Northern Arizona Healthcare System (AZ)

Northern Arizona Healthcare System (AZ) 1 The Industrial Development Authority of the County of Yavapai, Hospital Revenue Bonds (Northern Arizona Healthcare System), Series 2017A, $40,000,000, Dated: May 26, 2017 NAR 2 The Industrial Development Authority of the County of Yavapai, Hospital Revenue Bonds (Northern Arizona Healthcare System), Series 2015A, $80,395,000, Dated: June 30, 2015 NAR 3 The Industrial Development Authority of the County of Yavapai, Variable Rate Hospital Revenue Refunding Bonds (Northern Arizona Healthcare System), Series 2015B, $45,615,000, Dated: June 30, 2015 NAR 4 The Industrial Development Authority of the County of Yavapai, Hospital Revenue Refunding Bonds (Northern Arizona Healthcare System), Series 2011, $72,175,000, Dated: October 12, 2011 Table 1 Historic Utilization of Obligated Group Facilities Fiscal Year Ended June 30 Staffed Acute Care Beds Flagstaff Facility 245 245 245 Verde Valley Facility 99 99 99 Total 344 344 344 Acute Care Patient Days Flagstaff Facility 58,394 55,159 53,400 Verde Valley Facility 17,755 16,254 16,565 Total 76,149 71,413 69,965 Acute Care Admissions Flagstaff Facility 13,610 12,491 11,901 Verde Valley Facility 4,272 3,923 4,188 Total 17,882 16,414 16,089 Acute Care Occupancy Rate (Staffed Beds) Flagstaff Facility 65.3% 61.7% 59.7% Verde Valley Facility 49.1% 45.0% 45.8% Obligated Group Total 60.5% 56.7% 55.6% Acute Care Avg Length of Hospital Stay Flagstaff Facility 4.3 4.4 4.5 Verde Valley Facility 4.2 4.1 4.0 Inpatient Surgeries Flagstaff Facility 5,461 5,141 5,376 Verde Valley Facility 1,050 937 924 Total 6,511 6,078 6,300 Outpatient Surgeries Flagstaff Facility 4,911 5,395 5,452 Verde Valley Facility 1,644 1,766 1,700 NAHOSC Facility 1,142 5,146 4,814 Total 7,697 12,307 11,966 Emergency Room Visits Flagstaff Facility 42,943 46,178 47,766 Verde Valley Facility 24,375 24,956 25,028 Verde Valley Sedona Facility 7,087 7,342 6,707 Total 74,405 78,476 79,501 Rehabilitation/ Psychiatric Days Flagstaff Rehabilitation - - - Verde Valley Behavioral Health 2,022 2,097 1,800 Flagstaff Behavioral Health 6,337 6,312 6,075 Rehabilitation Average Length of Stay Flagstaff Rehabilitation 0 0 0 Verde Valley Behavioral Health 10.9 11.8 8.6 Flagstaff Behavioral Health 9.5 8.6 8.6 Series 2011 Management s Discussion of Historic Utilization Fiscal Year Ended June 30, 2017 See attached MD&A. Table 2 Summary of Northern Arizona Healthcare Consolidated Revenues and Expenses and Changes in Net Assets Fiscal Year Ended June 30 Revenues: Net patient service revenue 623,017 652,785 631,916 Provision for doubtful accounts (56,114) (53,982) (40,770) Net patient service revenue less provision for 566,903 598,803 591,146 doubtful accounts Other revenue 18,755 22,452 19,528 Total revenue 585,658 621,255 610,674 Expenses: Personnel 308,167 321,017 320,378 Other 213,669 217,689 223,774 Interest 2,998 6,341 5,970 Depreciation and amortization 31,135 33,850 36,121 Total expenses 555,969 578,897 586,243 Income from operations 29,689 42,358 24,431 Contributions to NAH Foundation (38,653) Investment (loss) income 8,454 (7,173) 59,646 Loss on extinguishment of debt (408) - - Impairment Loss (887) (9,917) (7,903) Contribution Revenue 1,191 775 - Other income (expense) (329) (415) 455 Excess of revenue over expenses 37,710 25,628 37,976 (Increase) decrease in unfunded pension liability 18,094 (44,644) 18,619 (Decrease) increase in net assets 55,823 (18,923) 56,595 Operating Margin 5.1% 6.8% 4.0%

