B Bonds as well as 20% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the Health Central Guaranty, which is secured by the Series GGG Note (calculated in accordance with the Master Indenture). Excludes the Heart Institute Loan which is being refinanced with the proceeds of the Series 2012B Bonds and includes all other Consolidated Covered Debt described in footnote 3. Under certain circumstances the Master Indenture provides that 100% of indebtedness guaranteed by the Corporation be included for purposes of calculating the Debt Service Coverage Ratio of the Corporation. As Orlando Health Central, Inc. has no operating history, if 100% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the Health Central Guaranty is taken into account for illustrative purposes, the Pro Forma Maximum Annual Debt Service Requirement would be approximately $78,000,000 resulting in a Debt Service Coverage Ratio of 3.41x as of fiscal year ended September 30,

18 HISTORICAL AND PRO FORMA SUMMARY CAPITALIZATION The following table presents, in summary form, the Corporation s actual Long-Term Indebtedness to Total Capitalization for the two fiscal years ended September 30, 2010 and 2011, and the Corporation s pro forma Long-Term Indebtedness to Total Capitalization as of fiscal year ended September 30, 2011 as adjusted to reflect the issuance of the Bonds and the refinancing of the Heart Institute Loan. Certain other supplemental indentures provide additional Bond Insurer Covenants for the benefit of the 2008A and 2008B Bond Insurer that apply in addition to, not in substitution for, the terms and provisions of the Master Indenture. See THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Total Debt to Capitalization Ratio in APPENDIX D hereto. Summary Capitalization (000's omitted) Actual as of September 30, 2010 Actual as of September 30, 2011 Pro Forma as of September 30, 2011 (1) Long-Term Indebtedness, including current portion $780,788 $764,841 $801,101 Par Amount of the Bonds $184,875 Total Long-Term Indebtedness, net of current portion $780,788 $764,841 $985,976 Unrestricted and Temporarily Restricted Net Assets $934,495 $1,008,039 $1,008,039 Total Capitalization $1,715,283 $1,772,880 $1,994,015 Total Long-Term Indebtedness, as a percentage of Total Capitalization 45.5% 43.1% 49.4% (1) Takes into account the issuance of the Bonds, the refinancing of the Heart Institute Loan and 20% of the debt service on the indebtedness guaranteed by the Corporation pursuant to the Health Central Guaranty, which is secured by the Series GGG Note (calculated in accordance with the Master Indenture). For more information on the Health Central Guaranty see EXISTING INDEBTEDNESS herein and APPENDIX A - INFORMATION REGARDING THE CORPORATION-Organizational Structure - Controlled Affiliates and - Management Discussion and Analysis - Health Central Acquisition. [remainder of the page intentionally left blank] 12

19 HISTORICAL COVERAGE OF EXPENSES AND DAYS CASH ON HAND The following table sets forth the actual Coverage of Expenses and days cash on hand of the Corporation for the fiscal years ended September 30, 2010 and 2011 using the liquidity covenant test set forth in the Master Indenture. See SECURITY FOR THE BONDS - Master Indenture - Liquidity Covenant herein. Certain other supplemental indentures provide additional Bond Insurer Covenants for the benefit of the 2008A and 2008B Bond Insurer that apply in addition to, not in substitution for, the terms and provisions of the Master Indenture. See THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Liquidity Covenant in APPENDIX D hereto. Fiscal Year Ended September 30, (000's omitted) Consolidated cash, Cash Equivalents and Unrestricted Investments $661,783 $663,601 Consolidated Covered Expenses (1) $223,099 $221,697 Days Cash on Hand (1) As defined in SECURITY FOR THE BONDS - Master Indenture - Liquidity Covenant herein and DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL DOCUMENTS - DEFINITIONS OF CERTAIN TERMS - Covered Expenses in APPENDIX D hereto. General THE BONDS The Bonds will be issuable as fully registered bonds without coupons in the denominations of $5,000 or integral multiples thereof. The Bonds will mature on the date(s) and will bear interest at the rate(s) set forth on the inside front cover page of this Official Statement. Interest on the Bonds will be payable on each April 1 and October 1 (each, an Interest Payment Date ), commencing October 1, Interest on the Bonds will be computed on the basis of a year of 360 days consisting of twelve 30-day months. The Bonds will be issued in book-entry only form and the ownership of one fully registered Bond for each maturity of the Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Individual purchases of interests in the Bonds may be made through DTC in the principal amount of $5,000 or any integral multiple thereof. Purchasers of such interests will not receive certificates representing their beneficial ownership interests in the Bonds. So long as Cede & Co. is the registered owner, the Trustee will pay the principal of, premium, if any, and interest on the Bonds to DTC, which will remit such principal, premium, if any, and interest to the Beneficial Owners (as defined below under Book-Entry Only System ) of the Bonds. For a description of the method of payment of principal of, premium, if any, and interest on the Bonds, see Book-Entry Only System herein. Book-Entry Only System The Bonds initially will be issued solely in book-entry form to be held in the book-entry-only system maintained by The Depository Trust Company ( DTC ), New York, New York. So long as such book-entry system is used, only DTC will receive or have the right to receive physical delivery of Bonds and, except as otherwise provided herein with respect to Beneficial Owners of Beneficial Ownership Interests, Beneficial Owners will not be or be considered to be, and will not have any rights as, owners or holders of the Bonds under the Indenture. The following information about the book-entry-only system applicable to the Bonds has been supplied by DTC. None of the Authority, the Corporation, the Trustee or the Underwriters makes any representations, warranties or guarantees with respect to its accuracy or completeness. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative 13

20 of DTC. One fully registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non- U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s rating: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC will be registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee does not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price payments and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be 14

21 governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority, the Corporation and the Underwriters take no responsibility for the accuracy thereof. THE AUTHORITY, THE CORPORATION, THE TRUSTEE OR THE UNDERWRITERS CANNOT AND DO NOT GIVE ANY ASSURANCES THAT THE DTC PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (I) PAYMENTS OF PRINCIPAL OF OR INTEREST AND PREMIUM, IF ANY, ON THE BONDS, (II) CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN BONDS, OR (III) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNERS OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DTC PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT RULES APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE CURRENT PROCEDURES OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. NEITHER THE AUTHORITY, THE CORPORATION, THE TRUSTEE NOR THE UNDERWRITERS WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO SUCH DTC PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (2) THE PAYMENT BY ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR INTEREST OR PREMIUM, IF ANY, ON THE BONDS; (3) THE DELIVERY BY ANY DTC PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE BONDS TO BE GIVEN TO BONDHOLDERS; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER. Provisions Applicable if Book-Entry Only System is Terminated General. Purchasers of Bonds will receive principal and interest payments, and may transfer and exchange Bonds, pursuant to the following provisions only if the book-entry only system is terminated. Otherwise, payments and transfers will be made only as described above under Book-Entry Only System. Payment of Principal and Interest. The principal of and interest on the Bonds and the premium, if any, thereon will be payable at the principal corporate trust office of the Trustee. Payment of interest on the Bonds will be made to the registered owners thereof on the bond registration books of the Authority maintained by the Trustee as of the close of business of the Trustee on the first day of the month with respect to the interest payment date in question, by check or draft mailed by the Trustee to such registered owner at his address as it appears on such registration books or at such other address as is furnished to the Trustee in writing by such registered owner. A registered owner of $1,000,000 or more in aggregate principal amount of the Bonds may, upon request made to the Trustee, direct that interest thereon be sent by wire transfer to any account maintained with any bank located in the continental United States of America. Bond Registration and Transfers. The Bonds are transferable by the registered holder thereof or by such holder s attorney duly authorized in writing upon presentation thereof at the principal office of the Trustee. Any Bond may be exchanged at the principal office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity. 15

22 The Trustee will not be required to transfer or exchange any Bond during the period of 15 days next preceding any interest payment date for such Bond, after the mailing of notice calling such Bond for redemption has been made, or during a period 15 days next preceding mailing of a notice of redemption of any Bonds. No service charge will be made for any registration, transfer or exchange of Bonds; however, the Trustee shall require payment of any tax or other governmental charge required to be paid in connection with any transfer or exchange of Bonds and may charge the holder of the Bond the cost of printing such Bond, under the conditions described in the Indenture. Redemption Optional Redemption. The Series 2012A Bonds may be redeemed at the direction of the Corporation on or after April 1, 2022, in whole or in part on any date, in such order of maturity as the Corporation shall designate (or, if no such designation is made, in inverse order of maturity) in either case by lot within a maturity in such manner as the Trustee shall designate. Series 2012A Bonds, when so redeemable, are redeemable at the redemption price of 100% of the principal amount of Series 2012A Bonds to be redeemed plus accrued interest thereon to the date of redemption. The Series 2012B Bonds may be redeemed at the direction of the Corporation on or after April 1, 2022, in whole or in part on any date, in such order of maturity as the Corporation shall designate (or, if no such designation is made, in inverse order of maturity) in either case by lot within a maturity in such manner as the Trustee shall designate. Series 2012B Bonds, when so redeemable, are redeemable at the redemption price of 100% of the principal amount of Series 2012B Bonds to be redeemed plus accrued interest thereon to the date of redemption. Mandatory Redemption Without Premium. The Series 2012A Bonds maturing October 1, 2032 in the principal amount of $23,315,000 are subject to mandatory sinking fund redemption, in part, prior to maturity on October 1 of each of the years 2029 through 2031 at a redemption price of 100% of the principal amount of Series 2012A Bonds to be redeemed plus accrued interest to the redemption date and without premium as set forth below: Year (October 1) Principal Amount (1) $5,450,000 5,695,000 5,955,000 6,215,000 (1) Final Maturity The Series 2012A Bonds maturing October 1, 2042 in the principal amount of $123,770,000 are subject to mandatory sinking fund redemption, in part, prior to maturity on October 1 of each of the years 2033 through 2041 at a redemption price of 100% of the principal amount of Series 2012A Bonds to be redeemed plus accrued interest to the redemption date and without premium as set forth below: Year (October 1) Principal Amount (1) $6,530,000 6,880,000 7,255,000 7,630,000 8,620,000 9,385,000 7,055,000 14,615,000 15,885,000 39,915,000 (1) Final Maturity 16

23 The Series 2012B Bonds maturing October 1, 2032 in the principal amount of $4,780,000 are subject to mandatory sinking fund redemption, in part, prior to maturity on October 1 of each of the years 2029 through 2031 at a redemption price of 100% of the principal amount of Series 2012B Bonds to be redeemed plus accrued interest to the redemption date and without premium as set forth below: Year (October 1) Principal Amount (1) $1,115,000 1,170,000 1,220,000 1,275,000 (1) Final Maturity The Series 2012B Bonds maturing October 1, 2042 in the principal amount of $26,725,000 are subject to mandatory sinking fund redemption, in part, prior to maturity on October 1 of each of the years 2033 through 2041 at a redemption price of 100% of the principal amount of Series 2012B Bonds to be redeemed plus accrued interest to the redemption date and without premium as set forth below: Year (October 1) Principal Amount (1) $1,335,000 1,405,000 1,480,000 1,565,000 1,770,000 1,925,000 2,835,000 2,990,000 3,250,000 8,170,000 (1) Final Maturity Extraordinary Redemption Without Premium. The Bonds may be redeemed in whole or in part on the earliest possible interest payment date in the event of damage to or destruction of the Corporation s Facilities or any part thereof or condemnation of the Corporation s Facilities or any part thereof from and to the extent of the proceeds of insurance or condemnation awards received by the Trustee from the Corporation, as Group Representative, in such order of maturity as the Corporation, as Group Representative, shall designate (or if no such designation is made, in inverse order of maturity) and by lot within a maturity in such manner as the Trustee shall designate, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the redemption date and without premium. Purchase in Lieu of Redemption. There shall be a credit against the obligation described above under Mandatory Redemption Without Premium to have amounts on deposit in the Bond Sinking Fund in respect of the Series 2012A Bonds or Series 2012B Bonds, as applicable, required to be paid or redeemed on any October 1 to the extent the Corporation or any other Member of the Obligated Group delivers to the Trustee on or prior to any such date a Series 2012A Bond or Series 2012B Bond, as applicable, of the maturity required to be redeemed or paid on any such date. Notice of Redemption. The Trustee will give written notice of redemption by mail to the registered holders of Bonds to be redeemed (which will be Cede & Co. while the Bonds are in the Book-Entry Only System). Notice of redemption of the Bonds will be mailed by first class mail not less than 30 days nor more than 60 days prior to the date fixed for redemption to the registered owner of each Bond to be redeemed at the address shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein, as to any Bond will not affect the validity of any proceedings for the redemption of any other Bonds with respect to which proper notice was given. On or prior to the redemption date, funds shall be placed with the Trustee to pay such Bonds and accrued interest thereon to the redemption date and the premium, if any. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided funds for their redemption are on deposit at the place of payment at that time, and shall no longer be protected by the Indenture and shall not be deemed to be outstanding 17

24 under the provisions of the Indenture. The Trustee shall redeem, in the manner provided in the Indenture, such an aggregate principal amount of such Bond or Bonds at the principal amount thereof plus premium, if any, and accrued interest to the redemption date as will exhaust as nearly as practicable such funds. With respect to any optional redemption of the Bonds, unless moneys sufficient to pay the principal of, and premium, if any, and interest on the Bonds to be redeemed shall have been received by the Trustee prior to the giving of such notice of redemption, such notice shall state that said redemption shall be conditional upon the receipt of such moneys by the Trustee on or prior to the date fixed for redemption. If such moneys are not received by the redemption date, such notice shall be of no force and effect, the Trustee shall not redeem such Bonds, the redemption price shall not be due and payable and the Trustee shall give notice, in the same manner in which the notice of redemption was given, that such moneys were not so received and that such Bonds will not be redeemed and that the failure to redeem the Bonds shall not constitute an Event of Default under the Indenture or the Loan Agreement. Selection of Bonds to Be Redeemed. The Bonds shall be redeemed in the principal amount of not less than $5,000 each. In the case of a partial redemption of any Bond, the notice of redemption shall specify the portion of the principal amount thereof to be redeemed (which shall be $5,000 or a multiple thereof and each $5,000 of principal to be assigned one number when such redemption is by lot) and shall state that payment of the redemption price will be made only upon presentation of such Bond for a notation thereon of such payment on account of principal or for surrender in exchange for a Bond or Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof. No redemption of less than all of the Bonds at the time outstanding, other than in accordance with the provisions of the Indenture described above under Mandatory Redemption Without Premium, shall be made pursuant to the Indenture unless the total amount of funds available and to be used for such partial redemption is equal to or more than $50,000. Purchases of Bonds. Pursuant to the Indenture, the Authority irrevocably grants to the Corporation or its designee the option to purchase, at any time and from time to time, any Bond which is redeemable as described above under Optional Redemption at a purchase price equal to the redemption price therefor. To exercise such option, the Corporation or its designee shall give the Trustee a Written Request exercising such option as required by the Indenture as though such Written Request were a Written Request of the Authority for redemption, and the Trustee shall thereupon give the holders of the Bonds to be purchased notice of such purchase in the manner specified in the Indenture as though such purchase were a redemption. On the date fixed for purchase pursuant to any exercise of such option, the Corporation or its designee shall pay the purchase price of the Bonds then being purchased to the Trustee in immediately available funds, who shall pay the same to the sellers of such Bonds against delivery thereof. Following such purchase, the Trustee shall cause such Bonds to be registered in the name of the Corporation or its designee and shall deliver them to the Corporation or its designee. No such purchase of Bonds shall operate to extinguish the indebtedness of the Authority evidenced thereby. In addition, no designation by the Corporation of another Person so to purchase any Bonds may be made unless the Corporation shall have delivered to the Trustee concurrently therewith an opinion of Bond Counsel to the effect that such designation will not have an adverse effect on the exemption from federal income taxation of interest on any Bond to which such Bond is otherwise entitled. General SECURITY FOR THE BONDS The Bonds are limited obligations of the Authority payable solely from the trust estate, which consists of (i) the revenues and other amounts derived from the Series 2012 Notes and the Loan Agreement (except for the rights of the Authority to payment of expenses and indemnity and to execute supplements and amendments to the Loan Agreement), (ii) all moneys and securities from time to time held by the Trustee in the funds and accounts established under the Indenture, and (iii) any and all other property rights and interests of every kind and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged, pledged, hypothecated or otherwise subjected to the Indenture, as and for additional security, by the Corporation or any other person on its behalf or with its written consent or by the Authority or any other person on its behalf or with its written consent. Certain investment earnings on moneys held by the Trustee will be transferred to the Rebate Fund established under the Tax Exemption Certificate and Agreement dated the date of delivery of the Bonds (the Tax Exemption Agreement ). Amounts held in the Rebate Fund are not part of the trust estate pledged to secure the Bonds and, consequently, will not be available for payment of the Bonds. In order to evidence the loan of the proceeds of the Bonds, the Corporation will issue to the Trustee, the Series 2012A Note and the Series 2012B Note in a principal amount equal to the aggregate principal amount of the Series 2012A Bonds and the Series 2012B Bonds, respectively. Each of the Series 2012 Notes will constitute an unconditional promise by the Corporation to pay amounts sufficient to pay the principal of (whether at maturity, by acceleration or call for redemption) and premium, if any, and interest on the respective Bonds when due. See Master Indenture below. 18

25 The Authority will pledge and assign its rights in and to the Series 2012 Notes and the Loan Agreement (except for its rights to payment of expenses and indemnity and to execute and deliver supplements and amendments to the Loan Agreement) to the Trustee as security for the Bonds. Limited Obligations THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY AND DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, OR A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY, ORANGE COUNTY, OR THE STATE OR THE TAXING POWERS OF ORANGE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS EXCEPT FROM THE INCOME, REVENUES AND RECEIPTS DERIVED FROM THE TRUST ESTATE CREATED UNDER THE INDENTURE, INCLUDING, WITHOUT LIMITATION, PAYMENTS MADE PURSUANT TO THE LOAN AGREEMENT (OTHER THAN CERTAIN UNASSIGNED RIGHTS) AND THE SERIES 2012 NOTES AND CERTAIN OTHER MONEYS PLEDGED THEREFOR, INCLUDING ANY AMOUNTS RECEIVED BY THE MASTER TRUSTEE UNDER THE MORTGAGE FOR THE BENEFIT OF THE HOLDERS OF THE SERIES 2012 NOTES AND THE OTHER OBLIGATIONS. THE AUTHORITY HAS NO TAXING POWER. Master Indenture General. The Series 2012 Notes will be issued by the Corporation under the Master Indenture. The Series 2012 Notes, the Original Obligations and any Additional Obligations issued under the Master Indenture will be equally and ratably secured under the Master Indenture and will be general, joint and several obligations of the Corporation and any future Members of the Obligated Group. The Master Indenture creates two classes of Obligations known, respectively, as Class A Obligations and Class B Obligations, which have the benefit of certain particular covenants known, respectively, as the Class A Covenants and the Class B Covenants. The Class A Obligations will have the benefit only of the Class A Covenants, while the Class B Obligations will have the additional benefit of the Class B Covenants, as well as the Class A Covenants. The Series 2012 Notes are Class B Obligations. The classification of Obligations under the Master Indenture is only with respect to the covenants of the Corporation, and not with respect to priority of security for the Obligations. All Obligations issued under the Master Indenture will be equally and ratably secured on a parity by the Accounts and the Gross Revenues of the Corporation and by the Mortgage. See THE OBLIGATIONS AND THE MASTER INDENTURE - The Obligations; Payment of the Obligations in APPENDIX D hereto for a description of the Class A Covenants and the Class B Covenants. At the time of issuance of the Bonds, the Corporation will be the only Member of the Obligated Group. The Master Indenture provides that any Person may become a Member of the Obligated Group upon the satisfaction of certain conditions. Upon compliance with such conditions, such Person will be jointly and severally liable for the payment of the principal of and premium, if any, and interest on all Obligations when due and the performance of all other covenants, agreements and obligations under the Master Indenture and the Obligations, including the Series 2012 Notes. Notwithstanding uncertainties as to the enforceability of the covenants of each Member of the Obligated Group to be jointly and severally liable on each Obligation (as described herein under BONDHOLDERS RISKS ), the accounts of the Corporation and all future Members of the Obligated Group will be combined for financial reporting purposes and for determining whether various covenants and tests contained in the Master Indenture (including tests relating to the incurrence of Indebtedness) are met. As holder of the Series 2012 Notes, the Trustee will be entitled to the protection of the covenants, restrictions and other obligations imposed upon the Members of the Obligated Group by the Master Indenture. Certain other supplemental indentures provide additional Bond Insurer Covenants for the benefit of the 2008A and 2008B Bond Insurer that apply in addition to, not in substitution for, the terms and provisions of the Master Indenture. The Bond Insurer Covenants shall only be applicable during the period any Bonds are outstanding and the 2008A and 2008B Bond Insurer has not lost its consent rights pursuant to each applicable Indenture. Any one or more of the Bond Insurer Covenants may be modified, amended or waived at any time with the prior written consent of the 2008A and 2008B Bond Insurer and without the consent of the Master Trustee, the Trustee, any holder of the Series 2012 Notes or any other Notes or any owner of any Bonds or any other Related Bonds. Potential investors must read SECURITY FOR THE BONDS - The Master Indenture ; and THE OBLIGATIONS AND THE MASTER INDENTURE - The Obligations; Payment of the Obligations in APPENDIX D hereto for a more complete description of the Class A Covenants and Class B Covenants and THE OBLIGATIONS AND THE MASTER 19

26 INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer and Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008B Bond Insurer in APPENDIX D hereto for a more complete description of the Bond Insurer Covenants. Upon the occurrence of an Event of Default under the Master Indenture, including the failure by the Obligated Group to make any payment of the principal of, premium, if any, or interest on the Series 2012 Notes, the Trustee may request the Master Trustee, in addition to taking other appropriate action, to accelerate payment of the Series 2012 Notes and all other Obligations then outstanding under the Master Indenture. However, the Master Trustee is not required to accelerate payment of all Obligations unless requested to do so by the holders of not less than 25% in aggregate principal amount of the Obligations then outstanding under the Master Indenture. Subject to certain limitations specified in the Master Indenture, the Corporation or any future Member of the Obligated Group may incur additional Indebtedness, which may, but need not, be evidenced or secured by an Obligation issued under the Master Indenture. Additional Obligations may be issued to parties other than the Authority and the Trustee and will be equally and ratably secured by the Master Indenture with the Series 2012 Notes and all other Obligations outstanding under the Master Indenture. Permitted Indebtedness and Parity Indebtedness. The Indenture makes no provision for the issuance of any additional bonds or other indebtedness thereunder but does not restrict the incurrence of indebtedness permitted by the Master Indenture, including the issuance of additional Obligations. The Corporation may incur additional Indebtedness as described in APPENDIX D hereto under the caption THE OBLIGATIONS AND THE MASTER INDENTURE - Permitted Indebtedness, - Class B Covenants: Permitted Indebtedness Generally, - Class B Covenants: Balloon Debt, - Class B Covenants: Guaranty Debt, - Class B Covenants: Completion Debt and - Class B Covenants: Miscellaneous Indebtedness. Such additional Indebtedness may be secured by an Obligation issued under the Master Indenture on a parity with the Original Obligations and the Series 2012 Notes as described in APPENDIX D hereto under the caption THE OBLIGATIONS AND THE MASTER INDENTURE - The Obligations; Payment of the Obligations. Certain Limitations on the Corporation. The Corporation covenants in the Master Indenture that it will not create or suffer or permit to exist any Lien, other than Permitted Encumbrances, on or in (a) its Accounts or (b) any of its Facilities. The Obligated Group, or any Member thereof, may grant security interests in its Accounts which are prior to the security interest in Accounts and Gross Revenues granted to the Master Trustee under the Master Indenture, provided that such prior security interests constitute Permitted Encumbrances satisfying the requirements of the Master Indenture. See the definition of Permitted Encumbrances under DEFINITIONS OF CERTAIN TERMS and see THE OBLIGATIONS AND THE MASTER INDENTURE - Permitted Liens and - Class B Covenants: Permitted Liens in APPENDIX D hereto. In addition, the Corporation covenants in the Master Indenture that it will not in any Fiscal Year sell, lease, dispose of or otherwise transfer in excess of 10% of the Consolidated Book Value of all Consolidated Property (except for transfers or other dispositions in the ordinary course of business) unless it meets certain conditions. Further, with respect to the Class B Obligations, the Obligated Group covenants in the Master Indenture that it will not, in any Fiscal Year, sell, dispose of, or otherwise transfer any Property comprising Orlando Regional Medical Center, other than in the ordinary course of its operations, in excess of 3% of the Book Value of Orlando Regional Medical Center determined as of the end of the most recent Fiscal Year in respect of which audited financial statements or associated other financial information of the Obligated Group have been delivered. In addition, with respect to the Class B Obligations, any certificate or report delivered pursuant to the Master Indenture in connection with any transfer or other disposition referred to therein shall demonstrate that the ratio of Consolidated Net Income Available for Debt Service to the Consolidated Maximum Annual Debt Service Requirement set forth therein is not less than 65% of what such ratio would have been had such transfer or other disposition not occurred. See THE OBLIGATIONS AND THE MASTER INDENTURE - Transfers of Property and - Class B Covenants: Transfers of Property; Orlando Regional Medical Center in APPENDIX D hereto. The Corporation also covenants that it will not dissolve or otherwise dispose of all or substantially all of its assets to any Person other than a Member and that it will not merge into, or consolidate with, one or more corporations which are not Members or allow one or more such corporations to merge into such Member unless it meets certain conditions. See THE OBLIGATIONS AND THE MASTER INDENTURE - Consolidation, Merger, Sale or Conveyance and - Class B Covenants: Consolidation, Merger, Sale or Conveyance in APPENDIX D hereto. See also THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Additional Restrictions on Consolidation, Merger, Sale or Conveyance in APPENDIX D hereto. Certain amendments may be made to the Master Indenture without the consent of the holders of the outstanding Obligations, and certain amendments may be made to the Master Indenture with the consent of the holders of not less than 51% 20

27 in aggregate principal amount of the outstanding Obligations. See THE OBLIGATIONS AND THE MASTER INDENTURE - Supplements and Amendments to Master Indenture in APPENDIX D hereto. No Class A Covenant may be amended, nor may the performance of any Class A Covenant be waived, without the written consent of the holders of (i) 51% in aggregate principal amount of all Obligations then Outstanding and (ii) if Class B Obligations are then Outstanding, 51% in aggregate principal amount of Class B Obligations. No Class B Covenant may be amended, nor may the performance of any Class B Covenant be waived, without the written consent of the holders of 51% in aggregate principal amount of all Class B Obligations then Outstanding. Rate Covenant. Under the Master Indenture, the Corporation, as the sole Member of the Obligated Group, agrees to fix rates, fees and charges for the services furnished by its Facilities in amounts sufficient to maintain Consolidated Net Income Available for Debt Service in an amount not less than 110% of the Consolidated Maximum Annual Debt Service Requirement on all Consolidated Covered Debt; provided, however, that in the event a Management Consultant shall deliver a report to the Master Trustee that state or federal laws or regulations then in effect do not permit the Obligated Group to maintain such ratio, then such ratio shall be reduced to the maximum ratio then permitted by such laws or regulations, but in no event to less than 100%. In the event that the annual audit report or associated other financial information for a Fiscal Year of the Obligated Group shall disclose that the ratio required by the preceding sentence is not being maintained, the Obligated Group shall, within 30 days following the delivery of such audit report or associated other financial information, employ a Management Consultant to prepare a report containing recommendations as to changes in the operating policies of the Obligated Group designed to maintain such ratio, and the Obligated Group shall follow such recommendations to the extent deemed feasible. A copy of such report shall be delivered to the Master Trustee. No default shall be deemed to occur under the Master Indenture if such recommendations are followed, notwithstanding that such ratio is not subsequently re-attained, but the Obligated Group shall continue to be obligated to employ such a Management Consultant and obtain such a report in any year where such annual audit report or associated other financial information discloses that such ratio is not being maintained. The Master Indenture shall not be construed to prohibit any Member from serving indigent patients to the extent required for such Member to maintain its status as a Tax-Exempt Organization, or from serving any other class or classes of patients without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the requirements of the Master Indenture. Further, notwithstanding the provisions of the Master Indenture described in the immediately preceding paragraph, each Member agrees that an Event of Default shall be deemed to have occurred under the Master Indenture if (a) the annual audit report or associated other financial information of the Obligated Group for any Fiscal Year shall disclose that the Consolidated Net Income Available for Debt Service for such Fiscal Year is less than 100% of the Consolidated Maximum Annual Debt Service Requirement on all Consolidated Covered Debt Outstanding at the end of such Fiscal Year and (b) the holder or holders of not less than 51% in principal amount of the Class B Obligations then Outstanding notify the Master Trustee in writing that they desire such event to be an Event of Default. See HISTORICAL ACTUAL AND PRO FORMA DEBT SERVICE COVERAGE RATIOS herein for more information on the Corporation s historical coverage of the actual and the pro forma Maximum Annual Debt Service Requirement (as defined in the Master Indenture) for the two fiscal years ended September 30, 2010 and See also The Obligations and the Master Indenture - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Debt Service Coverage Ratio in APPENDIX D hereto. Liquidity Covenant. With respect to the Class B Obligations issued under the Master Indenture, the Obligated Group covenants that it shall maintain Consolidated cash, cash equivalents and Unrestricted Investments in an amount at least equal to Consolidated Covered Expenses (defined in the Master Indenture as with respect to any Member and for any Fiscal Year of such Member, the amount determined by multiplying (i) the amount of expenses of such Member for such Fiscal Year shown on the audited financial statements or associated other financial information of such Member for such Fiscal Year less depreciation, amortization, impairment and bad-debt expense for the same Fiscal Year, by (ii) 60/365 ) determined as of the end of each Fiscal Year; provided, however, that if such amount is not maintained as of the end of any Fiscal Year, no Event of Default shall be deemed to have occurred under the Master Indenture if such amount is attained as of the end of the next succeeding fiscal quarter as measured by reference to the unaudited financial statements of the Obligated Group for such quarter. See HISTORICAL COVERAGE OF EXPENSES AND DAYS CASH ON HAND herein for more information on the actual Coverage of Expenses and days cash on hand of the Corporation for the fiscal years ended September 30, 2010 and 2011 using the liquidity covenant test set forth in the Master Indenture. See also THE OBLIGATIONS AND THE MASTER INDENTURE - Additional Covenants and Restrictions under the Master Indenture for the Benefit of the Series 2008A Bond Insurer- Liquidity Covenant in APPENDIX D hereto. 21

28 Security Interest in the Accounts, Gross Revenues and Tangible Personal Property of the Corporation. The Series 2012 Notes and all other Obligations outstanding under the Master Indenture will be secured by a security interest in the Accounts and the Gross Revenues of each Member of the Obligated Group, as well as certain tangible personal property of the Corporation pursuant to the Mortgage, subject to the limitations set forth below. Such security interest is subject to prior security interests in Accounts and is perfected only to the extent it can be perfected by a filing meeting the requirements of the UCC. Continuation statements meeting the requirements of the UCC must be filed every five years to continue the perfection of the security interest in the Accounts, Gross Revenues and tangible personal property. The Corporation has covenanted and each future Member will be required to covenant under the Master Indenture to file or cause to be filed such continuation statements. Current or future federal or state laws may proscribe or restrict the assignment of rights arising out of Medicare, Medicaid or other federal or state programs. See BONDHOLDERS RISKS herein. The Mortgage. The Series 2012 Notes will be secured by the Mortgage, which creates a first mortgage lien on and/or security interest in the Mortgaged Property. The Corporation covenants in the Mortgage to maintain a first lien and security interest upon the Mortgaged Property in favor of the Master Trustee, subject to Permitted Encumbrances, and to not create, or permit to be created or remain, and to, at its cost and expense, promptly discharge all Liens, encumbrances and charges on all or any part of the Mortgaged Property, other than Permitted Encumbrances. Under certain conditions, items of equipment may be released from the lien of the Mortgage. With the consent of the Controlling Bond Insurer, other Mortgaged Property may be released from the lien of the Mortgage if such Mortgaged Property could otherwise be disposed of under the Master Indenture and the Mortgage. The Mortgage presently covers substantially all of the health care facilities operated by the Corporation. The Mortgage does not include certain real property of the Corporation, principally the Winnie Palmer Hospital. Furthermore, none of the assets or real property of the Corporation s controlled affiliates, including, but not limited to, Orlando Health Central, Inc., are subject to the Mortgage. Management of the Corporation estimates that approximately 85% of the insurable value of its physical plant assets are presently subject to the Mortgage. The security for the Bonds does include the Gross Revenues derived by the Obligated Group under the Master Indenture (the sole member of which is the Corporation as of the date hereof) from its operations, which does include the Gross Revenues of the Winnie Palmer Hospital. See THE MORTGAGE in APPENDIX D hereto for a description of the Mortgage and the Mortgaged Property. Enforceability of Remedies Under the terms of the Master Indenture, the Obligated Group is obligated to make full and timely payment of principal of and interest on the Series 2012 Notes and to observe numerous other agreements and covenants, and the Master Indenture provides remedies upon default by the Obligated Group. These remedies may, in many respects, require judicial actions which are often subject to discretion and delay. Under existing law, the remedies specified by the Master Indenture may not be readily available or may be limited. A court may decide not to order the specific performance of the covenants contained in the Master Indenture. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions and principles of equity affecting remedies and by bankruptcy, reorganization or other laws affecting the enforcement of creditors rights generally. See BONDHOLDERS RISKS- Matters Relating to Enforceability of Certain Covenants in the Master Indenture. [remainder of the page intentionally left blank] 22

29 EXISTING INDEBTEDNESS Date The following table sets forth the Obligations issued under the Master Indenture which are currently Outstanding: Master Indenture Note Obligation Class Amount and Description of Indebtedness Secured K B $127,915,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 1996A (the 1996A Bonds ) (of which $37,240,000 is outstanding as of March 31, 2012) L B $53,705,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 1996C (the 1996C Bonds ) (of which $21,810,000 is outstanding as of March 31, 2012) FF B $74,650,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 2006B (the Series 2006B Bonds ) (all of which is outstanding as of March 31, 2012) KK A Obligation relating to Interest Rate Swap Agreement for the Series 2011 Bonds. (1) MM A Obligation relating to Interest Rate Swap Agreement for the Series 2011 Bonds. (1) DD B $48,380,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 2008A (the Series 2008A Bonds ) (of which $41,430,000 is outstanding as of March 31, 2012) EE B $106,295,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 2008B (the Series 2008B Bonds ) (all of which is outstanding as of March 31, 2012) QQ B $80,225,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 2008C (the Series 2008C Bonds ) (all of which is outstanding as of March 31, 2012) SS B $54,130,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Regional Healthcare System) Series 2008E (the Series 2008E Bonds ) (all of which is outstanding as of March 31, 2012) ZZ A Obligation relating to Interest Rate Swap Agreement for the Series 2008E Bonds. (2) BBB B Obligation securing all payment obligations under the Credit Agreement with Branch Banking and Trust Company relating to the Series 2008E Bonds CCC B $241,135,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Health, Inc.) Series 2009 (the Series 2009 Bonds ) (of which $220,600,000 is outstanding as of March 31, 2012) DDD B Obligations under a Guaranty Agreement dated as of May 1, 2010 (the 2010 South Lake Guaranty ) pursuant to which the Corporation guaranteed the payment of the obligations of South Lake Hospital, Inc. ( South Lake Hospital ) relating to $34,330,000 South Lake County Hospital District Hospital Revenue Bonds, Series 2010 (South Lake Hospital, Inc.) (the 2010 South Lake Bonds ) (all of which is outstanding as of March 31, 2012). (3) 23

30 Date Master Indenture Note Obligation Class Amount and Description of Indebtedness Secured EEE B Obligation securing all payments under a credit agreement with the Heart Institute Lender in connection with the Heart Institute Loan. (4) EEE A Obligation securing all payment obligations under a line of credit established with SunTrust Bank FFF B $83,175,000 original aggregate principal amount of Hospital Revenue Bonds (Orlando Health, Inc.) Series 2011 (the Series 2011 Bonds ) (all of which is outstanding as of March 31, 2012). (5) GGG B Obligations under a Guaranty Agreement dated as of April 1, 2012 (the Health Central Guaranty ) pursuant to which the Corporation guaranteed the payment of the obligations of Orlando Health Central, Inc. relating to $181,300,000 acquisition of the healthcare assets of West Orange Healthcare District (all of which is currently outstanding). (6) (1) In connection with the issuance of the Series 2011 Bonds, the Corporation restructured certain interest rate swap agreements related to the Series 2007A Bonds whereby the variable rate on the Series 2011 Bonds is swapped to a fixed rate. See APPENDIX A - INFORMATION REGARDING THE CORPORATION- Notes to Interim Condensed Consolidated Financial Statements -5. Long-Term Debt. (2) The Corporation restructured certain interest rate swap agreements related to the Series 2008E Bonds whereby the variable rate on the Series 2008E Bonds is swapped to a fixed rate. (3) The Corporation appoints 50% of the Board membership of South Lake Hospital, and manages the acute care hospital and related facilities owned by South Lake Hospital. Since the Corporation does not have a controlling interest in South Lake Hospital, its accounts are not included in the consolidated financial statements of the Corporation. See Related Organizations in APPENDIX A hereto for a description of South Lake Hospital. See also ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION, HISTORICAL PRO FORMA DEBT SERVICE COVERAGE RATIOS and BONDHOLDERS RISKS - Risk from the Corporation s Guaranty of the Debt of a Related Party herein. (4) Upon the issuance of the Series 2012B Bonds, the Heart Institute Loan will be refinanced and the Obligations issued to evidence the Corporation s payment obligations with respect to the Heart Institute Loan will be terminated. (5) The Series 2011 Bonds were issued by the Authority, on behalf of the Corporation, as tax-exempt, multi-modal bonds, initially operating in bank purchase mode, and privately placed with SunTrust Bank. The proceeds from the sale of the Series 2011 Bonds were used by the Corporation, together with other available funds, to currently refund the Series 2007A Bonds and pay the costs of issuance of the Series 2011 Bonds. See APPENDIX A - INFORMATION REGARDING THE CORPORATION- Notes to Interim Condensed Consolidated Financial Statements -5. Long-Term Debt. (6) On April 1, 2012, the Corporation, through a controlled affiliate, Orlando Health Central, Inc., acquired all the healthcare assets of the West Orange Healthcare District pursuant to the Health Central Asset Purchase Agreement. In connection with the acquisition, the Corporation executed the Health Central Guaranty in order to guarantee the payment obligations of Orlando Health Central, Inc. to West Orange Healthcare District for the purchase price under the Health Central Asset Purchase Agreement. For more information on the acquisition of the healthcare assets of West Orange Healthcare District see THE CORPORATION - General herein and APPENDIX A - INFORMATION REGARDING THE CORPORATION- Organizational Structure - Controlled Affiliates and - Management Discussion and Analysis - Health Central Acquisition. See also ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION and HISTORICAL PRO FORMA DEBT SERVICE COVERAGE RATIOS herein. Pursuant to the Master Indenture, the Obligated Group may issue additional Indebtedness, which Indebtedness may be secured by Additional Obligations on a parity with the Series 2012 Notes and the Original Obligations. See SECURITY FOR THE BONDS - Permitted Indebtedness and Parity Indebtedness herein and THE OBLIGATIONS AND THE MASTER INDENTURE - Permitted Indebtedness in APPENDIX D hereto. See ANNUAL DEBT SERVICE ON THE BONDS AND OTHER CONSOLIDATED COVERED DEBT OF THE CORPORATION and HISTORICAL PRO FORMA DEBT SERVICE COVERAGE RATIOS herein. General BONDHOLDERS RISKS As described herein, the principal of, premium, if any, and interest on the Bonds are payable solely from (i) amounts payable by the Corporation under the Loan Agreement and the Series 2012 Notes, (ii) moneys held by the Trustee in the funds and accounts established under the Indenture, (iii) moneys received by the Master Trustee pursuant to the Mortgage (see Master Indenture - The Mortgage below), (iv) under certain circumstances, proceeds from insurance and condemnation awards and (v) the income from the temporary investment of any of the foregoing. The Corporation and its controlled affiliates are 24

