North Shore-Long Island Jewish Health System, Inc. (North Shore-LIJ)

Transcription

1 North Shore-Long Island Jewish Health System, Inc. (North Shore-LIJ) ANNUAL FINANCIAL INFORMATION AND OPERATING DATA FOR THE YEAR ENDED DECEMBER 31, 2012 Contents Management s Discussion and Analysis of Recent Financial Performance...1 Utilization Statistics North Shore-LIJ Obligated Group Payer Mix North Shore-LIJ Obligated Group Long-Term Debt Service Coverage Ratio North Shore-LIJ Obligated Group... 13

2 Management s Discussion and Analysis of Recent Financial Performance Management s Discussion and Analysis of Recent Financial Performance contains forwardlooking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act ), and Section 27A of the United States Securities Act of 1933, as amended (the Securities Act ). The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. North Shore-Long Island Jewish Health System, Inc. ( North Shore-LIJ ) expressly disclaims any obligation or undertaking to issue any updates or revisions to those forward-looking statements if or when their expectations change, or events, conditions or circumstances on which such statements are based occur. Management s Discussion and Analysis of Recent Financial Performance is based upon the financial results of North Shore-LIJ, as the members of the Obligated Group represented 95.2% of the total consolidated operating revenue and 96.1% of the consolidated total assets of the Health System for the year ended and as of Accordingly, the discussion below includes the financial results of entities that are not members of the Obligated Group. For further information on the members of the Obligated Group, see Note 7 to the Audited Consolidated Financial Statements of North Shore-LIJ for the years ended 2012 and 2011 (the Audited Consolidated Financial Statements ). Introduction For the year ended 2012, North Shore-LIJ s operating income [a] and operating income margin were $97.9 million and 1.5%, respectively, compared to $134.2 million and 2.2% for the year ended Operating cash flow margin was 6.6% for the year ended 2012, compared to 7.4% for the year ended Operating revenue growth was primarily attributable to physician and ambulatory volume growth, increased managed care payment rates, revenue cycles initiatives and was also positively impacted by a non-recurring $48.6 million legal settlement with a third-party payer. Investments in the following areas contributed to the growth rate in total operating expenses exceeding the growth rate in total operating revenue for the year ended 2012 compared to the year ended 2011: i) facilities and programs to expand capacity, ii) clinical initiatives to manage the health care needs of a population and further prepare for migration from fee-for-service to risk-based reimbursement models, iii) quality initiatives, and iv) newly acquired physician practices. However, expense reductions as a result of the implementation of productivity and efficiency efforts and supply chain initiatives (including a program to review utilization of medical and surgical supplies as well as pharmaceuticals) helped control the growth rate of expenses. Operating income for the year ended 2012 was also negatively impacted by approximately $17.0 million from the affects of Superstorm Sandy, which struck the metropolitan New York area on October 29, This amount is net of estimated insurance recoveries and represents the estimated loss in revenue (primarily physician and ambulatory) caused by the widespread damage and power outages throughout the region, and the estimated incremental operating expenses incurred to plan for the storm, to ensure adequate staffing was available during the storm and to recover from it. The operating income impact of Superstorm Sandy excludes an estimated $14.0 million in physical damage caused by the storm to NS-LIJ facilities, most of which affected leased sites at Staten Island University Hospital. [a ] Excess of operating revenue over operating expenses in the consolidated statement of operations is referred to as operating income for purposes of the Management s Discussion and Analysis of Recent Financial Performance. 1