Series 2011 Management s Discussion and Analysis of Financial Performance Fiscal Year Ended June 30, 2017 See attached MD&A. Table 3 Percent of Northern Arizona Healthcare Consolidated Net Patient Service Revenue by Payor Fiscal Year Ended June 30 Medicare 33% 36% 33% Medicaid/AHCCCS 12% 10% 5% Other Payors 44% 39% 49% Self-Pay 11% 15% 13% Total 100% 100% 100% Table 4 Historic Coverage of Principal and Interest Requirements by the Obligated Group Fiscal Year Ended June 30 Excess of revenue over expenses 37,711 25,628 37,976 Plus: Depreciation and amortization 30,376 33,083 35,430 Plus: Interest expense 2,998 6,341 5,970 Plus: Loss from extinguishment of debt 408 - - Plus/Less: Unrealized (gains) losses on investments 4,075 16,623 (43,514) Plus: Unrealized Loss from write-down of assets - 9,917 7,903 Income available for debt service: 75,568 91,592 43,765 Historical debt service requirements: Interest 2,988 2,988 4,205 Principal 9,750 9,750 9,750 Total debt service requirements 12,738 12,738 13,955 Coverage of historical debt service 5.93 7.19 3.14 Maximum annual debt service after issuance of Series 2017A Bonds 12,738 12,738 13,955 Table 5 Historic Capitalization of the Obligated Group Fiscal Year Ended June 30 Outstanding long-term debt: Long-Term Debt Fixed Rate Series 2011 66,121 61,953 57,138 Series 2015A 80,395 78,295 76,595 Series 2015B 45,615 45,615 45,615 Fixed Rate Debt 192,131 185,863 179,348 Long-Term Debt Variable Rate Series 2017A - - 40,000 Variable Rate Debt - - 40,000 Miscellaneous Debt - - - Less: Current portion of long-term debt (5,640) (5,930) (6,200) Total long-term debt 186,491 179,933 213,148 Net assets 713,820 654,819 671,104 Total capitalization 900,311 834,752 884,252 Long-term debt to total capitalization (%) 21% 22% 24% Table 6 Historic Cash, Investments, and Days Cash on Hand of the Obligated Group As of June 30 Investment Category Cash and cash equivalents 97,429 75,677 56,251 Equities 261,841 203,628 260,765 Bonds 115,529 205,160 195,907 Alternatives 106,741 108,380 123,299 Total value of investments 581,540 592,845 636,222 Days cash on hand 404.4 453.5 477.4

SUPPLEMENT TO ANNUAL REPORT ON FINANCIAL INFORMATION AND OPERATING DATA DATED OCTOBER 28, 2017 Relating to the following bond issues of Arizona Health Facilities Authority and The Industrial Development Authority of the County of Yavapai Series 2011 Hospital Revenue Bonds CUSIP Number: 985900CN7 985900CP2 985900CQ0 985900CY3 985900CR8 985900CS6 985900CT4 985900CU1 985900CV9 985900CW7 985900CX5 The Annual Report on Financial Information and Operating Data, dated October 28, 2017, ( Annual Report ) of Flagstaff Medical Center, Inc. ( FMC ), Verde Valley Medical Center ( VVMC ) and Northern Arizona Healthcare Corporation ( NAHC ) which form the Obligated Group ), is supplemented by addition of the following narrative explanation of the Obligated Group s financial performance: A-1