31 collectively referred to as the System. No representation or assurance is given or can be made that revenues will be realized by the Corporation in amounts sufficient to pay debt service on the Bonds when due and other payments necessary to meet the obligations of the Corporation. These revenues are affected by and subject to conditions which may change in the future to an extent and with effects that cannot be determined at this time. The risk factors discussed below should be considered in evaluating the Corporation s ability to make payments in amounts sufficient to provide for payment of the principal of, premium, if any, and interest on the Bonds. The following discussion of risk factors is not exhaustive and is not intended to be. Impact of Market Turmoil The disruption of the credit and financial markets in the last several years led to volatility in the securities markets, significant losses in investment portfolios, increased business failures and consumer and business bankruptcies, and was a major cause of the economic recession in 2008 and In response to that disruption, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Financial Reform Act") was enacted on July 21, The Financial Reform Act includes broad changes to the existing financial regulatory structure, including the creation of new federal agencies to identify and respond to risks to the financial stability of the United States. Additional legislation is pending or under active consideration by Congress and regulatory action is being considered by various federal agencies and the Federal Reserve Board and foreign governments, which are intended to increase the regulation of domestic and global credit markets. The effects of the Financial Reform Act and of these legislative, regulatory and other governmental actions, if implemented, are unclear. The health care sector, including the Corporation, was materially adversely affected by these developments. The consequences of these developments generally included, among other things, realized and unrealized investment portfolio losses, increased borrowing costs and periodic disruption of access to the capital markets. Potential investors are advised to refer to APPENDIX A of this Official Statement for specific information about the effects of these factors upon the recent financial performance of the Corporation and its financial condition. In particular, reference is made to information in APPENDIX A under the captions Interim Condensed Consolidated Financial Statements and Management's Discussion and Analysis. See also APPENDIX B of this Official Statement for additional information on the financial performance of the Corporation. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"). ARRA includes several provisions that were intended to provide financial relief to the health care sector, including an increase through December 31, 2010 in federal payments to states to fund the Medicaid program, a requirement that states promptly reimburse healthcare providers and a subsidy to the recently unemployed for health insurance premium costs. ARRA also established a framework for the implementation of a nationally-based health information technology program, including incentive payments commencing in 2011 to eligible healthcare providers to encourage implementation of health information technology and electronic health records. The incentive payments will be payable, assuming federal funding will be enacted, through 2014 to hospitals and physicians that comply with federal requirements. The incentive payments will be payable annually for a period of up to four years to eligible providers that demonstrate "meaningful use" of electronic health records, assuming federal funding exists. Pursuant to ARRA, commencing in 2015, Medicare eligible providers that do not demonstrate "meaningful use" of electronic health records will receive a downward adjustment in their Medicare reimbursement. Health Care Reform Act In March 2010, the Patient Protection and Affordable Care Act of 2010 (the "Health Care Reform Act") was enacted. Some of the provisions of the Health Care Reform Act took effect immediately, while others will take effect or will be phased in over time, ranging from a few months to ten years following approval. Because of the complexity of the Health Care Reform Act generally, additional legislation is likely to be considered and enacted over time. The Health Care Reform Act will also require the promulgation of substantial regulations with significant effects on the health care industry and third-party payors. In response, third-party payors and suppliers and vendors of goods and services to health care providers are expected to impose new and additional contractual terms and conditions. Thus, the health care industry will be subjected to significant new statutory and regulatory requirements and contractual terms and conditions, and consequently to structural and operational changes and challenges, for a substantial period of time. 25

32 Since the November 2010 elections, certain political leaders have announced their intention to proceed with legislation to repeal or amend provisions of the Health Care Reform Act. Attempts to repeal provisions of the Health Care Reform Act are pending in Congress and the constitutionality of the Health Care Reform Act is being challenged in courts around the country. On November 14, 2011, the U.S. Supreme Court granted review of a decision from the Eleventh Circuit Court of Appeals which struck down a key provision of the Health Care Reform Act. Oral arguments were held March 26, 2012 through March 28, 2012, with a decision expected in June The ultimate outcomes of legislative attempts to repeal or amend the Health Care Reform Act and legal challenges to the Health Care Reform Act are unknown. A significant component of the Health Care Reform Act is reformation of the sources and methods by which consumers will pay for health care for themselves and their families and by which employers will procure health insurance for their employees and dependents and, as a consequence, expansion of the base of consumers of health care services. The Health Care Reform Act was designed to make available, or subsidize the premium costs of, health care insurance for some of the millions of currently uninsured (or underinsured) consumers who fall below certain income levels. The Health Care Reform Act proposes to accomplish that objective through various provisions, summarized as follows: (i) the creation of active markets (referred to as exchanges) in which individuals and small employers can purchase health care insurance for themselves and their families or their employees and dependents, (ii) providing subsidies for premium costs to individuals and families based upon their income relative to federal poverty levels, (iii) mandating that individual consumers obtain and certain employers provide a minimum level of health care insurance, and providing for penalties or taxes on consumers and employers that do not comply with these mandates, (iv) expansion of private commercial insurance coverage generally through such reforms as prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and (v) expansion of existing public programs, including Medicaid, for individuals and families. In March 2010, the Congressional Budget Office ("CBO") estimated that in federal fiscal year 2015, twenty four million consumers who are currently uninsured will become insured, followed by an additional five million consumers in federal fiscal year To the extent all or any of those provisions produce the expected result, an increase in utilization of health care services by those who are currently avoiding or rationing their health care can be expected and bad debt expenses and/or charity care provided may be reduced. Associated with increased utilization will be increased variable and fixed costs of providing health care services, which may or may not be offset by increased revenues. Some provisions of the Health Care Reform Act may adversely affect some of the Corporation's hospitals and other operations more significantly than others, or may not affect them. Moreover, the Health Care Reform Act remains subject to amendment, repeal, lack of implementation, failure to fund and judicial interpretation. The demographics of the markets in which the Corporation provides services, the mix of services that any hospital or other facility provides to its community and other factors that are unique to a hospital or other facility that are likely to affect operations, financial performance or financial conditions are described below. This listing is not intended to be, nor should be considered to be comprehensive. The Health Care Reform Act is complex and comprehensive, and includes a myriad of new programs and initiatives and changes to existing programs, policies, practices and laws. Commencing upon enactment through September 30, 2019, the annual Medicare market basket updates for hospitals will be reduced. Beginning October 1, 2011, the market basket updates are subject to productivity adjustments. The reductions in market based updates and the productivity adjustments will have a disproportionately negative effect upon those providers that are relatively more dependent upon Medicare than other providers. Additionally, the reductions in market basket updates will be effective prior to the periods during which insurance coverage and the insured consumer base will expand, which may have an interim negative effect on revenues and operating income. The combination of reductions to the market basket updates and the imposition of the productivity adjustments may, in some cases and in some years, result in reductions in Medicare payments per discharge on a year-to-year basis. Commencing October 1, 2010 through September 30, 2019, payments under "Medicare Advantage" programs (Medicare managed care) will be reduced, which may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in Medicare Advantage plans. Those beneficiaries may terminate their participation in such plans and opt for the traditional Medicare fee-for service program. The reduction in payments to Medicare Advantage programs may also lead to decreased payments to providers by managed care companies operating Medicare Advantage programs. All or any of these outcomes will have a disproportionately negative effect upon those providers with relatively high dependence upon Medicare managed care revenues. Commencing October 1, 2012, a value-based purchasing program will be established under the Medicare program designed to provide incentive payments to hospitals based on performance standards. These incentive payments are to be funded through a pool of money collected from all hospital providers. 26

33 Commencing October 1, 2013, Medicare disproportionate share hospital ("DSH") payments will be reduced initially by 75%. DSH payments will be increased thereafter to account for the national rate of consumers who do not have health care insurance and receive uncompensated care. Commencing October 1, 2013, a state's Medicaid DSH allotment from federal funds will be reduced. The Health Care Reform Act provides for the expansion of Medicaid programs to a broader population with incomes up to 133% of federal poverty levels. The CBO has estimated that sixteen million consumers who are currently uninsured will become newly eligible for Medicaid through 2019 as a result of this expansion. Providers operating in markets with large Medicaid and uninsured populations are anticipated to benefit from increased revenues resulting from increased utilization and reductions in bad debt or uncompensated care. The increase in utilization can also be expected to increase the cost of providing that care, which may or may not be balanced by increased revenues. Commencing October 1, 2012, Medicare payments that would otherwise be made to hospitals that have a high rate of potentially preventable readmissions of Medicare patients for certain clinical conditions will be reduced by specified percentages to account for those excess and "preventable" hospital readmissions. Commencing October 1, 2014, Medicare payments to certain hospitals for hospital-acquired conditions will be reduced by 1%. Commencing July 1, 2011, federal payments to states for Medicaid services related to health care-acquired conditions are prohibited. Commencing October 1, 2011, health care insurers are required to include quality improvement covenants in their contracts with hospital providers, and will be required to report their progress on such actions to the Secretary of U.S. Department of Health and Human Services ("HHS"). Commencing January 1, 2015, health care insurers participating in the health insurance exchanges will be allowed to contract only with hospitals that have implemented programs designed to ensure patient safety and enhance quality of care. The effect of these provisions upon the process of negotiating contracts with insurers or the costs of implementing such programs cannot be predicted. With varying effective dates, the Health Care Reform Act enhances the ability to detect and reduce waste, fraud, and abuse in public programs through provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring Medicare and Medicaid program providers and suppliers to establish compliance programs. The Health Care Reform Act requires the development of a database to capture and share health care provider data across federal health care programs and provides for increased penalties for fraud and abuse violations, and increased funding for anti-fraud activities. Effective for tax years commencing immediately after approval, additional requirements for tax-exemption will be imposed upon tax-exempt hospitals, including obligations to adopt and publicize a financial assistance policy; limit charges to patients who qualify for financial assistance to the lowest amount charged to insured patients; and control the billing and collection processes. Additionally, effective for tax years commencing January 1, 2013, tax-exempt hospitals must conduct a community needs assessment and adopt an implementation strategy to meet those identified needs. Failure to satisfy these conditions may result in the imposition of fines and the loss of tax-exempt status. The Health Care Reform Act provides for the establishment of an Independent Payment Advisory Board ("IPA Board") to develop proposals to improve the quality of care and to limit cost increases. Beginning January 15, 2019, if the Medicare growth rate exceeds the target growth rate as determined by the CMS Office of the Actuary, the IPA Board is required to develop proposals to reduce the growth rate and require the Secretary of HHS to implement those proposals, unless Congress enacts legislation related to the proposals. The Health Care Reform Act creates a Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models and to implement various demonstration programs and pilot projects to test, evaluate, encourage and expand new payment structures and methodologies to reduce health care expenditures while maintaining or improving quality of care, including bundled payments under Medicare and Medicaid, and comparative effectiveness research programs that compare the clinical effectiveness of medical treatments and develop recommendations concerning practice guidelines and coverage determinations. Other provisions encourage the creation of new health care delivery programs, such as accountable care organizations or combinations of provider organizations that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program. The outcomes of these projects and programs, including their effect on payments to providers and financial performance, cannot be predicted. 27

34 Budget Control Act of 2011 On August 3, 2011, President Obama signed the Budget Control Act of 2011 (the "Budget Control Act"). The Budget Control Act limits the federal government's discretionary spending caps at levels necessary to reduce expenditures by $917 billion from the current federal budget baseline for federal fiscal years 2011 and Medicare, Social Security, Medicaid and other entitlement programs will not be affected by the limit on discretionary spending caps. The Budget Control Act also created a Joint Select Committee on Deficit Reduction (the "Committee"), which was tasked with making recommendations to further reduce the federal deficit by $1.5 trillion. Committee recommendations were to include reductions in Medicare, Medicaid, Social Security and other entitlement programs. The Committee was required to report its recommendations to Congress by a majority vote no later than November 23, After several months of negotiations, the Committee was unable to reach agreement on spending reductions. As a result of this failure, and in exchange for raising the debt ceiling, the Budget Control Act also set in place a protocol for mandatory spending cuts. Known as sequestration (across the board cuts), these cuts will be triggered in an amount necessary to achieve $1.2 trillion in savings in January A wide range of spending, however, is exempted from sequestration, including: Social Security, Medicaid, Veteran's benefits and pensions, federal retirement funds, civil and military pay, child nutrition, and other specified programs. Medicare is not exempted from sequestration, however cuts to Medicare cannot come at the cost of beneficiaries. Consequently, Medicare payments to providers could be reduced as a result of these across the board spending reductions, limited to 2% of total program costs. The method for achieving federal deficit reduction has been intensely debated, with significant disagreement among the Senate, the House and the President. Any cuts resulting from the sequestration process will likely have an adverse effect on the financial condition of the Corporation, which could be material. Jobs Act Current and future legislative proposals, if enacted into law, clarification of the Internal Revenue Code of 1986, as amended (the "Code") or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Owners from realizing the full current benefit of the tax status of such interest. As one example, on September 12, 2011, the Obama Administration announced a legislative proposal entitled the American Jobs Act of 2011 (the Jobs Act ). For tax years beginning on or after January 1, 2013, the Jobs Act, if enacted, would limit the exclusion from gross income of interest on obligations similar to the Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation. See "TAX MATTERS" herein for further information regarding the tax status of the Bonds. Investment Performance The Corporation has had in the past and continues to have holdings in a broad range of investments. Market fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations may be and historically have been material. Investment income has contributed significantly to the Corporation s financial results. The Corporation retains the services of investment consultants and professional money managers to assist in all aspects of the investment portfolio except for the funds held by the Trustee. The Finance Committee of the Board of Directors of the Corporation (the Board ) has established investment policies for each pool of investments and the money managers are required to comply with these policies. There can be no assurance of returns on the investment portfolio or the investment strategy that will be pursued by the Corporation in the future. The Corporation records its investments at market value. Interest income, net of capitalized interest income and dividend income, and realized and unrealized gains and losses are included in investment income. See audited consolidated financial statements of the Corporation included in APPENDIX B hereto, including note 4, for additional information on the Corporation s investments. 28

35 Utilization of Derivatives Markets The Corporation utilizes the derivatives markets with interest rate swaps to manage its exposure to interest rate volatility. The interest rate swaps are designed to hedge variable rate indebtedness and are structured so that the Corporation pays a fixed rate. The Corporation has entered into multiple interest rate swaps to hedge the variable cash flows associated with existing variable rate indebtedness. In the event of an early termination of any swap, the Corporation may owe a payment to the related swap provider, and such amount, which cannot currently be calculated, may be substantial. The payment obligations of the Corporation under the swap agreements will not alter the obligations of the Corporation to pay or make payments with respect to principal of, redemption price and purchase price of, and interest on any other indebtedness. See the audited consolidated financial statements of the Corporation included in APPENDIX B hereto, including notes 2, 3 and 7 thereof, for additional information on derivative financial instruments. See also APPENDIX A - INFORMATION REGARDING THE CORPORATION - Notes to Interim Condensed Consolidated Financial Statements - 6. Derivative Instruments and Hedging Activities" for a discussion of the Corporation outstanding swap transactions. The Corporation has a Board approved policy with respect to the utilization of interest rate swap transactions which takes into account termination risks, counterparty risks and other risks associated with such transactions. Risks Related to Variable Rate Indebtedness Indebtedness outstanding under the Master Indenture in the principal amount of $137,305,000 (excluding the Heart Institute Loan) is subject to variable interest rate exposure. Such interest rates vary from time to time and may be converted to fixed interest rates. All of the indebtedness is also subject to support facility renewal risk. Reliance on Orlando-Area Facilities Market Risk The Corporation relies on facilities in the Orlando, Florida area for all of its revenues and earnings. See APPENDIX A hereto. Thus, developments in this one market could have a substantial impact on the Corporation. Risk from the Corporation s Guaranty of the Debt of a Related Party On May 1, 2010, South Lake Hospital, an independent hospital in which the Corporation holds a non-controlling 50% voting interest, issued the 2010 South Lake Bonds in order to currently refund all of South Lake Hospital s Series 1999 Bonds, which were guaranteed by the Corporation (the Original South Lake Guaranty ). In connection with the issuance of the 2010 South Lake Bonds, the Corporation executed the 2010 South Lake Guaranty in order to guaranty the payment obligations of South Lake Hospital on the 2010 South Lake Bonds. At the present time, the outstanding balance on the 2010 South Lake Bonds is $34,330,000. The Corporation has not been required to fund any indebtedness of South Lake Hospital under the Original South Lake Guaranty or the 2010 South Lake Guaranty. No assurance can be given that the Corporation may not be required to make payments under said 2010 South Lake Guaranty in the future. On April 1, 2012, the Corporation, through a controlled affiliate, Orlando Health Central, Inc., acquired all the healthcare assets of the West Orange Healthcare District pursuant to the Health Central Asset Purchase Agreement. In connection with the acquisition, the Corporation executed the Health Central Guaranty in order to guarantee the payment obligations of Orlando Health Central, Inc. to West Orange Healthcare District for the purchase price under the Health Central Asset Purchase Agreement. For more information on the acquisition of the healthcare assets of West Orange Healthcare District see THE CORPORATION - General herein and APPENDIX A - INFORMATION REGARDING THE CORPORATION-Organizational Structure - Controlled Affiliates and - Management Discussion and Analysis - Health Central Acquisition. See also the audited consolidated financial statements of the Corporation included in APPENDIX B hereto for additional information on these guaranties. Payment for Health Care Services Most of the patient service revenues of the Corporation are derived from third-party payors which reimburse or pay for the services and items provided to patients covered by such third parties for such services, including the federal Medicare program, state Medicaid programs, private health plans and insurers, health maintenance organizations, preferred provider organizations and other managed care payors. Many of these third-party payors make payments to the Corporation at rates other than the direct charges of the Corporation, which rates may be determined other than on the basis of the actual costs incurred in providing services and items to such patients. Accordingly, there can be no assurance that payments made under such programs will be 29

36 adequate to cover the Corporation's actual costs of furnishing health care services and items. In addition, the financial performance of the Corporation could be adversely affected by the insolvency of, or other delay in receipt of payments from, third-party payors which provide coverage for services to their patients. Medicare and Medicaid are the commonly used names for health care reimbursement or payment programs governed by certain provisions of the federal Social Security Act. Medicare is an exclusively federal program and Medicaid is a combined federal and state program. Medicare provides certain health care benefits to beneficiaries who are 65 years of age or older, disabled or qualify for the End-Stage Renal Disease Program. Medicare Part A covers inpatient services and certain other services, and Medicare Part B covers certain physician services, medical supplies and durable medical equipment. Medicaid is designed to pay providers for care given to the medically indigent and others who receive federal aid. Medicaid is funded by federal and state appropriations and is administered by an agency of the applicable state. The Centers for Medicare & Medicaid Services ("CMS"), an agency of HHS, administers the Medicare program and works with the states regarding the Medicaid program, as well as other health care programs. Health care providers have been and continue to be affected significantly by changes made in the last several years in federal and state health care laws and regulations, particularly those pertaining to Medicare and Medicaid. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the MMA ), among other things described below, generally increased reimbursement levels. The Deficit Reduction Act of 2005 (the DRA ), contained, among other things, a number of provisions to slow the pace of spending growth in the Medicare program while increasing health care providers focus on quality and efficient delivery of health care services. The purpose of much of the recent statutory and regulatory activity, including the MMA, has been to reduce the rate of increase in health care costs, particularly costs paid under the Medicare and Medicaid programs. Diverse and complex mechanisms to limit the amount of money paid to health care providers under both the Medicare and Medicaid programs have been enacted, some of which are being implemented and some of which will be or may be implemented in the future. Medicare Approximately 32% of the net patient service revenues of the Corporation were derived from the Medicare program for the fiscal year ended September 30, As a consequence, any adverse development or change in Medicare reimbursement could have a material adverse effect on the financial condition and results of operations of the Corporation. Medicare Part A pays acute care hospitals for most inpatient services under a payment system known as the Prospective Payment System or PPS. Separate PPS payments are made for inpatient operating costs and inpatient capital-related costs. Inpatient Operating Costs. Acute care hospitals that are reimbursed on a PPS basis are paid a specified amount toward their operating costs based on the Diagnosis Related Group ( DRG ) to which each Medicare patient is assigned, which is determined by the diagnosis and procedures and other factors for each particular inpatient stay. The amount paid for each DRG is established prospectively by CMS based on the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis and is not directly related to a hospital s actual costs. For certain Medicare beneficiaries who have unusually costly hospital stays ( outliers ), CMS will provide additional payments above those specified for the DRG. Outlier payments cease to be available upon the exhaustion of such patient s Medicare benefits or a determination that acute care is no longer necessary, whichever occurs first. There is no assurance that any of these payments will cover the actual costs incurred by a hospital. In addition, revisions to the outlier regulations implemented in order to curb outlier payment abuse may adversely affect hospitals ability to receive such subsidies. In addition to outlier payments, DRG payments are adjusted for area wage differentials. These change on an annual basis. DRG payments are adjusted each federal fiscal year (which begins October 1) based on the hospital market basket index, or the cost of providing health care services. For nearly every year since 1983, Congress has modified the increases and given substantially less than the increase in the market basket index. CMS has also implemented a documentation and coding adjustment to account for changes in payments under the new Medicare Severity Diagnosis Related Group, or MS-DRG, system that are not related to changes in case mix. The documentation and coding adjustments for federal fiscal years 2008 and 2009 were reductions to the base payment rate of 0.6% and 0.9% respectively. CMS was given the authority to retrospectively determine if the documentation and coding adjustments for these years were adequate to account for changes in payments not related to changes in case mix. CMS did not implement a documentation and coding adjustment in federal fiscal year 2010, but did elect to phase in such adjustments in fiscal year 2011 and federal fiscal year 2012, as discussed below. The Health Care Reform Act will reduce the annual Medicare market basket updates from federal fiscal year 2010 through federal fiscal year Beginning in federal fiscal year 2012, the Health Care Reform Act also provides that annual Medicare market basket updates will be subject to productivity adjustments, further reducing Medicare payments to hospitals. The reductions in market basket updates 30

37 and the productivity adjustments will have a disproportionately negative effect upon those providers that are relatively more dependent upon Medicare than other providers. Additionally, the reductions in market basket updates will be effective prior to the periods during which insurance coverage and the insured consumer base will expand, which may have an interim negative effect on revenues. The combination of reductions to the market basket updates and the imposition of the productivity adjustments may, in some cases and in some years, result in reductions in Medicare payment per discharge on a year-to-year basis. For further information regarding the Health Care Reform Act and its provisions, see "BONDHOLDERS' RISKS Health Care Reform Act" herein. As required by the DRA, hospitals that do not participate successfully in the Hospital Inpatient Quality Reporting Program ( formerly known as the Reporting Hospital Quality Data for Annual Payment Update or RHQDAPU) will receive market basket update less 2.0%. CMS continues to update the quality measures that hospitals must report in order to qualify for the full market basket update. The System s hospitals participate in the Hospital Quality Initiative. For federal fiscal year 2011, CMS updated acute care hospital rates by 2.35%. This update reflected a market basket increase of 2.6% for inflation reduced by 0.25%, as required by the Health Care Reform Act. In addition, CMS applied a documentation and coding adjustment as explained above to recoup a portion of excess aggregate payments in FY 2008 and FY CMS determined that a -5.8% adjustment is necessary to recoup all of these overpayments. The -2.9% adjustment for FY 2011 was one-half of the necessary adjustment. This reduction, coupled with other adjustments, was estimated to reduce total payments for operating expenses to inpatient acute care hospitals in FY 2011 by 0.4% or $440 million. For federal fiscal year 2012, CMS increased acute care hospital rates by 1.1%. This increase reflects the following: a market basket increase of 3.0%; a 1.1% increase in response to litigation regarding application of a rural floor and rural floor budget neutrality; a further 2.0% documentation and coding reduction; a 1.0% productivity adjustment reduction; a 0.1% reduction imposed by the Health Care Reform Act; and other adjustments. The Secretary of HHS is required to review annually the DRG categories to take into account any new procedures, reclassify DRGs and recalibrate the DRG relative weights that reflect the relative hospital resources used by hospitals with respect to discharges classified within a given DRG category. There is no assurance that the System will be paid amounts that will adequately reflect changes in the cost of providing health care or in the cost of health care technology being made available to patients. During federal fiscal years , CMS has created new DRGs and revised or deleted others in order to better recognize the severity of illness for each patient. CMS may only adjust DRG weights on a budget-neutral basis. Inpatient Capital Costs. With limited exceptions, hospitals are reimbursed on a fully prospective basis for capital costs (including depreciation and interest) related to the provision of inpatient services to Medicare beneficiaries. Thus, capital costs are reimbursed exclusively on the basis of a standard federal rate (based on average national costs), subject to certain adjustments (such as for disproportionate share, indirect medical education and outlier cases) specific to the hospital. Hospitals are reimbursed at 100% of the standard federal rate for all capital costs. This applies to the standard federal rate before the application of the adjustment factors for outliers, exceptions and budget neutrality. There can be no assurance that the prospective payments for capital costs will be sufficient to cover the actual capitalrelated costs of the System allocable to Medicare patient stays or to provide adequate flexibility in meeting the System s future capital needs. Disproportionate Share Adjustments. Under PPS, hospitals that serve a disproportionate share of low-income patients may receive an additional DSH. A hospital may be classified as a DSH hospital based upon any of several circumstances related to the number of beds, the hospital s location, and its disproportionate patient percentage. The DSH adjustment is calculated under one of several methods, depending upon the basis for the hospital s classification as a DSH hospital. In the year ending September 30, 2011, all of the System s hospitals earned aggregate DSH payments totaling approximately $31.2 million. Under healthcare reform, with the expected decrease in the uninsured population, federal DSH payments will be reduced by 75% commencing in federal fiscal year 2014 and state Medicaid DSH payments are anticipated to be reduced quarterly starting in From 2014 to 2020, the estimated total loss of Medicaid DSH funds to states will be $18.1 billion. There is no assurance that the Corporation's hospitals will receive DSH payments in the future. Costs of Outpatient Services. Hospital outpatient services, including hospital operating and capital costs, are reimbursed on a PPS basis. Several Part B services are specifically excluded from this rule, including certain physician and nonphysician practitioner services, ambulance, clinical diagnostic laboratory services and nonimplantable orthotics and prosthetics, physical and occupational therapy, and speech pathology services. Under the hospital outpatient PPS, predetermined amounts are paid for designated services furnished to Medicare beneficiaries. CMS classifies outpatient services and procedures that are 31

38 comparable clinically and in terms of resource use into ambulatory payment classification ( APC ) groups. Using hospital outpatient claims data from the most recent available hospital cost reports, CMS determines the median costs for the services and procedures in each APC group. Subsequently, a payment rate is established for each APC. Depending on the services provided, a hospital may be paid for more than one APC for a patient visit. Outpatient PPS ( OPPS ) rates are adjusted annually (on a calendar year schedule) based on the hospital inpatient market basket percentage increase. In the final 2012 OPPS rule, CMS authorizes a market basket increase of 1.9%, reflecting a projected 3.0% market basket increase, offset by a productivity adjustment of 1.0% and a Health Care Reform Act reduction of 0.1%. Hospitals that fail to report data related to fifteen required quality measures will have their market basket percentage increase reduced by 2%, resulting in a negative adjustment of 0.1% for calendar year There can be no assurance that the hospital OPPS rate, which bases payment on APC groups rather than on individual services, will be sufficient to cover the actual costs of the Corporation allocable to Medicare patient care. In addition to the APC rate, there is a predetermined beneficiary coinsurance amount for each APC group. CMS projects the overall beneficiary coinsurance for OPPS services to be 21.8% in There can be no assurance that the beneficiary will pay this amount. The OPPS final rule for calendar year 2011 also implemented several provisions of the Health Care Reform Act which may impact the reimbursement and operations of hospitals across the country. These provisions continue to be implemented by CMS in the 2012 OPPS final rule. Some of the specific reforms addressed in the 2011 OPPS final rule and 2012 OPPS final rule that have the potential to impact hospitals are: (i) reduction of the OPPS market basket increase factor by a productivity adjustment (effective 2012) and an additional adjustment for payments to hospital outpatient departments (from 2010 through 2019); (ii) application of similar productivity adjustments for payment for ambulatory surgical center ("ASC") services, which began with calendar year 2011; (iii) new provisions relating to the prohibition against referrals to a hospital by a physician who has an ownership or investment interest in the hospital; (iv) adjustments to the area wage adjustment factor for outpatient department services; and (v) changes related to payment for graduate medical education and indirect medical education. Physician Payment. Certain physician services are reimbursed on the basis of a national fee schedule called the resource based-relative value scale ( RB-RVS ). The RB-RVS fee schedule establishes payment amounts for all physician services, including services of provider-based physicians, and is subject to annual updates. In the RB-RVS system, payments for physician services are determined by the resource costs needed to provide them. The Sustainable Growth Rate ("SGR"), which is a limit on the growth of Medicare payments for physician services, is linked to changes in the U.S. Gross Domestic Product over a ten-year period. SGR targets are compared to actual expenditures in order to determine subsequent physician fee schedule updates. Use of the SGR in determining physician fee schedule updates has been widely criticized as an unworkable formula, and in the absence of continuing Congressional intervention the use thereof will result in a considerable decrease to Medicare physician payments. The 2011 Medicare Physician Fee Schedule Final Rule (the "2011 MPFS") was published on November 2, In the absence of further action by Congress, the conversion factor used to calculate payment amounts to physicians under the 2011 RB-RVS fee schedule would have been reduced by 25.5% effective January 1, On December 15, 2010, President Obama signed into law the Medicare and Medicaid Extenders Act of 2010, which prevents the scheduled 25.5% reduction and extends the current physician fee schedule payment rates through December 31, The 2012 Medicare Physician Fee Schedule Final Rule (the "2012 MPFS") was released on November 2, The 2012 MPFS reduces the conversion factor under the 2012 RB-RVS fee schedule by 27.4%. On December 23, 2011, President Obama signed into law the Consolidated Appropriations Act, 2012, which includes a 60-day extension of the 2011 MPFS. On February 22, 2012, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012, which prevented payment reductions to physicians through There can be no guarantee that Congress will act to stop future reductions in the physician fee schedule. Although most of the provisions included in the 2011 MPFS directly affect payments provided under the physician fee schedule, the rule also addresses a number of policies that are not directly related to that payment system. The 2011 MPFS addressed and implemented a number of provisions of the Health Care Reform Act, each of which may impact the reimbursement levels of hospitals, such as: (i) elimination of deductible and coinsurance for most preventive services; (ii) coverage of annual wellness visit providing a personalized prevention plan; (iii) incentive payments to primary care practitioners for primary care services; (iv) incentive payments for major surgical procedures in health professional shortage areas; (v) an update to the Medicare Economic Index (MEI); (vi) revisions to the practice expense geographic adjustment; (vii) permitting Physician Assistants to order post-hospital extended care services; (viii) payment for bone density tests; (ix) increased payments for Certified Nurse-Midwife services; (x) extension of Medicare reasonable cost payments for certain clinical diagnostic laboratory tests furnished to hospital patients in certain rural areas; (xi) amendment to the physician self-referral disclosure requirement related to certain imaging 32

39 services; (xii) expansion of the Medicare durable medical equipment competitive bidding program; (xiii) identification of misvalued codes under the MPFS; (xiv) adoption of a multiple procedure payment reduction policy for therapy services; (xv) modification of equipment utilization factor and modification of multiple procedure payment policy for advanced imaging services; (xvi) adjustments to the payment schedule for power-driven wheelchairs; and (xvii) reduction of the maximum period for submission of Medicare claims to no more than 12 months. The 2012 MPFS similarly contains provisions implementing the Health Care Reform Act which may impact the reimbursement levels of hospitals, such as: (i) identification and review of potentially misvalued codes; (ii) expansion of the multiple procedure payment reduction policy for advanced imaging services; (iii) methodology for determining the productivity adjustment for ambulatory surgical centers, clinical laboratory services, and the durable medical equipment fee schedule; (iv) revisions to the practice expense methodology; (v) bundling of payments for services provided to outpatients who are later admitted as inpatients (i.e., the 3-day payment window policy); and (vi) hospital discharge care coordination. Skilled Nursing Care. Medicare Part A reimburses on a PPS basis for certain post-acute inpatient skilled nursing and rehabilitation care and for certain post-hospital inpatient skilled nursing and rehabilitation care for up to 100 days during the same spell of illness. For skilled nursing facilities ( SNFs ), the federal government has implemented a PPS for Medicare reimbursement, which utilizes prospective, case-mix adjusted per diem rates applicable to all covered SNF services. Reimbursement under PPS also incorporates adjustments to account for facility case-mix using the Resource Utilization Groups Version 4 ( RUG-IV ) system, which assigns a patient to a RUG group to determine a daily payment rate. Each RUG group consists of case mix indexes that reflect a patient s severity of illness and the services a patient requires in the SNF. CMS found that a parity adjustment made in fiscal year 2011, intended to ensure that a new RUG-IV system would not change overall spending levels from the prior year, instead resulted in a significant increase in Medicare expenditures during fiscal year As a result, a recent CMS final rule reduced Medicare SNF PPS payments in fiscal year 2012 by 11.1%. It is unclear what effect these provisions will have on the Corporation s finances at this time. Home Health Care. CMS has developed a PPS for home health services. Such payments are increased annually, but it is likely that the increases of such payments will not keep pace with the increases in the cost of providing home health services. Any such failure to increase adequately such payments will have an adverse effect on home health providers whose costs exceed the level of prospective reimbursement. The actual financial effect on the Corporation from such a system cannot be determined at this time. Ambulatory Surgical Centers. Medicare pays for ambulatory surgical center ( ASC ) services on a PPS basis. Historically, these rates have been updated annually for inflation by the consumer price index ( CPI ), effective each federal fiscal year commencing October 1. The MMA, however, changed the update cycle to a calendar year. Pursuant to the DRA, effective January 1, 2007, payments to ASCs were required to be capped at the corresponding OPPS amount paid to a hospital for the same procedure. On November 1, 2011, CMS finalized its 2012 ASC payment policies. In 2012, ASCs will see an increase of 1.6% across the board. CMS has added six new procedures to the list of ASC payable procedures for ASCs will be required to report data on five quality measures beginning October 1, 2012, or face reductions in their 2014 Medicare payments. Provider-Based Standards. CMS made significant changes to the provider-based regulation included in the final OPPS rulemaking for federal fiscal year Generally, CMS eliminated a few requirements for on-site provider-based facilities and clarified some of the provisions of the prior provider-based rules. CMS clarified that prior approval of provider-based status by CMS is not required for an entity to bill as provider-based. Rather, a provider may provide an optional attestation of its status as a provider-based entity. Although such attestation is not required to bill as a provider-based entity, it may provide some overpayment protection in the event that CMS subsequently makes a determination that an entity is not provider-based, assuming accurate representation by the provider to CMS. Any reclassification by CMS may adversely affect the entity s reimbursement under the Medicare program. Based on current regulations, the Management of the System believes all of their respective current facilities that bill for services as provider-based entities qualify as provider-based entities under the current regulations. Medicare Advantage. Medicare beneficiaries may obtain Medicare coverage through a managed care Medicare Advantage plan (formerly known as a Medicare+Choice plan). A Medicare Advantage plan may be offered by a coordinated care plan (such as an HMO or PPO), a provider sponsored organization ( PSO ) (a network operated by health care providers rather than an insurance company), a private fee-for-service plan, or a combination of a medical savings account ( MSA ) and contributions to a Medicare Advantage plan. Each Medicare Advantage plan, except an MSA plan, is required to provide benefits approved by the Secretary of HHS. A Medicare Advantage plan will receive a monthly capitated payment from HHS for each Medicare beneficiary who has elected coverage under the plan. Health care providers such as the Corporation must contract with Medicare Advantage plans to treat Medicare Advantage enrollees at agreed upon rates or may form a PSO to contract directly with HHS as a Medicare Advantage plan. Covered inpatient and emergency services rendered to a Medicare Advantage 33

40 beneficiary by a hospital that is an out-of-plan provider (i.e., that has not entered into a contract with a Medicare Advantage plan) will be paid at Medicare fee-for-service payment rates as payment in full. The Health Care Reform Act provides that from October 1, 2010 through September 30, 2019, payments under the Medicare Advantage programs will be reduced, which may result in increased premiums or out-of-pocket costs to Medicare beneficiaries enrolled in Medicare Advantage plans. These beneficiaries may terminate their participation in such Medicare Advantage plans and opt for the traditional Medicare fee-for-service program. The reduction in payments to Medicare Advantage plans may also lead to decreased payments to providers by managed care companies operating Medicare Advantage plans. There can be no assurance that the rates negotiated for the treatment of Medicare Advantage enrollees will be sufficient to cover the cost of providing services to such patients. All or any of these outcomes will have a disproportionately negative effect upon those providers with relatively high dependence upon Medicare managed care revenues. For further information regarding the Health Care Reform Act and its provisions, see "BONDHOLDERS' RISKS - Health Care Reform Act" herein. Medicare Audits. The Corporation receives payments for various services provided to Medicare patients based upon charges or other reimbursement methodologies that are then reconciled annually based upon the preparation and submission of annual cost reports. Estimates for the annual cost reports are reflected as amounts due to/from third-party payors and represent several years of open cost reports due to time delays in the fiscal intermediary's audits and the basic complexity of billing and reimbursement regulations. These estimates are adjusted periodically based upon correspondence received from the fiscal intermediary. Medicare regulations also provide for withholding Medicare payment in certain circumstances if it is determined that an overpayment of Medicare funds has been made. In addition, under certain circumstances, payments may be determined to have been made as a consequence of improper claims subject to the federal False Claims Act (the "Federal False Claims Act") or other federal statutes, subjecting the Corporation to civil or criminal sanctions. Management of the Corporation is not aware of any situation whereby a material Medicare payment is being withheld from the Corporation. Hospitals participating in Medicare are subject from time to time to audits and other investigations relating to various aspects of their operations. Medicare participating hospitals are subject to audits and retroactive audit adjustments with respect to reimbursement claimed under the Medicare program. Medicare regulations also provide for withholding Medicare payment in certain circumstances. Although management of the Corporation does not anticipate or have reason to believe that a substantial withholding or audit adjustment will be made with respect to the Corporation, there can be no assurance that, if such withholdings or audit adjustments were to be assessed, they would not have a material adverse effect on the financial position of the Corporation. Management of the Corporation does not believe that any other type of audit or investigation would result in a liability that would have a material adverse effect on the business, operations, or financial condition of the Corporation. RAC Audits. The MMA established the Medicare Recovery Audit Contractor ("RAC") program initially as a demonstration program to identify improper Medicare payments. CMS contracts with private contractors to conduct RAC audits (the "RAC Contractors"). RAC Contractors are paid on a contingency fee basis, receiving a percentage of the improper overpayments and underpayments they collect from providers. RAC Contractors can retrospectively review claims for up to three years from the date the claim was paid and review provider claims for the following types of services: hospital inpatient and outpatient, skilled nursing facility, physician, ambulance and laboratory, as well as durable medical equipment. RAC Contractors use automated software programs to identify potential payment errors in such areas as duplicate payments, fiscal intermediaries' mistakes, medical necessity and coding, and identified significant overpayments for collection in the demonstration states. In accordance with the MMA and the Tax Relief and Health Care Act of 2006 (the "2006 Tax Act"), CMS designated the use of recovery audit contractors to search for improper Medicare payments in Arizona, Florida, California, Massachusetts, New York and South Carolina. While originally part of a demonstration program that was set to expire in 2008, the provisions of the 2006 Tax Act made the RAC program permanent and authorized CMS to expand the program to all 50 states by As required by the 2006 Tax Act, permanent RAC programs have been implemented in all 50 states. The RAC program was expanded through the Health Care Reform Act to Medicare Part C (Medicare Advantage plans), Medicare Part D (prescription drug coverage) and Medicaid. On November 15, 2011, CMS announced new demonstration projects which took effect on January 1, The first such project, the Recovery Audit Prepayment Review demonstration, applies to eleven states, including Florida, and allows RACs to review claims before they are paid to ensure that the applicable provider complied with all Medicare payment rules. The second demonstration project applies to seven states, including Florida, and requires prior authorization for certain medical equipment for all people covered by Medicare who reside in the applicable states. This prior authorization demonstration program will be implemented in two phases. During the first phase, Medicare administrative contractors will conduct prepayment reviews on certain medical equipment claims. The second phase will 34

