c~v~ Carmen Vargas Administrative Assistant Montefiore THE UNIVERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF MEDICINE August 13, 2015

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1 Montefiore THE UNIVERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF MEDICINE August 13, 2015 Mr. LarryN. Yolk Senior Director, Portfolio Monitoring Dormitory Authority ofthe State ofnew York 515 Broadway Albany, NY Ms. Diana O'Brien Vice President Digital Assurance Certification 390 North Orange Avenue, Suite 1750 Orlando, FL Dear Mr. Yolk and Ms. O'Brien: Re: FHA Insured Mortgage and related Hospital Revenue Bonds Enclosed are the following documents for Montefiore Medical Center for the period ended June 30, 2015: Interim Financial Statements Utilization and Payor Mix Statistics Certificate of Compliance These documents satisfy the reporting requirements under the following agreements: DASNY Loan Agreement, dated as of October 27,2004 DASNY Loan Agreement, dated as of July 27, 2005 DASNY Loan Agreement, dated as ofnovember 28, 2007 If you have any questions, please call me at (718) Sincerely, c~v~ Carmen Vargas Administrative Assistant Enclosures cc: Lindsay Baker 111 East 21 Oth Street Bronx, New York 10467

2 MONTEFIORE MEDICAL CENTER UTILIZATION AND PAYOR MIX STATISTICS (FHA Insured Mortgages and related Hospital Revenue Bonds) LICENSED BEDS ADMISSIONS (1) DISCHARGES (1) PATIENT DAYS (1) AVG LENGTH OF STAY (1) MEDICARE-CMI (1) NON-MEDICARE-CMI (1) AVG. OCCUPANCY% OUTPATIENT VISITS ER VISITS-NET (2) AMBULATORY SURGERY VISITS UTILIZATION STATISTICS JUNE ,525 43,738 43, , % 132, ,741 21,965 JUNE ,512 42,852 42, , % 127, ,211 20,432 (1) EXCLUDES NEWBORN (2) EXCLUDES EMERGENCY ROOM PATIENTS ADMITIED TO THE MEDICAL CENTER. MEDICARE MEDICARE HMO MEDICAID MEDICAID HMO COMMERCIAL COMMERCIAL HMO OTHER TOTAL (1) MEDICARE MEDICARE HMO MEDICAID MEDICAID HMO COMMERCIAL COMMERCIAL HMO OTHER TOTAL (1) MEDSURG MATERNITY PSYCHIATRY REHAB TOTAL DISCHARGES - DETAIL JUNE ,352 9,465 4,072 13,742 4,209 3, ,770 PERCENT OF DISCHARGES BY PAYOR SOURCE JUNE % 21.62% 9.30% 31.40% 9.62% 7.71% 1.27% % AVG. OCCUPANCY%- DETAIL JUNE % 83.11% 98.58% 0.00% 89.31% JUNE ,503 8,877 4,370 12,554 4,182 3, ,840 JUNE % 20.72% 10.20% 29.30% 9.76% 8.37% 1.80% % JUNE % 87.50% 98.95% 81.37% 90.12%