3 North Shore-LIJ s net income [b] and net income margin for the year ended 2012 was $254.0 million and 3.7%, respectively, compared to $149.9 million and 2.4% for the year ended An increase in investment income, including net gains and losses on investments, contributed to the increase in net income. North Shore-LIJ s liquidity and debt to capitalization ratio improved over the period from 2011 to Days cash on hand during this period increased 3.1 days to days, and the debt to capitalization ratio decreased slightly from 43.5% as of 2011 to 42.7% as of Management continues to focus on market share growth, quality and performance improvement, developing new revenue streams associated with population health management, and maintaining a solid balance sheet and operating performance, so that North Shore-LIJ can continue to invest in people, programs and facilities to meet the health care needs of its patients, their families and the communities it serves. Operations and Net Income Overview Operating Income, Operating Cash Flow and Net Income The following table presents a summary of key operating performance results and measures for North Shore-LIJ for the years ended 2011 and On July 1, 2012, North Shore-LIJ acquired The Long Island Home ( LIH ), which is not a member of the Obligated Group. LIH s results of operations since the July 1, 2012 acquisition date have been included in this and other tables presented herein. LIH s results of operations for the period prior to July 1, 2012 are excluded from the Audited Consolidated Financial Statements. For further information on the acquisition of LIH refer to Non- Operating Gains and Losses herein and Note 1 to the Audited Consolidated Financial Statements. ($ s In Millions) 2011 [2] 2012 [2] Operating income $134.2 $97.9 Operating margin 2.2% 1.5% Operating cash flow [1] $459.3 $444.1 Operating cash flow margin [1] 7.4% 6.6% Net income $149.9 $254.0 Net income margin 2.4% 3.7% [1] Operating income before interest and depreciation and amortization ( Operating cash flow ). [2] Derived from the Audited Consolidated Financial Statements. [b] Excess of revenue and gains and losses over expenses in the consolidated statement of operations is referred to as net income for purposes of this Management s Discussion and Analysis of Recent Financial Performance with the following exceptions: 2012 and 2011 net income exclude the non-cash loss on refunding and refinancing of long-term debt 2012 net income excludes the contribution received in the acquisition of LIH 2011 net income excludes the non-recurring medical resident tax recovery 2

4 Operating Revenue and Volumes For the year ended 2012, total operating revenue increased by $478.8 million or 7.7%, compared to the year ended 2011; $42.9 million of the increase related to the acquisition of LIH. The following table presents consolidated North Shore-LIJ operating revenue and certain volume utilization statistics for the years ended 2011 and 2012: ($ s In Millions) 2011 [4] 2012 [4] Operating Revenue Total patient revenue, net of provision for bad debts [1] $5,927.6 $6,354.0 Physician practice revenue $671.9 $758.4 Other operating revenue $245.6 $302.7 Total operating revenue $6,223.1 $6,702.0 Volume Discharges (excluding nursery) [2] 259, ,048 Ambulatory surgery visits 133, ,340 Emergency room visits (treated and released) 471, ,953 Other outpatient visits [3] 964, ,328 [1] Includes net patient service revenue and physician practice revenue. [2] Includes 2,440 LIH discharges from the July 1, 2012 acquisition date. [3] Includes visits from North Shore-LIJ entities, including LIH, that are not members of the Obligated Group but excludes physician practice visits. [4] Dollar amounts are derived from the Audited Consolidated Financial Statements. North Shore-LIJ s core business consists of net patient service revenue and physician practice revenue (collectively referred to as total patient revenue and reported net of the provision for bad debts). For the year ended 2012, North Shore-LIJ s total patient revenue increased by $426.4 million or 7.2%, compared to the year ended 2011, as a result of continued growth in physician and ambulatory services, an increase in managed care payment rates, a non-recurring $48.6 million legal settlement with a third-party payer, revenue cycle initiatives and the acquisition of LIH. The growth in physician and ambulatory services resulted from physician recruitment efforts, migration of services from inpatient care settings and the opening of new ambulatory centers. Together, charity care and the provision for bad debts represent uncompensated care. The estimated cost of uncompensated care remained relatively constant at approximately 3% of total patient revenue for both periods presented. The major components of other operating revenue are hospital grants/contracts, laboratory and other ancillary services, cafeteria sales and other miscellaneous items. Other operating revenue increased by $57.1 million for the year ended 2012 compared to the year ended 2011 primarily as a result of increased revenue from laboratory and other ancillary services and meaningful use ( MU ) incentive payments received in The MU payments were federally funded by a provision of the American Recovery and Reinvestment Act of 2009 to encourage the adoption and meaningful use of health information technology. 3