41 implement prior authorization in a manner similar to that employed by private-sector health care payers. It is unknown at this time how these new CMS demonstration projects will impact the Corporation. State Legislation Medicaid (Title XIX of the Federal Social Security Act) is a health insurance program for certain low-income and needy individuals that is jointly funded by the federal government and the states. It covers approximately 50 million people, including children, the aged, blind, and/or disabled, and individuals who are eligible to receive federally assisted income maintenance payments. Pursuant to broad federal guidelines, the states and the United States territories (Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands) each (1) establish their own eligibility standards; (2) determine the type, amount, duration, and scope of services; (3) set the payment rates for services; and (4) administer their own programs. Some states operate certain Medicaid programs under a waiver of some of the basic Medicaid requirements. Pursuant to the Medicaid program, the federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for such medical and health services is made to hospitals in an amount determined in accordance with procedures and standards established by state law under federal guidelines. In Florida, Medicaid is administered by the Agency for Health Care Administration ( AHCA ). Medicaid is a public health insurance program that primarily serves low-income families with children and Medicaid eligibility is generally based on a combination of financial and categorical eligibility requirements. Most states determine threshold Medicaid eligibility levels by reference to other federal financial assistance programs including Temporary Assistance to Needy Families ("TANF"), which is a low-income assistance program for families with children that was adopted to replace the Aid to Families with Dependent Children program, and Supplemental Security Income ("S SI"), which is a federal program that provides assistance to low-income aged, blind or disabled individuals. Under the Medicaid program, the federal government supplements funds provided by the various states for medical assistance to the medically indigent. Payment for medical and health services is made to providers in amounts determined in accordance with procedures and standards established by state law under federal guidelines. Fiscal considerations of both federal and state governments in establishing their budgets will directly affect the funds available to the providers for payment of services rendered to Medicaid beneficiaries. For example, the DRA included Medicaid cuts of approximately $4.8 billion over a five-year period. Currently, Medicaid nursing facility payments are generally made using a prospective per diem payment based on cost, adjusted for various factors, including acuity. In addition, Medicaid inpatient hospital payments are generally made under a DRG, prospective payment system on a per discharge basis. It is important to note that although the payment systems can be categorized in general terms, the specific methodology varies from state to state. In Florida, Medicaid inpatient hospital payments are made on a per diem basis. Approximately 17% of the System s net patient service revenues for the year ended September 30, 2011 were derived from the Medicaid program. Medicaid programs vary widely from state to state and are continually being amended and revised. There can be no assurance that the System s patient service revenues will not be adversely affected by any future amendments and revisions to the Medicaid programs. Certificate of Need. Florida law provides for a CON program which applies to the offering or development of certain health care-related projects and institutional health services. The CON program in Florida is administered by the AHCA. Florida s CON program requires, among other things, AHCA s review of proposed establishment of, additions to, conversions of, or substantial changes in certain health services by or on behalf of the System under certain conditions, and depending upon the type of health care facility; the new construction or establishment of additional facilities; the replacement of existing facilities to be located on different sites; provides for expedited review of certain health-care-related projects; and exempts certain healthcare-related projects from review. In 2004, the Florida legislature passed revisions to the Florida CON law that the Governor signed into law, effective July 1, 2004 (the Revised Florida CON Law ) (2004 Fla. Laws ch. 383). The Revised Florida CON Law, among other things, generally preserved the requirement of a CON for new construction or establishment of additional health care facilities; exempted from CON review, upon proper application, certain hospitals establishment of open-heart-surgery programs and the provision of percutaneous coronary intervention for emergency myocardial infarction patients presenting to a hospital lacking an approved adult open-heart-surgery program, if certain criteria are met; exempted from CON approval the addition of beds to certain existing health care facilities; and maintained the requirement that specialty hospitals are subject to CON approval, although Florida will not license or re-license certain specialty hospitals. 35

42 In 2008, the Florida Legislature passed further revisions to the 2004 Florida CON Law that the Governor signed into law, effective May 19, 2008 (the 2008 Florida CON Law and together with the 2004 Florida CON Law, the Florida CON Law ) (2008 Florida Laws ch. 29). These revisions limited the criteria that AHCA will apply to CON applications for general hospitals; established application content requirements specific to general hospitals; and established application processing, administrative hearing and judicial review provisions specific to general hospital CON applications. No assurance can be given as to the ability of Corporation to obtain CON approval for future projects necessary for the maintenance of competitive rates and charges or quality and scope of care. The Corporation has all CONs or letters of exemption required for the operation of their facilities and its current capital projects. No assurance can be given that the Florida CON Law will not be amended or repealed, in whole or in part, following the date of this Official Statement. Utilization Management. In 1984, the Florida legislature enacted the Health Care Access Act of 1984 (the Health Care Access Act ) to provide financial incentives for hospitals and insurers to contain costs. Health Care Reform Act. The Health Care Reform Act of 1992 established a single agency, AHCA, in order to consolidate Florida State health care financing, data collection and regulatory functions. The data collection and analysis activities of AHCA are financed in part by an annual assessment on hospitals in an amount not to exceed four basis points (.04%) of the gross operating expenses of the hospital for its last fiscal year. Each fiscal year, health care facilities must file comprehensive financial information with AHCA. Health care facilities that fail to comply with AHCA s reporting requirements are subject to fines not exceeding $1,000 per day for each day the facility is in violation. Also pursuant to this Act, set forth in part at Florida Statutes , hospitals are required to enter into a rate agreement with each health insurer which represents 10% or more of the hospital s private pay patients to establish a prospective payment arrangement. Florida Indigent Assistance. In 1984, the Florida legislature enacted the Public Medical Assistance Act (the Assistance Act ) to provide a mechanism for funding the provision of health care services to indigent persons. The Assistance Act, currently in Florida Statutes Section et seq., imposes assessments upon each hospital operating in Florida, except hospitals operated by AHCA or the Department of Corrections. Each hospital is assessed 1.5% of its annual net operating revenue for inpatient services and 1.0% of its annual net operating revenue for outpatient services, based on the hospital s actual experience as reported to AHCA. The assessment is payable to and collected by AHCA and is based on annual net operating revenue for the entity s most recently completed fiscal year. Moneys collected by AHCA pursuant to the Assistance Act are deposited into Florida s Public Medical Assistance Trust Fund. Florida Medicaid Reform. Florida's Medicaid program has continued to evolve since the initial reforms began on July 1, On July 1, 2007, this reform initiative authorized under a CMS waiver was extended for the counties of Baker, Broward, Clay, Duval and Nassau. On December 15, 2011, the CMS approved AHCA's request for a 3-year waiver extension for the pilot program through June 30, 2014 (the Pilot Program ). The Pilot Program was structured to move most Medicaid covered individuals in these five counties from a fee-for-service arrangement to a managed care model of service, with certain exceptions. During the 2011 Legislative Session two pieces of legislation passed (House Bill 7107 and House Bill 7109) which authorized AHCA to further expand the use of the managed care networks to additional individuals eligible for Medicaid and allowed for the expansion of reform statewide (the SMMC ). SMMC would expand managed care beyond the Pilot Program to Medicaid recipients statewide and contains two separate components: the Managed Medical Assistance Program for primary and acute care, and Long-term Managed Care Program for residential, home and community-based care. The Medicaid Medically Needy will continue to receive coverage and will be enrolled in qualified managed care plans. On August 1, 2011, AHCA applied for the federal waivers necessary to implement SMMC. The application is currently under review by CMS. An Invitation to Negotiate ("ITN") for the Long-term Managed Care Program must be issued by AHCA on or before July 1, 2012, and all long-term care eligible recipients must be enrolled in managed long-term care plans by October 1, AHCA must issue the ITN for the Managed Medical Assistance Program by January 1, 2013, and full enrollment must be completed by October 1, It is unknown at this time what impact SMMC, if implemented, would have on the Corporation. During the 2011 Legislative Session, the State Legislature adopted the Budget which included significant cuts to Medicaid reimbursement rates for healthcare providers. Additionally, during the ongoing 2012 Legislative Session, the State Legislature adopted the Budget, which, if approved by Governor Scott, will go into effect July 1, The adopted Budget includes, among other changes, more than $300 million or a 5.64% reduction in hospital reimbursement rates, 1.25% reduction to nursing home reimbursement rates, limits reimbursement for non-pregnant Medicaid patients 21 years or older to six (6) emergency room visits per person/year effective August 1, 2012 ($46.7 million reduction statewide) and general physician visits to two (2) per month per non-pregnant adult Medicaid patient, eliminates payments for preventable hospital errors effective July 1, 2012 ($2.7 million reduction statewide) and outlines creation of a plan to convert Medicaid payments to a DRG model by July 1, For information on the impact of such reductions on the Corporation and the Corporation s plans to mitigate such reductions see APPENDIX A - INFORMATION REGARDING THE CORPORATION-System Outlook and Plan for the Future". No 36

43 assurance can be given that the Corporation can mitigate any such reductions and changes to Medicaid or that Medicaid rates will not be reduced again in the future. Commercial Insurance and Other Third-Party Plans Many commercial insurance plans, including group plans, reimburse their customers or make direct payments to the System for charges at established rates. Generally, these plans pay semi-private room rates plus ancillary service charges, which are subject to various limitations and deductibles depending on the plan. To the extent allowed by law, patients carrying such coverage are responsible to the hospital for any deficiency between the commercial insurance proceeds and total billed charges. There can be no assurance that patients will make payments of any such deficiencies. Managed Care and Integrated Delivery Systems Many hospitals and health systems, including the System, are pursuing strategies with physicians in order to offer an integrated package of health care services, including physician hospital services, to patients, health care insurers, and managed care organizations ( MCOs ). These integration strategies take many forms, several of which are discussed below. Further, many of these integration strategies are capital intensive and may create certain business and legal liabilities for the System. Even when these activities are conducted by affiliates outside of the System, the start-up capitalization for such developments, as well as operational deficits, may be funded by the Corporation. Depending on the size and organizational characteristics of a particular development, these capital requirements may be substantial. In some cases, the Corporation may be asked to provide a financial guarantee for the debt of a related entity which is carrying out an integrated delivery strategy. In certain of these structures, the Corporation may have an ongoing financial commitment to support operating deficits, which may be substantial on an annual or aggregate basis. Further, the Corporation has entered into contractual arrangements with PPOs, HMOs, and other similar MCOs, pursuant to which they agree to provide or arrange to provide certain health care services for these organizations eligible enrollees. There can, however, be no assurance that revenues received under such contracts will be sufficient to cover all costs of services provided. Failure of the revenues received under such contracts to cover all costs of services provided may have a material adverse effect on the operations or financial condition of the Corporation. State Laws. States are increasingly regulating the delivery of health care services. Much of this increased regulation has centered around the managed care industry. State legislatures have cited their right and obligation to regulate and oversee health care insurance and have enacted sweeping measures that aim to protect consumers and, in some cases, providers. A number of states have enacted laws mandating payment of claims within specified time periods, laws regulating access to specialists, and laws generally regulating provider agreements with MCOs. Due to this increased state oversight, the Corporation could be subject to a variety of state health care laws and regulations affecting both MCOs and health care providers. In addition, the Corporation could be subject to state laws and regulations prohibiting, restricting, or otherwise governing preferred provider organizations; third-party administrators, physicianhospital organizations, independent practice associations or other intermediaries; fee-splitting; the corporate practice of medicine ; selective contracting ( any willing provider laws and freedom of choice laws); coinsurance and deductible amounts; insurance agency and brokerage, quality assurance, utilization review, and credentialing activities; provider and patient grievances; mandated benefits; rate increases; and many other areas. In the event that the Corporation chooses to transact businesses subject to such laws, or is considered by a state in which it operates to be engaging in such businesses, the Corporation may be required to comply with these laws or to seek the appropriate license or other authorization from the State. Such requirements may impose operational, financial, and legal burdens, costs, or risks on the System. Dependence Upon Third-Party Payors. The Corporation s ability to develop and expand its services and, therefore, its profitability, is dependent upon the Corporation s ability to enter into contracts with HMOs and other third-party payors at competitive rates. There can be no assurance that the Corporation will be able to attract third-party payors, and where it does, no assurance that it will be able to contract with such payors on advantageous terms. The inability of the Corporation to contract with a sufficient number of such payors on advantageous terms would have a material adverse effect on the Corporation s operations and financial results. Further, while the Corporation employs a system to control health care service utilization and increase quality, the Corporation cannot predict changes in utilization patterns or such system s effect on health care providers. 37

44 Physician Contracting and Relations. The System may wish to contract with physician organizations ( POs ) (e.g., independent physician associations, physician-hospital organizations, etc.) to arrange for the provision of physician and ancillary services. Because POs are separate legal entities with their own goals, obligations to shareholders, financial status, and personnel, there are risks involved in contracting with POs. The System employs approximately 326 physicians, plus approximately 250 residents are participating in the System s Medical Education program. The System also contracts with several independent physician specialty practices. See APPENDIX A - Medical Staff attached hereto. The success of the System will be partially dependent upon its ability to attract POs to participate in the System s network, and upon the physicians, including the employed physicians, abilities to perform their obligations and deliver high quality patient care in a cost-effective manner. There can be no assurance that the System will be able to retain the requisite number of physicians, or that such physicians will deliver high quality health care services. Without impaneling a sufficient number and type of providers in the System s network, the System could fail to be competitive, fail to keep or attract payor contracts, or be prohibited from operating until its panel provided adequate access to patients. Such occurrences could have a material adverse effect on the operations or financial condition of the System. The System has attempted to structure its operations to avoid characterization as engaging in the corporate practice of medicine. However, there can be no assurance that state agencies will not challenge the System s activities as they relate to its management of the provider networks and find violations of the corporate practice of medicine prohibition, which may have a material adverse effect on the System s operations and financial results. Regulation of Health Care Industry General. The health care industry is highly dependent on a number of factors which may limit the ability of the Corporation to meet its obligations under the Loan Agreement, the Master Indenture and the Series 2012 Notes. Among other things, participants in the health care industry (such as the System) are subject to significant regulatory requirements of federal, state and local governmental agencies and independent professional organizations and accrediting bodies, technological advances and changes in treatment modes, various competitive factors and changes in third-party reimbursement programs. Discussed below are certain of these factors which could have a significant effect on the future operations and financial condition of the Corporation. Health Insurance Portability and Accountability Act. The Health Insurance Portability and Accountability Act of 1996 ( HIPAA ) added two prohibited practices, the commission of which may lead to civil monetary penalties: (1) the practice or pattern of presenting a claim for an item or service on a reimbursement code that the person knows or should know will result in greater payment than appropriate, i.e., upcoding, and (2) engaging in a practice of submitting claims for payment for medically unnecessary services. Violation of such prohibited practices could amount to civil monetary penalties of up to $10,000 for each item or service involved. Management of the System is not aware of any violations of the prohibited practices provisions of HIPAA. HIPAA also includes administrative simplification provisions intended to facilitate the processing of health care payments by encouraging the electronic exchange of information and the use of standardized formats for health care information. Congress recognized, however, that standardization of information formats and greater use of electronic technology presents additional privacy and security risks due to the increased likelihood that databases of individually identifiable health information will be created and the ease with which vast amounts of such data can be transmitted. Therefore, HIPAA requires the establishment of distinct privacy and security protections for individually identifiable health information. HHS promulgated privacy regulations under HIPAA that protect patient medical records and other personal health information maintained by health care providers, hospitals, health plans, health insurers, and health care clearinghouses (collectively, "Covered Entities"). Compliance with the privacy regulations was required as of April 14, The System believes that its operations and information systems comply with the HIPAA privacy regulations in all material respects. Security regulations have also been promulgated under HIPAA (the Security Regulations ). The Security Regulations require Covered Entities to have certain administrative, technical, and physical safeguards in place to ensure the confidentiality, integrity, and availability of all electronic protected health information they create, receive, maintain, or transmit. Additionally, HHS promulgated regulations to standardize the electronic transfer of information pursuant to certain enumerated transactions (the Code Set Transactions ). Management of the System believes that all of its health care facilities are in substantial compliance with the Security Regulations and the Code Set Transactions. 38

45 On February 17, 2009, President Obama signed into law the Health Information Technology for Economic and Clinical Health Act (the HITECH Act ), which is part of ARRA. The HITECH Act significantly changes the landscape of federal privacy and security law with regard to individually identifiable health information. The HITECH Act (i) extended the reach of HIPAA and the Security Regulations, (ii) imposed a breach notification requirement on HIPAA covered entities, (iii) limited certain uses and disclosures of individually identifiable health information, (iv) increased individuals rights with respect to individually identifiable health information and (v) increased enforcement of, and penalties for, violations of privacy and security of individually identifiable health information. Many of the HITECH Act s provisions became effective on February 17, 2010, and other provisions became effective thereafter. Management of the System does not expect that the prohibited practices provisions of the HITECH Act will affect the Corporation in a material respect. Any violation of HIPAA, the HITECH Act, or the regulations promulgated under either is subject to HIPAA civil and criminal penalties that include monetary penalties and/or imprisonment. Significantly, the HITECH Act created a tiered approach to the imposition of civil monetary penalties ("CMP") for violations of HIPAA, the HITECH Act, and the regulations promulgated under each that became effective immediately upon President Obama signing the HITECH Act into law on February 17, The new tiered approach provides for CMPs of up to $1.5 million for violations of an identical requirement during a calendar year. The Corporation believes that all of its health care facilities are in substantial compliance with HIPAA, the HITECH Act, and the rules promulgated thereunder. Federal Fraud and Abuse Laws and Regulations. The Federal Medicare/Medicaid Anti-Fraud and Abuse Amendments to the Social Security Act (the Anti-Kickback Law ) make it a felony offense to knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business for which reimbursement is provided under the Medicare or Medicaid programs. In addition to criminal penalties, including fines of up to $25,000 and five years imprisonment, violations of the Anti-Kickback Law can lead to CMP and exclusion from Medicare, Medicaid and certain other state and federal health care programs. The scope of prohibited payments in the Anti-Kickback Law is broad and includes economic arrangements involving hospitals, physicians and other health care providers, including joint ventures, space and equipment rentals, purchases of physician practices and management and personal services contracts. HHS has published regulations which describe certain safe harbor arrangements that will not be deemed to constitute violations of the Anti-Kickback Law. The safe harbors described in the regulations are narrow and do not cover a wide range of economic relationships which many hospitals, physicians and other health care providers consider to be legitimate business arrangements not prohibited by the statute. Because the regulations describe safe harbors and do not purport to describe comprehensively all lawful or unlawful economic arrangements or other relationships between health care providers and referral sources, hospitals and other health care providers having these arrangements or relationships may be required to alter them in order to ensure compliance with the Anti-Kickback Law. In addition to current CMP, the Balanced Budget Act of 1997 created a new CMP for violations of the federal antikickback statute for cases in which a person contracts with an excluded provider for the provision of health care items or services where the person knows or should know that the provider has been excluded from participation in a federal health care program. Violations will result in damages three times the remuneration involved as well as a penalty of $50,000 per violation. Management of the System believes that its contracts with physicians and other referral sources are in material compliance with the Anti-Kickback Law. However, in light of the narrowness of the safe harbor regulations and the scarcity of case law interpreting the Anti-Kickback Law, there can be no assurances that the System will not be found to have violated the Anti-Kickback Law and, if so, whether any sanction imposed would have a material adverse effect on the operations of the System. The Federal False Claims Act. The federal civil FCA, provides that any person who "knowingly presents, or causes to be presented" a "false or fraudulent claim for payment or approval" to the United States, and its agents and contractor is liable for a civil penalty ranging from $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government. Under the FCA's so-called "reverse false claims," liability also could arise for "using" a false record or statement to "conceal," "avoid" or "decrease" an "obligation to pay or transmit money or property to the Government." The FCA also empowers and provides incentives to private citizens (commonly referred to as qui tam relator or whistleblower) to file suit on the government's behalf. The qui tam relator's share of the recovery can be between 15% and 25% in cases in which the government intervenes, and 25% to 30% in cases in which the government does not intervene. The government may use the FCA to prosecute Medicare and other government program fraud in areas such as coding errors, billing for services not provided and submitting false cost reports. Recent amendments to the FCA in the Fraud Enhancement and Recovery Act of 2009 ("FERA") and the Health Care Reform Act amend and expand the reach of the FCA. FERA expanded the FCA's reverse false claims provision, imposing liability on any person who "knowingly conceals" or "knowingly and improperly avoids or decreases" an "obligation to pay or transmit 39

46 money or property to the Government," whether the person uses a false record or statement to do so or not. FERA also clarified that an "obligation" can arise from the retention of an overpayment. Section 6402 of the Health Care Reform Act further addresses the retention of overpayments by defining the term overpayment and the circumstances and timing under which an overpayment need be returned to the government before it becomes an "obligation" under the FCA. FERA and the Health Care Reform Act also amend certain jurisdictional bars to the FCA, effectively narrowing the public disclosure bar and expanding the definition of "original source," thus potentially broadening the field of potential whistleblowers. While the Corporation makes every effort to be in compliance with applicable federal health care program requirements, there can be no assurance that the System will not be subject to an investigation. The State of Florida also has a state false claims act pursuant to which the Department of Legal Affairs of the Office of the Attorney General (the "Department of Legal Affairs") may, after investigation by the Medicaid Fraud Control Unit of the Department of Legal Affairs, bring an action against any person who knowingly presents a false claim for payment or approval. No proof of specific intent to defraud is required. Actions also may be brought by the Florida Department of Financial Services and by a private person. If found liable under this statute, the individual or facility may be liable for a civil penalty of $5,500-$11,000 for each violation, as well as for treble damages. Florida also has numerous provisions prohibiting anti-kickback activity which apply to health care professionals, other providers and provider institutions. Violation of any of Florida's anti-kickback provisions may result in civil penalties, including adverse impacts on licensure. Restrictions on Referrals. Current federal law (known as the Stark Law provisions) prohibits providers of designated health services from billing Medicare or Medicaid when the patient is referred by a physician or an immediate family member with a financial relationship with the provider, with limited exceptions. Designated health services or DHS include the following: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and services; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The Stark Law also prohibits the furnishing entity from submitting a claim for reimbursement or otherwise billing Medicare or any other person or entity for improperly referred DHS. An entity that submits a claim for reimbursement in violation of the Stark Law must refund any amounts collected and may be (1) subject to a civil penalty of up to $15,000 for each prohibited self-referred service and (2) excluded from participation in federal health care programs. In addition, a physician or entity that has participated in a "scheme" to circumvent the operation of the Stark Law is subject to a civil penalty of up to $100,000 and possible exclusion from participation in federal health care programs. CMS, the federal agency with primary responsibility for enforcement of the Stark Law has, over the years, published a number of regulations interpreting the Stark Law. The final rule relating to proposals from CMS' 1998 proposed rule were divided into three separate rulemakings. CMS issued the "Phase I" final rule with comment period in 2001; in 2004, it issued the "Phase II" interim final rule with comment period; and, in 2007, it issued the "Phase III" final rule. CMS, on September 23, 2010, published a self-referral disclosure protocol ("SRDP") pursuant to Section 6409(a) of the Health Care Reform Act. The SRDP sets forth a process to enable providers of services and suppliers to self-disclose actual or potential violations of the Stark Law. Additionally, Section 6409(b) of the Health Care Reform Act gives the Secretary of HHS the authority to reduce the amount due and owing for violations under the Stark Law. Section 6001 of the Health Care Reform Act narrowed access to the "rural provider" and "whole hospital" exceptions to the physician self-referral law by prohibiting their use by new physician-owned hospitals, and limiting the ability of existing physician-owned hospitals to expand their capacity. Under section 6001, physician-owned hospitals that were converted from ASCs on or after March 23, 2010 cannot qualify for the revised rural provider and whole hospital exceptions. Additional provisions in section 6001 were aimed at preventing conflicts of interest, ensuring that all ownership and investment interests are bona fide, and promoting patient safety. In the 2011 OPPS final rule, CMS incorporated changes mandated by the Health Care Reform Act into regulation. In the 2012 OPPS final rule, CMS continues to implement these changes. Portions of the 2011 MPFS also implemented changes from the Health Care Reform Act related to self-referral disclosures. The Health Care Reform Act amended the in-office ancillary services exception to the physician self-referral law as applied to magnetic resonance imaging, computed tomography, and positron emission tomography, to require a physician to disclose to a patient in writing at the time of the referral that the patient may obtain these services from another supplier. CMS now requires, according to the final rule, that the referring physician provide the patient with a list of five alternative suppliers within a 25-mile radius of the physician's office location at the time of the referral who provide the imaging services ordered. 40

47 Management of the System believes that the System is currently in material compliance with the Stark Law provisions. However, in light of the scarcity of case law interpreting the Stark Law provisions, there can be no assurances that the System will not be found to have violated the Stark Law provisions and, if so, whether any sanction imposed would have a material adverse effect on the operations of the System, the financial condition of the System, or the status of the Corporation and certain of its applicable entities as organizations described in Section 501(c)(3) of the Code. Compliance/OIG Investigations. Medicare requires that extensive financial information be reported on a periodic basis and in a specific format or content. These requirements are numerous, technical and complex and may not be fully understood or implemented by billing or reporting personnel. With respect to certain types of required information, the FCA and the Social Security Act may be violated by mere recklessness in the submission of information to the government even without any intent to defraud. New billing systems, new medical procedures and procedures for which there is not clear guidance from CMS may all result in liability. The penalties for violation include criminal or civil liability and may include, for serious or repeated violations, exclusion from participation in the Medicare program. HHS, through the Office of Inspector General (the OIG ), conducts national investigations of Medicare billings for certain services. The focus of these investigations varies annually according to the OIG Workplan. While the Corporation makes every effort to be in compliance with Medicare billing requirements, there can be no assurance that the Corporation will not be subject to an investigation. Both federal and state government agencies have increased their investigative and enforcement initiatives. Such initiatives relate to a wide-range of health care operations including billing practices, arrangements between providers and physicians, outliers and cost reports. Patient Transfers. In response to concerns regarding inappropriate hospital transfers of emergency patients based on the patient s inability to pay for the services provided, Congress enacted the Emergency Medical Treatment and Active Labor Act ( EMTALA ). Among other things, EMTALA imposes certain requirements which must be met before transferring a patient to another facility, including conducting a medical screening. Failure to comply with EMTALA can result in exclusion from the Medicare and/or Medicaid programs as well as imposition of civil and criminal penalties. The requirements of EMTALA, specifically the treatment of uninsured patients, could adversely affect the financial condition of the System. Accreditation. The System and its operations are subject to regulation and certification by various federal, state and local government agencies and by certain nongovernmental agencies such as The Joint Commission. No assurance can be given as to the effect on current and future operations of the System of existing laws, regulations and standards or the application thereof for certification or accreditation or of any future changes in such laws, regulations and standards. Environmental Laws and Regulations. Health care providers are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations which address, among other things, hospital operations, facilities and properties owned or operated by hospitals. Among the types of regulatory requirements faced by hospitals, in addition to others, are (a) air and water quality control requirements, (b) waste management requirements, (c) specific regulatory requirements applicable to asbestos, polychlorinated biphenyls and radioactive substances, (d) requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the hospital, (e) requirements for training employees in the proper handling and management of hazardous materials and wastes, and (f) other requirements. In its role as the owner and operator of properties or facilities, the Corporation may be subject to liability for investigating and remedying any hazardous substances that may have migrated off their property. Typical hospital operations include, but are not limited to, in various combinations, the handling, use, storage, transportation, disposal and discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks associated with compliance with such laws and regulations. Such risks may (i) result in damage to individuals, property or the environment, (ii) interrupt operations and increase their cost, (iii) result in legal liability, damages, injunctions or fines and (iv) result in investigations, administrative proceedings, penalties or other governmental agency actions. There is no assurance that the Corporation will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Corporation. At the present time, management of the Corporation is not aware of any pending or threatened claim, investigation or enforcement action regarding such environmental issues which, if determined adversely to the Corporation, would have a material adverse effect on its operations or financial condition. 41

48 Increased Enforcement Affecting Research. In addition to increasing enforcement of laws governing payment and reimbursement, the federal government has also stepped up enforcement of laws and regulations governing the conduct of clinical trials at hospitals. The Department of Health & Human Services elevated and strengthened its Office of Human Research Protection, one of the agencies with responsibility for monitoring federally funded research. In addition, the National Institutes of Health significantly increased the number of facility inspections that these agencies perform. The Food and Drug Administration ("FDA") also has authority over the conduct of clinical trials performed in hospitals when these trials are conducted on behalf of sponsors seeking FDA approval to market the drug or device that is the subject of the research. Moreover, the Office of Inspector General of the Department of Health & Human Services, in its "Work Plans," has included several enforcement initiatives related to reimbursement for experimental drugs and devices (including kickback concerns). The United States Department of Justice may also become involved in enforcement actions relating to the use of federal funds or submission of information to federal agencies. There have been a number of recent government investigations and settlements involving hospital use of federal grant funding in connection with clinical trials and also a settlement involving the submission of claims to Medicare for services provided in a clinical trial. These agencies' enforcement powers range from substantial fines and penalties to exclusion of researchers and suspension or termination of entire research programs, and errors in billing of the Medicare or Medicaid programs for care provided to patients enrolled in clinical trials that is not eligible for Medicare reimbursement can subject the Corporation to sanctions as well as repayment obligations. Negative Rankings Based on Clinical Outcomes, Cost, Quality, Patient Satisfaction and Other Performance Measures. Health plans, Medicare and Medicaid programs, employers, trade groups and other purchasers of health services, private standard-setting organizations and accrediting agencies increasingly are using statistical and other measures in efforts to characterize, publicize, compare, rank and change the quality, safety and cost of health care services provided by hospitals and health care providers. Published rankings such as "score cards" tiered hospital networks with higher co-payments and deductibles for non-emergent use of lower-ranked providers, "Pay for performance" and other financial and non-financial incentive programs are being introduced to affect the reputation and revenue of hospitals, the members of their medical staffs and other health care providers and to influence the behavior of consumers and providers such as the Corporation. Prevalent currently are measures of quality based on clinical outcomes of patient care, reduction in costs, patient satisfaction and investment in health information technology. Measures of performance set by others that characterize a hospital or a health care provider negatively may adversely affect its reputation and financial condition. Nonprofit Healthcare Environment The Corporation is a Florida not-for-profit corporation, exempt from federal income taxation as an organization described in Section 501(c)(3) of the Code. As a not-for-profit tax exempt organization, the Corporation is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operations, including its operation for charitable purposes. At the same time, the System as a whole conducts large-scale complex business transactions and is a major employer in the geographic service areas where it operates. There is often tension between the rules designed to regulate charitable organizations and the day-to-day operations of a complex healthcare organization. Over the past several years, an increasing number of the operations or practices of healthcare providers have been challenged or questioned to determine if they are consistent with the regulatory requirements for nonprofit tax exempt organizations. These challenges are broader than concerns about compliance with federal and state statutes and regulations, such as Medicare and Medicaid compliance, and in many cases are examinations of core business practices of the healthcare organizations. Areas which have come under examination have included pricing practices, billing and collection practices, the volume and definition of charitable care, community benefit standards, executive compensation, exemption of property from state real property and state sales taxation, and others. These challenges and questions have come from a variety of sources, including state attorneys general, the Internal Revenue Service (the "IRS"), local and state tax authorities, labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others: Congressional Hearings. A number of House and Senate Committees, including the House Committee on Energy and Commerce, the House Committee on Ways and Means and the Senate Finance Committee, have conducted hearings and/or investigations into issues related to nonprofit tax exempt healthcare organizations. These hearings and investigations have included a nationwide investigation of hospital billing and collection practices, charity care and community benefit standards, prices charged to uninsured patients and possible reforms to the nonprofit sector. These hearings and investigations may result in new legislation. The effect on the nonprofit health care sector or the Corporation of any such legislation, if enacted, cannot be determined at this time. 42

49 IRS Examination of Compensation Practices. In August 2004, the IRS initiated an enforcement effort to identify and halt abuses by tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. Nearly 2,000 charities and foundations were contacted by the IRS regarding their compensation practices and procedures. Management of the Corporation believes that its compensation practices and procedures are consistent with IRS guidelines and regulations. IRS Final Report on Tax Exempt Hospitals and Community Benefit. In May 2006, the IRS initiated its Hospital Compliance Project to study tax-exempt hospitals and community benefit as well as to determine how these hospitals establish and report executive compensation. An Interim Report released by the IRS in July 2007 provided a summary of the responses received and information relating primarily to community benefit. The Final Report released by the IRS in February 2009 provided a summary of the reported community benefit and executive compensation data across various demographics, along with an analysis of patient mix and excess revenues across the various demographics. Challenges to Real Property Tax Exemptions. Recently, the real property tax exemptions afforded to certain nonprofit healthcare providers by certain state and local taxing authorities have been challenged on the grounds that the healthcare providers were not engaged in charitable activities. These challenges have been based on a variety of grounds, including allegations of aggressive billing and collection practices and excessive financial margins. While the Corporation is not aware of any current challenge to the tax exemption afforded to any of its material properties, there can be no assurance that these types of challenges will not occur in the future. IRS Form 990 for Tax-Exempt Organizations. IRS Form 990 is used by most Section 501(c)(3) not-for-profit organizations exempt from federal income taxation to submit information required by the federal government. The Form 990 now requires detailed disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The Form 990 also requires the disclosure of information on community benefit as well as reporting of information related to tax-exempt bonds, including compliance with the arbitrage rules and rules limiting private-use of bond-financed facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. The Form 990 is intended to provide enhanced transparency as to the operations of exempt organizations. It is likely that the IRS will use the detailed information to assist in its enhanced enforcement efforts. The foregoing are some examples of the challenges and examinations facing nonprofit healthcare organizations. They are indicative of a greater scrutiny of the billing, collection and other business practices of these organizations, and may indicate an increasingly more difficult operating environment for healthcare organizations, including the System. The challenges and examinations, and any resulting legislation, regulations, judgments, or penalties, could have a material adverse effect on the Corporation. Regulatory and State Attorney General Action That Could Affect the Corporation. The Corporation is subject to potential regulatory actions and policy changes by those governmental and private agencies that administer the Medicare and Medicaid and other programs and actions by, among others, applicable professional review organizations, and other federal, state and local governmental agencies. Future actions could have a material adverse effect on the operations or financial condition of the Corporation. State attorneys general in a number of states have been closely scrutinizing the business practices of nonprofit health care providers, focusing on executive compensation, travel and entertainment expenses, mergers and acquisitions, charitable trust issues and other business arrangements. To the extent such practices are scrutinized by the Attorney General of the State of Florida, it could result in regulatory actions or potential legislation that could adversely affect the operations or financial condition of the Corporation. Litigation Relating to Billing and Collection Practices. Over the past several years, lawsuits have been filed in federal and state courts alleging, among other things, that hospitals have failed to fulfill their obligations to provide charity care to uninsured patients and have overcharged uninsured patients. Many of these cases have since been dismissed by the courts. A number of cases are still pending in various courts around the country with inconsistent results. While it is not possible to make general predictions, some hospitals and health systems have entered into substantial settlements. Antitrust Enforcement of the antitrust laws against health care providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including medical staff privilege disputes, third-party contracting, physician relations, and joint venture, merger, affiliation and acquisition activities. In some respects, the application of federal and state antitrust laws 43

50 to health care is still evolving, and enforcement activity by federal and state agencies appears to be increasing. At various times, health care providers may be subject to an investigation by a governmental agency charged with the enforcement of antitrust laws, or may be subject to administrative or judicial action by a federal or state agency or a private party. Violators of the antitrust laws could be subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants. The ability to consummate mergers, acquisitions or affiliations may also be impaired by the antitrust laws, potentially limiting the ability of health care providers to fulfill their strategic plans. Liability in any of these or other antitrust areas of liability may be substantial, depending on the facts and circumstances of each case. Issues Related to the Health Care Market of the System Affiliation, Merger, Acquisition, Joint Venture and Divestiture. Significant numbers of affiliations, mergers, acquisitions, joint ventures and divestitures have occurred in the health care industry in recent years, and the System has undertaken a variety of such transactions. As part of its ongoing planning process, the System considers potential affiliations, joint ventures and acquisitions of operations or properties which may become affiliated with or become part of the System in the future, and also considers the divestiture of certain of its operations or properties. As a result, it is possible that certain newly acquired or affiliated organizations and their assets and liabilities may be added to the System, or certain existing facilities may no longer be part of the System, although the System would continue to be responsible for any remaining liabilities attributable to the divested facilities, as any consideration received for the divested property could be insufficient to pay all related liabilities. Possible Increased Competition. The System could face increased competition in the future from other hospitals, skilled nursing facilities, and other forms of health care delivery that offer health care services to the populations which the System currently serves. This could include the construction of new, or the renovation of existing, hospitals, skilled nursing facilities, health maintenance organization facilities, ambulatory surgery centers, freestanding emergency facilities, private laboratory and radiological services, specialized nursing facilities, home care, intermediate nursing home care, preventive care and drug and alcohol abuse programs. In fact, the Nemours Foundation is expected to open a 95-bed children s hospital in late 2012, and the University of Central Florida has recently announced its intention to pursue the construction of a teaching hospital at its College of Medicine located in Orlando, Florida. See APPENDIX A - Other Competitive Developments in the Marketplace. In addition, competition could result from forms of health care delivery that are able to offer lower priced services to the population served by the System. These services could be substituted for some of the revenue-generating services currently offered by the System. The services that could serve as substitutes for hospital treatment include skilled and specialized nursing facilities, home care, intermediate nursing home care, preventive care, and drug and alcohol abuse programs. Competition may also come from specialty hospitals or organizations, particularly those facilities providing specialized services in areas with high visibility and strong margins, such as cardiac services and surgical services, and having specialty physicians as investors. Availability of Insurance Products. In recent years the health care industry has seen significant reductions in the availability of general commercial liability and other insurance products. There can be no assurance that the System will be able in the future to obtain commercial insurance on reasonably acceptable terms and conditions. Increases in the cost of such insurance products could have a material adverse effect on the System and its results of operations. Risks Related to Tax-Exempt Status Tax Exemption for Nonprofit Hospitals and Corporations. Loss of tax-exempt status by the Corporation or by any user of property financed or refinanced with the proceeds of the Bonds or certain other bonds could result in loss of tax exemption of the Bonds and of other tax-exempt debt issued therefor, and defaults in covenants regarding the Bonds and such other taxexempt debt would likely be triggered. Such an event would have material adverse consequences on the financial condition of the Corporation. The maintenance by an entity of its tax-exempt status depends, in part, upon its maintenance of its status as an organization described in Section 501(c)(3) of the Code. The maintenance of such status is contingent upon compliance with general rules promulgated in the Code and related regulations regarding the organization and operation of tax-exempt entities, including its operation for charitable and educational purposes and its avoidance of transactions which may cause its assets to inure to the benefit of private individuals. The IRS has announced that it intends to closely scrutinize transactions between nonprofit hospitals and for-profit entities, and in particular has issued revised audit guidelines for tax-exempt hospitals. Although specific activities of hospitals, such as medical office building leases and compensation arrangements and other contracts with physicians, have been the subject of interpretations by the IRS in the form of Private Letter Rulings, many activities have not been addressed in any official opinion, interpretation or policy of the IRS. Because the Corporation conducts large-scale and diverse 44