3 Montefiore THE UNIVERSITY HOSPITAL FOR ALBERT EINSTEIN COLLEGE OF MEDICINE CERTIFICATE OF COMPLIANCE DATED AS OF JUNE 30,2015 Montefiore Medical Center Re: FHA Insured Mortgage Revenue Bonds 2004,2005,2008,2011 The undersigned, an authorized officer ofmontefiore Medical Center (the "Institution") hereby certifies as follows: I. I am the chief financial officer of the Institution, and am an authorized officer of the Institution. 2. I am familiar with the Loan Agreements (the "Agreements") and the Tax Certificates (the "Certificates") executed on behalf of the Institution in connection with the above referenced financings. 3. By virtue of my position at the Institution, I would expect to become aware in the ordinary course of business of any breach of the terms, conditions, and covenants in the Agreements and the Certificates. 4. To the best of my knowledge, there has not been and is not now existing any breach of any of the terms, conditions, or covenants contained in the Agreements or the Certificates. 5. The Institution has not received an insurance payment, eminent domain award or property damage award for any part of the Project or Mortgaged Property. 6. Except as permitted by the Loan Agreements or Tax Certificates executed in connection with the issuance of the Bonds or as subsequently consented to by the Authority and any other parties required to consent thereto, (1) the Institution owns, occupies and uses for its tax exempt purposes all of the Project financed with the proceeds of the referenced Bond issue(s); (2) no other party has the right to use of occupy any portion of such Project; (3) the Institution receives no payment from any party or parties for occupying all or any part of such Project; (4) the Institution has not entered into any contract for the management of any part ofthe Project by another party or person. 7. The Institution has not received any correspondence from the Internal Revenue Service questioning its tax-exempt status and hereby reaffirms its status as a not-for-profit corporation, which is exempt from federal income tax pursuant to Section 50 I (c)(3) of the Internal Revenue Code. 8. The Institution has implemented adequate policies and procedures to enable the Institution to comply with any reporting requirements of the Internal Revenue Service applicable to the Bonds, including but not limited to Schedule K (Form 990). 9. To the best of my knowledge, the Institution has not granted or permitted any liens against the Mortgaged Property or leases of any part thereof except those which were filed prior to, or in connection, with the issuance of the Bonds or those which were subsequently consented to by the authority and any other parties required to consent thereto. Office of the President 11 1 East 21 Oth Street Bronx, New York Office Fax jperlman@montefiore.org Joel A. Perlman Executive Vice President Chief Financial Officer

4 Montefiore Medical Center Quarterly Financial Disclosure For the Period Ended June 30, 2015 Contents Consolidated Statements of Financial Position Page 2 Consolidated Statements of Operations Page 3 Consolidated Statements of Changes in Net Assets Page 4 Consolidated Statements of Cash Flows Page 5 Condensed Footnotes to Consolidated Financial Statements Page 6

5 Montefiore Medical Center Consolidated Statements of Financial Position Unaudited Audited June 30, 2015 December 31, 2014 (In Thousands) Assets Current assets: Cash and cash equivalents $ 30,612 $ 46,470 Marketable and other securities 712, ,993 Assets limited as to use marketable securities 54,640 64,249 Receivables for patient care, less allowances for doubtful accounts (June 2015 $21,942; 2014 $18,764) 207, ,482 Other receivables 85,410 51,583 Estimated insurance claims receivable, current portion 69,243 68,235 Other current assets 43,112 47,290 Due from affiliates 47,151 43,667 Total current assets 1,249,983 1,323,969 Assets limited as to use: Marketable and other securities: Sinking funds 79,690 78,501 Employee deferred compensation plan 31,256 27,362 Marketable and other securities externally designated 185, ,168 Malpractice insurance programs 7,068 Total non-current assets limited as to use 296, ,099 Marketable securities held as collateral 4,522 4,586 Property, buildings and equipment, at cost, net 1,136,158 1,088,088 Estimated insurance claims receivable, net of current portion 392, ,660 Deferred financing costs and other non-current assets 226, ,908 Due from affiliates, net of current portion 71,775 99,150 Total assets $ 3,377,285 $ 3,394,460 Liabilities and net assets Current liabilities: Trade accounts payable $ 118,541 $ 117,538 Other payables and accrued expenses 63, ,341 Accrued salaries, wages and related items 233, ,329 Current malpractice insurance premiums payable 71,091 70,214 Estimated insurance claims liabilities, current portion 69,243 68,235 Current portion of long-term debt 57,957 53,250 Total current liabilities 614, ,907 Long-term debt, less current portion 765, ,960 Non-current defined benefit and postretirement health plan and insurance liabilities 307, ,801 Employee deferred compensation 31,256 27,362 Estimated insurance claims liabilities, net of current portion 392, ,660 Other non-current liabilities 391, ,059 Total liabilities 2,501,250 2,488,749 Net assets: Unrestricted 777, ,366 Temporarily restricted 73,059 72,995 Permanently restricted 25,915 25,350 Total net assets 876, ,711 Total liabilities and net assets $ 3,377,285 $ 3,394,460 See accompanying notes. 2