TABLE 1 HISTORIC OPERATING RESULTS Historic Utilization of Obligated Group Facilities The following table provides selected utilization statistics for the facilities of the Obligated Group during its fiscal years ended June 30, 2015, 2016 and 2017. Acute inpatient care statistics include intensive care and neonatal intensive care as well as general medical surgical, obstetrics, and pediatric care. Staffed Acute Care Beds Flagstaff Facility 245 245 245 Verde Valley Facility 99 99 99 Total 344 344 344 Acute Care Patient Days Flagstaff Facility 58,394 55,159 53,400 Verde Valley Facility 17,755 16,254 16,565 Total 76,149 71,413 69,965 Acute Care Admissions Flagstaff Facility 13,610 12,491 11,901 Verde Valley Facility 4,272 3,923 4,188 Total 17,882 16,414 16,089 Acute Care Occupancy Rate (Staffed Beds) Flagstaff Facility 65.3% 61.7% 59.7% Verde Valley Facility 49.1% 45.0% 45.8% Obligated Group Total 60.5% 56.7% 55.6% Acute Care Avg Length of Hospital Stay Flagstaff Facility 4.3 4.4 4.5 Verde Valley Facility 4.2 4.1 4.0 Inpatient Surgeries Flagstaff Facility 5,461 5,141 5,376 Verde Valley Facility 1,050 937 924 Total 6,511 6,078 6,300 Outpatient Surgeries Flagstaff Facility 4,911 5,395 5,452 Verde Valley Facility 1,644 1,766 1,700 NAHOSC Facility 1,142 5,146 4,814 Total 7,697 12,307 11,966 Emergency Room Visits Flagstaff Facility 42,943 46,178 47,766 Verde Valley Facility 24,375 24,956 25,028 Verde Valley Sedona Facility 7,087 7,342 6,707 Total 74,405 78,476 79,501 Rehabilitation/ Psychiatric Days Flagstaff Rehabilitation - - - Verde Valley Behavioral Health 2,022 2,097 1,800 Flagstaff Behavioral Health 6,337 6,312 6,075 Rehabilitation Average Length of Stay Flagstaff Rehabilitation 0 0 0 Verde Valley Behavioral Health 10.9 11.8 8.6 Flagstaff Behavioral Health 9.5 8.6 8.6 (1) Staffed Acute Care Beds includes neonatal intensive care bassinets but excludes rehabilitation and psychiatric beds. (2) Acute Care Patient Days and Admissions includes acute care days and admissions, but excludes data for psychiatric unit and rehabilitation unit as well as newborns not admitted to neonatal intensive care. A-2

Management s Discussion of Historic Utilization Inpatient Acute Care. In aggregate, admissions at the Obligated Group s facilities decreased by approximately 2.0% and patient days at the Obligated Group s facilities decreased 2.0% between fiscal year ended June 30, 2016 ( Fiscal Year 2016 ) and June 30, 2017 ( Fiscal Year 2017 ). Acute admission at the Flagstaff Facility decreased approximately 4.7% while acute admissions at the Verde Valley Facility decreased approximately 6.8% between Fiscal Year 2016 and Fiscal Year 2017. The decrease in acute admissions at the Flagstaff Facility was offset by an increase in out-patient services in line with state and national trends. Acute patient days at the Flagstaff Facility decreased approximately 3.2%, while acute patient days at the Verde Valley Facility increased approximately 1.9% between Fiscal Year 2016 and Fiscal Year 2017. Inpatient surgical cases at the Flagstaff Facility increased approximately 4.6% from Fiscal Year 2016 to Fiscal Year 2017, while at the Verde Valley Facility they decreased approximately 1.4% during the same period. At the Flagstaff Facility, occupancy of the core medical/surgical beds and adult critical care beds averaged approximately 59.7% in Fiscal Year 2017, lower than the approximately 61.7% in Fiscal Year 2016. At the Verde Valley Facility, occupancy averaged 45.8% in Fiscal Year 2017, slightly higher than the approximately 45.0% in Fiscal Year 2016. Demand at FMC is driven by additional referral business from outside the City of Flagstaff and market share growth from the northeast. Emergency and Other Outpatient Volume. Overall, emergency room visits for the Obligated Group increased by approximately 1.3% between Fiscal Year 2016 and Fiscal year 2017. Total outpatient surgeries decreased by 2.8% between Fiscal Year 2016 and Fiscal Year 2017. Outpatient surgeries at the Flagstaff Facility increased by 1.8% while outpatient surgeries at the Verde Valley Facility decreased by 3.7% during the same period. Non-Acute Inpatient Care. The Flagstaff Facility currently operates a 22-bed psychiatric unit. The Verde Valley Facility operates an 11-bed Psychiatric Unit. The Flagstaff Facility Psychiatric days decreased approximately 3.8% between Fiscal Year 2016 and Fiscal Year 2017 with an average daily census of 8.6 in Fiscal Year 2017. The Verde Valley Facility Psychiatric days decreased approximately 14.2% between Fiscal Year 2016 and Fiscal Year 2017, and maintained an average daily occupancy of 8.6 in Fiscal Year 2017. [Remainder of page intentionally left blank] A-3