51 operations involving private parties, there can be no assurance that certain of its transactions would not be challenged by the IRS, which could adversely affect the tax-exempt status of the Corporation. The Corporation believes that all such transactions or arrangements in which it is involved are in compliance with applicable IRS rules and regulations. Anti-Kickback Statute. The IRS has taken the position that hospitals which are in violation of the Anti-Kickback Law may also be subject to revocation of their tax-exempt status. See the information herein under the caption Regulation of Health Care Industry Federal Fraud and Abuse Laws and Regulations. As a result, tax-exempt hospitals, such as those owned by the Corporation or an affiliate of the Corporation, which have, and will continue to have, extensive transactions with physicians are subject to an increased degree of scrutiny and perhaps enforcement by the IRS. Intermediate Sanctions. The Taxpayer Bill of Rights 2, enacted on July 30, 1996, added Section 4958, commonly referred to as the intermediate sanctions law, to the Code. Section 4958 of the Code provides the IRS with an intermediate tax enforcement tool that may be used as an alternative to revoking the federal tax exemption of an organization that violates the private inurement prohibition. Final IRS regulations on the intermediate sanctions law became effective January 23, It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of nonprofit corporations. There can be, therefore, no assurance that future changes in the laws and regulations of the federal, state or local governments will not materially and adversely affect the operations and revenues of the System by requiring it to pay income or real estate taxes. Tax-Exempt Status of the Bonds. The tax-exempt status of the Bonds is based on the continued compliance by the Authority, the Corporation and other users of property financed or refinanced with proceeds of the Bonds with certain covenants relating generally among other things, to the use of the facilities financed or refinanced with the proceeds of such Bonds, arbitrage limitations and rebate of certain excess investment earnings to the federal government. Failure to comply with such covenants with respect to any series of the Bonds could cause interest on all the Bonds to become subject to federal income taxation retroactively to the original date of issue of such Bonds. In such event, the Bonds are not subject to redemption solely as a consequence thereof, although the principal thereof may be accelerated. Termination of Managed Care Contracts Certain health maintenance and preferred provider organization contracts account for more than 5% of the revenue and/or admissions of certain hospitals of the System. Some of these contracts can be terminated by the third-party payor at any time without the necessity of showing cause upon as little as ninety (90) days prior written notice. Termination of such contracts could have an adverse effect on the financial performance of these hospitals. Labor Relations Not-for-profit health care providers and their employees are under the jurisdiction of the National Labor Relations Board. At the present time, none of the System s employees are members of unions or receive union wages and benefits. The System is recruiting nurses, medical technicians, physicians in certain specialties and other qualified professional personnel. Availability of such qualified professionals in most markets served by the System is limited. The nursing shortage has resulted in increased costs due to overtime payments and an increased use of contract nurses. Unionization of employees or a shortage of qualified professional personnel could cause an increase in payroll costs beyond those projected. The System cannot control the prevailing wage rates in its respective service areas and any increase in such rates will directly affect the costs of its operations. Other Risk Factors The following factors, among others, may also affect the future operations or financial performance of the System: (a) Future medical and other scientific advances, changes in third-party reimbursement programs, the development of and the requirement of the option for managed care organizations in labor contracts, preventive medicine, improved occupational health and safety and improved outpatient care, all of which could result in decreased usage of hospital facilities or services, including those of the System; (b) (c) Limitations on the availability of nursing and technical personnel; Decreases in population within the service areas of the System s hospitals; 45

52 (d) Increased unemployment or other adverse economic conditions which could increase the proportion of patients who are unable to pay fully for the cost of their care; (e) Imposition of wage and price controls for the health care industry, such as those that were imposed and adversely affected health care facilities in the early 1970's; (f) The ability of, and the cost to, the System to continue to insure or otherwise protect itself against malpractice claims; (g) The attempted imposition of or the increase in taxes related to the property and operations of not-forprofit organizations; (h) The occurrence of natural disasters, including hurricanes, floods and earthquakes or terrorist actions, which may damage the System s facilities, interrupt utility service to the facilities, or otherwise impair the operation and generation of revenues from said facilities; and (i) Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Corporation and any future Obligated Group Members. The occurrence of one or more of the foregoing, or the occurrence of other unanticipated events, could adversely affect the financial performance of the System. Other Factors Certain Matters Relating to Security for the Bonds. Certain facilities of the Corporation's hospitals are mortgaged as security for the Series 2012 Notes and the other Obligations. The hospitals generally are not comprised of general purpose buildings and generally would not be suitable for industrial or commercial use. Consequently, it could be difficult to find a buyer or lessee for the hospitals in an Event of Default under the Master Indenture, any Indenture, any Loan Agreement and the Mortgage. In the event of the Corporation's bankruptcy, the estate in bankruptcy may not realize the amount of the outstanding Bonds and other indebtedness and other obligations of the Corporation from the disposition of its assets. Amendments to Master Indenture. Certain amendments to the Master Indenture may be made with the consent of the holders of not less than 51% in aggregate principal amount of Notes then Outstanding under the Master Indenture. These amendments could be made without the consent of the holders of the Bonds. See APPENDIX D hereto. Purchasers of the Bonds should be aware that the covenants contained in the Master Indenture may in the future be changed, diluted, or made less restrictive by future amendments to which they do not consent. See THE OBLIGATIONS AND THE MASTER INDENTURE -- Supplements and Amendments to the Master Indenture in APPENDIX D hereto. Gross Revenue Pledge. The effectiveness of the security interest in the Gross Revenues of the Corporation pursuant to the Master Indenture may be limited by a number of factors, including (i) the absence of an express provision permitting assignment of receivables due the System under the Medicare and Medicaid programs or under the contract between the Corporation and Blue Cross, and present or future prohibitions against assignment contained in any federal statutes or regulations; (ii) certain judicial decisions that cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of the Corporation, to collect and retain accounts receivable from Medicare, Medicaid, general assistance and other governmental programs; (iii) statutory liens; (iv) rights arising in favor of the United States of America or any agency thereof; (v) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (vi) federal bankruptcy laws which may affect the priority of claims against the assets of the Corporation and the enforceability of the Master Indenture or the security interest in the Gross Revenues which are earned by the Corporation within 90 days preceding and after any effectual institution of bankruptcy proceedings by or against the Corporation; (vii) rights of third parties in the Corporation s revenues converted to cash and not in the possession of the Trustee or the Master Trustee; and (viii) claims that might gain priority if appropriate financing or continuation statements are not filed in accordance with the Florida Uniform Commercial Code as from time to time in effect. 46

53 Matters Relating to Enforceability of Certain Covenants in the Master Indenture The Corporation is presently the sole Member of the Obligated Group under the Master Indenture; however, if the Corporation were to admit another Member or Members to the Obligated Group under the Master Indenture, the obligations of the Members of the Obligated Group to make payments of debt service on the Series 2012 Notes and other Obligations issued pursuant to and under the Master Indenture would be joint and several. If the proceeds of the Series 2012 Notes or such other Obligations were not loaned or otherwise distributed to such Member, such Series 2012 Notes or such other Obligations may not be enforceable to the extent such payments: (a) are requested to make payments on such Series 2012 Notes or such other Obligations which is issued for a purpose that is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or which is issued for the benefit of any entity other than a Tax-Exempt Organization; (b) are requested to be made from any Property which is donor restricted or which is subject to a direct or express trust which does not permit the use of such Property for such payments; (c) would result in the cessation or discontinuation of any material portion of the health care or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (d) are requested to be made pursuant to any loan violating applicable usury laws. Due to the absence of clear legal precedent in this area, the extent to which the Property of any present or future Member of the Obligated Group falls within category (b) referred to above cannot be determined and could be substantial. A Member of the Obligated Group may not be required to make payments on Obligations issued by or for the benefit of another Member to the extent any such payment would render such Member insolvent or would conflict with, not be permitted by or would be subject to recovery for the benefit of other creditors of such Member under applicable fraudulent conveyance, bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors rights. There is no clear precedent in the law as to whether payments by a Member of the Obligated Group in order to pay debt service on the Obligations issued by or for the benefit of another Member may be voided by a trustee in bankruptcy in the event of a bankruptcy of the Member or by third-party creditors in an action brought pursuant to state fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under state fraudulent conveyance statutes, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, (1) the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and (2) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or state fraudulent conveyance statutes, or the guarantor is undercapitalized. Application by courts of the tests of insolvency, reasonably equivalent value and fair consideration has resulted in a conflicting body of case law. It is possible that, in an action to compel a Member of the Obligated Group to pay debt service on Obligations issued by or for the benefit of another Member, a court might not enforce such a payment in the event it is determined that such Member is analogous to a guarantor and that fair consideration or reasonably equivalent value for such guaranty was not received and that the incurrence of such obligation has rendered and will render the Member of the Obligated Group insolvent or the Member is or will thereby become undercapitalized or that the Member intended to incur or believed it would incur debts beyond its ability to pay at maturity. There exist common law authority and authority under state statutes for the ability of the state courts to terminate the existence of a not-for-profit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes. Such court action may arise on the court s own motion or pursuant to a petition of the state attorney general or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses. In addition, the provisions of the Master Indenture provide certain limitations on the ability of a Bondholder to pursue payment of the Series 2012 Notes. See THE OBLIGATIONS AND THE MASTER INDENTURE Defaults and Remedies in APPENDIX D hereto. Bond Ratings There is no assurance that any rating assigned to the Bonds at the time of issuance will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price for and marketability of the Bonds. 47

54 TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed or refinanced therewith, and certain other matters. The Authority and the Corporation have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includible in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to compliance by the Authority and the Corporation with the above-referenced covenants, under present law, in the opinion of Chapman and Cutler LLP, Chicago, Illinois, Bond Counsel, interest on the Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. Interest on the Bonds is taken into account, however, in computing an adjustement used in determining the federal alternative minimum tax for certain corporations. In rendering its opinion, Bond Counsel will rely upon certifications of the Authority and the Corporation with respect to certain material facts within the knowledge of the Authority and the Corporation and will rely on the opinion of Mateer & Harbert, P.A., special counsel to the Corporation, that the Corporation is a 501(c)(3) organization and as to certain other matters. Bond Counsel s opinion represents its legal judgment based upon its review of the law and the facts which it deems relevant to render such opinion and is not a guarantee of a result. The Internal Revenue Code of 1986, as amended (the "Code"), includes provisions for an alternative minimum tax ("AMT") for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments. One of the adjustment items used in computing AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). "Adjusted current earnings" would include certain tax exempt interest, including interest on the Bonds. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to the applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside front cover page hereof. If the Issue Price of certain maturities of the Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity of the Bonds (the OID Bonds ) and the principal amount payable at maturity is original issue discount. For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Authority and the Corporation comply with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds. Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the public offering, but at a price different from the Issue Price or purchase Bonds subsequent to the initial public offering should consult their own tax advisors. 48

55 If a Bond is purchased at any time for a price that is less than the Bond s stated redemption price at maturity or in the case of an OID Bond, its Issue Price plus accreted original issue discount (the Revised Issue Price ), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor s basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The IRS has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the IRS, interest on such tax exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the IRS will commence an audit of the Bonds. If an audit is commenced, under current procedures the IRS may treat the Authority as a taxpayer and the holders of the Bonds may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Bonds, are in certain cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. RATINGS Moody s Investors Service ( Moody s ), Standard and Poor s Ratings Service, a Standard & Poor s Financial Services LLC business ("S&P"), and Fitch, Inc. ( Fitch ) have assigned their municipal bond ratings of A2, A and A, respectively, to the Bonds based on the credit of the Corporation. Such ratings reflect only the views of the respective rating agencies, and are not a recommendation to buy, sell or hold the Bonds. An explanation of the significance of such ratings may be obtained from Moody s, 7 World Trade Center at 250 Greenwich St., New York, New York 10007, Telephone (212) , from S&P, 55 Water Street, 38th Floor, New York, New York 10014, Telephone (212) and from Fitch, One State Street Plaza, New York, New York 10004, Telephone (212) Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that the ratings on the Bonds will remain in effect for any given period of time or that the ratings may not be lowered, suspended or withdrawn entirely by either such rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such downward change in or suspension or withdrawal of such ratings may have an adverse effect on the secondary market price of the Bonds. Neither the Authority, the Corporation nor the Underwriters have undertaken the responsibility of taking any action with respect to possible changes in such ratings or of bringing any such changes to the attention of holders of the Bonds. 49

56 LEGAL MATTERS Certain legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving legal opinion of Chapman and Cutler LLP, Chicago, Illinois, as Bond Counsel ( Bond Counsel ), who has been retained by, and acts as, Bond Counsel to the Authority. Bond Counsel has not been retained or consulted on disclosure matters and has not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the Bonds and assumes no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in its capacity as Bond Counsel, Chapman and Cutler LLP, has, at the request of the Authority, reviewed the information under the captions "THE BONDS" (apart from the information relating to DTC and its book-entry only system), "SECURITY FOR THE BONDS" and "TAX MATTERS" and APPENDIX D - DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF PRINCIPAL DOCUMENTS. This review was undertaken solely at the request and for the benefit of the Authority and did not include any obligation to establish or confirm factual matters set forth herein. Certain legal matters will be passed upon for the Authority by its general counsel, Lowndes Drosdick Doster Kantor & Reed, P.A., Orlando, Florida; for the Corporation by its counsel, Mateer & Harbert, P.A., Orlando, Florida; and for the Underwriters by their counsel, Adams and Reese LLP, Baton Rouge, Louisiana. FINANCIAL ADVISOR Public Financial Management, Inc. ( PFM ), New York, New York, has been retained by the Corporation to provide financial advisory services in connection with the issuance of the Bonds. PFM will not engage in any underwriting activities with regard to the issuance and sale of the Bonds. PFM is not obligated to undertake and has not undertaken to make an independent verification or to assume responsibilities for the accuracy, completeness or fairness of the information contained in this Official Statement. FINANCIAL STATEMENTS The consolidated financial statements of the Corporation and its controlled affiliates as of September 30, 2011, 2010 and 2009 and for each of the three years in the period ended September 30, 2011, included in APPENDIX B to this Official Statement, have been audited by Ernst & Young LLP, independent certified public accountants, as stated in their report thereon appearing in APPENDIX B to this Official Statement. The consolidated financial statements of West Orange Healthcare District as of and for the fiscal years ended September 30, 2011 and 2010, included in APPENDIX C to this Official Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report thereon appearing in APPENDIX C to this Official Statement. As stated above, the audited consolidated financial statements of West Orange Healthcare District are attached hereto for informational purposes only in order to provide information regarding the operating history of West Orange Healthcare District and its facilities. Please note that the audited financial statements of West Orange Healthcare District were prepared in accordance with Governmental Accounting Standards Board (GASB) principles and not Financial Accounting Standards Board (FASB) principles, accordingly, such financial statements are not strictly comparable with the Corporation s financial statements. Orlando Health Central, Inc. is a controlled affiliate of the Corporation and is not a Member of the Obligated Group. CONTINUING DISCLOSURE The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds and the Authority will not provide any such information. The Corporation has assumed all responsibility for continuing disclosure to the Bondholders as described below, and the Authority shall have no liability to the holders of the Bonds or any other person with respect to continuing disclosure pursuant to the provisions of Rule 15c2-12 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of The Corporation, in a Continuing Disclosure Agreement dated the date of delivery of the Bonds (the Undertaking ), will covenant for the benefit of holders and beneficial owners of the Bonds to provide (i) certain financial information and operating data relating to the Corporation following the end of each Fiscal Year (the Annual Report ), commencing with the report for the Fiscal Year ending September 30, 2012, (ii) certain quarterly financial information and operating data (the Quarterly Financial and Operating Information ) relating to the Corporation following the end of each fiscal quarter, commencing with the report for the fiscal quarter ending June 30, 2012, and (iii) notices of the occurrence of certain enumerated events, if 50

57 material. The Annual Report, the Quarterly Financial and Operating Information and any notices of material events will be filed by or on behalf of the Corporation with the Municipal Securities Rulemaking Board (the MSRB ) electronically through MSRB s Electronic Municipal Market Access System ( EMMA ). The specific nature of the information to be contained in the Annual Report, the Quarterly Financial and Operating Information and the notices of material events is set forth in APPENDIX F hereto. The covenant has been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5). See the Form of Continuing Disclosure Agreement attached as APPENDIX F hereto. Digital Assurance Certification ( DAC ) has been retained as dissemination agent on behalf of the Corporation in connection with filing its Annual Reports pursuant to its Undertaking. A failure by the Corporation to comply with its Undertaking will not constitute an event of default under the Loan Agreement (although holders of the Bonds will have any available remedy at law or in equity). Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. As of the date of this Official Statement, the Corporation has not failed to meet its continuing disclosure obligations with respect to any of the outstanding Prior Bonds. UNDERWRITING The Series 2012A Bonds are being purchased by Morgan Stanley & Co. LLC, on behalf of itself, Goldman, Sachs & Co., SunTrust Robinson Humphrey, Inc., Raymond James & Associates, Inc., J.P.Morgan Securities Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, LLC (collectively, the Series 2012A Underwriters ) at an aggregate purchase price of $156,144, (which represents the principal amount of the Series 2012A Bonds, plus a net original issue premium of $4,833, and less an underwriting discount of $983,435.75). The Contract of Purchase with respect to the Series 2012A Bonds (the 2012A Contract of Purchase ) among the Series 2012A Underwriters, the Authority and the Corporation provides that the Series 2012A Underwriters will purchase all of the Series 2012A Bonds if any are purchased. The obligation of the Series 2012A Underwriters to accept delivery of the Series 2012A Bonds is subject to various conditions contained in the 2012A Contract of Purchase. The Series 2012B Bonds are being purchased by Raymond James & Associates, Inc., on behalf of itself and Morgan Stanley & Co. LLC (collectively, the Series 2012B Underwriters and, together with the Series 2012A Underwriters, the Underwriters ), subject to certain customary conditions precedent to closing, at an aggregate purchase price of $33,416, (which represents the principal amount of the Series 2012B Bonds, plus a net original issue premium of $1,049, and less an underwriting discount of $213,202.30). The Contract of Purchase with respect to the Series 2012B Bonds (the 2012B Contract of Purchase and, together with the 2012A Contract of Purchase, the Contracts of Purchase ) among the Series 2012B Underwriters, the Authority and the Corporation provides that the Series 2012B Underwriters will purchase all of the Series 2012B Bonds if any are purchased. The obligation of the Series 2012B Underwriters to accept delivery of the Series 2012B Bonds is subject to various conditions contained in the 2012B Contract of Purchase. Pursuant to the Contracts of Purchase, the Corporation will indemnify the Underwriters and the Authority against losses, claims and liabilities arising out of any untrue statement of a material fact contained in this Official Statement or the omission therefrom of any material fact in connection with the transactions contemplated by this Official Statement. In addition to the compensation described above, the Underwriters may receive additional compensation in connection with providing certain investments with respect to the Bond Sinking Fund and the Interest Fund. Morgan Stanley, parent company of Morgan Stanley & Co. LLC, an underwriter of the Series 2012A Bonds and the Series 2012B Bonds, has entered into a retail brokerage joint venture with Citigroup Inc. As part of the joint venture, Morgan Stanley & Co. LLC will distribute municipal securities to retail investors through the financial advisor network of a new brokerdealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, As part of this arrangement, Morgan Stanley & Co. LLC will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2012A Bonds and the Series 2012B Bonds. On April 2, 2012, Raymond James Financial, Inc. ("RJF"), the parent company of Raymond James & Associates, Inc. ("Raymond James"), acquired all of the stock of Morgan Keegan and Company from Regions Financial Corporation. Raymond James and Morgan Keegan are each registered broker-dealers. Both Raymond James and Morgan Keegan are wholly owned subsidiaries of RJF and, as such, are affiliated broker-dealer companies under the common control of RJF, utilizing the trade name 51

58 "Raymond James Morgan Keegan" that appears on the cover of this Official Statement. It is anticipated that the businesses of Raymond James and Morgan Keegan will be combined. J.P. Morgan Securities LLC ("JPMS"), an underwriter of the Series 2012A Bonds, has entered into negotiated dealer agreements (each, a "Dealer Agreement") with each of UBS Financial Services Inc. ( UBSFS ) and Charles Schwab & Co., Inc. ("CS&Co.") for the retail distribution of certain securities offerings, including the Series 2012A Bonds, at the original issue prices. Pursuant to each Dealer Agreement (if applicable to this transaction), each of UBSFS and CS&Co. will purchase Series 2012A Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any Series 2012A Bonds that such firm sells. The Authority LITIGATION There is not now pending or, to the knowledge of the Authority, threatened, any litigation restraining or enjoining the issuance, sale or delivery of the Bonds or questioning or affecting the validity of the Bonds or the proceedings or authority under which the Bonds are to be issued. There is no litigation pending or, to the Authority s knowledge, threatened which in any manner questions the right of the Authority to enter into the Loan Agreement with the Corporation or to secure the Bonds in the manner provided in the Indenture. The Corporation There is not now pending or, to the knowledge of the Corporation, threatened, any litigation or any proceeding before any governmental agency against or affecting the Corporation which questions the right of the Corporation to execute, deliver and perform its obligations under the Loan Agreement or the Series 2012 Notes. No litigation, proceedings or investigations are pending or, to the knowledge of the Corporation, threatened against the Corporation except: (i) litigation being defended by insurance companies on behalf of the Corporation in which the recoveries, if any, should be within the Corporation s applicable insurance policy limits or litigation for which adequate self insurance is provided and (ii) litigation, proceedings and investigations which, in the opinion of the Corporation and its various attorneys, are either unlikely to be adversely determined or will not materially adversely affect the operations or financial condition of the Corporation. BONDS ELIGIBLE FOR INVESTMENT AND SECURITY FOR PUBLIC DEPOSITS The Act provides that bonds issued pursuant thereto are securities in which all public officers and public bodies of the State and its political subdivisions and all insurance companies, trust companies, banking associations, investment companies, executors, administrators, trustees, and other fiduciaries may properly and legally invest funds, including capital in their control or belonging to them. The Act also provides that bonds issued pursuant thereto are securities which may properly and legally be deposited with and received by any State or municipal officer or any agency or political subdivision of the State for any purpose for which the deposit of bonds or obligations of the State is now or may hereinafter be authorized by law. No representation is made as to the eligibility of the Bonds for investment or any other purpose under any law of any other state. MISCELLANEOUS The Corporation has furnished all information in this Official Statement, except in the sections captioned THE AUTHORITY, THE BONDS - Book-Entry Only System, TAX MATTERS, LEGAL MATTERS, FINANCIAL ADVISOR, UNDERWRITING and LITIGATION - The Authority, and has furnished the information in the Appendices, except APPENDIX C and APPENDIX E. The Authority assumes no responsibility for the accuracy or completeness of the information in this Official Statement except in the sections THE AUTHORITY and LITIGATION - The Authority. The references herein to the Act, the Indenture, the Loan Agreement, the Series 2012 Notes, the Master Indenture, and other documents referred to in this Official Statement are brief summaries of certain provisions thereof and do not purport to be complete. For full and complete statements of such provisions, reference is made to the Act and such documents. The agreement of the Authority and the Trustee with the owners of the Bonds is fully set forth in the Indenture, and neither any advertisement of the Bonds nor this Official Statement is to be construed as constituting an agreement with the 52

59 purchasers of the Bonds. So far as any statements are made in this Official Statement involving matters of opinion, estimates or projections, whether or not expressly stated as such, they are not to be construed as representations of fact. The use of this Official Statement has been duly approved by the Authority and the execution and delivery hereof has been approved by the Corporation. ORLANDO HEALTH, INC. BY: /s/ Paul A. Goldstein Paul A. Goldstein, Vice President of Finance/Treasury and Accounting and Chief Financial Officer 53

60 [THIS PAGE INTENTIONALLY LEFT BLANK]

61 APPENDIX A INFORMATION REGARDING THE CORPORATION

62 [THIS PAGE INTENTIONALLY LEFT BLANK]

63 APPENDIX A ORLANDO HEALTH, INC. Table of Contents Overview A-2 Organizational Structure A-4 Governance A-8 Executive Management A-10 Service Area A-16 Origin of Admissions A-17 Service Area Demographics A-18 Central Florida Economy A-19 Other Area Hospitals A-20 Market Share A-21 Other Competitive Developments in the Market Place A-22 Medical Staff and Employed Physicians A-23 Medicare and Medicaid Programs A-24 Managed Care Participation A-24 Sources of Patient Revenues A-25 Utilization of Patient Services A-26 Accreditations and Affiliations A-28 Human Resources and Employee Retirement Plans A-28 Employee Retirement Plans A-28 Awards and Recognition A-28 Malpractice Insurance Plan A-30 Investment Policy A-30 Interim Condensed Consolidated Financial Statements A-31 Notes to Interim Condensed Consolidated Financial Statements A-35 Management s Discussion and Analysis A-41 System Outlook and Plans for the Future A-46 A-1

64 Overview Orlando Health, Inc. ( Orlando Health or Corporation ) is the owner and operator of a regional healthcare system headquartered in Orlando, Florida. Orlando Health is a not-for-profit corporation, recognized as tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. With 1,694 licensed beds in five hospitals, Orlando Health is one of Florida's most comprehensive medical systems, offering a wide-range of tertiary and secondary healthcare services to approximately 1.8 million residents of Orange, Seminole, and Osceola Counties in Central Florida, its primary service area (the Tri-County Area ). Orlando Health professionals treated approximately 95,000 inpatients, 473,000 outpatients, 235,000 emergency patients, and delivered approximately13,000 babies in Orlando Health facilities in fiscal year Orlando Health has enjoyed a history of growth and change since opening in 1918 as Orange General Hospital. In continuing to grow and meet the challenges of the future, it now encompasses facilities in Central Florida offering primary, secondary, and tertiary acute care and rehabilitation care. Specialized treatment includes medicine, surgery, cardiology, oncology, pediatrics, orthopedics, obstetrics and emergency care. The Corporation also owns and operates a hospital-based home health services division and a variety of healthcare related organizations, including an outpatient cancer treatment center, a preferred provider organization, and holds a 50% board membership in an acute care hospital located in Lake County (see Organizational Structure below). Orlando Health s long affiliation with the West Orange Healthcare District, the former owner of the Health Central Hospital ( Health Central ) located in west Orange County, has culminated in Health Central becoming part of Orlando Health s system this year. See Organizational Structure below for discussion of Orlando Health s purchase of Health Central through its controlled affiliate, Orlando Health Central, Inc. The following services distinguish Orlando Health in the Central Florida market: Level One Trauma Center Orlando Health is the only provider of trauma services in central Florida, and is one of only seven level 1 trauma centers in Florida. Orlando Regional Medical Center ( ORMC ) treats adults and Arnold Palmer Hospital treats children needing trauma services. ORMC s trauma center is one of the busiest in the state. Orlando Health is the only hospital in the area licensed to provide air transport from the scene of accidents, which is provided by three helicopters stationed at three owned and affiliated hospitals. MD Anderson Cancer Center Orlando Orlando Health s oncology program is centered around the physicians of MD Anderson Cancer Center Orlando with offices at ORMC and Dr. P. Phillips Hospital. Through its affiliation with the renowned University of Texas MD Anderson Cancer Center in Houston, Texas, Orlando Health uses the same protocols and evidence based treatment plans towards its mission to defeat cancer. The employed or contracted physicians at MD Anderson Cancer Center Orlando are digitally connected with physicians in Houston for regular conferences to review treatment planning for patients here in Orlando. Statutory Teaching Hospital - Orlando Health is one of eight hospitals in Florida recognized as a statutory teaching hospital. The post graduate medical education programs include seven teaching programs and multiple fellowships. Regional Perinatal Intensive Care Center - This state designation requires the provision of the highest acuity neonatal services, pediatric subspecialist support and high risk obstetrics. The unique integration of these programs at the Arnold Palmer Medical Center distinguishes Orlando Health from local competitors. Pediatric subspecialty services - Arnold Palmer Hospital offers a comprehensive range of physician subspecialists including 66 employed physicians and approximately 45 physicians contracted to provide services exclusively to Arnold Palmer Hospital. A-2

65 The following charts covering the Corporation s fiscal years from 2001 to 2011, demonstrate the historical trends in total revenue growth and liquidity levels achieved by Orlando Health: Revenue Growth The Compound Aggregate Growth Rate Since 2001 is 7.3% ($ millions) (Bad debt expense reclassified as deduction from revenue for all years presented) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $815 $858 $894 $983 $1,088 $1,151 $1,286 $1,409 $1,508 $1,580 $1,652 $600 $400 $200 $ Unrestricted Cash and Investments The Compound Aggregate Growth Rate Since 2001 is 10.5% ($ millions) A-3

66 Organizational Structure The Corporation All five of the Corporation-owned hospitals and a hospital-based home health agency are unincorporated divisions of the Corporation. The Corporation s senior debt, including the Series 2012A Bonds and Series 2012B Bonds, is secured by a first mortgage and gross revenue pledge under the Master Trust Indenture. The Corporation is presently the sole Member of the Obligated Group created under the Master Trust Indenture. The Obligated Group is obligated for the payment of principal and premium, if any, and interest on any outstanding bonds or debt issued under the Master Trust Indenture, and is subject to any other obligation or restriction set forth in any agreement, note, or indenture entered into or issued by the Obligated Group in connection with the issuance of any debt or related obligations issued under the Master Trust Indenture. The following services are centralized within the Corporation to avoid duplication of overhead expenses and provide standards and consistent policies and procedures and internal controls: information systems, finance and accounting, patient financial services, managed care management, human resources, health information management, marketing and planning, materials management, and construction management. The following describes the divisions of the Corporation: Orlando Regional Medical Center ( ORMC ). ORMC is a major teaching hospital located on two sites in downtown Orlando and is the Corporation s flagship medical center. ORMC includes a total of 808 beds in two locations, is one of Florida s eight statutory teaching hospitals, and offers graduate medical education in 7 physician specialties and 16 fellowship programs. ORMC is the site of Central Florida s only Level I trauma center for adults. ORMC s 581 acute care bed tertiary care center focuses in cardiovascular, neurosciences, oncology, orthopedics, and trauma. It is one of Central Florida s largest providers of intensive and progressive care services. A 38,000 square-foot Ambulatory Care Center ( ACC ) is connected to ORMC, which facilitates efficient exchange of staff and equipment between ORMC and the ACC. ORMC and the ACC provide a variety of sophisticated diagnostic and interventional cardiology, vascular, angiography, electrophysiology, mammography, ultrasound, diagnostic radiology, CAT scan, nuclear medicine, magnetic resonance imaging, laboratory, pharmacy, surgery, endoscopy, and dialysis services. ORMC s Lucerne Pavilion ( Lucerne ), formerly known as Orlando Regional Lucerne Hospital, is a 227-bed facility that includes 174 acute care and 53 rehabilitative beds located two blocks north of the ORMC tertiary care center and the Arnold Palmer Medical Center campuses. Acquired in 1999, Lucerne became an extension of ORMC and Arnold Palmer Medical Center, and now provides comprehensive rehabilitation and spinal cord rehabilitation, medical-surgical, intensive care, outpatient pediatric surgery, and surgery services specializing in urological, cosmetic, and retinal surgery. Arnold Palmer Medical Center. The Arnold Palmer Medical Center includes the Arnold Palmer Hospital for Children and the Winnie Palmer Hospital for Women and Babies. The hospitals are physically connected, facilitating the provision of specialty neo-natal and intensive pediatric services as needed to newborns, as well as transport of patients and staff and the provision of shared ancillary and support services. This structure supports high quality, optimal, cost effective care to patients of both facilities. Arnold Palmer Hospital for Children ( Arnold Palmer Hospital ). Arnold Palmer Hospital is located two blocks from ORMC on the downtown campus and includes 158 licensed beds. Arnold Palmer Hospital is the setting for the provision of specialized care to the children of Central Florida. State-of-the-art pediatric services are provided by a comprehensive staff which includes pediatric subspecialty physicians. A pediatric emergency department and Level 1 trauma center opened at Arnold Palmer Hospital during Winnie Palmer Hospital for Women and Babies ( Winnie Palmer Hospital ). Winnie Palmer Hospital opened in 2006 and includes programs and services focusing on the unique needs of pregnant women and newborns. It is the site where most of the Corporation s 13,000 deliveries occurred in Winnie Palmer Hospital s 285 total beds include 112 neonatal intensive care beds, making it the fourth largest neonatal intensive-care unit and third largest delivery hospital in the United States. A-4

67 Together, the two facilities operate under the Arnold Palmer Hospital license, which includes 443 licensed beds (331 acute care, 60 NICU Level II, and 52 NICU Level III). Dr. P. Phillips Hospital. Dr. P. Phillips Hospital (formerly known as Sand Lake Hospital) is a medical and surgical facility serving southwest Orange County, located 10 miles southwest of the ORMC campus. Dr. P. Phillips Hospital is licensed for 237 acute care beds. Dr. P. Phillips Hospital opened in 1985 and serves Southwest Orlando community residents and visitors near Walt Disney World, Universal Studios, Sea World, International Drive, and other area attractions. Dr. P Phillips Hospital s services include 24-hour emergency services (with 42 beds serving about 200 patients a day), surgical services (including robotic and minimally invasive surgery, neurosurgery, vascular surgery and orthopedics); diagnostic and interventional cardiovascular care; diagnostic and interventional imaging services (including radiology, nuclear medicine, mammography, and angiography); outpatient infusion, an accredited Chest Pain Program and a designated Stroke Program. Dr. P. Phillips Hospital is also home to the Endoscopy Center, the Comprehensive Wound Care Center (including hyperbaric oxygen therapy for wound care) and the Multiple Sclerosis Comprehensive Care Center. In November, 2008, Dr. P. Phillips Hospital opened a new hospital tower that added capacity for 94 more licensed beds, added and expanded operating rooms and interventional platforms, and other ancillary capacity. On January 27, 2007, Sand Lake Hospital was renamed as The Dr. P. Phillips Hospital in recognition of the long time commitment of Dr. Phillips Charities community leadership and community investment in Orlando Health and Sand Lake Hospital. South Seminole Hospital ( South Seminole ). South Seminole is a 206-bed acute care hospital located in Longwood, Florida, 15 miles north of the ORMC campus. Of its 206 beds, 126 are acute care and 80 are inpatient psychiatric. South Seminole is a full-service community hospital that provides services for critical care, medicalsurgical and psychiatric patients, and has a 30-bed emergency department, surgical department, endoscopy center, and diagnostic cardiac catheterization laboratory. South Seminole also provides a full range of outpatient services including hyperbaric oxygen therapy for wound care, diagnostic and interventional radiology, nuclear medicine, laboratory, surgical, MRI, sleep disorder services and outpatient psychotherapy services. Hospital-Based Home Health Agency. The Corporation operates a hospital-based home health agency that provides intermittent services (e.g. skilled nursing, rehabilitative therapies, social workers, home health aides), skilled and non-skilled respite care and in-home telehealth monitoring service. Controlled Affiliates The Controlled Affiliates are not Members of the Obligated Group, and are not obligated for the payment of principal and premium, if any, or interest on any outstanding bonds or debt issued under the Master Trust Indenture, including the Series 2012 A Bonds and Series 2012 B Bonds, or subject to any other obligation or restriction set forth in any agreement, note, or indenture entered into or issued by the Obligated Group in connection with the issuance of any outstanding bonds, or debt issued under the Master Trust Indenture. Controlled Affiliates are those entities the Corporation controls as the sole or majority member, sole shareholder or through Board appointment and approval of all major transactions. Since the Corporation has a greater than 50% controlling interest in the Controlled Affiliates, the accounts of the Controlled Affiliates are included in the consolidated financial statements of the Corporation. The Corporation, together with its controlled affiliates are collectively referred to herein as the System. As of September 30, 2011, the Controlled Affiliates represented approximately 7.3% of consolidated total revenues and 6.1% of consolidated total assets of the System. Orlando Cancer Center, Inc. ( Cancer Center ). The Cancer Center (d/b/a M. D. Anderson Cancer Center Orlando), a Florida not-for-profit corporation, is a provider of comprehensive diagnostic cancer services for the System. The Cancer Center, staffed by full-time employed and part-time contracted physicians, offers multidisciplinary cancer care developed by The University of Texas M. D. Anderson Cancer Center ( M. D. Anderson Cancer Center ). The services provided at the Cancer Center are unique in the State of Florida in that the educational and research capabilities of M. D. Anderson Cancer Center are available to the physicians at the Cancer Center through a formal affiliation agreement and the use of sophisticated televideo conferencing. Cancer Center physicians are credentialed by M. D. Anderson Physicians Network and have opportunities for adjunct clinical A-5

68 faculty appointments at M. D. Anderson Cancer Center. The Cancer Center was the first affiliate of M. D. Anderson Cancer Center and the only affiliate in the State of Florida. Orlando Health Physician Group, Inc. ( OHPG ). OHPG (formerly known as Orlando Health Network, Inc.)( OHN ), changed its name on October 1, OHPG is a Florida not-for-profit corporation governed by a board of directors appointed by the Corporation. During 2011, OHPG became the employer and operator of all physician practices of Orlando Health, except for the physicians employed by the Cancer Center. A physician executive has been hired to lead OHPG along with other executives with practice management and physician development skills. OHPG also provides physician practice management and billing services for the Cancer Center. Orlando Physicians Network, Inc. ( OPN ). OPN (formerly known as Orlando Health Physician Partners, Inc. ( OHPP ) changed its name during OPN is a Florida not-for-profit corporation governed by a board of directors appointed by the Corporation. During 2010, OPN employed and operated a 12 physician cardiology group that became part of OHPG during OPN does not currently have any remaining operations and is considered inactive. Orlando Health Physician Partners, Inc. ( OHPP ). OHPP is a Florida for-profit corporation created in 2011 and governed by a board of directors appointed by the Corporation. OHPP was given OPN s former and more desirable name, and has been assigned the right to contract with payors on behalf of all physicians of Orlando Health. Orlando Health Foundation, Inc. ( Foundation ). The Foundation is a Florida not-for-profit corporation governed by a board of directors appointed by the Corporation. Since 1982, the Foundation has supported the Corporation by obtaining philanthropic support for a variety of programs and equipment. Since its inception, the Foundation has raised more than $258 million with $176 million raised since Healthcare Purchasing Alliance, Inc. ( HPA ). HPA is a Florida not-for-profit corporation governed by a board of directors appointed by its member organizations. It is a group purchasing organization whose purpose is to negotiate discounted supply vendor contracts on behalf of its members. Created in 2003, its members include the Corporation, South Lake Hospital, Inc., and Orlando Health Central, Inc. The Corporation has a majority membership interest in HPA. Thus, the accounts of HPA are included in the consolidated financial statements of the Corporation. Orange Indemnity Ltd. ( OIL ). OIL was created and incorporated on October 31, 2006 for the purpose of providing property insurance to the Corporation, its sole shareholder. OIL operates subject to the provisions of the Companies Law of the Cayman Islands and was granted an Unrestricted Class B insurors license on November 14, 2006, which it holds subject to the provisions of the Insurance Law of the Cayman Islands. OIL insures $3 million casualty above a $2 million deductible for named storm coverage. Healthnet Services, Inc. ( Healthnet ). Healthnet is a Florida for-profit corporation governed by a board of directors appointed by the Corporation. Healthnet was formed to hold properties not directly related to the medical functions of the Corporation and engage in various non-tax-exempt functions incidental to the provision of health care and operation of a PPO network. The System s 20% interest in OsceolaSC (an 84 bed acute care hospital located in Osceola County) is held by Healthnet and accounted for using the equity method. The accounts of OsceolaSC are excluded from the consolidated financial statements of the Corporation. The System s 100% interest in a downtown outpatient facility is held by Healthnet and accounted for using the equity method, but this interest is eliminated in consolidation. Healthnet owns the following companies as well: Downtown Outpatient Building, LLC ( DOB ). DOB is a Florida limited liability company, wholly owned by Healthnet (DOB is considered a disregarded entity for tax purposes). In 2010, DOB sold the medical office and outpatient services building to the Corporation. See Management s Discussion and Analysis - Year ended September 30, 2011 Compared to 2010 Construction Loan for more information on the sale by DOB to the Corporation, the Orlando Health Heart Institute, and the refinancing of such debt with the proceeds of the Series 2012 B Bonds. DOB currently does not own any properties nor does it have any active business lines. A-6