5 Operating Expenses Total operating expenses for the year ended 2012 increased by $515.2 million or 8.5%, compared to the year ended 2011, of which $46.2 million relates to the acquisition of LIH. Summarized below are the consolidated North Shore-LIJ operating expenses for the years ended 2011 and 2012: Operating Expenses ($ s In Millions) Year ended 2011 [1] Year ended 2012 [1] Salaries and employee benefits $3,874.9 $4,273.0 Supplies and expenses $1,888.9 $1,984.9 Depreciation and amortization $264.1 $275.6 Interest expense $61.0 $70.6 Total operating expenses $6,088.9 $6,604.1 [1] Derived from the Audited Consolidated Financial Statements. For the year ended 2012, salaries and employee benefits increased by $398.1 million or 10.3%, compared to the year ended 2011, primarily due to investments in strategic initiatives that align with changing models of health care delivery, including investments in physicians and staff to support the growth and program expansion within the hospitals and the ambulatory network. The acquisition of LIH and investments in various other service and quality initiatives throughout North Shore-LIJ also contributed to the expense growth. Supplies and expenses for the year ended 2012 increased by $96.0 million or 5.1%, compared to the year ended 2011, primarily due to investments in quality initiatives, program expansion, newly acquired physician practices, information technology and the acquisition of LIH. Supply chain efforts (which involve utilization initiatives for medical and surgical supplies as well as pharmaceuticals) along with productivity and efficiency efforts helped control the growth rate of supplies and expenses. Depreciation and amortization for the year ended 2012 increased by $11.5 million or 4.3%, compared to the year ended 2011, primarily due to investments in facilities and programs, including the new women s hospital on the Long Island Jewish Medical Center campus. 4

6 Non-Operating Gains and Losses The following table presents a summary of non-operating gains and losses for North Shore-LIJ for the years ended 2011 and 2012: ($ s In Millions) 2011 [1] 2012 [1] Non-Operating Gains and Losses Investment income $42.9 $42.6 Change in net unrealized gains and losses and change in value of equity method investments ($24.3) $123.5 Change in fair value of interest rate swap agreements designated as derivative instruments [2] ($14.9) ($4.5) Loss on refunding and refinancing of long-term debt ($12.6) ($4.6) Contribution received in the acquisition of LIH - $12.8 Medical resident tax recovery $1.8 - Other non-operating gains and losses $12.0 ($5.5) Total non-operating gains and losses $4.9 $164.4 [1] Derived from the Audited Consolidated Financial Statements. [2] Refer to Interest Rate Swap Agreements herein. Due to volatility in the investment markets during the years ended 2011 and 2012, North Shore-LIJ s net gains and losses relating to investments have fluctuated. Favorable investment performance augmented North Shore-LIJ s operating results for the year ended Refer to Investment Policy in the North Shore-LIJ Series 2012B Offering Memorandum dated September 18, 2012, and Notes 3 and 4 to the Audited Consolidated Financial Statements for more information on the investment policy and asset allocations. In May 2012, North Shore-LIJ recorded a non-cash loss on refunding of long-term debt of $1.8 million related to its Series 2012A bond issue. In addition, in July 2012, North Shore-LIJ recorded a noncash loss on refinancing of long-term debt of $2.8 million related to the conversion and remarketing of its Series 2009B, C and D variable rate bonds to fixed rate bonds. On July 1, 2012 (the Acquisition Date ), a wholly owned subsidiary of North Shore-LIJ became the sole member of LIH, which was acquired with no consideration transferred. North Shore-LIJ accounted for the business combination by applying the acquisition method and, accordingly, a contribution received in the acquisition of LIH was recorded for the excess of LIH s assets over liabilities, measured at fair value as of the Acquisition Date. The unrestricted excess of the fair value of assets over liabilities of $12.8 million was recorded as a contribution within non-operating gains and losses in the consolidated statement of operations for the year ended Other Changes in Unrestricted Net Assets For a complete list of other changes in unrestricted net assets for the years ended 2011 and 2012, refer to the Audited Consolidated Financial Statements. 5