6 Montefiore Medical Center Consolidated Statements of Operations Unaudited Six Months Ended June 30, (In Thousands) Operating revenue Net patient service revenue $ 1,707,304 $ 1,600,069 Grants and contracts 37,701 37,878 Contributions 1,570 1,570 Other revenue 76,608 71,543 Total operating revenue 1,823,183 1,711,060 Operating expenses Salaries and wages 815, ,516 Employee benefits 251, ,386 Supplies and other expenses 663, ,342 Depreciation and amortization 73,559 65,029 Interest 16,473 13,310 Total operating expenses 1,820,073 1,680,583 Income from operations before certain items 3,110 30,477 Net realized and changes in unrealized gains on marketable and other securities 17,764 25,556 Malpractice insurance program adjustments 9,424 Income from operations $ 30,298 $ 56,033 See accompanying notes. 3

7 Montefiore Medical Center Consolidated Statements of Changes in Net Assets Periods Ended June 30, 2015 and December 31, 2014 Unrestricted Net Assets Temporarily Restricted Net Assets Unaudited (In Thousands) Permanently Restricted Net Assets Total Net assets at January 1, 2014 $ 795,633 $ 74,898 $ 25,350 $ 895,881 Income from operations 11,289 11,289 Affiliate transfers, net Restricted gifts, bequests and similar items 1,857 1,857 Investment income Net assets released from restrictions (4,695) (4,695) Changes in net assets 11,733 (1,903) 9,830 Net assets at December 31, ,366 72,995 25, ,711 Income from operations 30,298 30,298 Affiliate transfers, net (60,603) (60,603) Restricted gifts, bequests and similar items ,415 Investment income Net assets released from restrictions (1,255) (1,255) Changes in net assets (30,305) (29,676) Net assets at June 30, 2015 $ 777,061 $ 73,059 $ 25,915 $ 876,035 See accompanying notes. 4

8 Montefiore Medical Center Consolidated Statements of Cash Flows Unaudited Six Months Ended June (In Thousands) Operating activities Increase (decrease) in net assets Income from operations $ 30,298 $ 56,033 Affiliate transfers (60,603) 444 Temporarily restricted Permanently restricted 565 (29,676) 57,035 Adjustments to reconcile (decrease) increase in net assets to net cash (used in) provided by operating activities: Depreciation and amortization 73,559 65,029 Net realized gains (5,952) (2,275) Change in net unrealized gains (11,812) (23,281) Equity earnings from investments (2,317) (6,853) Amortization of long-term mortgage premium (411) (440) Changes in operating assets and liabilities: Receivables for patient care (26,678) (31,402) Net change in all other operating assets and liabilities (19,040) (37,325) Net cash (used in) provided by operating activities (22,327) 20,487 Investing activities Acquisition of property, buildings and equipment, net (120,861) (137,088) Loans to affiliate (3,650) (16,294) Decrease in marketable and other securities, net 127,102 73,214 Decrease (increase) in marketable securities held as collateral, net 64 (22) (Increase) decrease in assets limited to use, net (15,356) 14,591 Net cash used in investing activities (12,701) (65,599) Financing activities Payments of long-term debt (24,779) (22,080) Proceeds from long-term debt 43,949 55,512 Net cash provided by financing activities 19,170 33,432 Net decrease in cash and cash equivalents (15,858) (11,680) Cash and cash equivalents at beginning of year 46,470 42,960 Cash and cash equivalents at end of period $ 30,612 $ 31,280 See accompanying notes. 5