69 Healthchoice, Inc. ( Healthchoice ). Healthchoice is a for-profit corporation, wholly owned by Healthnet, that provides managed system networking to the Corporation for employee health and worker compensation plans. Orlando Health Central, Inc. ( OHC or Orlando Health Central ). On April 1, 2012, the Corporation, through a newly created wholly-owned subsidiary, Orlando Health Central, Inc. acquired substantially all the assets and operations of the West Orange Healthcare District (the District ), pursuant to an Asset Purchase Agreement (the Asset Purchase Agreement ) between the parties. The District is a political subdivision of the State established to serve West Orange County. Prior to the recent acquisition, the District owned and operated a 171-bed acute care hospital known as Health Central, a 228-bed skilled nursing facility known as Health Central Park, other outpatient clinics, and physician practices in communities just west of Orlando, Florida (collectively referred to as Health Central ). Health Central s hospital campus includes an approximately 87,000 square foot medical office building housing practicing physicians who serve the hospital. Health Central s market adjoins Orlando Health s downtown campus and overlaps with markets served by Orlando Health. Orlando Health and Health Central have worked together for many years on certain clinical activities and the District has been a member of the group purchasing organization sponsored by Orlando Health. It is expected that as a result of the acquisition, Orlando Health will increase its market share in its primary service area and expand its service line offerings by including Health Central in its mission of improving quality, integrating with physicians and enhancing health care services for the community. On February 3, 2012, pursuant to the terms of the Asset Purchase Agreement, the District used its cash to redeem all of its outstanding long term debt. OHC purchased most of the assets and assumed a majority of the liabilities of the District in exchange for a note obligating OHC to pay the District $181.3 million. The principal of the note is payable in annual installments plus interest over 15 years. Total debt service payments under the note equal approximately $16.3 million per year. Payment of OHC s note is guaranteed by Orlando Health pursuant to a Guaranty Agreement effective April 1, 2012 (the Guarantee ). Orlando Health s Guarantee is evidenced by a master note issued under the Master Trust Indenture and the master note and therefore the Guarantee are secured on parity with other obligations issued under the Master Trust Indenture. See also EXISTING INDEBTEDNESS in the Official Statement. The District is expected to use the proceeds of the sale of Health Central in accordance with its enabling legislation which requires the District to support the healthcare needs of the residents of the District. The Asset Purchase Agreement includes provisions which prohibit the District from directly competing with OHC. OHC is a Florida not-for-profit corporation and was incorporated in October, 2011 and had no assets, liabilities or operating history prior to its acquisition of Health Central, effective April 1, Orlando Health is the sole member of OHC. OHC has filed an application to be recognized as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ) and exempt from federal income taxes under 501(a) of the Code, and expects such application to be approved retroactive to the date of filing. OHC is governed by a Board of Directors ( OHC Board ) appointed by the Board of Directors of Orlando Health. The OHC Board consists of four members affiliated with Orlando Health, and seven members from the West Orange County community. In addition, in accordance with the Asset Purchase Agreement, Orlando Health has appointed two additional members to the Orlando Health Board who reside in the West Orange County community. OHC and Orlando Health have committed to a minimum level of capital spending by OHC based on a formula that considers various financial ratios in relation to certain rating agency medians. The current formula establishes capital spending levels over the next five years of approximately $10 million per year, which is similar to amounts spent by the District on Health Central in the recent past. The current facilities were built in 1993 with expansions in 1998 and 2003, and are in good repair. Management of Orlando Health does not expect that any major repairs or unusual capital investments will be needed in the near future. A-7

70 The Corporation has hired the Chief Operating Officer, Chief Financial Officer and Chief Nursing Officer of the District and they are continuing in their roles at Health Central pursuant to the management agreement between the Corporation and OHC. The District s Chief Executive Officer and human resources executive each retired on March 31, The Board of OHC will hire a new CEO after completing a process similar to what was used to replace retiring leaders of the Corporation and South Lake Hospital, Inc. OHC is not a Member of the Obligated Group. Related Organizations The Related Organizations are not Members of the Obligated Group, and are not obligated for the payment of principal and premium, if any, or interest on any outstanding bonds, including the Series 2012 A Bonds and Series 2012 B Bonds, or subject to any other obligation or restriction set forth in any agreement, note, or indenture entered into or issued by the Obligated Group in connection with the issuance of any outstanding bonds. South Lake Hospital, Inc. ( South Lake ). The Corporation holds a 50% Board membership interest in South Lake, a not-for-profit Florida corporation, jointly controlled by the Corporation and South Lake Memorial Hospital, Inc. ( SLMH ). South Lake, a 104-bed acute care hospital is located in Lake County. None of the Corporation s owned hospitals are in Lake County. Since the Corporation does not have a controlling interest in, nor rights and obligations to profits and losses, the accounts of South Lake are excluded from the consolidated financial statements of the System. South Lake serves south Lake County and offers the surrounding communities a diverse and comprehensive scope of services including cardiac catheterization, cardiopulmonology and diagnostic imaging services, obstetrics, emergency, and rehabilitation, as well as a hospital-based home health agency. The Corporation provides management services under a management agreement with South Lake. The Corporation has guaranteed $34.3 million of South Lake s tax-exempt bonds in connection with the initial issuance thereof in 1999 and the refinancing of such bonds in 2010 (the South Lake Guaranteed Debt ) (see Existing Indebtedness in the body of the Official Statement for more information on the 2010 South Lake Guaranty.), and has also extended a $7.4 million line of credit to South Lake. Since the establishment of the line of credit, South Lake has not drawn upon the line of credit. Since the original issuance of the South Lake Guaranteed Debt in 1999, South Lake has made all debt service payments when due, and the Corporation has not been required to make any payments under the guaranty. Governance The Corporation is governed by a Board of Directors ( Board ). The bylaws of the Corporation provide that all corporate powers of the Corporation and its business and affairs shall be managed under the direction of the Board. The bylaws provide that the Board shall consist of not less than fourteen directors. Committees of the Board include the Audit Committee, Finance Committee, Executive Committee, Governance Committee, Quality Committee, Strategy Committee, and Real Estate Committee. The Finance Committee makes recommendations to the Board regarding budgets, significant capital expenditures and other major financial related matters. The Audit Committee appoints independent auditors who perform audits of the consolidated financial statements of the System. Generally, directors serve three year terms that are divided into three classes so that the terms of one third of the directors expire at each annual meeting. Directors usually do not hold office for more than three consecutive full three year terms, except directors who are also officers of the Corporation and continue as directors through tenure as an officer. The Chairman of the Board, whose term as director and officer expire at the same time, may serve one additional two-year term as director regardless of prior service as a director. Listed on the following page are the current members of the Board and the offices they currently hold: A-8

71 Name Office Held Date of Appointment Occupation Linda Chapin Chairman March 2001 Former Mayor of Orange County, Florida Term Expires March 2013 Diana Morgan Vice Chairman March 2002 Chairman, Children s Miracle Network March 2015 Sanford Shugart, Ph.D. Secretary March 2002 President, Valencia Community College March 2014 Conrad Santiago Treasurer March 2006 Senior Financial Advisor, Ameriprise Financial Services, Inc. March 2013 Brian Besanceney July 2011 Sr. VP, Walt Disney World Public Affairs and Walt Disney Parks & Resorts Government and Industry Relations March 2015 C. David Brown, II August 2011 Chairman, Broad and Cassel March 2015 Lennard Greenbaum, MD March 1999 Physician March 2014 Jamal Hakim, MD July 2009 Physician July 2013 Joshua High May 2007 Information Technology and Financial Consultant March 2015 Sherrie Sitarik January 2011 President and CEO of the Corporation N/A Kathy Johnson March 2009 Community Volunteer March 2013 Marilyn King March 1989 Co-Founder, Grace Medical Center March 2013 Harvey Kobrin March 2005 President, Kobrin Builder s Supply March 2014 Mark Sand, MD July 2011 Physician July 2015 Rex V. McPherson, II June 2006 President, R.D. Keene Trust March 2014 Ray Sandhagen March 2009 Chairman of SunTrust Bank Central Florida March 2015 Craig Ustler October 2010 Owner and President of Ustler Development, Inc. March 2014 A-9

72 Relationship of Parties Ray Sandhagen, a member of the Board of Directors of the Corporation, was Chairman of SunTrust Bank Central Florida ( SunTrust Bank ) until he retired from that position in January Rex V. McPherson, II, a member of the Board of Directors of the Corporation, is a member of the Advisory Board of SunTrust Central Florida, a division of SunTrust Bank. SunTrust Bank provides the primary banking services for the Corporation. SunTrust Bank has provided letters of credit supporting the Corporation s variable rate bonds in the past. SunTrust Robinson Humphrey, Inc., an affiliate of SunTrust Bank, has served as underwriter for various bond issues of the Corporation, will be part of the syndicate of underwriters on the Series 2012 A Bonds and Series 2012 B Bonds, and was the remarketing agent for certain outstanding bonds. The Series 2011 Bonds were purchased by SunTrust Bank. Lennard Greenbaum, MD, a member of the Board of Directors of the Corporation, is a senior partner in Medical Center Radiology Group, which provides radiology services for the Corporation. Jamal Hakim, MD, a member of the Board of Directors of the Corporation, is a partner in Anesthesiologists of Greater Orlando, which provides anesthesia services for Orlando Health. Executive Management The day to day management of the Corporation and the Controlled Affiliates is delegated to the Executive Staff of the Corporation and the Controlled Affiliates. The following are resumes of the individuals who currently occupy these positions: Sherrie Sitarik, President and CEO Orlando Health, Age 55. Ms. Sitarik assumed the role of president and CEO of Orlando Health in January She previously held the position of Executive Vice President/Chief Strategy Officer, and was responsible for leading the organization s strategic planning process, which resulted in a new 10 year vision for Orlando Health. Ms. Sitarik has been with Orlando Health for 33 years, beginning as a graduate nurse in the NICU. She has held numerous leadership positions in the organization including; President of Arnold Palmer Hospital for Children and Women, President of Orlando Regional Medical Center/M.D. Anderson Cancer Center Orlando/Lucerne Hospital and Chief Nursing Officer of the organization. Ms. Sitarik has also led efforts to improve quality and service in the organization, resulting in local and national recognition for key areas of excellence. Ms. Sitarik holds a Master of Science in Health Management from the University of Central Florida and a Bachelor of Science from the University of Florida. She also was invited to attend a year long course at Kellogg School of Business for women executive leaders. Ms. Sitarik is active in many professional and community organizations including; Metro Orlando Economic Development Commission, American Hospital Association Governing Council, Safety Net Hospital Alliance of Florida, Florida Hospital Association, American Heart Walk Executive Leadership Council, VHA Southeast and Grace Medical Home. John W. Bozard, Senior Vice President and President Orlando Health Foundation; President Arnold Palmer Medical Center, Age 62. Mr. Bozard joined the Corporation staff in November 1977 as Internal Auditor and since that time he has held the positions of Financial Analyst, Director of Finance, Vice President of Finance, Senior Vice President, Vice President & Executive Director of Arnold Palmer Hospital for Children & Women, and Vice President/Business Development. He began his current role as President of the Orlando Health Foundation in October 1999 and President of Arnold Palmer Medical Center in October Prior to joining the Corporation, Mr. Bozard was on the management consulting staff at Ernst and Young, LLP in Orlando, Florida. A graduate of Florida State University with a Bachelor of Science Degree in Accounting, Mr. Bozard is also a Certified Public Accountant and Certified Fund Raising Executive (CFRE). Currently, Mr. Bozard is a board member of the Greater Orlando Children s Miracle Network, Board of Trustees for the National Children s Miracle Network, Clear Channel Communications Central Florida Advisory Board, Florida Baptist Financial Services Board, Florida Baptist Retirement Center Board, the Florida State University College of Medicine Community Board, and Sun Trust Administrative Board. P. Shannon Elswick, Senior Vice President Orlando Health, Age 57. In December of 2008, Mr. Elswick was appointed to the position of President of Adult Hospital Group where he manages the day to day operations of ORMC and serves as the direct report for the presidents of three additional acute care facilities. From June 2005 to December of 2008, he served as President, Orlando Regional Sand Lake Hospital (re-named in January 2007 to Dr. P. Phillips Hospital) and Senior Vice President, Orlando Health. Mr. Elswick served as Senior Vice President from October 2002 to June 2005, Vice President of Community Hospitals from November of 1998 to October 2002, Vice President for Lake County Services from January 1998 to November 1998, Executive Director/Chief Executive Officer of South Lake Hospital from July 1995 to January 1998, Chief Executive Officer of South Lake Memorial Hospital from January 1994 A-10

73 to July 1995, Chief Executive Officer of Highlands/Cashiers Hospital (Highlands, North Carolina) from 1990 to 1994, Vice President of Operations for Haywood County Hospital (Clyde, North Carolina) from 1987 to 1990, Business Manager/Director of Admissions of University Hospital (Jacksonville, Florida) from 1984 to 1987, Hospital Corpsman in United States Navy from 1978 to 1984, and Orderly/Nursing Assistant at Radford Community and Pulaski General Hospitals from 1976 to Mr. Elswick holds a Master of Science in Healthcare Administration degree from Central Michigan University and a Bachelor of Science in Healthcare Services degree from Southern Illinois University. Mr. Elswick is a Fellow in the American College of Healthcare Executives (3/26/05). He currently serves on the boards of American Journal of Lifestyle Medicine (Editorial Board), WellFlorida Council, Orange Indemnity LTD, University of Central Florida Dean s Advisory Council for the College of Health and Public Affairs and Community Advisory Board for Healthcare Administration, American Heart Association Orlando, Community Foundation of South Lake County (Founding Member), Healthcare Purchasing Alliance (Vice Chair), Business Assistance Center Advisory Council of Lake Sumter Community College (Past Chairman), International Barbershop Harmony Society (Executive Vice President), Sound Sensation (Founder), Sisters of Sound (Founder and Director) and Rare Blend Harmony, LLC (Founder and Managing Member). Kathy A. Swanson, Senior Vice President and President Winnie Palmer Hospital for Women and Babies, Age 54. Mrs. Swanson was appointed President of the Winnie Palmer Hospital for Women and Babies in October She is responsible for the strategic oversight and day-to-day operations of Winnie Palmer Hospital. Mrs. Swanson s responsibilities included the overall planning, development and opening of the new Winnie Palmer Hospital for Women and Babies which opened May Prior to that, she was the President of the Arnold Palmer Hospital for Children and Women and Senior Vice President of Orlando Health. Mrs. Swanson also held the position of Vice President / Executive Director of Arnold Palmer Hospital. Mrs. Swanson joined the Corporation in 1977 and has held various positions including Administrator of Business Planning, Administrator of Clinical / Ancillary Services, Director of Nursing, and Nurse Manager of Pediatric Services. Mrs. Swanson holds a Masters Degree in Business Administration from Webster University, a Masters Degree in Health Services Administration from the College of St. Francis, and a Bachelors of Science in Nursing Degree from Florida Southern College. She is a member of the American College of Healthcare Executives, Women s Advisory Council, Heart of Florida United Way Women s Leadership Executive Council and the National Association of Professionals in Women s Health (NAPWH). In 2008, Mrs. Swanson was invited to participate in a documentary movie entitled The Glow Project, an inspirational film highlighting 15 women entrepreneurs and corporate leaders from across the United States. Stephan J. Harr, Senior Vice President Finance and Administration Orlando Health, Age 65. Mr. Harr began his career at Orlando Health as a critical care registered nurse in In 1981 he transitioned to the finance team assuming the role of reimbursement specialist. In 1985 he was appointed Associate Executive Director for Women s and Pediatric services at Orlando Regional Medical Center. He became the Executive Director of Arnold Palmer Hospital 1988 and was the executive responsible for opening the facility in In 1993 Mr. Harr left Orlando Health to assume the position of Associate Executive Director of Prudential Healthcare of Orlando, a group model health maintenance organization. Mr. Harr returned to Orlando Health as Vice President of Managed Care in In his current role he is responsible for all financial activities of the Corporation, Risk Management, Information Systems, Support Services, Managed Care, Research Administration and Orlando Health Physician Group. Mr. Harr holds a Masters Degree in Business Administration from Rollins College with a concentration in accounting and a Bachelor of Science Degree in Respiratory Therapy from the University of Central Florida. Mildred D. Beam, Senior Vice-President Legal Affairs Orlando Health, Age 45. Ms. Beam serves as Orlando Health s Vice-President of Legal Affairs & General Counsel and is responsible for overseeing legal services of the Corporation. Prior to joining Orlando Health, Ms. Beam served as Managing Attorney of the Florida Hospital division of Adventist Health System. In that role, she managed the legal services for seventeen (17) Florida hospital facilities, as well as a myriad of other entities. Before assuming an in-house role, Ms. Beam was in private practice for thirteen (13) of her eighteen (19) years of practice, most notably as a shareholder at Mateer & Harbert, P.A. in Orlando. In the aggregate, Ms. Beam has provided legal representation to over twenty-seven (27) hospital facilities within Central Florida. Ms. Beam is board-certified in Health Law and a member of the Executive Council of the Health Law Section of the Florida Bar. She obtained her Bachelors of Business Administration in Accounting in 1989 from Howard University in Washington, D.C., where she graduated summa cum laude and salutatorian of the School of Business. She earned her Juris Doctorate with honors from Georgetown University in While in law school, Ms. Beam worked full-time as a certified public accountant, specializing in tax, at a then Big 8 accounting firm (Coopers & Lybrand) and as a tax analyst in the corporate tax department of MCI Telecommunications, A-11

74 respectively. Ms. Beam s professional memberships include the American Health Lawyers Association, National Bar Association, and American Bar Association. Paul A. Goldstein, Vice President of Finance / Treasury and Accounting and Chief Financial Officer Orlando Health, Age 58. Mr. Goldstein was appointed to his current position in June He is responsible for accounting and financial reporting, treasury functions, reimbursement and other related functions. He previously served as Vice President of Finance/Chief Financial Officer from 1996 through He joined the Corporation in 1981 and became the Director of Finance in 1985, responsible for all accounting and financial planning matters at the Corporation and various subsidiaries. Before joining Orlando Health, Mr. Goldstein was the Controller and Director of Finance at Brookwood Community Hospital, Orlando, Florida, from 1979 to Mr. Goldstein received his Bachelor of Science Degree in Business Administration from the University of Florida in 1975, majoring in accounting. He became a Certified Public Accountant while working for Ernst & Young LLP, from 1975 to Mr. Goldstein is a member of the American Institute of Certified Public Accountants, Florida Institute of Certified Public Accountants, and Health Care Financial Management Association. John Richard (Rick) Schooler, Vice President / Chief Information Officer Orlando Health Age 54. Mr. Schooler joined Orlando Health in October 2001 as Vice President Information Services and Chief Information Officer. His current areas of responsibility include Information Technology, Telecommunications, Clinical Informatics, Biomedical Engineering, Supply Chain, Retail Pharmacy and a Group Purchasing Organization. Prior to joining Orlando Regional, he was the Vice President and CIO for Central Georgia Health System. From 1991 to 1994, he served as Director of Systems Integration for the Methodist Hospital of Indiana. His previous employers also include Ameritech, General Dynamics, and Computer Systems Corporation. Mr. Schooler earned his Masters degree in Business Administration from the University of Indianapolis and his Bachelor of Science degree in Computer Technology from Purdue University. He is a member of the following professional organizations: American College of Healthcare Executives (Fellow), College of Healthcare Information Management Executives (Fellow) and the Healthcare Information Management and Systems Society (Senior Member). Mr. Schooler currently serves on the Board of Directors for the Central Florida Regional Health Information Organization. He is also a member of the Industrial Advisory Board for the Purdue University of College of Technology, Department of Computer and Information Technology and is also an advisory board member of KLAS, a healthcare information technology rating company. Wayne Jenkins, MD, President Orlando Health Physician Group, Age 52. Dr. Jenkins was appointed President of Orlando Health Physician Group and Orlando Health Physicians Partners in June Dr Jenkins continues as a practicing radiation oncologist at M. D. Anderson Cancer Center Orlando where he formerly served as the chief of radiation oncology and for thirteen years as medical director of the cancer center. During the time he was medical director; he completed a Masters of Health Policy at Johns Hopkins and served as director of congressional relations for the American Society of Radiation Oncology. His medical training was first at Vanderbilt where he received his MD degree then at the University of Virginia where he completed his radiation oncology training. Mark A. Jones, President of Dr. P. Phillips Hospital, Age 49. In December 2008, Mark A. Jones was appointed President of Dr. P. Phillips Hospital. His career with Orlando Health began in 1986 as an Administrative Resident, and since that time has held various leadership positions throughout the organization. In 1987, Mark served as Project Director for Arnold Palmer Hospital (APH), which included operational oversight for the opening of that facility. From 1989 through 1991 he continued at APH as the Administrator for Support Services, and then served as the Orlando Health Director of Government Relations. Between 1993 and 1998, Mark pursued opportunities outside of the organization in healthcare sales, outpatient imaging management and consulting. Mark returned to Orlando Health in 1998 to serve as Project Director for the expansion of APH. In 1999, he became the APH Administrator for Ancillary Services, and subsequently his role was broadened to include those responsibilities for the entire Orlando Health downtown campus. In 2003, Mark was named the Administrator of Clinical Support and Business Development for Orlando Regional Medical Center (ORMC) and Lucerne Hospital. In this role he led the ancillary services and strategic planning efforts for both facilities. In 2005, Mark assumed the duties of Chief Operating Officer and was responsible for overseeing hospital operations at ORMC as well as the strategic development of clinical service lines. Mr. Jones was appointed Vice President of Operations for ORMC and Lucerne Hospital in Mark received his Bachelor of Science degree from Florida State University in He also attended Georgia State University where he received a Master in Business Administration (MBA) in 1986 and a Master of Health Administration (MHA) in Mark serves as a Heart of Florida United Way board member, a member of the Orlando Community Board for the Florida State A-12

75 College of Medicine, a board member of the International Drive Resort Area Chamber of Commerce and is a member of the American College of Healthcare Executives. Myra J. Hancock, Vice President of Operations / Arnold Palmer Medical Center, Age 62. Mrs. Hancock was appointed Vice President of Operations, Arnold Palmer Hospital for Children in August 2008 and Vice President of Operations for Arnold Palmer Medical Center in She previously served as Chief Operating Officer of Arnold Palmer Hospital for Children from 2006 to 2008, Administrator of Children s Services from 2003 to 2006, Nursing Operations Manager for Pediatrics from , Patient Care Coordinator, Arnold Palmer Hospital for Children and Women from 1989 to 1991, Neonatal Nurse/Flight Nurse, Orlando Regional Medical Center from Mrs. Hancock is a graduate of the University of Florida where she received her Masters Degree in Nursing Administration in 1996 and of the University of Central Florida where she received her Bachelors of Science in Nursing Degree in She is a member of the Association of Nurse Executives and the American College of Healthcare Executives. She is a member of the Board of Directors for Camp Boggy Creek and is active in numerous professional organizations. Robert E. Snyder, President of South Seminole Hospital, Age 57. Bob was appointed President of South Seminole Hospital in July, He served as Chief Operating Officer the previous 17 months. He is responsible for strategic oversight and day to day operations of the hospital. Bob s career with Orlando Health began in 2002 and since then he has held various leadership positions, including Administrator of Ancillary and Support Services at Doctor Phillips Hospital, Administrator of Master Facility Planning and Administrator of Support Services at Orlando Regional Medical Center. Between 1997 and 2001, Bob was Vice President of Memorial Health Systems and coordinated the planning, development and construction of a replacement hospital, Florida Hospital Flagler. Prior to that, he was Chief Operating Officer of Florida Hospital Waterman for 10 years. From , Bob was Associate Executive Director of Humana Hospital Kissimmee. Bob earned a Masters Degree in Health Care Administration and Public Health from the University of South Carolina in 1982 and a Bachelors Degree from Siena College, Albany, New York in From , he was a research associate on health care policy and issues for the New York State Senate Majority leader. During the last 27 years, Bob has served on several civic and business Boards of Directors in the central Florida area and currently is active with the Seminole County regional Chamber of Commerce, Longwood Chamber of Commerce and CBC of Seminole, Inc. Bob recently received his credentials as a Green Belt in Lean and Six Sigma methods for application within the hospital setting. Anne Gallagher Peach, Vice President of Patient Care Services and Chief Nursing Officer Orlando Health, Age 57. Mrs. Peach was appointed Vice President of Nursing in May, 2005 and Chief Operating Officer of M.D. Anderson Cancer Orlando in December She also held the positions of Chief Nursing Officer for Orlando Regional Healthcare and Executive Director of Orlando Regional Sand Lake Hospital. Mrs. Peach holds an advanced certification in nursing administration from the American Nurses Credentialing Center. She received her Masters Degree in Nursing from the University of Pennsylvania and a Bachelors of Science in Nursing Degree from Seton Hall University. Mrs. Peach joined the Corporation in 1983 and has held various positions including director of Corporation Education and chairperson of the Corporation s Nursing Council. Ms. Peach also served as a business partner and faculty member of the Department of Nursing at the University of Florida and the University of Central Florida. She is published in Brunner and Suddath s Textbook of Medical and Surgical Nursing. She is active in a variety of professional and community organizations locally and nationally, serving in different elected roles. Bob Miles, Senior Vice President of Strategy/Innovation and Planning Orlando Health, Age 50. Effective December 1, 2010, Mr. Miles became Senior Vice President Strategy, Innovation and Planning and is responsible for the Office of Strategy Management, service line planning, business development, strategic facilities/campus planning, telemedicine outreach and market research. He also is responsible for the operational finance areas of Orlando Health which includes internal financial reporting, capital management, budgeting, long range financial planning, and coordination of the hospital Chief Financial Officer teams in the Corporation. Mr. Miles originally joined the Orlando Health in 1992 and served as the Director of Finance until Prior to joining the Corporation, he was on the auditing and management consulting staff at Ernst and Young, LLP in Orlando, Florida. From 1998 to 2005, Mr. Miles worked for outside organizations as Chief Operating Officer and Chief Financial Officer both in and out of the health care industry. These organizations included private equity-backed, venture capital-backed and publically traded companies. Mr. Miles received his Bachelor of Science Degree in Accounting in 1984 and Masters of Accountancy in 1985, both from Florida State University. He currently serves on the Professional Advisory Board of the Florida State University Department of Accounting, a Board of Director for the Florida State University College of Business Emeritus Board and Member of the Central Florida Commission on Homelessness. He became a Certified Public Accountant while working for Ernst & Young LLP, Certified Public Accountants, from 1985 to A-13

76 Keith Eggert, Vice President / Revenue Management Orlando Health, Age 45. Mr. Eggert was appointed Vice President of Revenue Management in July He is responsible for all aspects of revenue cycle operations for hospitals, physician practices, and home healthcare business units. In his 21 year career with the Orlando Health, Mr. Eggert has held various progressive administrative positions within the Patient Financial Services area. He has served as Administrative Director of Patient Accounting, Administrative Director of Patient Financial Services and Corporate Director of Patient Financial Services. Mr. Eggert earned his Masters of Science in Health Services Administration from the University of St. Francis in 2005 and a Bachelors of Science in Health Management and Policy from the University of New Hampshire in He is a Fellow in the Healthcare Financial Management Association (HFMA) and is currently serving on HFMA s Board of Examiners. Mr. Eggert is also a member of the Florida Hospital Association. Karl W. Hodges, Vice President / Business Development Orlando Health, Age 52. Mr. Hodges was appointed Vice President of Business Development in November Mr. Hodges is responsible for M&A activities, Real Estate Management, and Construction Project Management for the Corporation. Prior to his recent appointment, Mr. Hodges served as Vice President of Managed Care and Senior Vice President / Chief Financial Officer of Community Healthcare Systems, Inc. from March 1997 to October Mr. Hodges served as Vice President of Strategic Development from November 1995 to March Prior to his appointment to Vice President of Strategic Development, Mr. Hodges served as Vice President of Finance / Chief Financial Officer of Orlando Health from November 1992 to November He joined the Corporation in April 1986 as Controller and served as the Director of Financial Operations until his appointment as Vice President of Finance. Prior to joining the Corporation, Mr. Hodges was a Senior Accountant at Ernst & Young LLP, in Orlando, Florida specializing in audit and consulting services for healthcare clients. Mr. Hodges received his Bachelor of Science degree in Business Administration in July 1982 from the University of Central Florida with a major in accounting. He is a Fellow in the American College of Healthcare Executives and a Fellow in the Healthcare Financial Management Association. He is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants, Florida Institute of Certified Public Accountants, Florida Hospital Association, and the Healthcare Information Management and Systems Society. Mr. Hodges is a board member of Habitat for Humanity Orlando, Central Florida Crimeline, and a member of the University of Central Florida Foundation finance committee. Nancy Dinon, Vice President / Human Resources Orlando Health, Age 56. Mrs. Dinon was appointed Vice President of Human Resources in June Prior to her appointment, she served as Interim Vice President of Human Resources and Director of Human Resources Planning and System Staffing. She has also held the positions of Site Administrator, Associate Executive Director, and Administrator of Ancillary Services at St. Cloud Hospital, Nurse Manager of Pediatrics at Arnold Palmer Hospital and ORMC, and Certified Risk Manager. Mrs. Dinon received her Masters in Business Administration and Bachelor of Science in Business Administration degrees from the University of Central Florida. She also graduated from the School of Nursing at Valencia Community College. Her professional memberships include the Society for Human Resources Management, American Society for Healthcare Human Resources Administration, American College of Healthcare Executives, and Florida Hospital Association. David F. Huddleson, Vice President / Corporate Integrity Orlando Health, Age 47. Mr. Huddleson was appointed Vice President of Corporate Integrity in February, He serves as Orlando Health s Chief Compliance and Audit Officer. He is responsible for the Corporate Compliance Program, Internal Audit Activity and the Offices of Privacy and Information Security. Mr. Huddleson joined the Corporation in July 1994 and has held many positions prior to his recent appointment including Director of Corporate Compliance and Internal Audit, Director of Managed Care Contracting and Director of International Business. He is a Certified Public Accountant in the State of Florida and Certified in Healthcare Compliance by the Health Care Compliance Association. Mr. Huddleson received his Masters of Science in Health Services Administration in 2000, Masters of Science in Business Administration in 1994, and Bachelors of Science in Accounting in His professional memberships include the Florida Institute of Certified Public Accountants, Health Care Compliance Association, Institute of Internal Auditors, Association of Healthcare Internal Auditors, Florida Hospital Association, and the Association of Certified Fraud Examiners. Jennifer S. Endicott, Vice President Clinical Integration Orlando Health, Age 44. Mrs. Endicott was appointed Vice President of Clinical Integration in June She is responsible for the operations and business development of Orlando Health Physician Partners, a clinically integrated network of private, employed and contracted physicians, and the Orlando Health Physician Group which includes more than 200 employed multi-specialty physicians. Prior to joining Orlando Health, Mrs. Endicott served as Senior Vice President of Strategy A-14

77 Implementation for Navvis & Company, a national healthcare management consultancy focused on providing large health system clients with strategic planning and physician alignment support. In this role she led a team of professionals in assisting hospitals with the development and implementation of physician collaboration and alignment models and was responsible for the daily operations of the Orlando branch office. Mrs. Endicott received her Bachelors of Science in Business Administration from the University of Florida in John A. Marzano, Vice President / External Affairs Orlando Health, Age 60. Mr. Marzano began his career with Orlando Health in June He is responsible for all internal and external communications for Orlando Health including strategic marketing, brand and reputation management, advertising, public relations, media relations, issues management, community and government relations and creative services. Prior to joining the corporation, Mr. Marzano served as a Vice President of MedStar Health, a non-profit, community-based healthcare system of nine hospitals in the Baltimore/Washington metro area. In that role, he directed the communications, marketing and public affairs programs for one of the top 25 largest health systems in the United States. He is skilled in crisis communications and issues management, and is a seasoned leader in integrated healthcare, B2B and consumer advertising and promotion, sports marketing and hospitality. Marzano holds a Bachelor of Arts degree from Bloomsburg University, Pennsylvania (1974) and earned a certificate in Executive Leadership from the Center for Professional Development at Georgetown University in His professional memberships include the Public Relations Society of America (PRSA), the Society for Healthcare Strategy and Market Development (SHSMD), and Leadership Orlando (Class 77). He currently is a member of the Board of Directors of Visit Orlando! (Orlando Convention and Visitors Bureau) and the West Orange Chamber of Commerce. [remainder of the page intentionally left blank] A-15

78 Service Area Orlando Health provides tertiary, secondary and certain primary care services to residents of Orange, Seminole and Osceola Counties (the Tri-County Area ). The maps below represent the primary service area of the hospitals owned by the Corporation and locations of all hospitals in the primary service area. Located in west Orange County, Health Central is an integral part of the Tri-County Area. The Corporation s secondary service area includes Lake and Volusia Counties, which are to the west and north of the primary service area, respectively: Service Area and Competition Orlando Health Florida Hospital System HCA Independent Orlando Health Affiliate Florida- Apopka Central FL Regional (HCA) South Seminole Florida-Altamonte Seminole County South Lake Health Central Florida-Winter Park Florida-Medical Center Lucerne Florida-East Orlando WPH ORMC APH Dr. P. Phillips Orange County Florida Kissimmee Osceola Regional (HCA) St. Cloud Regional Medical Center Osceola County Source: Records of the Corporation A-16

79 Origin of Admissions During the year ended September 30, 2011, 82.7% of the Corporation's inpatient admissions originated from the Corporation s primary service area (the Tri-County Area) and 6.7% from the Corporation's secondary service area of Lake and Volusia Counties. The following table summarizes the percentage of inpatient admissions by county: Percentage Inpatient Origin by County* Year ended September Primary Service Area Orange County 61.2% 61.6% 63.1% Seminole County 15.7% 15.7% 15.4% Osceola County 5.8% 5.8% 5.6% 82.7% 83.1% 84.1% Secondary Service Area Lake County 3.9% 3.8% 3.8% Volusia County 2.8% 3.3% 3.0% 6.7% 7.1% 6.8% All Other 10.6% 9.8% 9.1% 100.0% 100.0% 100.0% *Excludes Health Central Source: Records of the Corporation Health Central derived 90.4% if its inpatient admissions from the Corporation s primary service area and 6.2% from the Corporation s secondary service area during the nine months ended June 30, Orlando Health Central is a Controlled Affiliate of the Corporation and is not a member of the Obligated Group. [remainder of the page intentionally left blank] A-17

80 Service Area Demographics The population of the Tri-County Area has grown from 1.4 million in 2000 to 1.8 million in 2011, a 27% increase. The population is expected to grow at a much slower rate due to the economic recession; however it is expected to grow faster in the Tri-county Area than the State of Florida and the rest of the country. From 2011 to 2016, the population is projected to increase by approximately 167,000 to 2.0 million, a 9.1% increase Population Total 1,427,415 1,822,148 1,988,649 Growth From % 39.32% Growth From % Gender Male 49.33% 49.60% 49.57% Female 50.67% 50.40% 50.43% Population Total 1,427,415 1,822,148 1,988,649 Age Ages % 20.44% 20.47% Ages % 4.10% 3.82% Ages % 9.66% 9.00% Ages % 15.91% 14.81% Ages % 28.64% 27.92% Ages % 10.44% 11.79% Ages % 10.81% 12.19% Population Total 1,427,415 1,822,148 1,988,649 Source: 2011, Claritas Inc., 2011 Thomson Reuters. All Rights Reserved [remainder of the page intentionally left blank] A-18

81 Central Florida Economy The Central Florida economy includes business and governmental activities in Orange, Osceola, Seminole, and Lake Counties, and is composed of a variety of industries as summarized in the table below. Employment by Industry as of September 2011 Industry Title Total Employment September 2011 September 2010 Change % Change Leisure & Hospitality 207, ,100 11,900 6% Professional & Business Services 164, ,400 1,100 1% Education & Health Services 123, ,000 4,900 4% Retail Trade 115, ,300 2,800 2% Government 117, ,300 (600) -1% Financial Activities (FIRE) 62,500 60,400 2,100 3% Construction 44,300 51,100 (6,800) -13% Other Services 47,800 48,800 (1,000) -2% Wholesale Trade 37,200 39,200 (2,000) -5% Manufacturing 37,000 37,500 (500) -1% Transportation, Warehousing, & Utilities 30,000 29, % Information 23,200 23,700 (500) -2% 1,010, ,300 11,900 1% Source: Florida Agency for Workforce Innovation (CES) - Released October 21, 2011 Orlando Health Sources: Orlando Metro Economic Development Commission [remainder of the page intentionally left blank] A-19

82 Other Area Hospitals In addition to the Corporation's hospital facilities, the health care systems and independent hospitals listed below operate facilities that provide acute inpatient health care services within the Tri-County Area. The primary competition of the Corporation is Florida Hospital. Presented below are the number of licensed beds for the health care systems and independent hospitals in the Tri-County Area. Licensed Beds Percent of Total Orlando Health and Related Organizations The Corporation* Orlando Regional Medical Center % Arnold Palmer Hospital % Winnie Palmer Hospital % South Seminole Hospital % Dr. P. Phillips Hospital % 1, % Health Central* % 1, % Independent Hospitals St. Cloud Regional Medical Center** % % Florida Hospital HCA Florida Hospital-Orlando 1, % Florida Hospital-Winter Park % Florida Hospital-Altamonte % Florida Hospital-East Orlando % Florida Hospital-Celebration % Florida Hospital-Kissimmee % Florida Hospital-Apopka % 2, % Central Florida Regional Medical Center % Osceola Regional Hospital % % 4, % *Health Central was independent prior to April 1, 2012, and is shown as part of the Corporation on a pro forma basis. Orlando Health Central, Inc. is a Controlled Affiliate and not a member of the Obligated Group. **A majority ownership interest in St. Cloud Regional Medical Center was sold by the Corporation in February It is now owned 80% by HMA and 20% by the System. Source: Corporation records and AHCA as of September 30, A-20

83 Market Share The following summarizes inpatient admission market share percentages for the Corporation and the other hospital systems in the Tri-County Area. All Inpatient Cases (excludes normal newborns) Orlando Health (the Corporation) Health Central* Florida Hospital HCA hospitals St. Cloud Regional Medical Center Latest available date - Year-todate June 30 Year ended September % 35.5% 4.6% 4.2% 38.7% 39.7% 48.7% 47.7% 10.8% 10.6% 1.8% 2.0% 100.0% 100.0% Pediatrics (excluding all newborns) Orlando Health (the Corporation) Health Central* Florida Hospital HCA hospitals St. Cloud Regional Medical Center 51.9% 52.7% 3.2% 2.5% 55.1% 55.2% 41.0% 40.7% 3.9% 4.1% 0.0% 0.0% 100.0% 100.0% All Newborns Orlando Health (the Corporation) 53.0% 54.6% Health Central* 4.1% 4.7% 57.1% 59.3% Florida Hospital 34.2% 31.2% HCA hospitals 8.7% 9.5% St. Cloud Regional Medical Center 0.0% 0.0% 100.0% 100.0% *Health Central was independent prior to April 1, 2012, and is subtotaled with the Corporation on a pro forma basis. Orlando Health Central, Inc. is a Controlled Affiliate and not a member of the Obligated Group. Source: Admission data obtained from Agency for Health Care Administration. June 2011 data are the latest available. A-21

84 Other Competitive Developments in the Market Place The Nemours Foundation (Nemours), a non-profit provider of medical care for children, has been granted a Certificate of Need and is constructing a 95 bed (licensed) free-standing children's hospital in Orlando some 23 miles from the Orlando Health main campus. The new facility is expected to open in late The new children s hospital could adversely impact admissions, and therefore the financial results of Arnold Palmer Hospital. In addition, the University of Central Florida has recently announced its intention to pursue the construction of a teaching hospital at its College of Medicine located in Orlando, Florida. At this time, it is not possible to determine the likelihood of completion of the project or its impact on Orlando Health, if and when completed. In September 2008, the State of Florida awarded Certificates of Need to both Orlando Health and Florida Hospital to establish heart transplantation programs. Florida Hospital was also awarded a Certificate of Need for a lung transplantation program. Florida Hospital has since established both the heart and lung transplantation programs. In June 2011, Orlando Health notified Florida s Agency for Healthcare Administration (AHCA) that it was withdrawing its application for a Certificate of Need (CON) to develop a heart transplant program. The decision to withdraw the application was the result of several factors, including advances in the treatment of cardiac disease, federal healthcare reform and the future development of an advanced heart failure program in conjunction with Shands HealthCare (Shands) and the University of Florida (UF). Heart transplant services, when needed, will be available through the new program. In October 2010, Orlando Health entered into an alliance with the University of Florida and Shands to collaborate on new health initiatives that will make care more accessible to millions of patients over a 20-county region and expand training opportunities for physicians. Orlando Health s focus is to provide patients with the highest quality of health care. New healthcare reform initiatives add even greater emphasis to improving the quality and efficiency of health care services. These alliances should open additional opportunities to implement programs and modify models and structures that will positively impact the quality of healthcare for patients across the service area. [remainder of the page intentionally left blank] A-22