7 Pension and Other Postretirement Liability Adjustments North Shore-LIJ maintains several pension and other postretirement benefit plans for its employees. For the years ended 2011 and 2012, North Shore-LIJ, recorded a decrease in unrestricted net assets of $149.3 million and $78.5 million, respectively, associated with pension and other postretirement liability adjustments. These adjustments relate to changes in discount rates and investment gains and losses incurred by the assets included in the pension trusts and were made in accordance with the provisions of the Accounting Standards Codification Topic 715, Compensation - Retirement Benefits, which requires North Shore-LIJ to recognize the funded status (the difference between the projected benefit obligations and the fair value of plan assets) of its defined benefit and postretirement plans in the consolidated statements of financial position with a corresponding adjustment to unrestricted net assets. The combined fair value of plan assets at 2011 and 2012 was 70% and 69%, respectively, of the projected benefit obligations of North Shore-LIJ s non-contributory defined benefit pension plans. Refer to Employee Benefits and Investment Policy in the North Shore-LIJ Series 2012B Offering Memorandum dated September 18, 2012, and Note 10 to the Audited Consolidated Financial Statements for more information. Contributions of Long-Lived Assets In 2011, North Shore-LIJ received a gift of land and a building in Manhattan, which was recorded at estimated fair value of $54 million, based on an independent valuation, as a contribution of long-lived assets within other changes in unrestricted net assets. North Shore-LIJ intends to develop the building into a state-of-the-art comprehensive care center. Fundraising For the years ended 2011 and 2012, North Shore-LIJ received $88.3 million and $72.3 million, respectively, in new net pledges and cash donations. Of the $88.3 million received during 2011, $48.9 million was in pledges and $39.4 million was in cash. Of the $72.3 million received during 2012, $40.5 million was in pledges and $31.8 million was in cash. Cash and pledges are generally received by the North Shore-Long Island Jewish Health System Foundation, Inc. (the Foundation ), which was formed to solicit, receive and administer funds to be used for major modernization projects, capital acquisitions, special programs and other health care services for the benefit of the members of the Obligated Group and other affiliated tax-exempt organizations of North Shore-LIJ. The Foundation is not a member of the Obligated Group. Statement of Financial Position Overview Liquidity and Capital Resources Unrestricted cash and investments increased to $1.83 billion as of 2012 from $1.64 billion as of 2011, resulting in days cash on hand as of 2012, an increase of 3.1 days cash on hand from The growth was a result of profitable operations, net gains on investments and Management s use of a systematic strategic capital allocation process. Management s strategic capital allocation process assesses capital expenditures within the context of operations, capital market conditions affecting investment performance, fundraising and debt capacity. Total unrestricted cash and investments is comprised of cash and cash equivalents and marketable securities and other investments (as defined in the Audited Consolidated Financial Statements), and management designated funds included in assets limited as to use in the consolidated statements of financial position. 6

8 The following chart presents the total unrestricted cash and investments, in millions, included in the days cash on hand calculations and days cash on hand at 2010, 2011 and 2012: Total Unrestricted Cash and Investments and Days Cash on Hand $2, $1,750 $1,638 $1, Management Designated [2] $1,500 $1, $1, Unrestricted cash and investments[3] $1,250 $1,449 $1, Days Cash on Hand $1,000 12/31/10 [1] 12/31/11 12/31/12 10 [1] Days cash on hand calculated on a pro forma basis using a full year of operations for Lenox Hill Hospital and subsidiaries, which were acquired on May 19, [2] Management designated funds included in days cash on hand, which are included in assets limited as to use in the consolidated financial statements, were $51.9 million, $46.2 million and $48.6 million, as of 2010, 2011 and 2012, respectively. [3] Comprised of cash and cash equivalents and marketable securities and other investments per the consolidated financial statements. As a result of the increase in unrestricted cash and investments in 2012, the cash to debt measurement has improved from 103% as of 2011 to 106% as of Patient Accounts Receivable Days of total patient revenue in patient accounts receivable were 41 days and 43 days as of 2011 and 2012, respectively. The growth in days was primarily attributable to growth in accounts pending appeal associated with the Medicare Recovery Audit Contractor program. Property, Plant and Equipment Management monitors and manages capital spending in relation to operations, capital market conditions affecting investments, fundraising and debt capacity. The members of North Shore-LIJ continue to invest their capital to meet the ongoing needs of their respective communities. Capital expenditures totaled $622.1 million and $489.5 million for the years ended 2011 and 2012, respectively. Of these amounts, $86.4 million and $105.6 million for the years ended 2011 and 2012, respectively, were financed from the proceeds of bond issues. Net assets released from restrictions for capital asset acquisitions totaled $15.8 million and $38.6 million for the years ended 2011 and 2012, respectively. 7