9 Organization: Montefiore Medical Center (the Medical Center) and its controlled organizations comprise an integrated delivery system. The majority of the facilities are located in the Bronx, New York. The Medical Center is incorporated under New York State Not-for-Profit Corporation law and provides health care and related services, primarily to residents of the Metropolitan New York area. The Medical Center is a not-for-profit membership organization whose sole member is Montefiore Health System, Inc. (MHS). In addition, MHS is the sole member of several other health care related entities. On January 1, 2015, MHS became the sole corporate member of a Westchester, New York hospital. During the year ended December 31, 2014, the Medical Center advanced funds to MHS which MHS loaned to the Westchester, New York hospital to assist in the development of certain projects, services and infrastructure under executed loan agreements. As of December 31, 2014, approximately $30.9 million had been advanced to MHS. On January 1, 2015, under the terms of the loan agreements, these loans were terminated, resulting in a capital contribution between MHS and the Westchester, New York hospital. Accordingly, on January 1, 2015, amounts advanced to MHS were forgiven and recorded as an equity transfer, which reduced unrestricted net assets by approximately $30.9 million. During the six month period ended June 30, 2015, MMC advanced approximately $29.7 million to MHS and MHS in turn advanced an equal amount to the Westchester, New York hospital. Such amounts were recorded as an equity transfer which reduced unrestricted net assets. During the period from July 1, 2015 through August 1, 2015 approximately $6.0 million of additional capital contributions were made. Basis of Financial Statement Presentation: Basis of Financial Statement Presentation: The accompanying consolidated financial statements include the accounts of the Medical Center and its controlled tax-exempt and taxable organizations: MMC Corporation (MCORP); CMO The Care Management Company, LLC (CMO); The Montefiore IPA, Inc. (MIPA); Bronx Accountable Healthcare Network IPA, Inc. (ACO-IPA); University Behavioral Associates, Inc. (UBA); Montefiore Behavioral Care IPA No. 1, Inc. (MBCIPA); Gunhill MRI P.C. (Gunhill); MMC Residential Corp. 1, Inc. (Housing 1); Montefiore Hospital Housing Section II, Inc. (Housing II); Mosholu Preservation Corporation (MPC); MMC GI Holdings East, Inc. (GI East); MMC GI Holdings West, Inc. (GI West); MMC Initiatives, LLC (MINT); Montefiore Proton Acquisition, LLC (MPRO), an organization in the development stage; and Montefiore Consolidated Ventures, Inc. (MCV). MCV is a taxable corporation that began operations on January 1, 2014, and is the parent to ACO-IPA, MIPA, MBCIPA, GI East, GI West and UBA. For purposes of financial statement presentation, the entities described above are collectively termed the Medical Center, except as explicitly specified. All intercompany transactions have been eliminated in consolidation. The interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles applied on a basis substantially consistent with that of the 2014 audited consolidated financial statements except as noted above and discussed below in Subsequent Events. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the 6

10 Basis of Financial Statement Presentation (continued) opinion of management, all adjustments considered necessary for a fair presentation have been included. Health care operations and the financial results thereof are subject to seasonal variations. Quarterly and other periodic operating results are not necessarily representative of operations for a full year for various reasons including patient volumes associated with seasonal illnesses, elective services, variations in interest rates, infrequent or one-time events and changes in regulatory or industry policies. Use of Estimates: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of the consolidated financial statements. Estimates also affect the amounts of revenue and expenses reported during the period. Management believes that amounts recorded based on estimates and assumptions are reasonable and any differences between estimates and actual should not have a material effect on the Medical Center s consolidated financial position. Net Patient Service Revenue: The Medical Center has agreements with third-party payers that provide for payments to the Medical Center at amounts different from its established rates. Net patient service revenue is reported at estimated net realizable amounts due from patients, third party payers and others for services rendered and includes estimated retroactive revenue adjustments due to future audits, reviews and investigations. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period that related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews and investigations. The Medical Center is committed to serving all patients in need of health care services. Consistent with its mission and values, and taking into account an individual s ability to pay for medically necessary health care services, the Medical Center provides charity care, including free or discounted care, to all patients not covered by insurance. Patient service revenue, as presented below, is net of approximately $12.6 million and $14.4 million for charity care provided to patients, at cost, not covered by insurance, for the periods ended June 30, 2015 and 2014, respectively. 7