85 Medical Staff and Employed Physicians The System has one medical staff, which as of September 30, 2011, consisted of 2,019 physicians and dentists (excluding honorary staff). Health Central has a separate medical staff of 405 physicians, of which 172 are currently active, and of those, 94% are Board certified. Health Central s medical staff is excluded from the following tables (source of tables is Corporation records). Number of Percent Average Board Board Age of Total Certified Certified Total Specialty Physicians Physicians Physicians Physicians Anesthesiology % 47 Cardiology % 51 Dentistry/Oral Surgery % 49 Dermatology % 49 Emergency Medicine % 45 Family Practice % 50 Gastroenterology % 50 Internal Medicine % 46 Nephrology % 49 Neurology/Neurosurgery % 47 Obstetrics/Gynecology % 49 Oncology/Hematology % 51 Ophthalmology % 47 Orthopedics/Podiatry % 51 Otolaryngology % 48 Pathology % 52 Pediatric % 49 Plastic Surgery % 51 Psychiatry % 55 Radiology % 53 Surgery % 53 Urology % 52 2,019 1,810 90% Total physicians 2,019 1,950 Board certified physicians 1,810 1,726 Percent board certified 90% 89% Average age of total physicians (years) The System has been adding to its complement of employed physicians as part of its strategy to meet the healthcare needs of the community in a more efficient and coordinated manner. This will continue into the future to fill unmet specialist needs in certain segments of its market, improve the coordination of care, improve outcomes, control costs, and provide for graduate physician training in its residency and multiple fellowship programs. As of September 30, 2011, the System employed 309 physicians, compared to 240 physicians as of September 30, 2010, a 29% increase. At September 30, 2011 physicians were employed in these areas (excludes Health Central): Employed Physicians Medical Education Faculty 97 M.D. Anderson Cancer Center Orlando 50 Pediactric Subspecialists at Arnold Palmer Hospital 55 All Other Hospitals and Practices Health Central employed 17 physicians that staffed the emergency department and express care clinic and 9 other practicing physicians. OHC, through two of its wholly owned subsidiaries, has entered into employment contracts A-23

86 with all but one of these physicians. Orlando Health operates a central business office to manage the revenue cycle for physician services in a consistent manner. Medicare and Medicaid Programs Medicare pays the Corporation based on a DRG-based prospective payment system for inpatient services and capital. Outpatient services are paid by Medicare on an Ambulatory Payment Classification-based prospective payment system. Home health care services are paid by Medicare on a prospective payment system. Medicaid pays the Corporation on a per diem basis for inpatient services and a flat amount per billed line item for outpatient services. The per diem and flat amount per billed line item are based on past cost determined by a cost report, but reduced from cost based on the state legislature s funding decisions. Managed Care Participation The Corporation contracts with certain health maintenance organizations and preferred provider organizations, which pay the Corporation based on varied reimbursement methodologies, such as percentage of charges, DRG, or per diems. As of March 31, 2012, the Corporation has contracted with all major preferred provider organizations (PPO), health maintenance organizations (HMO), and point of service organizations (POS) in the area. The Corporation currently has contracts with most of the commercial HMO, POS and PPO payors, and has access to over 80% of Medicare and Medicaid HMO/PPO enrollees in the market. The top six plans represent over 90% of the commercial market and include Aetna, AvMed, Blue Cross/Blue Shield, Cigna/Great West, Humana, and United Healthcare. These top six plans combined provide over 90% of the Corporation s commercial managed care net patient service revenue. All managed care contracts cover one year periods. The Corporation has been successful in renewing its contracts annually with rate increases over the last several years. [remainder of the page intentionally left blank] A-24

87 Sources of Patient Revenues A substantial portion of the Corporation s patient revenue is derived from third-party payors. The tables below list the approximate percentages of gross patient charges for hospital services for Orlando Health and Health Central. Note that the latest available information with respect to Health Central is as of December 31, Orlando Health Only Six months ended March 31 Year ended September Medicare (incl. HMO s) 32.5% 32.5% 32.0% 32.5% 32.6% Medicaid (incl. HMO s) 17.2% 16.4% 16.6% 15.5% 13.5% Managed Care 33.0% 33.3% 34.0% 34.8% 35.6% Commercial 3.9% 3.8% 3.6% 3.5% 4.1% Self-Pay 10.6% 10.8% 10.8% 10.7% 11.2% Other 2.8% 3.2% 3.1% 3.0% 3.0% 100.0% 100.0% 100.0% 100.0% 100.0% Health Central Only Quarter ended December 31 Year ended September Medicare (incl. HMO s) 36.5% 39.7% 39.7% 38.0% 38.5% Medicaid (incl. HMO s) 15.6% 13.5% 14.3% 15.2% 7.1% Managed Care 6.1% 6.4% 6.1% 6.0% 6.5% Commercial 25.0% 25.7% 24.3% 26.5% 33.9% Self-Pay 16.8% 14.7% 15.7% 14.4% 13.9% Other 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Records of the Corporation and the District [remainder of the page intentionally left blank] A-25

88 Utilization of Patient Services The tables below list major patient utilization statistics for Orlando Health and Health Central. Orlando Health Only Six months ended March 31 Year ended September Average Licensed Beds 1,690 1,694 1,694 1,694 1,681 Average Beds in Service 1,576 1,593 1,577 1,575 1,549 Average Daily Census Adult 1,039 1,082 1,045 1,051 1,053 Newborn and neonatal ,218 1,271 1,233 1,232 1,243 Admissions Adult 40,107 41,395 81,666 84,581 85,802 Newborn and neonatal 6,712 6,900 13,711 13,994 15,176 46,819 48,295 95,377 98, ,978 Observation Cases Adult and neonatal 8,321 6,205 13,366 10,962 8,015 Patient Days Adult 186, , , , ,260 Newborn and neonatal 32,298 34,048 68,785 66,211 69, , , , , ,659 Average Length of Stay (days) Adult Newborn and neonatal Percent Occupancy (beds in service) Adult Newborn and neonatal Outpatient Visits Outpatient Visits* 250, , , , ,642 Outpatient Surgery Cases 10,890 11,595 23,075 24,359 23,965 Total Outpatient Visits 261, , , , ,607 Emergency Dept. Patients Treated 119, , , , ,155 Case Mix Index Medicare only All payors *Prior periods restated to reflect current period presentation. Outpatient visits were adjusted to include multiple cancer center hospital based outpatient visits that were not previously reported. Source: Records of the Corporation A-26

89 Health Central Only* Quarter ended December 31 Year ended September Average Licensed Beds Average Beds in Service Average Daily Census Adult Newborn and neonatal Admissions Adult 2,631 2,886 11,210 10,642 10,330 Newborn and neonatal ,037 1,180 1,250 2,854 3,158 12,247 11,822 11,580 Observation Cases Adult and neonatal 1,279 1,219 5,289 4,466 4,742 Patient Days Adult 10,813 11,511 46,693 43,391 41,457 Newborn and neonatal ,649 2,872 3,176 11,442 12,362 49,342 46,263 44,633 Average Length of Stay (days) Adult Newborn and neonatal Percent Occupancy (beds in service) Adult Newborn and neonatal Outpatient Visits Outpatient Visits 7,034 7,938 33,842 36,157 40,154 Outpatient Surgery Cases 1,243 1,145 4,744 4,835 5,663 Total Outpatient Visits 8,277 9,083 38,586 40,992 45,817 Emergency Dept. Patients Treated 14,412 13,079 55,471 52,168 50,748 Case Mix Index Medicare only All payors *Health Central was independent prior to April 1, Orlando Health Central, Inc. is a Controlled Affiliate and not a member of the Obligated Group. December 31, 2011 is latest available information. Source: Records of the District A-27

90 Accreditations and Affiliations The Corporation is accredited by The Joint Commission (formerly the Joint Commission on Accreditation of Healthcare Organizations). The Joint Commission accreditation is recognized nationwide as a symbol of quality that reflects an organization's commitment to meeting certain performance standards. The Joint Commission has been given "deemed status" by CMS as its surveying body. The Corporation s hospitals are surveyed by The Joint Commission at least every three years. The most recent survey was completed in June 2011 and the Corporation received full accreditation. Orlando Health is one of 8 statutory teaching hospitals in the State of Florida that provides training to resident/ fellow physicians. In order to provide teaching opportunities for medical students, master affiliation agreements are maintained with the University of Florida College of Medicine, Florida State University College of Medicine, University of Central Florida College of Medicine, and University of South Florida College of Medicine. Orlando Health has 7 Accreditation Council for Graduate Medical Education (ACGME) residency training programs and 16 fellowship training programs of which 9 are accredited by ACGME, the national accrediting body for all training programs. As of September 30, 2011, the Corporation had 231 resident physicians in the program. The Cancer Center is affiliated with The University of Texas M. D. Anderson Cancer Center ( M.D. Anderson ). The services provided at the Cancer Center are unique in the State of Florida in that the educational and research capabilities of M.D. Anderson are available to the physicians at the Cancer Center through a formal affiliation agreement. Human Resources Orlando Health (excluding Health Central) employs approximately 13,000 full-time equivalent employees, of which one quarter are nursing staff. During the year ended September 30, 2011, the Corporation s overall turnover rate was 14.0% and within the nursing population, the voluntary RN turnover rate was 10.5%. Orlando Health continues to perform better than the Florida healthcare industry, which experienced an annualized 12.6% rate according to the Florida Hospital Association. The comprehensive recruiting plan for 2011 resulted in an overall nurse vacancy rate of 7.7% as of September 30, Orlando Health continues to invest in the training and development of new graduate RNs. Orlando Health employees, including registered nurses, are not unionized, and management is currently not aware of any official efforts by its employees to form a union. Management considers relations with employees to be good. Employee Retirement Plans The System and Health Central both have defined contribution plans. Certain employees of the System and Orlando Health Central (effective April 1, 2012) are eligible to participate in separate 403b plans. Awards and Recognition The Corporation has been recognized both locally and nationally with a variety of awards. The following are recent examples: 2011 The American Heart Association names Orlando Health as a platinum level employer for wellness programs 2011 Employer of Choice, Inc. named Orlando Health an Employer of Choice for its dedication to a level of employee relationships that goes above and beyond normal human resources practices. A-28

91 2011 ORMC s Radiation Oncology Department has received full accreditation by the American College of Radiology, Committee on Radiation Oncology Practice Accreditation. Only a handful of radiation therapy facilities in the State of Florida are ACR accredited Arnold Palmer Medical Center is recognized by U.S. News & World Report as one of America s Best Children s Hospitals. Nationally, Arnold Palmer ranks 38th in pediatric orthopedics and 40th in pediatric cardiology and heart surgery Get Active Orlando named Orlando Health first place winner in List of Healthy Workplaces The Orlando Sentinel named Orlando Health in the 2011 Top 100 Companies for Working Families Orlando Regional Medical Center is recognized by U.S. News & World Report as the Top Regional Hospital in Metropolitan Orlando with 10 high-performing specialties including diabetes & endocrinology; gastroenterology; geriatrics; gynecology, heart/heart surgery; kidney disorders; neurology/neurosurgery; orthopedics, pulmonology and urology Winnie Palmer Hospital for Women & Babies is named Academic Center of Excellence in Minimally Invasive Surgery by the American Institute of Minimally Invasive Surgery (AIMIS) Beacon Awards Celebrating Workforce Diversity awards Orlando Health the Supplier Diversity Award Get Active Orlando includes Orlando Health in the Honorary List of Healthy Workplaces The Orlando Sentinel names Orlando Health in the Top 100 Companies for Working Families and Cutting Edge Award The Florida Hospital Association awards Orlando Health s CEO, John Hillenmeyer, an Award of Merit Employer of Choice, Inc. names Orlando Health an Employer of Choice for its dedication to a level of employee relationships that goes above and beyond normal human resources practices Orlando s Economic Development Commission recognizes Orlando Health as a Medical Marker because of its efforts in promoting Orlando as a center for medical and scientific research The Florida College of Emergency Physicians awards Orlando Health emergency medicine residents with the Emmett Bud Ferguson Trophy for outstanding performance in case presentation Orlando Regional Medical Center and MD Anderson Cancer Center Orlando are among the most highly rated medical facilities in 53 major cities nationally by Consumers Checkbook, a consumer research organization. The listing focuses on performance and traveling from one city to another to receive the best medical care Orlando Health is selected by GHX as Healthcare Provider of the Year in the United States for improving supply chain performance Orlando Health wins 17 th Annual Monroe E. Trout Premier Cares Award for its Help Understand and Guide Me (HUG-Me) program, which provides comprehensive HIV care Orlando Regional Medical Center receives the 2009 Consumer Choice Award, which recognizes the best hospitals for quality, image and reputation, and best doctors and nurses. [remainder of the page intentionally left blank] A-29

92 Malpractice Insurance Plan The Corporation is self-insured for medical malpractice risk not covered under a commercial malpractice policy. For claims occurring after April 1, 2012, Health Central is covered under the Corporation s medical malpractice policy and self-insured malpractice fund. Losses from asserted claims, certain unasserted claims identified under the Corporation s incident reporting system, and for incidents which have occurred, but have not been identified under the incident reporting system, are accrued based on estimates provided by the Corporation s consulting actuary. Such estimates are based on actuarial assumptions that incorporate the Corporation s past experience and other considerations, including the nature of each claim or incident, and relevant trends. The Corporation has on deposit, in a revocable trust, cash and investments to be used for the payment of self-insured claims in the future. All commercial malpractice polices were renewed on May 1, The District has retained medical malpractice liability for Health Central events occurring prior to closing of the Health Central transaction and has agreed to maintain a fund to fund such liabilities. The District is a governmental entity and is protected to a large extent by sovereign immunity protection against liability claims. The Corporation is not liable for any events at Health Central occurring prior to the closing date of April 1, Investment Policy At March 31, 2012, Orlando Health s unrestricted cash and investments totaled $677.1 million and the medical malpractice self-insurance fund totaled $78.8 million. These funds are invested in accordance with the investment policy approved by the Board of Directors. The status of the investments and performance of external managers are reviewed regularly by the Finance Committee of the Board. The policy establishes the following investment pools with the permitted assets as described below. Each investment manager operates in accordance with a written investment policy that delineates the permitted investments, and sets limits on concentration to any individual issuer and any industry segment. At March 30, 2012, the investment pools were composed of 62% fixed income securities, 21% stocks and 17% cash and cash equivalents. Unrestricted Cash and Investments Short Term Investments Pool 1 The target amount of funds in this pool is 60 days of operating expenses. Permitted investments are cash, cash equivalents and high quality short term fixed income securities (average duration up to 2.25 years with maturity of no more than 5 years). The funds are managed both internally and externally. Long Term Investment Fund Pool 3 Once Pool 1 and 2 are funded, the remainder of unrestricted cash and investments are invested in accordance with the investment policy of Pool 3. The asset allocation for Pool 3 is 26% in stocks; 54% in intermediate term, high quality, fixed income securities; 10% in global fixed income; and 10% in securities selected to function as a hedge against inflation. Equity investments are diversified and include large, intermediate and small capitalization stocks and international stocks. These funds are externally managed. Restricted Investments Medical Malpractice Self Insurance Fund Pool 2 The fund is currently $78.8 million and investment returns remain in the fund. Permitted investments are fixed income securities of high quality with an average duration of between 2 and 5 years. These funds are managed externally. The policy does not allow for investments in alternative asset classes, nor does it allow for investments in structured investment vehicles or auction rate securities. A-30

93 Interim Condensed Consolidated Financial Statements The following interim condensed consolidated financial statements reflect the consolidated financial position of Orlando Health, Inc. and Controlled Affiliates at March 31, 2012 and 2011, and September 30, 2012, 2011 and 2010, and the results of operations and nonoperating gains and losses for the six months ended March 31, 2012 and 2011, and years ended September 30, 2011, 2010, and Consolidated Statements of Operations and Changes in Net Assets (in 000 s) Six months ended March 31 Year ended September (unaudited) Unrestricted revenues and other support Net patient service revenue (net of contractual allowances and discounts) $ 912,047 $ 837,349 $ 1,694,565 $ 1,636,362 $ 1,577,284 Provision for bad debts* (59,335) (46,410) (107,146) (120,185) (130,054) Net patient service revenue less provision for bad debts 852, ,939 1,587,419 1,516,177 1,447,230 Other revenue 33,046 28,314 58,236 57,347 55,293 Net assets released from restrictions 2,892 3,144 6,356 7,002 5,253 Total unrestricted revenues and other support 888, ,397 1,652,011 1,580,526 1,507,776 Expenses Salaries and benefits 482, , , , ,256 Supplies and other 275, , , , ,873 Professional fees and purchased services 14,474 15,713 33,296 34,458 34,138 Depreciation and amortization 46,118 45,213 90,425 92,944 90,061 Impairment ,193 Interest 18,170 18,596 37,313 37,958 38,350 Total expenses 837, ,772 1,593,710 1,519,163 1,448,871 Income from operations 51,280 37,625 58,301 61,363 58,905 Nonoperating gains and losses Investment income 38,203 22,944 16,308 39,508 31,828 Gain (loss) on interest rate swap agreements 4,889 15,696 (7,304) (13,552) (17,419) Loss on early extinguishment of debt - - (2,858) (4,330) - Nonoperating gains and losses, net 43,092 38,640 6,146 21,626 14,409 Excess of revenues, other support and gains over expenses and losses 94,372 76,265 64,447 82,989 73,314 * Bad debt expense for the six months ended March 31, 2011 has been reclassified to conform with the current presentation (ASU was adopted as of September 30, 2011). Continued on next page. A-31

94 Consolidated Statements of Operations and Changes in Net Assets (in 000 s)(continued) Six months ended March 31 Year ended September (unaudited) Unrestricted net assets Excess of revenues, other support and gains over expenses and losses $ 94,372 $ 76,265 $ 64,447 $ 82,989 $ 73,314 Other changes in unrestricted net assets: Net assets released from restriction for property and equipment ,018 2,952 6,554 Other (326) (183) (585) (451) (344) Increase in unrestricted net assets 94,130 76,251 64,880 85,490 79,524 Temporarily restricted net assets Contributions 4,510 8,019 15,159 13,773 6,516 Net assets released from restrictions (2,976) (3,313) (7,374) (9,954) (11,807) Other (13) (6) ,358 Net realized and unrealized gains on investments 2,000 1,860 (102) 1,574 - Increase in temporarily restricted net assets 3,521 6,560 7,942 5,950 (3,933) Permanently restricted net assets Contributions ,338 Net realized and unrealized gains on investments 1 46 (6) 2 1 Increase in permanently restricted net assets ,339 Increase in net assets 97,676 82,876 72,835 91,446 76,930 Net assets, beginning of period 1,038, , , , ,592 Net assets, end of period $ 1,136,479 $ 1,048,844 $ 1,038,803 $ 965,968 $ 874,522 [remainder of the page intentionally left blank] A-32

95 Consolidated Balance Sheets (in 000 s) March 31 September (unaudited) Assets Current assets: Cash and cash equivalents $ 118,991 $ 89,932 $ 47,159 $ 123,007 $ 243,610 Short-term investments 150, , , , ,591 Assets limited as to use 53,043 56,165 53,433 54,630 48,816 Accounts receivable, net 300, , , , ,246 Other receivables 24,415 24,199 25,656 24,386 24,754 Other current assets 38,049 31,496 41,823 39,665 39,946 Total current assets 684, , , , ,963 Assets limited as to use: Debt service and reserve funds held by bond trustee 38,067 45,907 50,672 57,356 57,434 Interest rate swap collateral receivable 13,650-16,819 Designated by board for property and equipment - 280, , ,943 Designated by board for malpractice self-insurance 78,813 73,880 77,972 75,014 69, , , , , ,044 Less amount required to meet current obligations (53,043) (56,165) (53,433) (54,630) (48,816) 77, ,564 92, , ,228 Long-term investments Unrestricted 407, , , ,044 Long-term investments Restricted 55,567 54,517 49,709 49,443 49,586 Investments in related parties 22,484 21,794 22,122 20,098 19,028 Other assets 94,068 87,422 91,842 83,887 64,934 Property and equipment, net 895, , , , ,722 Total assets $ 2,238,282 $ 2,159,414 $ 2,158,829 $ 2,103,857 $ 2,001,461 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 143,306 $ 142,741 $ 142,569 $ 148,530 $ 150,927 Other current liabilities 78,303 84,940 85,329 87,002 83,986 Current portion of long-term debt 16,232 15,427 15,427 14,657 12,567 Total current liabilities 237, , , , ,480 Long-term debt, less current portion 739, , , , ,036 Accrued malpractice claims 64,672 75,130 67,158 72,209 68,265 Other noncurrent liabilities 59,975 39,602 60,129 49,360 49,158 Total liabilities 1,101,803 1,110,570 1,120,026 1,137,889 1,126,939 Net assets: Unrestricted 1,058, , , , ,354 Temporarily restricted 75,180 70,277 71,659 63,717 57,767 Permanently restricted 2,445 2,472 2,420 2,407 2,401 Total net assets 1,136,479 1,048,844 1,038, , ,522 Total liabilities and net assets $ 2,238,282 $ 2,159,414 $ 2,158,829 $ 2,103,857 $ 2,001,461 A-33

96 Consolidated Statements of Cash Flows (in 000 s) Six Months ended March 31 Year ended September (unaudited) Operating activities Increase in net assets $ 97,676 $ 82,876 $ 72,835 $ 91,446 $ 76,930 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 46,118 45,213 90,425 92,944 90,061 (Gain) loss on interest rate swap agreements (4,889) (15,696) 7,304 13,552 17,419 Unrealized (gains) losses on investments (23,228) (6,573) 17,066 (8,528) (19,096) Loss on early extinguishment of debt - - 2,858 4,330 - Impairment ,193 Restricted contributions and investment income (6,522) (9,937) (15,329) (15,910) (9,213) Net sales (purchases) of short-term trading securities 56,370 (32,504) (32,733) (46,572) (10,437) Changes in operating assets and liabilities: Accounts receivable, net (69,666) (24,880) (13,768) (7,551) 25,318 Other operating assets 6,397 8,356 (3,428) 649 (9,225) Accounts payable and accrued expenses 737 (5,789) (5,961) (2,397) 15,159 Other operating liabilities (6,159) 6,797 (3,259) 5,734 25,192 Net cash provided by operating activities 96,834 47, , , ,301 Investing activities Purchases of property, equipment and other assets (67,101) (40,439) (107,173) (112,305) (96,059) Decrease (increase) in assets limited as to use 14,162 2,628 (27,131) (34,801) 28,357 Net sales (purchases) of long-term trading securites 32,085 (35,188) (58,932) (109,011) - Other investing activities (1,376) (5,245) (5,248) 1,881 (1,389) Net cash used in investing activities (22,230) (78,244) (198,484) (254,236) (69,091) Financing activities Repayments of long-term debt and other (9,294) (12,631) (105,076) (252,181) (14,949) Restricted contributions and investment income 6,522 9,937 15,329 15,910 9,213 Net cash (used in) provided by financing activities (2,772) (2,694) 6,311 5,936 (3,221) Increase (decrease) in cash and cash equivalents 71,832 (33,075) (75,848) (120,603) 132,989 Cash and cash equivalents at beginning of period 47, , , , ,621 Cash and cash equivalents at end of period $ 118,991 $ 89,932 $ 47,159 $ 123,007 $ 243,610 [remainder of the page intentionally left blank] A-34

97 Notes to Interim Condensed Consolidated Financial Statements 1. Organization Orlando Health, Inc. (Corporation) is a not-for-profit Florida corporation and the only member of the Obligated Group. Controlled Affiliates are those entities the Corporation controls as the sole member, shareholder or through board appointment and approval of all major transactions. The Corporation and Controlled Affiliates are collectively referred to as the System. As of March 31, 2012, the Controlled Affiliates represented approximately 10.1% of consolidated total revenues and 6.4% of consolidated total assets of the System. The Corporation holds a 50% Board membership interest in South Lake Hospital, Inc. (South Lake). Since the Corporation does not have a controlling interest in South Lake, the accounts of South Lake are not included in the consolidated financial statements. 2. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements include the accounts and activity of the Corporation and its Controlled Affiliates. All significant intercompany transactions have been eliminated in consolidation for all periods presented. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. However, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended September 30, 2011, 2010, and As of the quarter ended December 31, 2011, the Corporation adopted ASU No , Presentation of Insurance Claims and Related Insurance Recoveries, which prohibits the netting of insurance recoveries against a related claim liability and requires the claim liability to be calculated without consideration of insurance recoveries. The adoption did not have any impact on the Corporation s consolidated financial position or results of operations. 3. Net Patient Service Revenue and Allowance for Doubtful Accounts The System has agreements with third-party payors that provide for payments to the System at amounts different from its established charges. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, per diem payments for hospital services, and percentages of Medicare fee schedules for physician services. The System provides discounts from established charges to uninsured patients. Net patient service revenue is reported at estimated net realizable amounts due from patients and third-party payors for medical services rendered, and includes adjustments resulting from reviews and audits of prior year Medicare and Medicaid cost reports. Such adjustments are considered in the recognition and estimation of revenue in the period that services are rendered, and in future periods as the adjustments become known or as cost report years are no longer subject to such reviews and audits. The System grants credit without collateral to its patients, most of whom are local residents, insured under third-party payor agreements. The provision for bad debts is based upon management s assessment of historical and expected collections of accounts receivable, considering business and economic conditions, trends in healthcare coverage, and other collection indicators. Accounts receivable are written off and charged to the provision for bad debts after collection effort has been followed in accordance with the System s policies. Recoveries are treated as a reduction to the provision for bad debts. Accounts receivable are reduced by an allowance for doubtful accounts. Periodically, management assesses the adequacy of the allowance for uncollectible accounts based upon historical write-off experience by payor category. Data about these major payor sources of revenue and the results of this review are then used to establish an appropriate allowance for uncollectible receivables and provision for bad debts. Additionally, for receivables associated with services provided to patients who have third-party coverage, contractually due amounts are analyzed and compared to actual cash collected over time to enhance the quality of the estimate of the allowance for doubtful accounts and the provision for bad debts (for example, for expected A-35

98 uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid, or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). 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), a significant allowance for doubtful accounts is recorded on the basis of historical experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. An estimate of the difference between contracted rates and amounts actually collected after all reasonable collection efforts have been exhausted is charged to the provision for bad debts and credited to the allowance for doubtful accounts. The allowance for doubtful accounts for self-pay hospital patients as a percent of related self-pay accounts receivable increased from 91.9% at September 30, 2011 to 92.4% at March 31, Hospital self pay discounts and bad debt expense increased from $56,612,000 and $42,867,000, respectively, for the six months ended March 31, 2011 to $67,235,000 and $55,758,000, respectively, for the six months ended March 31, However, this increase is consistent with the growth in gross patient service revenue. The allowance for doubtful accounts at March 31, 2012 was $145,768,000, of which $70,774,000 were allowances on amounts due from third-party payors, a $15,468,000 increase from the $55,306,000 allowance for third party payors at September 30, Of the increase, $10,313,000 was due to the Medicaid program s continued payment delays. There were no significant write-offs of third-party payor accounts during the six months ended March 31, Fair Value Measurements The System follows ASC 820, which provides a framework for measuring the fair value of certain assets and liabilities and disclosures about fair value measurements. As defined in ASC 820, fair value is 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. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Certain of the System s financial assets and financial liabilities are measured at fair value on a recurring basis, including money market, fixed income and equity instruments and interest rate swap agreements. The three levels of the fair value hierarchy defined by ASC 820 and a description of the valuation methodologies used for instruments measured at fair value are as follows: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Level 1 primarily consists of financial instruments such as money market securities, certain U.S. treasury and agency securities, U.S. corporate debt securities, and listed equity securities. Level 2 Observable pricing inputs other than quoted prices included within Level 1, including quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 Unobservable pricing inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities, and reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The System has no financial assets or financial liabilities with significant Level 3 inputs. The following methods and assumptions were used to estimate the fair value of each class of financial instrument in accordance with the provisions of Fair Value Topic: Cash and cash equivalents: The carrying amount reported in the consolidated balance sheets approximates fair value. Short-term investments, long-term investments, and assets limited as to use: The carrying amount reported in the consolidated balance sheets is fair value, based on quoted market prices, or estimated using quoted market prices for similar securities. A-36

99 Long-term debt: Fair value of fixed rate debt is estimated based on applicable quoted interest rate yield curves applied to the outstanding issues as of the end of each period. The carrying value of variable-rate debt approximates its fair value. Interest rate swap agreements: Assets are included in other assets, and liabilities are included in other noncurrent liabilities. Estimates are based on quoted market prices or estimated based on derivative pricing models that involve adjusting the periodic mid-market values to incorporate non-performance risk of Orlando Health when the financial instrument is a liability or the non-performance risk of the counterparty when the financial instrument is an asset. The derivative valuations determined by mid-market quotations are considered Level 2 assets or liabilities since quoted prices can be obtained from a number of dealer counterparties and other independent market sources based on observable interest rates and yield curves for the full term of the asset or liability. The following table represents the fair value hierarchy of the System s financial assets and liabilities measured at fair value on a recurring basis as of March 31, Level 1 Level 2 Level 3 Total (In Thousands) Cash and cash equivalents $ 118,991 $ - $ - $ 118,991 Financial Assets U.S. Treasury and agency obligations $ - $ 219,104 $ - $ 219,104 U. S. corporate bonds 13, , ,651 Equity securities 175, ,984 Cash and cash equivalents 28, ,074 Municipal bonds - 11,587-11,587 Mortgage-backed obligations - 13,601-13,601 International Bonds - 73,591-73,591 $ 217,367 $ 513,225 $ - $ 730,592 Financial Liabilities Long-term debt $ - $ 755,547 $ - $ 755,547 Interest rate swap agreements - 38,249-38,249 $ - $ 793,796 $ - $ 793,796 [remainder of the page intentionally left blank] A-37

100 5. Long-term Debt Long-term debt consists of the following: March 31 September (In Thousands) Fixed Rate Hospital Revenue Bonds - secured Series 2009 fixed rate plus net unamortized premium of $2,681,000 and $2,773,000 at March 31, 2012 and September 30, 2011 respectively, interest rates from 3.0% to 5.375%, payable through 2027 $ 223,281 $ 233,938 Series 2008A and B fixed rate plus net unamortized premium of $971,000 and $992,000 at March 31, 2012 and September 30, 2011 respectively, interest rates from 4.00% to 5.25%, payable through , ,567 Series 2008C fixed rate less net unamortized discount of $1,467,000 and $1,491,000 at March 31, 2012 and September 30, 2011 respectively, interest rates from 5.250% to 5.375%, payable 2029 through ,758 78,734 Series 2006B fixed rate plus unamortized premium of $656,000 and $669,000 at March 31, 2012 and September 30, 2011 respectively, interest rates from 4.750% to 5.125%, payable 2034 through ,306 75,319 Series 1996A and Series 1996C fixed rate plus unamortized premium of $1,194,000 and $1,303,000 at March 31, 2012 and September 30, 2011 respectively, interest rates from 3.75% to 6.25%, payable through ,244 63,303 Variable Rate Hospital Revenue Demand Bonds - secured Series ,175 83,175 Series 2008E 54,130 54,130 Notes payable and other indebtedness Construction Loan secured, variable interest rate of 30-day LIBOR plus 2.25% 31,345 25,033 Other Total debt, net of premiums and discounts 755, ,841 Less current portion, excluding premiums and discounts (16,232) (15,427) Total long-term debt $ 739,315 $ 749,414 Hospital Revenue Bonds, Series 2011 On September 15, 2011, the Authority issued $83,175,000 of variable rate Hospital Revenue Bonds (Series 2011 Bonds) on behalf of Orlando Health. The proceeds from the sale of the Series 2011 Bonds and $7,239,000 of remaining Series 2007A Bonds debt service reserve funds were used to currently refund the Series 2007A Bonds and pay the costs of issuance of the Series 2011 Bonds. The Series 2011 Bonds were issued as tax-exempt, multimodal bonds, initially operating in bank purchase mode, and privately placed with SunTrust Bank (Bank). As initially issued, the Series 2011 Bonds bear interest at a variable indexed interest rate which approximates 68% of 30 day LIBOR, plus 84 basis points. The initial interest rate may be adjusted due to changes in the maximum individual federal income tax rate, and other regulatory changes affecting the cost of the loan to the Bank. The initial interest rate period expires September 15, 2016, at which time the 2011 Bonds may be converted to another bank purchase mode or be subject to mandatory tender for purchase. Upon mandatory tender for purchase, Orlando Health may convert to another available interest rate mode. No assurances can be given that the Corporation will be able to A-38

101 convert to another bank purchase mode or otherwise refinance the Series 2011 Bonds upon mandatory tender by the Bank. During the initial interest rate period, the Series 2011 Bonds are subject to optional redemption at the direction of Orlando Health at par on each interest payment date. Interest is payable monthly. Construction Loan On June 30, 2009, Downtown Outpatient Building, LLC ( DOB ) entered into a five-year credit agreement (as amended) and promissory note with a bank whereby the bank provided advances up to a maximum of $37,500,000 to fund construction of a medical office and outpatient services building now known as the Orlando Health Heart Institute. Interest on the loan was equal to 30-day LIBOR plus 3.5% (amended to 2.25% effective January 2012), payable monthly at interest only for two years, then principal and interest on a 30-year amortization for the remaining three years, with all principal due at the end of the five years. On July 8, 2010, as part of the purchase of the medical office building from DOB, the Corporation received a separate $15,836,800 loan from the same bank, which was the same amount as the original loan. The new loan is secured under the Master Indenture by gross revenues of Orlando Health and the Mortgage. It has a variable rate that matures on December 31, At March 31, 2012, the outstanding balance was $31.3 million. The loan is expected to be refinanced with proceeds from the Series 2012B bonds. 6. Derivative Instruments and Hedging Activities Derivative instruments are recorded at their fair value as either an asset or liability. Accounting for changes in the fair value depends on whether the derivative has been designated as part of a hedging relationship and on the type of hedging relationship. Derivative instruments designated as hedging instruments are further designated as either fair value hedges or cash flow hedges, depending on the exposure being hedged. The System s derivative instruments are limited to cash flow hedging relationships, whose purpose is to hedge the variability in future cash flows attributed to interest rate fluctuations. The change in fair value of those derivative instruments, less any ineffective portion thereof, that meet the criteria of an effective hedge is reported as other changes in unrestricted net assets. The ineffective portion of the derivative instruments that do meet hedge accounting criteria is recognized in excess (deficiency) of revenues, other support, and gains over expenses and losses, as are changes in fair value on derivative instruments not meeting hedge accounting requirements. Interest Rate Swaps In an effort to reduce periodic financing costs and to take advantage of low interest rates in effect from time to time, the Corporation has entered into interest rate swap arrangements which hedge the risk of interest rates rising on variable rate bonds and other debt. The only derivatives the System has entered into are the interest rate swap agreements. The System has no other derivative instruments or hedging transactions. The Construction Loan Swap is a 30-day LIBOR swap and all of the other swaps are 68% of 30-day LIBOR swaps. In all cases, Orlando Health pays fixed rates and receives variable rates, and none of the swaps meet hedge accounting requirements. Valuation changes of all interest rate swaps are accounted for in the nonoperating gains and losses section of the Consolidated Statements of Operations. The notional amounts under such interest rate swap agreements hedging debt are substantially the same as the principal maturities of the respective outstanding bond series or loan amounts. The Construction Loan Swap hedges the majority of such loan at the maximum loan amount. In connection with the refinancing of the Construction Loan, the Corporation plans on terminating the Construction Loan Swap. Net interest receipts and payments are recognized as an adjustment to interest expense or as capitalized interest during periods of construction. The swap agreements are not accounted for under hedge accounting criteria. Therefore, changes in the value of the swap are included in gain (loss) on interest rate swap agreements. On September 15, 2011, the Corporation amended its 2007 A1 A2 Swaps to hedge the risk of interest rate fluctuations associated with the Series 2011 Bonds. The terms were identical to the 2007A1 A2 Swaps, except that there is no insurance for any termination payments there under, and as a result, collateral was posted in the amount of $13,650,000 at March 31, 2012, and is included in interest rate swap collateral receivable in assets whose use is limited. There were no settlement payments to or from the counter-party as a result of the swap amendments or the A-39

102 issuance of the Series 2011 Bonds. These swaps are now hedging the variable interest rate risk in the 2011 Series Bonds and are referred to as the 2011 Swaps. The following summarizes interest rate swap positions held during the year ended September 30, 2011 and six months ended March 31, 2011: Construction Loan Swap* 2008 E Swap 2011 Swaps Total (In Thousands) Cumulative position at September 30, 2010 $ (2,820) $ (8,405) $ (24,609) $ (35,834) Net gain (loss) during the year ended September 30, (1,359) (6,574) (7,304) Cumulative position at September 30, 2011 (2,191) (9,764) (31,183) (43,138) Net gain during the six months ended March 31, ,681 4,889 Cumulative position at March 31, 2012 $ (1,768) $ (8,979) $ (27,502) $ (38,249) *The construction loan swap will be terminated in connection with the refinancing of the Orlando Health Heart Institute loan refinancing, but not with any proceeds of the Series 2012 A or Series 2012 B Bonds. 7. Commitments and Contingencies Other than the commitment to purchase the assets and activities of the West Orange Healthcare District (see subsequent events note below), there are no other commitments or contingencies requiring disclosure as of March 31, 2012 through the date these condensed consolidated financial statements were issued. 8. Subsequent Events In preparing these financial statements, the System has evaluated events and transactions for potential recognition and disclosure through the date these condensed consolidated financial statements were issued. At March 31, 2012, the Corporation and the West Orange Healthcare District (District) had in place, a definitive agreement, pursuant to which the Corporation, through a Controlled Affiliate, Orlando Health Central, Inc. (OHC) would acquire and operate substantially all the current healthcare assets and activities of the District (Health Central). The transaction closed on April 1, OHC purchased most of the assets and assumed a majority of the liabilities of the District in exchange for a note obligating OHC to pay the District $181.3 million. Assets purchased totaled approximately $197 million, of which $47 million are current assets. Liabilities assumed totaled approximately $16 million and were all current liabilities. The principal of the note is payable in annual installments plus interest over 15 years. Total debt service payments under the note equal approximately $16.3 million per year. Payment of OHC s note is guaranteed by the Corporation pursuant to a Guaranty Agreement effective April 1, 2012 (Guarantee). Orlando Health s Guarantee is evidenced by a master note issued under the Master Trust Indenture and the master note and therefore the Guarantee are secured on parity with other obligations issued under the Master Trust Indenture. On April 5, 2012, a settlement was reached between CMS and certain providers related to CMS's calculation of the rural floor budget neutrality adjustment for the Medicare IPPS. This affected one or more fiscal years or cost reporting periods during the period Certain providers were being underpaid during these years based on an error in CMS's calculation of the rural floor budget neutrality adjustment. The Corporation estimates that it was underpaid, and as a result of this settlement, expects to receive approximately $9,322,000 by June 30, This amount was recorded as patient service revenue and accounts receivable, and an estimated $932,000 of related expenses and accrued liability, during and as of the six months ended March 31, There were no other subsequent events that required recognition in the condensed consolidated financial statements. Additionally, there were no other unrecognized subsequent events that required disclosure. A-40

103 Management s Discussion and Analysis Health Central Acquisition On April 1, 2012, the Corporation, through a newly created wholly-owned subsidiary, Orlando Health Central, Inc. ( OHC ), acquired substantially all the healthcare assets and operations of the West Orange Healthcare District (the District ), pursuant to an Asset Purchase Agreement. OHC is a Controlled Affiliate of the Corporation and is not a member of the Obligated Group. The District is a political subdivision of the State established to serve West Orange County that owned the hospital and other healthcare facilities known as Health Central ( Health Central ), located in west Orange County, Florida. Below is a discussion of Health Central s recent results of historical operations and the expected acquisition accounting. Health Central earned $165.5 million and $152.9 million in total operating revenues during the years ended September 30, 2011 and 2010, respectively. Operating income was $10.4 million (6.3% margin) and $7.2 million (4.7% margin) for the years ended September 30, 2011 and 2010, respectively. For further information about Health Central s historical financial performance, please see the audited financial statements in Appendix C. Please note that the audited financial statements were prepared in accordance with Governmental Accounting Standards Board principles and not Financial Accounting Standards Board (FASB) principles, so such financial statements are not strictly comparable with Orlando Health s financial statements. [remainder of the page intentionally left blank] A-41