9 Capital expenditures as a percentage of depreciation and amortization were 236% and 178% for the years ended 2011 and 2012, respectively. Accounts Payable Days in accounts payable were 115 days and 91 days as of 2011 and 2012, respectively. Debt The following table presents a summary of North Shore-LIJ s total outstanding debt, debt to capitalization, long-term debt to cash flow and long-term debt service coverage ratio as of and for the years ended 2011 and 2012: ($ s In Millions) 12/31/11 [4] 12/31/12 [4] Total outstanding debt [1] $1,589.9 $1,718.1 Debt to capitalization [2] 43.5% 42.7% Long-term debt / Cash flow [3] 3.2x 3.8x Long-term debt service coverage 4.1x 3.5x [1] Total outstanding debt includes long-term debt, capital lease obligations and short-term borrowings. [2] Capitalization is defined as the sum of total outstanding debt and unrestricted and temporarily restricted net assets. [3] Cash flow is defined as net income before all items defined in footnote [c] below, except for interest expense. [4] Derived from the Audited Consolidated Financial Statements. North Shore-LIJ s debt profile as of 2012 was comprised of 16.6% variable rate debt and 83.4% fixed rate debt. Total outstanding debt, including short-term borrowings, increased as of 2012 compared to 2011 as a result of the issuance of the Series 2012B bonds, the acquisition of LIH, incremental short term borrowings and other new debt, partially offset by scheduled principal repayments and the issuance of the Series 2012A bonds for which the proceeds were used, along with debt service reserve funds, to partially refund the Series 1998 bonds. Primarily as a result of an increase in unrestricted net assets in excess of the increase in total outstanding debt, debt to capitalization improved slightly from 43.5% at 2011 to 42.7% at Long-term debt to cash flow has increased from 3.2x at 2011 to 3.8x at 2012 primarily as a result of the new bonds issued during 2012 and the acquisition of LIH. The long-term debt service coverage ratio for the years ended 2011 and 2012 was 4.1x and 3.5x, respectively, with a maximum annual debt service ( MADS ) of $125.8 million as of 2011 and $136.0 million as of MADS occurs in 2012 and 2013, respectively, for the 2011 and 2012 calculations. MADS for 2012 includes the impact of the conversion and remarketing of the Series 2009B, C and D variable rate bonds to fixed rate bonds, the issuance of the Series 2012A and 2012B bonds and the acquisition of LIH, all of which are excluded from the 2011 MADS. Income available for debt service [c] for the years ended 2011 and 2012 was $514.3 million and $481.2 million, respectively. [c] Defined as net income before depreciation and amortization, interest expense, the change in net unrealized gains and losses and change in value of equity method investments, the change in fair value of interest rate swap agreements designated as derivative instruments, the loss on refunding and refinancing of long-term debt, the contribution received in the acquisition of LIH and the non-recurring medical resident tax recovery. 8

10 North Shore-LIJ primarily uses its revolving credits to bridge capital expenditures to be paid with donations and/or bond issues. Short term borrowings of $90.5 million and $110.5 million as of December 31, 2011 and 2012, respectively, were primarily bridge borrowings for donor funded capital projects. Interest Rate Swap Agreements Certain members of North Shore-LIJ have entered into various interest rate swap agreements with financial institutions, matched or related to the term and rate of various bond issues or debt agreements. As of 2011 and 2012, the aggregate fair value of the interest rate swap agreements was a liability of $39.6 million and $11.1 million, respectively. In conjunction with the conversion and remarketing of the Series 2009B, C and D bonds, $35.1 million was paid to terminate the related interest rate swap agreements. The termination cost was based on the computed fair value of these interest rate swap agreements at the termination date. A portion of the proceeds from the Series 2012B bonds provided funding for the termination cost. Swap agreements expose North Shore-LIJ to credit risk in the event of nonperformance by the counterparties and to other risks. North Shore-LIJ believes that the risk of material impact to its consolidated financial position arising from nonperformance by the counterparties is low. For additional information on the interest rate swap agreements, refer to Note 7 to the Audited Consolidated Financial Statements. Commitments and Contingencies North Shore-LIJ has been named as a defendant in a class-action lawsuit that alleges a series of data security breaches in which thieves are alleged to have stolen personal and medical information of patients. The complaint seeks actual damages and punitive damages. North Shore-LIJ intends to defend this lawsuit vigorously and has been cooperating with involved law enforcement agencies. For additional information on commitments and contingencies, refer to Note 15 to the Audited Consolidated Financial Statements. Summary Revenue improvements associated with physician and ambulatory volume growth, continued revenue cycle initiatives, increased managed care payment rates and a legal settlement, combined with investments in programs, services and quality, expense reductions from supply chain and other productivity and efficiency initiatives, and the impact of Superstorm Sandy, all contributed to the 2012 operating results for North Shore-LIJ. Continued income from operations and use of a systematic strategic capital allocation process, along with favorable investment returns, have enabled North Shore-LIJ to maintain a solid balance sheet and long-term debt service coverage ratio, with increases in total unrestricted cash and investments and days cash on hand, and a slightly improved debt to capitalization ratio from North Shore-LIJ continues to focus on improving profitability despite the challenges and factors pressuring operating revenue in the health care industry. Management is focused on reducing operating expenses with supply chain initiatives and operational efficiency efforts, as well as creating additional volume through enhanced capacity, improved utilization and physician recruitment efforts. North Shore- LIJ continues to invest in strategic capital projects and technology, including clinical software, to remain competitive, to maintain what Management believes is a competitive advantage regarding physician satisfaction and retention, and to improve clinical and operational processes. In addition, North Shore-LIJ 9