11 Bad Debt Expense: The collection of patient service revenue due from patients, including copayments and deductibles, from those who are ineligible for charity care, is subject to uncertainty. The Medical Center records bad debt expense in the period services are rendered based on past experience, to account for amounts that patients may ultimately be unable or unwilling to pay. For self-pay patients, which includes both patients without insurance and patients with copayments and deductibles after third party coverage, the Medical Center records an estimate for bad debt expense in the current period based on past experience. Amounts ultimately written off as uncollectible and recoveries of such amounts are deducted from, or added to the allowance for doubtful accounts. Net patient service revenue, net of contractual allowances and discounts, for the periods ended June 30, 2015 and 2014, is as follows: (In Thousands) Patient service revenue (net of contractual allowances and discounts) $ 1,735,384 $1,625,229 Bad debt expense (28,080) (25,160) Net patient service revenue $ 1,707,304 $1,600,069 Benefit Plans: The Medical Center is a contributing employer to two union multiemployer pension plans. In addition, the Medical Center also maintains two tax deferred annuity plans under Section 403(b) of the Internal Revenue Code as well as two noncontributory defined benefit pension plans. The Medical Center sponsors two unfunded defined benefit postretirement health and welfare plans that cover certain full-time and part-time employees and eligible dependents. Contributions to union multiemployer pension plans are made in accordance with contractual agreements under which contributions are based on a percentage of salaries or a negotiated amount. Contributions to the non-contributory tax deferred annuity plan are based on percentages of salary. Contributions to the noncontributory defined benefit plans are based on actuarial valuations. Benefits under the noncontributory defined benefit plans are based on years of service and salary levels. The Medical Center s policy is to contribute amounts sufficient to meet funding requirements in accordance with the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of Total expense, included in employee benefits expense in the consolidated statements of operations for the various pension plans aggregated approximately $65.1 million and $58.4 million for the periods ended June 30, 2015 and Cash payments relative to the various pension plans aggregated approximately $61.2 million and $61.6 million for the same periods. 8

12 Fair Value Measurements: For assets and liabilities required to be measured at fair value, the Medical Center measures fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are applied based on the unit of account from the Medical Center s perspective. The unit of account determines what is being measured by reference to the level at which the asset or liability is aggregated (or disaggregated) for purposes of applying other accounting pronouncements. The Medical Center follows a valuation hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities Level 2: Observable inputs that are based on inputs not quoted in active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. In determining fair value, the Medical Center uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers nonperformance risk in its assessment of fair value. Financial assets carried at fair value, including assets invested in the Medical Center s defined benefit plan, are classified in the table below in one of the three categories described above as of June 30, 2015: 9

13 Fair Value Measurements (continued) June 30, 2015 Level 1 Level 2 Level 3 Total (In Thousands) Assets Cash and cash equivalents $ 30,612 $ - $ - $ 30,612 Managed cash and cash equivalent 89, ,343 held for investment Marketable and other securities: U.S. non-equity mutual funds 111, ,593 International non-equity mutual funds 4, ,396 Equity mutual funds: U.S equity mutual funds 177, ,981 U.S. government agency mortgage backed securities - 15,701-15,701 U.S treasury securities 40, ,642 U.S government agency-backed securities - 25,224-25,224 U.S. equity securities 24, ,868 Corporate debt 421, ,009 Other Defined Benefit plan assets Cash and Cash Equivalents 2, ,217 Alternative investments: Hedge funds - 4,286-4,286 Private equity funds - - 2,824 2,824 Equity securities 6, ,736 Equity mutual funds 1, ,396 Non-equity mutual funds 4, ,392 Collective trust funds - 2,446-2,446 Debt securities 1, ,441 Total Financial instruments, at fair value $ 916,631 $ 47,657 $ 2,824 $ 967,112 10

14 Subsequent Events: Generally accepted accounting principles establish standards for accounting for, and disclosure of, events that occur after the reporting period end date but before financial statements are issued or are available to be issued. The standards are to be applied to subsequent events not addressed in other applicable accounting principles generally accepted in the United States. The standards set forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosure an entity should make about events or transactions that occurred after the balance sheet date. Management considered the environment and events occurring through the interim unaudited financial statement issuance date and determined there were no subsequent events material to Montefiore Medical Center that required disclosure at issuance of the interim financial statements. 11