104 With the redemption of the District s outstanding debt on February 3, 2012, the new OHC note in the amount of $181.3 million payable to the District, and the valuation of other assets and liabilities as of March 31, 2012, Orlando Health Central s initial balance sheet is estimated to be as follows: Initial Balance Sheet Assets $000 s Current Assets Cash $ 1,013 Short-term investments 7,044 Accounts receivable, net 29,673 Other receivables 643 Other current assets 8,489 Total Current Assets 46,862 Long-term investments-unrestricted 38,464 Property and Equipment, net 110,978 Other assets 586 Total Assets $196,890 Liabilities and net assets Current liabilities Accounts payable and accrued expenses $14,715 Other current liabilities 875 Total Current Liabilities $15,590 Note Payable 181,300 Net Assets - Total Liabilities and net assets $196,890 The fair value assessment was finalized prior to purchase, so the purchase price allocation will not differ materially from the estimate outlined above. There is no goodwill expected to result from the allocation. The following discussion and analysis is on a consolidated basis which includes the consolidated operations and financial position of Orlando Health, Inc. and its Controlled Affiliates. It does not include Health Central. Six Months ended March 31, 2012 Compared to the Same Period of the Prior Year Excess of revenues, other support and gains over expenses and losses was $94.4 million for the six months ended March 31, 2012, a $18.1 million or 23.7% increase from the prior year comparable period. Income from operations was $51.3 million for the six months ended March 31, 2012, an increase of $13.7 million or 36.3% from the prior year comparable period. Net nonoperating gains increased $4.5 million or 11.5% from the prior year comparable period. Revenue, Utilization, and Payor Mix Net patient service revenue, less the provision for bad debts for the six months ended March 31, 2012 increased $61.8 million or 7.8% compared to the six months ended March 31, The current year period includes $18.9 million in net positive cost report and other adjustments unrelated to the six months ended March 31, 2012, but the prior year comparable period included $6.6 million of similar positive adjustments. Excluding these adjustments, net patient service revenue increased $49.5 million or 6.3%. Admissions decreased 3.1%, but was offset by an increase in case mix index from 1.63 to 1.70, a 34.1% increase in observation cases, and a 12.2% increase in outpatient visits. Average length of stay was consistent at 4.7 days. The payor mix changed slightly with an increase in Medicaid from 16.4% to 17.2%, which was offset with decreases in most of the other categories. Physician practice revenue increased $15.0 million or 34.4% due mostly to recently acquired physician practices. A-42

105 Expenses Total expenses for the six months ended March 31, 2012 increased $52.6 million or 6.7% compared to the six months ended March 31, 2011 due mostly to a $55.1 million or 12.9% increase in salaries and wages attributed to the newly acquired physician practices and normal pay rate increases. An interim actuarial study was performed on the Corporation s medical malpractice self-insured liability fund, resulting in a $12.3 million reduction in the medical malpractice liability and expense during the current year period. Inflation effects were further offset by continued efforts to reduce contracted pricing and reduce supply waste and utilization. Excluding the positive $12.3 medical malpractice adjustment, total expenses increased $64.9 million or 8.3%. In July 2011, the State of Florida reduced the payment rates for hospital services for nearly all hospitals in the State. See BONDHOLDER S RISKS State Legislation Florida Medicaid Reform in the body of this Official Statement. The total impact to the Corporation will be a reduction of approximately $46 million of payments from Medicaid and Medicaid HMOs for the twelve months ended June 30, The Corporation has and is implementing plans to increase revenue from other sources and implement expense reductions by enough to allow it to continue to operate at a similar operating margin as in prior years. Changes in Cash, Investments and Accounts Receivable From September 30, 2011 to March 31, 2012, unrestricted cash and investments increased $0.3 million or 0.0%, accounts payable and accrued expenses and other current liabilities decreased $6.3 million or 2.8% to $221.6 million, and accounts receivable (net) increased $69.7 million or 30.2% to $300.2 million. Days of revenue in accounts receivable (restated for the effects of moving bad debt expense to revenue) were 65 days at March 31, 2012 based on one year of net patient service revenue, an increase from 50 days at September 30, The increase was due to reduced cash collections resulting from the impact of the mandated conversion to the newest electronic data sets used to transmit patient bills to third party payors. The issues are being resolved and collections improved during February and March Capital Expenditures Since September 30, 2011, the ORMC expansion project was approved by the Board. As of March 31, 2012, the total estimated cost to complete all capital projects was $350.7 million, which will be funded with approximately $157 million in new debt, unrestricted cash and investments, and fundraising. Year ended September 30, 2011 Compared to 2010 In July, 2011, the FASB issued ASU No , 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 (ASU ). ASU requires certain health care entities to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from net patient service revenue (net of contractual allowances and discounts) along with enhanced disclosures. The System elected to early adopt ASU effective for the year ended September 30, Prior years have been reclassified to conform to this standard. See the consolidated audited financial statements for further disclosures and other new accounting standards implemented recently. Excess of revenues, other support and gains over expenses and losses for the year ended September 30, 2011 was $64.4 million, an $18.5 million or 22.3% decrease from the $83.0 million in income of the prior year. Non-operating activity decreased $15.5 million, mostly from decreased investment income due to market conditions. Income from operations decreased from $61.4 million to $58.3, or 5.02%. Revenue, Utilization, and Payor Mix Net patient service revenue less provision for bad debts for the year ended September 30, 2011 increased $71.2 million or 4.7% compared to the prior year. During 2011, there was a positive adjustment impact of $11.6 million related to prior year Medicaid and Medicare cost report settlements, which was $1.5 million less than a similar positive adjustment impact of $13.1 million recorded in Excluding the effects of these positive settlements in both years, the increase was $72.7 million or 4.8%. The increase is due to rate increases and an 8.6% increase in A-43

106 outpatient visits attributable to the employment of additional physicians. Hospital admissions decreased 1.2%, but observation cases increased by a similar amount of cases. Case mix increased 0.3 from the prior year to 1.64, but payor mix continued to shift to more Medicaid patients. Self pay increased from 10.7% to 10.8%, managed care decreased from 34.8% to 34.0%, and Medicaid increased from 15.5% to 16.6%. Average operational beds were consistent with the prior year and adult occupancy decreased from 78.2% to 77.6%. Other revenue in 2010 includes $3.6 million in federal stimulus money received through the Medicaid low income pool during the prior year. There was no similar stimulus money received during the current year. Expenses Total expenses for the year ended September 30, 2011 increased $74.5 million or 4.9% compared to the prior year. Excluding a $15.3 million decrease in medical malpractice expense that was due to improving claims experience, expenses increased $89.8 million or 5.9%. $75.6 million of the increase was in salaries and benefits which is due primarily to increased employment of physicians and an annual employee pay rate increase. Nonoperating Gains and Losses Investment income for the year ended September 30, 2011 decreased $23.2 million from the prior year due to unfavorable financial markets as invested cash did not change significantly. Interest rate swap valuation losses decreased $6.2 million from the prior year and there was a $1.4 million decrease in losses on the extinguishment of debt. Unrestricted Cash and Investments, and Accounts Receivable During the year ended September 30, 2011, unrestricted cash and investments increased $5.3 million or 0.8%. Accounts receivable increased $13.8 million or 6.4% during the year ended September 30, There were 50 days revenue in accounts receivable at September 30, 2011 and 48 days at September 30, Capital Expenditures The System decreased capital expenditures 4.5% from $112.3 million spent in the fiscal year 2010 to $107.2 million in the current year. However, several new capital projects were initiated during the year, including initial costs associated with an expansion of ORMC. The total estimated cost to complete all capital projects increased from $58.3 million at September 30, 2010 to $107.9 million at September 30, Controlled Affiliates Excess (deficiency) of revenues, other support, and gains over expenses and losses by the Obligated Group and Controlled Affiliates for the years ended September 30, 2011 and 2010 is presented below: Year Ended September 30 Excess (deficiency) of revenue, other support, and gains over expenses and losses (in millions) Orlando Health, Inc. (sole Member of the Obligated Group) $128.4 $107.3 Controlled Affiliates (60.0) (22.8) Inter-company Eliminations (4.0) (1.5) Consolidated $64.4 $83.0 Excludes Health Central Most of the losses from the Controlled Affiliates were derived from physician practices. More than half of all employed physicians practices moved from Orlando Health, Inc. in 2010 to Controlled Affiliates in 2011, and the total number of employed physicians increased in The addition of certain physician groups has brought new hospital based ancillary services which in many cases more than offsets the physician practice losses. A-44

107 Year ended September 30, 2010 Compared to 2009 Excess (deficiency) of revenues, other support and gains over expenses and losses for the year ended September 30, 2010 was $83.0 million, a $9.7 million or 13.2% increase from the $73.3 million in income of the prior year. $7.2 million of the improvement was an improvement in non-operating income, mostly from increased investment income. The remaining was due to a $2.5 million increase in income from operations, which increased from $58.9 million to $61.4 million, or 4.2%. However, excluding the net income effect of cost report settlement adjustments of $13.1 million in 2010 and $5.4 million in 2009, and $3.6 million in federal stimulus money received during 2010, income from operations decreased $8.9 million or 16.6%. Revenue, Utilization, and Payor Mix Net patient service revenue, less the provision for bad debts for the year ended September 30, 2010 increased $68.9 million or 4.8% compared to the prior year. During 2010, there was a positive adjustment impact of $13.1 million related to prior year Medicaid and Medicare cost report settlements, which was $7.7 million more than a similar positive adjustment impact of $5.4 million recorded in Excluding the effects of these positive settlements in both years, the increase was $61.2 million or 4.2%. The increase is due to rate increases as adult admissions decreased 1.7% and outpatient visits decreased 2.0%. Case mix decreased slightly from the prior year at 1.61, but payor mix changed with a shift to more Medicaid patients. Self pay decreased from 11.2% to 10.7%, managed care decreased from 35.6% to 34.8%, and Medicaid increased from 13.5% to 15.5%. Average operational beds increased by 26 or 1.6%, and occupancy decreased from 79.9% to 78.2%. Other revenue for the year ended September 30, 2010 includes $3.6 million in federal stimulus money received through the Medicaid low income pool during There was no similar stimulus money received during Expenses Excluding the provision for bad debts, total expenses for the year ended September 30, 2010 increased $70.3 million or 4.9% compared to the prior year due to annual employee pay rate increases and supply inflation. Nonoperating Gains and Losses Investment income for the year ended September 30, 2010 increased $7.7 million from the prior year due to an increase in invested cash and improvement in the financial markets. Interest rate swap valuation losses for the year ended September 30, 2010 decreased $3.9 from the prior year and a $4.3 million loss was recognized on the extinguishment of debt. Unrestricted Cash and Investments, and Accounts Receivable During the year ended September 30, 2010, unrestricted cash and investments increased $72.4 million or 12.1%. This was due to improved operating activity and investment income during the year. Accounts receivable increased $7.6 million or 3.6% during the year ended September 30, Days revenue in accounts receivable was consistent at 48.4 days as of September 30, 2010 and Capital Expenditures The System increased capital expenditures 16.9% from $96.1 million in fiscal year 2009 to $112.3 million in fiscal year There are no significant construction projects in progress other than the medical office building, Controlled Affiliates Excess (deficiency) of revenues, other support, and gains over expenses and losses by the Obligated Group and Controlled Affiliates for the years ended September 30, 2010 and 2009 is presented below: A-45

108 Year Ended September 30 Excess (deficiency) of revenue, other support, and gains over expenses and losses (in millions) Orlando Health, Inc. (Obligated Group) $107.3 $82.1 Controlled Affiliates (22.8) (4.8) Inter-company Eliminations (1.5) (4.0) Consolidated $83.0 $73.3 Approximately $24.1 million of the loss in fiscal year 2010 from the Controlled Affiliates were from physician practices, which was an increase of $14.1 million from the $10.0 million loss from the physician practices during The increased loss is due to moving certain material ancillary services from the physician s practices to hospital based services and an increase in the number of employed physicians. The addition of one significant physician group brought new hospital based ancillary services which more than offset the physician practice loss. System Outlook and Plans for the Future This outlook is being provided by the Corporation. While the information contained in this section is believed to be accurate, no representation or warranty (whether express or implied) is made by the Corporation as to the accuracy, reliability, or completeness of such information. This Outlook includes forward-looking statements as defined in the Securities Act of 1933, as amended. Any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, interest rate risk, delinquency and default rates, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, customer preferences, and various other matters, many of which are beyond the Corporation s control. These forward-looking statements speak only as of the date of this Official Statement. The Corporation and its Controlled Affiliates expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Corporation, this outlook and its expectations or those of its Controlled Affiliates with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Under the Private Securities Litigation Reform Act of 1995, statements in this Appendix A that are not historical facts, including statements about plans and expectations regarding businesses and opportunities, demand and acceptance of new and existing businesses, capital resources, and future financial condition and results are forwardlooking. Forward-looking statements involve risks and uncertainties, which may cause actual results in future periods to differ materially and adversely from those expressed. These uncertainties and risks include changing consumer (patient) preferences, lack of success of new businesses, loss of customers (patients), competition, and other factors discussed from time to time in filings with the Securities and Exchange Commission (NRMSRs or EMMA) / under SEC Rule 15c2-12. The healthcare industry continues to experience increasing competition, stringent regulatory constraints, increasing labor and pharmaceutical and supply costs, and payment reductions from Medicare and Medicaid. The deterioration of the economy and loss of jobs, as well as the continued pressure on employers to share more of the costs of health insurance with their employees, has resulted in a reduction in those electing coverage with their employer and larger amounts of hospital bills due from patients. This has translated into an increase in amounts due from self-pay and Medicaid accounts and increased charity and bad debt write-offs. To meet these challenges, Orlando Health continues to focus on its core hospital operations and has increased the hiring of physicians to complement this focus. Over the last 10 years, the System made significant operational and financial changes, including the disposition of various non-core assets, initiatives to increase revenue, acquisition of a hospital located in the System s service area, implementation of initiatives to retain high quality personnel and programs to better manage supply and pharmaceutical costs, and has installed a new patient care information system. The System is installing an improved time and attendance and employee scheduling system to better manage labor productivity. Risks include: continued pressures from federal and state healthcare reimbursement ultimate effects of recent Federal healthcare reform legislation A-46

109 unknown effects of possible modifications to recent Federal healthcare reform legislation pressures from managed care companies for reduced rates shortage of skilled health care professionals un-reimbursed charity care losses and increases in uninsured and underinsured population increases in malpractice losses and insurance premiums reduced growth in the local population resulting in little growth in hospital admissions, at least in the short term In July 2011, the State of Florida reduced the payment rates for hospital services for nearly all hospitals in the State. See BONDHOLDER S RISKS State Legislation Florida Medicaid Reform in the body of this Official Statement. The total impact to the Corporation will be a reduction of approximately $45 million of payments from Medicaid and Medicaid HMOs for the twelve months ended June 30, In its most recent session the state of Florida approved a budget for the fiscal year ending June 30, 2013 containing reductions in Medicaid payment rates for most hospitals and nursing homes. The budgeted reduction to hospitals is 5.64%. Management of the Corporation estimates the annual impact to Orlando Health is a reduction in Medicaid payments of about $17 million and a reduction in payments to Orlando Health Central of about $1.4 million. The Corporation has and is implementing plans to increase revenue from other sources and reduce costs by enough to allow it to continue to operate at a similar operating margin as in prior years. No assurance can be given that Medicaid rates will not be reduced again in the future. These challenges are significantly impacting all healthcare providers. To date, management has successfully implemented strategies to deal with bottom line pressures, including aggressive managed care contracting, internal cost controls, improved risk management processes, and a continued focus on managing length of stay and resource utilization. The Corporation has been successful in these strategies and expects the success to continue into the future. Nurse recruitment and retention programs continue to reduce nursing turnover rate and use of traveling nurses. Supply and pharmaceutical cost saving programs continue to provide significant cost savings through the standardization of medical supplies and pharmaceuticals. The Corporation is continuing to hire physicians, and planning other ways for community physicians to become more connected to the Corporation, in order to meet its goal of becoming a clinically integrated organization. We believe that clinical integration will be very important to improving quality, patient safety, patient satisfaction and efficiency. The Corporation had experienced significant increases in inpatient volumes in the growing Central Florida market in recent years that resulted in capacity constraints. These have been addressed through a variety of strategies including renovation and expansion as described below. Through various means, ORMC has been successful in reducing length of stay, which has increased the capacity for increased admissions. The population in the Tri-County Area has grown from 1.4 million in 2000 to 1.8 million in 2011, and is expected to grow to 2.0 million by The System s inpatient adult admissions to its acute care facilities decreased 1.4% from 2010 to 2011, but observation cases increased. Outpatient volumes have increased due partly to the increased number of employed physicians and inpatient admissions are expected to recover and continue to strain the System s capacity. In order to respond to these challenges and meet the health care needs of the community, Orlando Health continues to invest in capital improvements, and over the last 5 fiscal years, spent approximately $646 million on property and equipment, which includes: In 2003, the Corporation opened seven floors of a new, ten-floor building adjacent to ORMC that houses the MD Anderson Cancer Center Orlando and inpatient hospital floors which are part of ORMC. The remaining three floors were completed in 2004, and provide inpatient acute care hospital services. The expansion of the emergency departments and other modifications at South Seminole and Dr. P. Phillips Hospital were also completed in 2004, and renovation and re-arranging of existing space at ORMC has begun. A-47

110 Winnie Palmer Hospital opened in May 2006 and includes programs and services focusing on the unique needs of pregnant women and newborns. Winnie Palmer Hospital s 285 total beds include 112 neonatal intensive care beds making it the fourth-largest neonatal intensive-care unit in the U.S. In 2006, ORMC moved the medicine service from ORMC to Lucerne to better utilize the Lucerne and ORMC facilities. This cleared the way for admissions growth at ORMC. In 2007, expansion of the Arnold Palmer Hospital included the opening of a new emergency department and trauma center to treat children that were previously being treated at ORMC. Construction was also completed on expansions which added 43 critical care beds and four operating rooms and related pre- and post-operative space. These projects together cost approximately $50 million and were funded from operations and philanthropy. In November, 2008, the Corporation completed an expansion to Dr. P. Phillips Hospital. The expansion includes a new tower that houses 48 ICU beds, 48 PCU beds, 48 shelled beds, 8 operating rooms and 4 interventional suites. Certain other renovations are planned at the existing hospital. In December, 2011, the Orlando Health Heart Institute, a 5 story medical office building located next to ORMC opened. This facility is being refinanced with a portion of the proceeds of the Series 2012 B Bonds. Construction is now underway to replace the oldest patient beds and expand ORMC. This will be a multi-year project and the cost and timing are not certain at this time. The Corporation expects to fund a portion of this project with the Series 2012 A Bonds. See PLAN OF FINANCE The Project in the body of the Official Statement. Management is carefully considering the economic slowdown and the reduction in population growth while deciding on the overall scope and timing of this project. However, a number of infrastructure projects such as parking garages and road and utility improvements have been completed and are ongoing to support this and other needs of the downtown Orlando campus which includes ORMC and the Arnold Palmer Medical Center. These and other projects and equipment purchases have enabled the System to maintain its strong market position. The System s market share remains consistent and has averaged 36% over the last 5 years and will increase with the addition of Health Central. A-48

111 APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION AND ITS CONTROLLED AFFILIATES

112 [THIS PAGE INTENTIONALLY LEFT BLANK]

113 C ONSOLIDATED F INANCIAL S TATEMENTS AND O THER F INANCIAL I NFORMATION Orlando Health, Inc. and Controlled Affiliates Years Ended September 30, 2011, 2010, and 2009 With Report of Independent Certified Public Accountants Ernst & Young LLP

114 Orlando Health, Inc. and Controlled Affiliates Consolidated Financial Statements and Other Financial Information Years Ended September 30, 2011, 2010, and 2009 Contents Report of Independent Certified Public Accountants...1 Consolidated Financial Statements Consolidated Balance Sheets...2 Consolidated Statements of Operations and Changes in Net Assets...3 Consolidated Statements of Cash Flows...5 Notes to Consolidated Financial Statements...6 Other Financial Information Report of Independent Certified Public Accountants on Other Financial Information...29 Consolidating Balance Sheet...30 Consolidating Statement of Operations

115 Ernst & Young LLP Suite East Jackson Street Tampa, FL Tel: Fax: The Board of Directors Orlando Health, Inc. Report of Independent Certified Public Accountants We have audited the accompanying consolidated balance sheets of Orlando Health, Inc. and Controlled Affiliates (the System) as of September 30, 2011, 2010, and 2009, and the related consolidated statements of operations and changes in net assets, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the System s management. 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the System s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the System s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Orlando Health, Inc. and Controlled Affiliates at September 30, 2011, 2010, and 2009, and the consolidated results of their operations, changes in their net assets, and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. In accordance with Government Auditing Standards, we have also issued our report dated November 22, 2011, on our consideration of Orlando Health, Inc. and Controlled Affiliates internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. November 22, A member firm of Ernst & Young Global Limited

116 Orlando Health, Inc. and Controlled Affiliates Consolidated Balance Sheets (In Thousands) September Assets Current assets: Cash and cash equivalents $ 47,159 $ 123,007 $ 243,610 Short-term investments 207, , ,591 Assets limited as to use 53,433 54,630 48,816 Accounts receivable, less allowances for uncollectible accounts of $124,831 in 2011, $99,244 in 2010, and $97,655 in , , ,246 Other receivables 25,656 24,386 24,754 Other current assets 41,823 39,665 39,946 Total current assets 606, , ,963 Assets limited as to use: Debt service and reserve funds held by bond trustee 50,672 57,356 57,434 Designated by board for property and equipment 260, ,943 Interest rate swap contract collateral receivable 16,819 Designated by board for malpractice self-insurance 77,972 75,014 69, , , ,044 Less amount required to meet current obligations (53,433) (54,630) (48,816) 92, , ,228 Long-term investments - unrestricted 422, ,044 Long-term investments - restricted 49,709 49,443 49,586 Investments in related parties 22,122 20,098 19,028 Other assets 91,842 83,887 64,934 Property and equipment, net 874, , ,722 Total assets $ 2,158,829 $ 2,103,857 $ 2,001,461 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 142,569 $ 148,530 $ 150,927 Other current liabilities 85,329 87,002 83,986 Current portion of long-term debt 15,427 14,657 12,567 Total current liabilities 243, , ,480 Long-term debt, less current portion 749, , ,036 Accrued malpractice claims 67,158 72,209 68,265 Other noncurrent liabilities 60,129 49,360 49,158 Total liabilities 1,120,026 1,137,889 1,126,939 Net assets: Unrestricted 964, , ,354 Temporarily restricted 71,659 63,717 57,767 Permanently restricted 2,420 2,407 2,401 Total net assets 1,038, , ,522 Total liabilities and net assets $ 2,158,829 $ 2,103,857 $ 2,001,461 See accompanying notes

117 Orlando Health, Inc. and Controlled Affiliates Consolidated Statements of Operations and Changes in Net Assets (In Thousands) Year Ended September Unrestricted revenues and other support Net patient service revenue (net of contractual allowances and discounts) $ 1,694,565 $ 1,636,362 $ 1,577,284 Provision for bad debts (107,146) (120,185) (130,054) Net patient service revenue less provision for bad debts 1,587,419 1,516,177 1,447,230 Other revenue 58,236 57,347 55,293 Net assets released from restrictions 6,356 7,002 5,253 Total unrestricted revenues and other support 1,652,011 1,580,526 1,507,776 Expenses Salaries and benefits 883, , ,256 Supplies and other 549, , ,873 Professional fees and purchased services 33,296 34,458 34,138 Depreciation and amortization 90,425 92,944 90,061 Impairment 315 3,193 Interest 37,313 37,958 38,350 Total expenses 1,593,710 1,519,163 1,448,871 Income from operations 58,301 61,363 58,905 Nonoperating gains and losses Investment income 16,308 39,508 31,828 Change in fair value of interest rate swap agreements (7,304) (13,552) (17,419) Loss on early extinguishment of debt (2,858) (4,330) Nonoperating gains, net 6,146 21,626 14,409 Excess of revenues, other support, and gains over expenses and losses 64,447 82,989 73,314 Continued on next page

118 Orlando Health, Inc. and Controlled Affiliates Consolidated Statements of Operations and Changes in Net Assets (continued) (In Thousands) Year Ended September Unrestricted net assets Excess of revenues, other support, and gains over expenses and losses $ 64,447 $ 82,989 $ 73,314 Other changes in unrestricted net assets: Net assets released from restriction for property and equipment 1,018 2,952 6,554 Other (585) (451) (344) Increase in unrestricted net assets 64,880 85,490 79,524 Temporarily restricted net assets Contributions 15,159 14,330 6,516 Net assets released from restrictions (7,374) (9,954) (11,807) Net realized and unrealized gains (losses) on investments (102) 1,574 1,358 Reclassifications and other 259 Increase (decrease) in temporarily restricted net assets 7,942 5,950 (3,933) Permanently restricted net assets Contributions ,338 Net realized and unrealized gains (losses) on investments (6) 2 1 Increase in permanently restricted net assets ,339 Increase in net assets 72,835 91,446 76,930 Net assets at beginning of year 965, , ,592 Net assets at end of year $ 1,038,803 $ 965,968 $ 874,522 See accompanying notes

119 Orlando Health, Inc. and Controlled Affiliates Consolidated Statements of Cash Flows (In Thousands) Year Ended September Operating activities Change in net assets $ 72,835 $ 91,446 $ 76,930 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 90,425 92,944 90,061 Change in fair value of interest rate swap agreements 7,304 13,552 17,419 Net unrealized losses (gains) on investments 17,066 (8,528) (19,096) Loss on early extinguishment of debt 2,858 4,330 Impairment 315 3,193 Restricted contributions and investment income (15,329) (15,910) (9,213) Purchase of short-term trading securities, net of sales (32,733) (46,572) (10,437) Changes in operating assets and liabilities: Accounts receivable, net (13,768) (7,551) 25,318 Other operating assets (3,428) 649 (9,225) Accounts payable and accrued expenses (5,961) (2,397) 15,159 Other operating liabilities (3,259) 5,734 25,192 Net cash provided by operating activities 116, , ,301 Investing activities Purchases of property, equipment and other noncurrent assets (107,173) (112,305) (96,059) (Increase) decrease in assets limited as to use (27,131) (34,801) 28,357 Purchase of long-term trading securities, net of sales (58,932) (109,011) Other investing activities (5,248) 1,881 (1,389) Net cash used in investing activities (198,484) (254,236) (69,091) Financing activities Proceeds from issuance of long-term debt 89, ,551 2,515 Proceeds from debt service reserve fund liquidation 7,239 Repayments of long-term debt (105,076) (252,181) (14,949) Swap termination payments (12,124) Long-term debt proceeds used for loan costs (310) (3,220) Restricted contributions and investment income 15,329 15,910 9,213 Net cash provided by (used in) financing activities 6,311 5,936 (3,221) (Decrease) increase in cash and cash equivalents (75,848) (120,603) 132,989 Cash and cash equivalents at beginning of year 123, , ,621 Cash and cash equivalents at end of year $ 47,159 $ 123,007 $ 243,610 See accompanying notes

120 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements September 30, Organization Orlando Health, Inc. (Orlando Health) is a not-for-profit corporation, recognized as tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code, that controls a diversified healthcare delivery system headquartered in Orlando, Florida (collectively referred to as the System). Orlando Health includes the following hospitals operating in Central Florida: Orlando Regional Medical Center (ORMC) which includes the Lucerne Pavilion (Lucerne), Dr. P. Phillips Hospital, Arnold Palmer Hospital for Children (APH), Winnie Palmer Hospital for Women and Babies (WPH), South Seminole Hospital,, and a home health services division. APH and WPH are jointly referred to as the Arnold Palmer Medical Center (APMC). Lucerne was formerly Orlando Regional Lucerne Hospital, a separately licensed hospital that was added to the license of ORMC on July 1, Orlando Health controls several affiliates as the sole or majority member, sole shareholder, or through board appointment and approval of all major transactions. These affiliates operate a variety of healthcare-related services, including an outpatient cancer treatment center (MD Anderson Cancer Center Orlando), a physician practice group, (Orlando Health Physician Group, Inc.), as well as rehabilitative services, a preferred provider organization, a group purchasing organization, and other healthcare-related services. These financial statements include the consolidated accounts of Orlando Health and its controlled affiliates. Significant transactions between entities have been eliminated. The System owns a 20% interest in OsceolaSC, LLC (OsceolaSC), a for-profit limited liability corporation. The remaining 80% is owned by Health Management Associates, Inc. (HMA), a publicly held company. OsceolaSC owns and operates St Cloud Regional Medical Center, 84 bed hospital in Osceola County. The System s 20% interest in OsceolaSC is accounted for using the equity method with the accounts of OsceolaSC excluded from these consolidated financial statements. Orlando Health has a 50% membership on the Board of Directors of South Lake Hospital, Inc. (South Lake), a notfor-profit acute care hospital. As Orlando Health does not hold a controlling interest, nor rights and obligations to profits and losses, the accounts of South Lake are excluded from the consolidated financial statements. 2. Significant Accounting Policies Recent Accounting Pronouncements In September 2011, the FASB issued ASU No , Intangibles Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU ). ASU No simplifies how entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in FASB Accounting Standards Codification Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. This new guidance is effective for fiscal years beginning after December 15, 2011, with early application permitted. The System decided not to adopt ASU early and will adopt for fiscal year The adoption of ASU is not expected to have any impact on Orlando Health s consolidated financial position or results of operations

121 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) In July, 2011, the FASB issued ASU No , 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 (ASU ). ASU requires certain health care entities to change the presentation of their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from net patient service revenue (net of contractual allowances and discounts). Additionally, those health care entities are required to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The new guidance also requires disclosures of patient service revenue (net of contractual allowances and discounts), as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. This new guidance is effective for fiscal years beginning after December 15, 2011, with early application permitted. The System early adopted ASU during the year ended September 30, In January 2011, the FASB issued ASU , Not-for-Profit Entities : Merger and Acquisitions (ASU ), which establishes accounting and disclosure requirements for how a not-for-profit entity determines whether a combination is a merger or acquisition, how to account for each, and the required disclosures. It requires mergers to be accounted for using the carryover method and acquisitions to be accounted for using the acquisition method. It also allows for recognition of a contribution when net assets are received without transferring consideration, or if the consideration transferred is less than the fair value of the net assets received. ASU is effective for mergers or acquisitions for which the merger or acquisition date is on or after the beginning of the initial reporting period of the new entity that begins on or after December 15, In addition, ASU included amendments to FASB s ASC Topic 350, Intangibles Goodwill and Other (ASC Topic 350), and Topic 810, Consolidation (ASC Topic 810), to make both applicable to not-for-profit entities, thus requiring not-for-profit entities to cease amortizing goodwill and other indefinite-lived intangible assets and perform impairment testing on at least an annual basis. ASC Topic 350 clarifies the accounting for goodwill and indefinite-lived identifiable intangible assets recognized in a not-for-profit entity s acquisition of a business or nonprofit activity. Such assets are not amortized and are tested for impairment at least annually. ASU requires entities to perform a transitional intangible impairment test within six months of the beginning of the fiscal year beginning after December 15, Orlando Health adopted this standard effective October 1, 2010, and has performed a transitional impairment analysis at March 31, The impairment test results were positive and no impairment indicators existed. The System will complete its annual impairment analysis on March 31 of each fiscal period. Amortization of goodwill ceased as of October 1, 2010, and reduced amortization expense by approximately $4,000,000 for the fiscal year ended September 30, In August 2010, the FASB issued ASU No , Measuring Charity Care for Disclosure (ASU ). The provisions of ASU are intended to reduce the diversity in how charity care is calculated and disclosed by health care entities. Charity care is required to be measured at cost, defined as the direct and indirect costs of providing the charity care. As Orlando Health does not recognize revenue when charity care is provided, ASU will have no effect on the consolidated statements of operations and changes in net assets. ASU only requires additional disclosures, including the method used to estimate the cost of charity care. This new guidance is effective for fiscal years beginning after December 15, 2010, with early application permitted

122 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) The System early adopted ASU during the year ended September 30, In August 2010, the FASB issued ASU No , Presentation of Insurance Claims and Related Insurance Recoveries (ASU ). ASU prohibits the netting of insurance recoveries against a related claim liability and requires the claim liability to be calculated without consideration of insurance recoveries. This guidance is effective for fiscal years beginning after December 15, 2010, with early application permitted. Orlando Health will adopt ASU in the first quarter of fiscal year The adoption of ASU is not expected to have a significant impact on Orlando Health s consolidated financial position or results of operations. In January 2010, the FASB updated the accounting standards to require new disclosures for fair value measurements and to provide clarification for existing disclosure requirements. More specifically, this update requires (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers and (b) information about purchases, sales, issuances, and settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the roll forward of fair value measurements using significant unobservable inputs (Level 3 inputs). This update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and require disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 12, 2010, and for interim periods within those fiscal years. The adoption of this guidance did not have an effect on Orlando Health s consolidated financial position or results of operations. Reclassifications As a result of adopting ASU , the provision for bad debts was reclassified from operating expense to reduction in revenue. The years ended September 30, 2010 and 2009 have been reclassified to reflect the current year presentation. At September 30, 2011, the presentation of long-term investments was modified to reflect the intended use of such investments. Under the new presentation, long-term investments are classified as either long-term investments unrestricted or long-term investments restricted. Long-term investments restricted are comprised of donor restricted investments held by Orlando Health Foundation, Inc. (Foundation), a controlled affiliate of Orlando Health. Long-term investments at September 30, 2010 have been reclassified to reflect the new presentation. There were no long-term investments unrestricted at September Such reclassification had no effect on the decrease in cash and cash equivalents for the year ended September 30, The presentation of the statement of cash flows for the year ended September 30, 2010 was also modified to reclassify purchases of long-term trading securities from operating activities to investing activities. Such reclassifications had no effect of decrease in cash and cash equivalents during the year ended September 30,

123 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) A summary of the effect of the reclassification on the statement of cash flows for the year ended September 30, 2010 is as follows: As Originally Reported As Reclassified Reclassification Operating activities Purchase of short-term trading securities, net of sales (155,583) 109,011 (46,572) Net cash provided by operating activities 18, , ,697 1 Investing activities Purchase of long-term trading securities, net of sales (109,011) (109,011) Net cash used in investing activities (145,225) (109,011) (254,236) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Investments with maturities of three months or less when purchased are classified as cash equivalents. Cash deposits are federally insured in limited amounts. Investments and Investment Income Investments in marketable equity securities and all debt securities are stated at fair value in the consolidated balance sheets. All investments have been designated by management as trading securities. Investment income or loss, including realized and unrealized gains and losses, interest, and dividends, is included in excess of revenues, other support, and gains over expenses and losses, unless the income or loss is restricted by donor or law or capitalized to construction-in-progress. Income Taxes Orlando Health and the significant consolidating entities are not-for-profit corporations, recognized as tax-exempt under Section 501(a) as an organization described in Sections 501(c)(3) and 501(e) of the Internal Revenue Code of 1986, as amended. The other consolidating entities are organized as for-profit corporations, but have produced net operating losses to date. Accordingly, in accordance with the Income Taxes Topic of the Financial Accounting

124 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Standards Board (FASB) Accounting Standards Codification, these entities have recognized deferred tax assets associated with their net operating losses, along with a full valuation allowance since it is unlikely that these deferred tax assets will be realized. Assets Limited as to Use Assets limited as to use primarily include assets held by trustees under bond indenture agreements, and designated assets set aside by Orlando Health s Board of Directors for future malpractice claims. The Board of Directors retains control of, and may use these designated assets for other purposes. Amounts required to meet related current liabilities are reported as current. During the year ended September 30, 2011, the Board of Directors voted to remove the limitation on the use of investments designated by board for property and equipment, and as a result, $266,602,000 was reclassified from board designated for property and equipment to long-term investmentsunrestricted. As this was a Board action, no reclassification was made to the prior periods. Property and Equipment Property and equipment are recorded at cost, except for donated items, which are recorded at fair value at the date of the contribution. Expenditures that materially increase values, change capacities, or extend useful lives are capitalized, as are interest costs during periods of construction. Depreciation is computed utilizing the straight-line method at rates estimated by management to amortize the cost of the various assets within the periods of expected use. Depreciation of assets recorded as capital leases is included in depreciation expense and accumulated depreciation. Goodwill Goodwill results from the excess of the purchase price over the fair value of net assets of investments accounted for under the equity method and acquisitions accounted for as purchases. On September 1, 2011, Orlando Health purchased certain assets of a physician group for $10,000,000 in cash. The purchased assets included $7,297,000 of goodwill and $2,593,000 of fixed assets. On December 28, 2009, Orlando Health purchased certain assets of a physician group for $21,400,000 in cash. The purchased assets included $20,335,000 of goodwill, $500,000 in other intangible assets, and $565,000 of fixed assets. The other intangible assets are being amortized over seven years. Goodwill amounted to $31,973,000, $24,676,000 and $7,528,000 at September 30, 2011, 2010, and 2009, respectively and is included in other assets on the consolidated balance sheets. Investments in Related Parties Investments in related parties in which the System owns or controls at least a 20% interest and less than a 50% voting interest are recorded using the equity method. Investments in related parties of less than a 20% interest are recorded using the cost method, and income is recognized only when cash dividends are received. Income or losses from equity investments and cash dividends received from cost method investments are included in other revenue

125 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Impairment of Long-Lived Assets The System evaluates the financial recoverability of long-lived assets, including goodwill, by comparing their carrying value to the expected future undiscounted cash flows. If such evaluations indicate that the carrying value of the assets has been impaired, the assets are adjusted to their fair values. Additionally, long-lived assets held for sale are similarly evaluated by comparison of the carrying value to fair value less costs to sell. If the carrying value exceeds fair value less costs to sell, the assets are adjusted to fair value less costs to sell. Adjustments are reported as impairment expense. During the year ended September 30, 2011, $315,000 of building costs were deemed impaired as they are to be demolished in preparation for an ORMC expansion project. During the year ended September 30, 2009, $3,193,000 in previously capitalized planning and architectural costs included in construction in progress were deemed impaired. The costs were associated with a hospital expansion plan that changed due to economic conditions. These amounts are included in impairment expense. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the System has been limited by donors to a specific time period or purpose. Temporarily restricted net assets are primarily available for property and equipment purchases. Permanently restricted net assets have been restricted by donors to be maintained by the System in perpetuity. Income from restricted funds is used for the restricted purpose as stipulated by the donor. Donor-Restricted Gifts Unconditional promises to give cash and other assets to the System are reported at fair value as of the date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value as of the date the gift is received. The gifts are reported as either temporarily or permanently restricted contributions if they are received with donor stipulations that limit their use. When a stipulated time restriction ends or a restricted purpose is accomplished, temporarily restricted net assets are released from restrictions. Excess of Revenues, Other Support, and Gains Over Expenses and Losses The consolidated statements of operations and changes in net assets include excess of revenues, other support, and gains over expenses and losses, which is analogous to income from continuing operations for a for-profit enterprise. Nonoperating gains and losses represent activities peripheral to direct patient care services and include investment income (loss), loss on interest rate swap agreements, and loss on early extinguishment of debt. Changes in unrestricted net assets that are excluded from excess of revenues, other support, and gains over expenses and losses, consistent with industry practice, include changes in fair value for derivative financial instruments that qualify as cash flow hedges, and 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