11 is making strategic investments in physicians who support key service lines and staff to support the growth in the ambulatory network and outpatient volume as well as various other service and quality initiatives. Management continues to monitor strategic capital needs in relation to operations, capital market conditions affecting investment returns, fundraising and debt capacity so that North Shore-LIJ can continue to invest in people, programs and facilities to meet the health care needs of its patients, their families and the communities it serves. 10

12 North Shore - Long Island Jewish Obligated Group Utilization Statistics Inpatient Discharges (excl. Nursery) 259, ,608 Patient Days (excl. Nursery) 1,494,505 1,477,763 Average Length of Stay (in Days) Average Daily Census 4,095 4,038 Licensed Beds (excl. Nursery) (1) 5,372 5,467 Beds Available (2) 4,733 4,765 Occupancy Percentage (2) 86.4% 85.0% Normal Newborn Discharges 23,850 24,896 Total Discharges 283, ,504 Outpatient Emergency Room Visits (3) 471, ,953 Emergency Room Admissions (3) 168, ,571 Total ER Encounters (3) 640, ,524 Health Center Visits (incl psychiatry day hospital and methadone) 922, ,598 Ambulatory Surgery Visits 133, ,340 Other Outpatient Visits and Encounters (4) 840, ,359 (1) The increase in Licensed Beds is associated with the opening of the new Katz Women's Hospital on the Long Island Jewish Medical Center campus. (2) Beds Available, which vary primarily based upon need, are reported as the number of beds at the end of each reporting period. Occupancy Percentage is calculated using the average beds available for the reporting period. (3) Total ER Encounters have increased and Emergency Room Admissions were relatively unchanged, due in part to the migration of medical services from inpatient to outpatient care settings. (4) Other Outpatient Visits and Encounters increased primarily due to the opening of a new imaging center in October 2011 and growth at the Center for Advanced Medicine in ambulatory chemotherapy, women's health and diagnostic imaging services. 11

13 North Shore - Long Island Jewish Obligated Group Payer Mix Percent of Gross Revenue (Inpatient & Outpatient) Medicare (1) 43% 43% Medicaid (2) 17% 17% Commercial 34% 34% Self Pay and Other 6% 6% Total 100% 100% (1) Includes Medicare Managed Care. (2) Includes Medicaid Managed Care. 12

14 NORTH SHORE-LONG ISLAND JEWISH OBLIGATED GROUP LONG-TERM DEBT SERVICE COVERAGE RATIO (LTDSCR) (In thousands ) Long-Term Debt Service Coverage Ratio Calculation: 2012 INCOME AVAILABLE FOR DEBT SERVICE (1): Excess of revenue and gains and losses over expenses $ 317,403 Add: Interest 69,680 Add: Depreciation and amortization Add/(Subtract): Change in net unrealized gains and losses and change in value of equity 262,810 method investments Add/(Subtract): Change in fair value of interest rate swap agreements designated as derivative (144,243) instruments Add: Loss on refunding and refinancing of long-term debt 4,495 4,590 Income Available for Debt Service (A) $ 514,735 DEBT SERVICE: Maximum Annual Principal & Interest (2) 132,216 Total Debt Service (B) $ 132,216 Ratio (A) / (B) 3.9 : 1.0 (1) Calculated in accordance with the Third Supplement to the Master Trust Indenture dated September 1, (2) Maximum annual debt service occurs in NOTE: The LTDSCR above is presented for the North Shore-Long Island Jewish Obligated Group pursuant to Section 3 of the Agreement to Provide Continuing Disclosure, and as such, the components of the calculation differ from the LTDSCR disclosed in Management's Discussion and Analysis of Recent Financial Performance, which is based on the consolidated financial results of North Shore-Long Island Jewish Health System, Inc. 13