126 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Net Patient Service Revenue The System has agreements with third-party payors that provide for payments to the System at amounts different from its established charges. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, per diem payments for hospital services, and percentages of Medicare fee schedules for physician services. The System provides discounts from established charges to uninsured patients. The discount increased from 40% for the years ended September 30, 2009 and 2010, to 65% for the year ended September 30, Such discounts are reflected in net patient service revenue and totaled approximately $116,355,000, $56,965,000, and $52,649,000 for the years ended September 30, 2011, 2010 and 2009, respectively. Net patient service revenue is reported at estimated net realizable amounts due from patients and third-party payors for medical services rendered, and includes adjustments resulting from reviews and audits of prior year Medicare and Medicaid cost reports. Such adjustments are considered in the recognition and estimation of revenue in the period that services are rendered, and in future periods as the adjustments become known or as cost report years are no longer subject to such reviews and audits. During the year ended September 30, 2010, the Medicaid program audited and settled cost reports for two years, which resulted in a $7,843,000 increase in net patient service revenue. The combined effect from changes of all prior year cost report settlements and adjustments was an increase in net patient service revenue of approximately $11,551,000, $13,070,000, and $5,400,000 for the years ended September 30, 2011, 2010, and 2009, respectively. The Centers for Medicare and Medicaid Services (CMS) utilizes Recovery Audit Contractors (RAC) to retroactively review the propriety of payments to hospitals for services rendered. During the RAC demonstration project, CMS began recouping amounts previously paid to the System based upon a review of medical records. The System was a part of the demonstration project that reviewed claims from 2002 to 2006, and for 2008 claims, and will be subject to the RAC program that was made permanent by Section 302 of the Tax Relief and Healthcare Act of The System included its history of successful appeals of previously denied claims in estimating its valuation allowances for exposure to RAC audits. The complexities of the Medicare program rules and the nature of the RAC audit process provide at least a reasonable possibility that the System s valuation allowances for exposure to the RAC audit may change in the near term. The effect of the recouping of amounts previously paid to the System was a reduction in net patient service revenue of approximately $1,757,000, $2,218,000, and $2,657,000 for the years ended September 30, 2011, 2010, and 2009, respectively. Net patient revenue (net of contractual allowances and discounts) before the provision for bad debts by payor type is presented below: September (In Thousands) Third party payors $ 1,683,546 $ 1,549,392 $ 1,525,390 Patients 11,019 86,970 51,894 $ 1,694,565 $ 1,636,362 $ 1,577,

127 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) The System grants credit without collateral to its patients, most of whom are local residents, insured under third-party payor agreements. The mix of receivables from patients and third-party payors before allowances for doubtful accounts is as follows: September Medicare 16% 18% 21% Medicaid Other third-party payors Patients During the year ended September, 30, 2010, Orlando Health received $3,623,000 of federal stimulus money through the State of Florida Medicaid Low Income Pool program and recognized the receipt as other revenue. Approximately 23%, 25%, and 26% of net patient service revenue was earned under the Medicare and Medicare HMO programs, and 17%, 16%, and 14% under state Medicaid and Medicaid HMO programs (including estimated revenue for patients whose qualification for the Medicaid program is pending), for the years ended September 30, 2011, 2010, and 2009, respectively. 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. Allowance for Doubtful Accounts The provision for bad debts is based upon management s assessment of historical and expected collections of accounts receivable considering business and economic conditions, trends in healthcare coverage, and other collection indicators. Accounts receivable are written off and charged to the provision for bad debts after collection effort has been followed in accordance with the System s policies. Recoveries are treated as a reduction to the provision for bad debts. Accounts receivable are reduced by an allowance for doubtful accounts. Periodically, management assesses the adequacy of the allowance for uncollectible accounts based upon historical write-off experience by payor category. Data about these major payor sources of revenue and the results of this review are then used to establish an appropriate allowance for uncollectible receivables and provision for bad debts. Additionally, for receivables associated with services provided to patients who have third-party coverage, contractually due amounts are analyzed and compared to actual cash collected over time to enhance the quality of the estimate of the allowance for doubtful accounts and the provision for bad debts (for example, for expected uncollectible deductibles and copayments on accounts for which the third-party payor has not yet paid, or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). 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), a significant allowance for doubtful accounts is recorded on the basis of historical experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for

128 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) which they are financially responsible. An estimate of the difference between contracted rates and amounts actually collected, after all reasonable collection efforts have been exhausted, is charged to the provision for bad debts and credited to the allowance for doubtful accounts. The allowance for doubtful accounts for self-pay hospital patients as a percent of related self-pay accounts receivable increased from 87% at September 30, 2010, to 92% at September 30, Hospital self pay discounts increased from $56,965,000 for the year ended September 30, 2010 to $116,355,000 for the year ended September 30, 2011 due to the self pay discount policy change described above. Conversely, hospital self-pay bad debt provision decreased from $120,185,000 for the year ended September 30, 2010 to $107,146,000 for the year ended September 30, The $46,351,000 or 26% net combined increase in bad debt provision and self pay discounts were the result of negative trends experienced in the collection of amounts from self-pay patients during the year ended September 30, The allowances for doubtful accounts includes $55,306,000, $32,401,000, and $31,724,000 in amounts due from third-party payors at September 30, 2011, 2010 or 2009, respectively, but there were no significant write-offs from third-party payors during those years. Most of the $22,905,000 increase from 2010 to 2011 resulted from significant payment delays from the Medicaid program. Charity Care The System provides care to patients who meet certain criteria under its charity care policy at no charge or at amounts less than its established charges. Because the System does not pursue collection of amounts determined to qualify as charity care, such amounts are excluded from net patient service revenue. Patients are eligible for charity care if their household income is less than 200% of the federal poverty level guidelines, or the amount of their medical bill is more than 25% of their annual household income, not to exceed 400% of the federal poverty level guidelines. Charity care is provided to all patients meeting these criteria, including those participating in a county program for which the System receives minimal reimbursement. Charity care provided was approximately 5.5%, 5.3%, and 6.5% of total services rendered during the years ended September 30, 2011, 2010, and 2009, respectively, based on total charges for all services in those years. The estimated cost of charity care delivered was approximately $88,057,000, $79,870,000, and $94,123,000 during the years ended September 30, 2011, 2010, and 2009, respectively. Cost is estimated based on the ratio of expenses to established patient service charges. Estimated Malpractice Costs The provision for estimated medical malpractice claims is an estimate of the ultimate cost of reported claims and claims incurred but not reported. Derivative Instruments and Hedging Activities Derivative instruments are recorded at their fair value as either an asset or liability. Accounting for changes in the fair value depends on whether the derivative has been designated as part of a hedging relationship and on the type of hedging relationship. Derivative instruments designated as hedging instruments are further designated as either fair value hedges or cash flow hedges, depending on the exposure being hedged. The System s derivative instruments are limited to cash flow hedging relationships, whose purpose is to hedge the variability in future cash flows

129 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) attributed to interest rate fluctuations. The change in fair value of those derivative instruments, less any ineffective portion thereof, that meet the criteria of an effective hedge is reported as other changes in unrestricted net assets. The ineffective portion of the derivative instruments that does meet hedge accounting criteria is recognized in excess (deficiency) of revenues, other support, and gains over expenses and losses, as are changes in fair value on derivative instruments not meeting hedge accounting requirements. Collateral required to be posted under interest rate swap contracts is recorded gross of the related asset or liability, and classified as assets limited as to use when receivable and other noncurrent liability when a payable. Functional Expenses The System does not present expense information by functional classification since substantially all of its activities and resources are derived from the provision of healthcare services in a manner similar to that of a business enterprise. Other financial indicators included in these consolidated financial statements are important in evaluating how well management has discharged its stewardship responsibilities. 3. Fair Value Measurements The System follows ASC 820, which provides a framework for measuring the fair value of certain assets and liabilities and disclosures about fair value measurements. As defined in ASC 820, fair value is 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. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Certain of the System s financial assets and financial liabilities are measured at fair value on a recurring basis, including money market, fixed income and equity instruments and interest rate swap agreements. The three levels of the fair value hierarchy defined by ASC 820 and a description of the valuation methodologies used for instruments measured at fair value are as follows: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Level 1 primarily consists of financial instruments such as money market securities, certain U.S. Treasury and agency securities, certain U.S. corporate debt securities, and listed equity securities. Level 2 Observable pricing inputs other than quoted prices included within Level 1, including quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 Unobservable pricing inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities, and reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances

130 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 3. Fair Value Measurements (continued) The following methods and assumptions were used to estimate the fair value of each class of financial instrument in accordance with the provisions of the Fair Value Topic: Cash and cash equivalents: The carrying amount reported in the consolidated balance sheets approximates fair value. Short-term investments, long-term investments, and assets limited as to use: The carrying amount reported in the consolidated balance sheets is fair valued, based on quoted market prices, or estimated using quoted market prices for similar securities. Long-term debt: Fair value of fixed rate debt is estimated based on applicable quoted interest rate yield curves applied to the outstanding issues as of the end of each period. The carrying value of variable-rate debt approximates its fair value. Interest rate swap agreements: Assets are included in other assets, and liabilities are included in other noncurrent liabilities. Estimates are based on quoted market prices or estimated based on derivative pricing models that involve adjusting the periodic mid-market values to incorporate nonperformance risk of Orlando Health when the financial instrument is a liability or the nonperformance risk of the counterparty when the financial instrument is an asset. The derivative valuations determined by mid-market quotations are considered Level 2 assets or liabilities since quoted prices can be obtained from a number of dealer counterparties and other independent market sources based on observable interest rates and yield curves for the full term of the asset or liability. The estimated fair value of interest rate swap agreements that hedge interest rate fluctuations on variable rate bonds and loans is presented below. These amounts are included in other noncurrent liabilities in the accompanying consolidated balance sheets. Asset (Liability) September (In Thousands) 2004 Swap $ $ $ (623) 2011 Swaps (31,183) (24,609) (16,903) 2008D-G Swaps (9,764) (8,405) (16,150) Construction Loan Swap (2,191) (2,820) (730)

131 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 3. Fair Value Measurements (continued) The following table represents the fair value hierarchy of the System s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011: Level 1 Level 2 Level 3 Total (In Thousands) Cash and cash equivalents $ 47,159 $ $ $ 47,159 Financial assets U.S. Treasury and agency obligations $ $ 307,497 $ $ 307,497 U. S. corporate bonds 231, ,842 Equity securities 138, ,176 Cash and cash equivalents 45,099 45,099 Municipal bonds 19,641 19,641 Mortgage-backed obligations 1,635 1,635 International bonds 46,134 46,134 $ 183,275 $ 606,749 $ $ 790,024 Financial liabilities Long-term debt $ $ 764,841 $ $ 764,841 Interest rate swap agreements 43,138 43,138 $ $ 807,979 $ $ 807,979 The following table represents the fair value hierarchy of the System s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2010: Level 1 Level 2 Level 3 Total (In Thousands) Cash and cash equivalents $ 123,007 $ $ $ 123,007 Financial assets U.S. Treasury and agency obligations $ $ 283,469 $ $ 283,469 U. S. corporate bonds 216, ,204 Equity securities 141, ,141 Cash and cash equivalents 53,144 53,144 Municipal bonds 27,523 27,523 Mortgage-backed obligations 7,992 7,992 Hedge funds $ 194,285 $ 536, 049 $ $ 730,334 Financial liabilities Long-term debt $ $ 780,788 $ $ 780,788 Interest rate swap agreements 35,834 35,834 $ $ 816,622 $ $ 816,

132 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 3. Fair Value Measurements (continued) Financial assets are reflected in the consolidated balance sheet as follows: September (In Thousands) Investments measured at fair value $ 790,024 $ 730,334 Investments accounted for under cost method 18,000 Total investments $ 808,024 $ 730, Investments Investment income is comprised of the following: Year Ended September (In Thousands) Interest income $ 17,168 $ 16,156 $ 17,045 Change in unrealized gains (losses) (17,066) 14,808 19,096 Realized gains (losses) on sales of securities 16,206 8,544 (4,313) $ 16,308 $ 39,508 $ 31,828 The composition of short-term investments, long-term investments, and assets limited as to use (excluding interest rate swap contract collateral receivable) is presented below: September (In Thousands) U.S. Treasury and agency obligations $ 307,497 $ 283,469 $ 201,135 U.S. corporate bonds 236, , ,458 Equity securities 147, , ,380 Cash and cash equivalents 45,099 53,144 62,309 Municipal bonds 19,641 27,523 22,939 Hedge Funds 861 International bonds 46,134 Mortgage-backed obligations 6,235 7,992 $ 808,024 $ 730,334 $ 532,

133 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 5. Investments in Related Parties OsceolaSC, LLC On February 1, 2006, the System sold the property and equipment of St. Cloud Hospital to OsceolaSC partnership, in which the System holds a 20% interest. As a result of this transaction, the property and equipment of St. Cloud Hospital were released from the mortgage, securing repayment of Orlando Health s bond issues. The System s equity investment in OsceolaSC is included in investments in related parties and amounted to $12,352,000, $11,954,000, and $10,884,000 at September 30, 2011, 2010, and 2009, respectively. Earnings on the investment are included in other revenue and amounted to $398,000, $1,091,000, and $916,000 for the years ended September 30, 2011, 2010, and 2009, respectively. South Lake Effective October 1, 1995, the System entered into an arrangement with South Lake County Hospital District (the District), whereby the two entities formed and jointly control South Lake, a Section 501(c)(3) not-for-profit corporation. Under the terms of the joint venture, the District leased its hospital assets to South Lake for 99 years. The System contributed $7,400,000 to the District for the purpose of establishing a new Foundation for health and other charitable services to South Lake County and contributed $500,000 to South Lake. In exchange for the cash contribution to the District, the System received an option to purchase the leased assets and transfer them to South Lake at any time throughout the 99-year lease period. These amounts are included in investments in related parties in the consolidated financial statements. The System has no rights to the profits or obligations for the losses of South Lake. The System agreed to extend a line of credit, not to exceed $7,400,000 to South Lake, if needed, with repayments including interest at the prime rate. The System provides management services to South Lake at cost according to the terms of a Management Agreement. During 2010 and 2009, the System amended the Management Agreement to provide that for eight months beginning on February 1, 2010, and eight months beginning on February 1, 2009, South Lake would be under no obligation to reimburse the System for the cost of the management services. The cost of the services provided during the years ended September 30, 2010 and 2009, was $ $6,999,000 and $6,431,000, respectively, of which $4,673,000 and $4,328,000, respectively, was not reimbursed. The System guaranteed South Lake Hospital s (South Lake) $38,000,000 Revenue Bonds, Series 1999 (1999 Bonds), dated July 1, On May 14, 2010, South Lake issued $34,330,000 of Revenue Bonds, Series 2010 (2010 Bonds), and used the proceeds to refund the 1999 Bonds for the purpose of reducing future debt service. The System guarantees the 2010 Bonds. As of September 30, 2011, $34,330,000 of the 2010 Bonds was outstanding. As of the date of this filing, there have never been any payments made or requested under the line of credit or guaranty, and in the opinion of management of the System, no funding of such guaranteed indebtedness will be necessary. At September 30, 2011, the fair value of the guarantee approximated $1,500,000 recorded within other noncurrent liabilities in the accompanying consolidated balance sheets

134 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 6. Property and Equipment Property and equipment consist of the following: September (In Thousands) Land and improvements $ 71,703 $ 71,568 $ 69,120 Buildings 616, , ,730 Equipment 1,191,616 1,135,901 1,083,739 1,879,849 1,820,855 1,719,589 Less accumulated depreciation (1,075,272) (993,909) (905,851) 804, , ,738 Construction-in-progress 70,242 38,737 53,984 $ 874,819 $ 865,683 $ 867,722 Construction-in-progress represents numerous construction and renovation projects. Estimated costs to complete these projects as of September 30, 2011 are approximately $107,940,000, which includes $25,759,000 in remaining construction costs associated with a medical office building and outpatient center expected to be completed by December 2011 and financed with a construction loan described below. The remainder of these projects will be funded by fund-raising activities, long term investments, proceeds from future bond issues, future cash flow, or unrestricted cash on hand. Equipment includes approximately $14,268,000 of costs associated with information system projects-in-progress at September 30, Estimated costs to complete these projects as of September 30, 2011, are approximately $17,278,000, and are expected to be paid from future cash flow or unrestricted cash on hand. The System leases property and equipment for a variety of purposes under operating leases. Operating lease expense is classified as supplies and other expenses and amounted to $16,895,000, $17,037,000, and $13,671,000 for the years ended September 30, 2011, 2010, and 2009, respectively

135 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt Long-term debt consists of the following: September (In Thousands) Fixed rate hospital revenue bonds secured Series 2009 fixed rate plus net unamortized premium of $2,773,000 and $2,957,000 at September 30, 2011 and 2010, respectively, interest rates from 3.0% to 5.375%, payable through 2027 $ 233,938 $ 244,092 $ Series 2008A and B fixed rate plus net unamortized premium of $992,000, $1,036,000, and $1,080,000 at September 30, 2011, 2010, and 2009, respectively, interest rates from 4.00% to 5.25%, payable through , , ,330 Series 2008C fixed rate less net unamortized discount of $1,491,000, $1,541,000, and $1,591,000 at September 30, 2011, 2010, and 2009, respectively, interest rates from 5.250% to 5.375%, payable 2029 through ,734 78,684 78,634 Series 2006B fixed rate plus unamortized premium of $669,000, $695,000, and $720,000 at September 30, 2011, 2010, and 2009, respectively, interest rates from 4.750% to 5.125%, payable 2034 through ,319 75,345 75,370 Series 1999D and E fixed rate less net unamortized discount of $292,000 at September 30, ,463 Series 1996A and Series 1996C fixed rate plus unamortized premium of $1,303,000, $1,531,000, and $1,770,000 at September 30, 2011, 2010, and 2009, respectively, interest rates from 3.75% to 6.25%, payable through ,303 66,306 69,150 Variable rate hospital revenue demand bonds secured Series ,175 Series 2008E 54,130 54,130 54,130 Series 2008D, F and G 125,230 Series 2007A1 and A2 90,000 90,000 Series ,035 Notes payable and other indebtedness Construction Loan secured, variable interest rate of 30-day LIBOR plus 3.5% 25,033 19,079 2,515 Other Total debt, net of premiums and discounts 764, , ,603 Less current portion, excluding premiums and discounts (15,427) (14,657) (12,567) Total long-term debt $ 749,414 $ 766,131 $ 762,

136 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) Aggregate principal amounts of long-term debt outstanding, excluding premiums and discounts, are due during the following years ending September 30: $15,427,000 in 2012, $16,619,000 in 2013, $41,641,000 in 2014, $17,952,000 in 2015, $18,922,000 in 2016, and $649,961,000 thereafter. Master Trust Indenture An Amended and Restated Master Indenture (Master Indenture), dated as of August 1, 1999, was executed by Orlando Health. All obligations issued under the Master Indenture are equally and ratably secured by (i) a mortgage on substantially all real property and a security interest in certain tangible personal property of Orlando Health pursuant to a Mortgage and Security Agreement, dated as of August 1, 1999, by Orlando Health in favor of the Master Trustee, and (ii) a pledge of the accounts (as defined in Article 9 of the Florida Uniform Commercial Code) and the Gross Revenue of Orlando Health. The Master Indenture provides for specific restrictive covenants, including a debt service coverage requirement. Orlando Health, Inc. is the only member of the Obligated Group under the terms of the Master Indenture, and is subject to these covenants. None of Orlando Health s controlled affiliates are members of the Obligated Group. Financial information of the Obligated Group is included in the Other Financial Information appearing on pages 30 and 31. Hospital Revenue Bonds, Series 1999A-E In September 1999, the Orange County Health Facilities Authority (Authority) issued Hospital Revenue Bonds, Series 1999A, B, and C auction rate bonds (1999ABC Bonds), and Series 1999 D and E fixed rate bonds (1999DE Bonds) for Orlando Health. A portion of the proceeds of the 1999ABC Bonds and 1999DE Bonds were used to advance refund certain existing indebtedness (Series 1996A and C) of Orlando Health. The 1999ABC Bonds and 1999DE Bonds were secured under the terms of the Master Indenture. The 1999ABC Bonds were refunded by the Series 2008D-G Bonds described below. On January 15, 2010, the 1999DE Bonds were redeemed as described below. As of September 30, 2011, $50,305,000 of the Series 1996A and C bonds remain outstanding, but Orlando Health is no longer the obligor as this portion was refunded. Hospital Revenue Bonds, Series 2004 On December 17, 2004, the Authority issued $52,070,000 in Hospital Revenue Bonds, Series 2004 (2004 Bonds) for Orlando Health to refund the remaining Series 1993B fixed rate bonds. The 2004 Bonds were variable rate demand bonds, secured by the terms of the Master Indenture, and supported by an irrevocable and extendable letter of credit. The 2004 Bonds were redeemed on January 15, 2010, as described below. Hospital Revenue Bonds, Series 2005A, 2006A, 2008A, and 2008B On May 16, 2005, the Authority issued $51,050,000 in Series 2005A Bonds (2005A Bonds) for Orlando Health to refund the remaining Series 1993 Bonds, and provide $15,000,000 in funding for certain prior capital expenditures. The Series 2005A Bonds were issued as insured Select Auction Variable Rate Securities (SAVRS), secured under the terms of the Master Indenture

137 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) On January 25, 2006, the Authority issued $106,800,000 in Series 2006A-1 and A-2 bonds (2006A Bonds) for Orlando Health to advance refund the remaining Series 2002 Bonds, and provide $6,809,000 to finance and reimburse Orlando Health for construction and equipment costs for improvements at ORMC. The Series 2006A Bonds were issued as insured Auction Rate Securities (ARS), secured under the terms of the Master Indenture. On May 15, 2008, the 2005A Bonds and 2006A Bonds were converted to insured fixed rate bonds, and were re-offered and sold as Series 2008A and Series 2008B bonds (2008AB Bonds), respectively. The 2008AB Bonds are secured under the terms of the Master Indenture. As of September 30, 2011, $109,600,000 of the Series 2002 bonds remain outstanding, but Orlando Health is no longer the obligor. On December 1, 2012, the Series 2002 Bonds will be redeemed by the escrowed treasury securities at par. Hospital Revenue Bonds, Series 2006B On January 25, 2006, the Authority issued $74,650,000 in Series 2006B Bonds (2006B Bonds) for Orlando Health to finance and reimburse Orlando Health for a portion of the construction and equipment costs of the new WPH. The 2006B Bonds are uninsured fixed rate bonds, secured under the terms of the Master Indenture. Hospital Revenue Bonds, Series 2007A, 2007B, and 2008C On January 25, 2007, the Authority issued $90,000,000 in Hospital Revenue Bonds, Series 2007A-1, A-2 (2007A Bonds), and $60,000,000 in 2007B Bonds (2007B Bonds) for Orlando Health to finance and reimburse Orlando Health for construction and equipment costs of improvements that include a new patient tower at Dr. P. Phillips Hospital. The Series 2007A Bonds and 2007B Bonds were issued as insured variable rate demand bonds, secured under the terms of the Master Indenture. The 2007A Bonds were redeemed on September 15, 2011, as described below. On June 18, 2008, the Authority issued $80,200,000 in Hospital Revenue Bonds, Series 2008C, for Orlando Health to repay a $55,500,000 line of credit draw used to refund the 2007B Bonds, reimburse Orlando Health for certain prior capital expenditures, fund a debt service reserve fund, and pay costs of issuance. The Series 2008C Bonds are uninsured fixed rate bonds, secured under the terms of the Master Indenture. Hospital Revenue Bonds, Series 2008D-G On June 18, 2008, the Authority issued $179,360,000 in Hospital Revenue Bonds, Series 2008D, E, F, and G (2008D-G Bonds) for Orlando Health. Together with the debt service reserve funds from the 1999ABC Bonds, the proceeds were used to refund the 1999ABC Bonds, pay costs of issuance, and pay the termination value of interest rate swap agreements that hedged the variable rate exposure of the 1999ABC Bonds. The Series 2008D-G Bonds were variable rate demand bonds, secured under the terms of the Master Indenture, and supported by irrevocable and extendable letters of credit. On December 23, 2009, the Series 2008D, F and G bonds were redeemed as described below

138 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) The Series 2008E bonds remain outstanding and are supported by an irrevocable and extendable letter of credit. On May 27, 2009, Orlando Health changed its letter of credit provider on the Series 2008E bonds in the amount of $54,130,000. The 2008E bonds were remarketed and a Remarketing Supplement was issued on that date. BB&T Capital Markets is the remarketing agent on the Series 2008E Bonds. Hospital Revenue Bonds, Series 2009 On December 16, 2009, the Authority issued $241,135,000 of fixed rate Hospital Revenue Bonds (2009 Bonds) on behalf of Orlando Health. The proceeds from the sale of the 2009 Bonds were used to currently refund the 1999D, E and 2004 Bonds on January 15, 2010, currently refund the 2008D-G on December 23, 2009, and pay the costs of issuance of the 2009 Bonds, including swap termination payments related to some of the refunded bonds. Hospital Revenue Bonds, Series 2011 On September 15, 2011, the Authority issued $83,175,000 of variable rate Hospital Revenue Bonds (2011 Bonds) on behalf of Orlando Health. The proceeds from the sale of the 2011 Bonds and $7,239,000 of remaining 2007A Bonds debt service reserve funds were used to currently refund the 2007A Bonds and pay the costs of issuance of the 2011 Bonds. The 2011 Bonds were issued as tax-exempt, multi-modal bonds, initially operating in bank purchase mode, and privately placed with SunTrust Bank (Bank). As initially issued, the 2011 Bonds bear interest at a variable index interest which approximates 68% of 30 day LIBOR, plus 84 basis points. The initial interest rate may be adjusted due to changes in the maximum individual federal income tax rate, and other regulatory changes affecting the cost of the loan to the Bank. The initial interest rate period expires September 15, 2016, at which time the 2011 Bonds may begin to operate in another bank purchase mode or be subject to mandatory tender for purchase. Upon mandatory tender for purchase, Orlando Health may convert to another available interest rate mode. During the initial interest rate period, the 2011 Bonds are subject to optional redemption at the direction of Orlando Health at par on each interest payment date. Interest is payable monthly. Construction Loan On June 30, 2009, Downtown Outpatient Building, LLC (DOB) entered into a five-year credit agreement and promissory note (Construction Loan) with a bank whereby the bank provided advances up to a maximum of $37,500,000 to fund construction of a medical office and outpatient services building. Interest on the loan was equal to 30-day LIBOR plus 3.5%, payable monthly at interest only for two years, then principal and interest on a 30-year amortization for the remaining three years, with all principal due at the end of the five years. The Construction Loan was secured by a lien on DOB s 75-year ground lease from Orlando Health, as well as its building and personal property. On July 8, 2010, as part of the purchase of the medical office building from DOB, the Corporation received a new $15,836,800 loan from the same bank, which was the same amount as the original loan. The loan may increase to a total of $37,500,000. The new loan (also referred to as the Construction Loan) is a variable rate loan that matures on June 30, It is secured under the Master Indenture by gross revenues of Orlando Health and the mortgage

139 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) Interest Rate Swap Agreements In an effort to reduce costs of issuance and take advantage of low interest rates in effect at various times, Orlando Health has entered into interest rate swap arrangements which fix the interest rate on portions of variable rate bonds. The notional amounts under interest rate swap agreements hedging bonds are substantially the same as the principal maturities of the respective outstanding bond series. The construction loan swap hedges the majority of the construction loan at the maximum loan amount. Net interest receipts and payments are recognized as an adjustment to interest expense or as capitalized interest during periods of construction. The swap agreements are not accounted for under hedge accounting criteria. Therefore, changes in the value of the swap are included in loss on interest rate swap agreements. 2008E Swap (formerly 2008D-G Swaps) On June 18, 2008, terms of the then existing 2006A and 2007B Swaps were amended to hedge variable rate exposure on the 2008 D-G Bonds. The combined amended 2006A Swaps and amended 2007B Swap were referred to as the 2008D-G Swaps. On December 16, 2009, two of the 2008D-G swaps with notional amounts totaling $111,295,000 were terminated. Since the 2008 D, F and G Bonds were redeemed on December 23, 2009, only the variable interest on the 2008E Bonds is hedged with the remaining 2008D-G swap. The remaining 2008D-G swap is now referred to as the 2008E Swap Swaps (amended 2007A1 and A2 Swaps) On September 15, 2011, the System amended its 2007 A1 and A2 Swaps to hedge the risk of interest rate fluctuations associated with the 2011 Bonds. The terms were identical to the 2007A1 and A2 Swaps, except that there is no insurance, and as a result, collateral was posted in the amount of $16,819,000 at September 30, 2011, and is included in interest rate swap collateral receivable in assets whose use is limited. There were no settlement payments to or from the counter-party for the amendments. Construction Loan Swap On June 30, 2009, DOB entered into a forward starting floating to fixed interest rate swap agreement (Construction Loan Swap) effective October 1, 2010 and terminating January 1, The purpose of the Construction Loan Swap is to hedge the risk of interest rate fluctuations associated with the majority of the Construction Loan. DOB assigned the Construction Loan Swap to Orlando Health when Orlando Health obtained the new Construction Loan on July 8, The Construction Loan Swap is not insured and has no collateral requirements for either party. There were no changes in the terms of the swap

140 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) The following summarizes outstanding swap positions as of September 30, 2011: Construction Loan Swap 2008E Swap 2011 Swaps (In Thousands) Initial Notional Amount $ 32,000 $ 55,000 $ 90,000 Notional Amount at September 30, 2011 $ 31,675 $ 54,130 $ 90,000 Current Bond or Loan Hedged Construction Loan 2008D-G Bonds 2011Bonds Original Bond or Loan Hedged Construction Loan 2006A Bonds 2007A1A2 Bonds Maturity date 1/1/ /1/ /1/2041 Fixed rate paid 3.630% 3.385% 3.860% Floating rate received 100% 30-day 68% 30-day 68% 30-day USD-LIBOR- USD-LIBOR- USD-LIBOR- BBA BBA BBA The following summarizes swap liability positions held during each year recorded within other noncurrent liabilities in the accompanying consolidating balance sheet: Construction Loan Swap 2008E Swap 2011 Swap (In Thousands) 2004 Swap Total Cumulative position at September 30, 2008 $ $ (6,596) $ (10,273) $ (118) $ (16,987) Net losses during the year ended September 30, 2009 (730) (9,554) (6,630) (505) (17,419) Cumulative position at September 30, 2009 (730) (16,150) (16,903) (623) (34,406) Net losses during the year ended September 30, 2010 (2,090) (3,645) (7,706) (111) (13,552) Cumulative position of terminated swaps at termination date during the year ended September 30, , ,124 Cumulative position at September 30, 2010 (2,820) (8,405) (24,609) (35,834) Net income (losses) during the year ended September 30, (1,359) (6,574) (7,304) Cumulative position at September 30, 2011 $ (2,191) $ (9,764) $ (31,183) $ $ (43,138)

141 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 7. Long-Term Debt (continued) Interest Costs During periods of construction, interest costs on construction borrowings are capitalized to the respective property accounts. Capitalized interest is reduced by earnings on the investments held by the bond trustee for construction. Capitalized interest costs amounted to $1,040,000, $1,553,000, and $2,517,000 for the years ended September 30, 2011, 2010, and 2009, respectively. The total of interest cost expensed and capitalized approximates interest paid. 8. Line of Credit Orlando Health has $10,000,000 available under a line of credit with a local bank. During September 2011, the line was temporarily increased to $92,000,000 for possible use in the refinancing of 2007 Bonds. Such use, was not necessary and the line was reduced to $10,000,000. At September 30, 2011, none of the available line of credit had been drawn. Interest on the line of credit is based on LIBOR, adjusted monthly and payable quarterly. 9. Employee Retirement Plan Certain employees of the System are eligible to participate in a defined contribution retirement plan (403b). Plan participants may elect to contribute up to the lesser of $16,500 or 50% of their annual compensation. Upon completion of one year of continuous service and having attained age 21, the System contributes 1.25% of the participants compensation plus 50% of the participants contributions up to 3% of the participants compensation. The System s expense under the employee retirement plan amounted to $18,215,000, $16,722,000, and $15,469,000 for the years ended September 30, 2011, 2010, and 2009, respectively. 10. Malpractice Insurance The System is self-insured for medical malpractice risk not covered under a commercial malpractice policy. Losses are accrued based on estimates provided by the System s consulting actuary, and are based on actuarial assumptions that incorporate the System s past experience and other considerations, including the nature of each claim or incident, and relevant trends. The accrued liability for self-insured claims amounted to $89,545,000, $96,278,000, and $91,020,000 at September 30, 2011, 2010, and 2009, respectively, of which $22,386,000, $24,070,000, and $22,755,000 are included in other current liabilities. The System has on deposit, in a revocable trust, cash and investments totaling $77,972,000, $75,014,000, and $69,667,000 at September 30, 2011, 2010, and 2009, respectively, to be used for the payment of self-insured claims in the future. Medical malpractice expense of $14,876,000, $30,243,000, and $33,166,000 for the years ended September 30, 2011, 2010, and 2009, respectively, is included in supplies and other expenses

142 Orlando Health, Inc. and Controlled Affiliates Notes to Consolidated Financial Statements (continued) 11. Commitments The System leases equipment and space under operating leases with various lease terms. Aggregate future minimum lease payments under these leases total $49,892,000 and are payable during the following years ending September 30: $14,029,000 in 2012, $9,566,000 in 2013, $8,017,000 in 2014, $6,666,000 in 2015, $5,411,000 in 2016, and $6,204,000 thereafter. On September 1, 2011, the System employed a group of physicians and entered into employment agreements with the physicians for a period of seven years. The expected minimum payments under the employment agreements are approximately $47,880,000. In August 2011, the System purchased a 15% interest in an entity currently in the process of building a children s outpatient surgical center. All physician owners have personally guaranteed a portion of the loans to finance the construction of the facility, purchase equipment and provide working capital. The bank required a similar guaranty by the System. The System has guaranteed a loan amount of $812,550 at September 30, The fair value of such guarantee is immaterial. In August 2010 the Board of Trustees of West Orange Healthcare District ( District ) announced that they decided to pursue an affiliation with a larger health care system. The District currently owns and operates a 171-bed acute care hospital known as Health Central, a 228-bed skilled nursing facility known as Health Central Park, along with a other outpatient clinics and physician practices in communities just west of Orlando, Florida. Orlando Health and three other parties were invited to provide information about themselves and their interest in an affiliation. In April, 2011 Orlando Health and the District entered into a non-binding letter of intent whereby Orlando Health, through a controlled affiliate, would acquire the District s facilities and assets and continue to provide health care services in the geographic area served by those facilities. The parties have been negotiating a transaction that is subject to approval by the respective Boards. See Note 12 for additional disclosure. 12. Subsequent Events In preparing these financial statements, the System has evaluated events and transactions for potential recognition and disclosure through November 22, 2011, the date the consolidated financial statements were available to be issued. On November 11, 2011, the Board of Directors of Orlando Health approved the transaction to acquire the Districts facilities and assets, subject to approval by the Finance Committee. At November 22, 2011, no definitive agreement has been signed. See Note 11 for further disclosure. Other than this activity, there were no other subsequent events that required recognition in the consolidated financial statements. Additionally, there were no unrecognized subsequent events that required disclosure

143 Other Financial Information

144 Ernst & Young LLP Suite East Jackson Street Tampa, FL Tel: Fax: The Board of Directors Orlando Health, Inc. Report of Independent Certified Public Accountants on Other Financial Information Our 2011 audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating balance sheet at September 30, 2011, and consolidating statement of operations for the year ended September 30, 2011, on pages 30 and 31 are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in our audit of the 2011 basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the 2011 basic consolidated financial statements taken as a whole. November 22, A member firm of Ernst & Young Global Limited 29

145 Orlando Health, Inc. and Controlled Affiliates Consolidating Balance Sheet September 30, 2011 (In Thousands) Obligated Controlled Consolidated Eliminations Group Affiliates Assets Current assets: Cash and cash equivalents $ 47,159 $ $ 33,930 $ 13,229 Short-term investments 207, ,473 Assets limited as to use 53,433 53,433 Accounts receivable, net 230, ,931 8,634 Other receivables 25,656 (4,220) 14,115 15,761 Other current assets 41,823 41, Total current assets 606,109 (4,220) 572,050 38,279 Assets limited as to use: Debt service and reserve funds held by bond trustee 50,672 50,672 Interest rate swap contract collateral receivable 16,819 16,819 Designated by board for malpractice self-insurance 77,972 77, , ,463 Less amount required to meet current obligations (53,433) (53,433) 92,030 92,030 Long-term investments - unrestricted 422, ,198 Long-term investments - restricted 49,709 49,709 Investments in related parties 22,122 (200) 9,879 12,443 Other assets 91,842 (82,447) 152,482 21,807 Property and equipment, net 874, ,309 9,510 Total assets $ 2,158,829 $ (86,867) $ 2,113,948 $ 131,748 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 142,569 $ $ 136,274 $ 6,295 Other current liabilities 85,329 (3,848) 82,108 7,069 Current portion of long-term debt 15,427 15,427 Total current liabilities 243,325 (3,848) 233,809 13,364 Long-term debt, less current portion 749, ,414 Accrued malpractice claims 67,158 67,158 Other noncurrent liabilities 60,129 (17,051) 54,934 22,246 Total liabilities 1,120,026 (20,899) 1,105,315 35,610 Net assets: Unrestricted 964,724 (200) 943,793 21,131 Temporarily restricted 71,659 (63,736) 64,246 71,149 Permanently restricted 2,420 (2,032) 594 3,858 Total net assets 1,038,803 (65,968) 1,008,633 96,138 Total liabilities and net assets $ 2,158,829 $ (86,867) $ 2,113,948 $ 131,

146 Orlando Health, Inc. and Controlled Affiliates Consolidating Statement of Operations Year Ended September 30, 2011 (In Thousands) Obligated Controlled Consolidated Eliminations Group Affiliates Unrestricted revenues and other support Net patient service revenue (net of contractual allowances and discounts) $ 1,694,565 $ $ 1,610,135 $ 84,430 Provision for bad debts (107,146) (101,281) (5,865) Net patient service revenue less provision for bad debts 1,587,419 1,508,854 78,565 Other revenue 58,236 (25,427) 51,880 31,783 Net assets released from restrictions 6,356 (6,921) 3,628 9,649 Total unrestricted revenues and other support 1,652,011 (32,348) 1,564, ,997 Expenses Salaries and benefits 883, , ,531 Supplies and other 549,223 (28,354) 537,432 40,415 Professional fees and purchased services 33,296 30,002 3,294 Depreciation and amortization 90,425 89,087 1,338 Impairment Interest 37,313 37,313 Total expenses 1,593,710 (28,354) 1,441, ,308 Income from operations 58,301 (3,994) 122,606 (60,311) Nonoperating gains and losses Investment income 16,308 16, Loss on interest rate swap agreements (7,304) (7,304) Loss on early extinguishment of debt (2,858) (2,858) Nonoperating gains, net 6,146 5, Excess (deficiency) of revenues, other support, and gains over expenses and losses $ 64,447 $ (3,994) $ 128,456 $ (60,015)

147 Ernst & Young LLP Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. This Report has been prepared by Ernst & Young LLP, a client serving member firm located in the United States.

148 [THIS PAGE INTENTIONALLY LEFT BLANK]

149 APPENDIX C WEST ORANGE HEALTHCARE DISTRICT FINANCIAL STATEMENTS

150 [THIS PAGE INTENTIONALLY LEFT BLANK]

151 West Orange Healthcare District Financial Statements as of and for the Years Ended September 30, 2011 and 2010, Supplementary Information as of and for the Year Ended September 30, 2011, and Independent Auditors Reports

152 WEST ORANGE HEALTHCARE DISTRICT TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 MANAGEMENT S DISCUSSION AND ANALYSIS 3 9 FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010: Balance Sheets 10 Statements of Revenues, Expenses, and Changes in Net Assets 11 Statements of Cash Flows 12 Page Notes to the Financial Statements SUPPLEMENTARY INFORMATION AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2011: 32 Supplementary Balance Sheet Information 33 Supplementary Statement of Revenues, Expenses, and Changes in Net Assets Information 34

153 INDEPENDENT AUDITORS REPORT Board of Trustees and Finance Committee West Orange Healthcare District Ocoee, Florida We have audited the accompanying balance sheets of West Orange Healthcare District (the District ) as of September 30, 2011 and 2010, and the related statements of revenues, expenses, and changes in net assets, and of cash flows for the years ended September 30, 2011 and These financial statements are the responsibility of the District s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Health Central Foundation, Inc. (a blended component unit), which statements reflect total assets constituting approximately $1,088,000 and $1,255,000 of the District s total assets as of September 30, 2011 and 2010, respectively, total operating income of approximately $515,000 and $486,000 of the District s operating income, and total change in net assets constituting approximately $(199,000) and $(156,000) of the District s total change in net assets for the years ended September 30, 2011 and 2010, respectively. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Health Central Foundation, Inc., is based solely on the reports of such other auditors. 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 financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, such financial statements present fairly, in all material respects, the financial position of the District as of September 30, 2011 and 2010, and the results of its operations, changes in its net assets, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Management s discussion and analysis on pages 3 through 9 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of the District s management. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit such information, and express no opinion on it.