Summary of Revenue and Expenses The following Table 2 sets forth summary consolidated revenues and expenses and changes in net assets for Northern Arizona Healthcare for fiscal years ended June 30, 2015, 2016 and 2017 derived from consolidated financial statements which include FMC, VVMC and NAHC, and which 2015 have been audited by Ernst & Young LLP, independent auditors ( Ernst & Young ) and which 2016 and 2017 have been audited by Deloitte & Touche LLP, independent auditors ( Deloitte ). The summary presented in Table 2 should be read in conjunction with, and is qualified in its entirety by, Management s Discussion and Analysis of Financial Performance below and the consolidated financial statements, related notes, report of Ernst & Young/Deloitte and the financial information contained in the financial statements for the fiscal years ended June 30, 2015, 2016 and 2017 which are included as a separate MSRB filing. The summaries for the fiscal years ended June 30, 2015, 2016 and 2017, are not necessarily indicative of the financial performance to be expected for any fiscal year thereafter. The financial information set forth below includes the financial results of operations of NAH and other related affiliates which are not Obligated Group Members and consequently, are not obligated on the Notes that secures payment of related series of bonds. In Fiscal Year 2017, the Obligated Group accounted for approximately 94.0% of the total assets, 100% of the change in net assets, 95.2% of the total revenue and 89.0% of the total expenses of Northern Arizona Healthcare consolidated. TABLE 2 SUMMARY OF NORTHERN ARIZONA HEALTHCARE CONSOLIDATED REVENUES AND EXPENSES AND CHANGES IN NET ASSETS (IN THOUSANDS) FOR THE YEAR ENDED JUNE 30. (1) Investment (Loss) Income includes net realized and unrealized gains or losses on investments. (2) FY16 impairment loss of $9,917,000 is related to the goodwill associated with the Northern Arizona Healthcare Orthopedic Surgery Center, LLC and the Verde Valley Medical Imaging Center. FY17 impairment loss of $7,903,000 is related solely to the goodwill associated with the Northern Arizona Healthcare Orthopedic Surgery Center, LLC. A-4

Management s Discussion and Analysis of Financial Performance Accounting Policies. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management of NAH to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. NAH considers critical accounting policies to be those that require the more significant judgments and estimates in the preparation of its financial statements, including the following: recognition of net patient service revenues, which includes contractual allowances; provisions for bad debt; and reserves for losses and expenses related to health care professional and general liability risks. Management relies on historical experience and on other assumptions believed to be reasonable under the circumstances in making its judgments and estimates. Actual results could differ materially from those estimates. Any other recently issued accounting standards have either been deemed not applicable or not material. From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and adopted by Northern Arizona Healthcare as of the specified effective date. Unless otherwise discussed, management of NAH believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on Northern Arizona Healthcare s consolidated financial statement upon adoption. Management of NAH is not aware of any other extraordinary, unusual or infrequently occurring items, contingencies or uncertainties during the period that might impact the fairness of the financial information as presented. Fiscal Years Ended June 30, 2015, 2016 and 2017. During the last three fiscal years, Northern Arizona Healthcare has continued to generate strong financial results. Operating margins have ranged between approximately 4.0% and 6.8% between Fiscal Year 2015 and Fiscal Year 2017 and averaged approximately 5.3% over the three year period, despite increases in operating expenses, largely related to personnel costs. Excess of revenue over expenses has remained steady over the three-year period from approximately $37.7 million in Fiscal Year 2015 to $37.9 million in Fiscal Year 2017. Income from investments increased significantly in Fiscal Year 2017 to $59.9 million due to a 12.0% return on its Board Designated investments. That was partially offset by $38.6 million in donations to the newly created Northern Arizona Healthcare Foundation, a 501c3 entity whose results are not consolidated into Northern Arizona Healthcare s results. For Fiscal Year 2017, FMC accounted for approximately 70.7% of the total revenue of Northern Arizona Healthcare compared to approximately 69.3% in Fiscal Year 2016. FMC s operating margin was 12.3% in Fiscal Year 2017 compared to 14.1% in Fiscal Year 2016. During that same time period VVMC accounted for approximately 23.2% of the total revenue of Northern Arizona Healthcare in 2017 compared to an identical 23.2% in 2016. VVMC s operating margin was 8.1% in 2017, which was a decline from 15.1% in 2016. In Fiscal Year 2013, most physician employment activities were consolidated from FMC and VVMC and placed into Northern Arizona Healthcare Provider Group, LLC ( NAHPG ) to allow for better control. NAHPG is not a member of the Obligated Group. Between Fiscal Year 2015 and Fiscal Year 2017, Northern Arizona Healthcare s total operating expenses increased by a total of approximately 5.4%. Excluding depreciation, amortization and interest expense, operating expenses increased by 4.3%. Personnel costs increased due, in part, to the continuing program instituted by NAH management designed to bring certain wage and benefit levels in line with facilities operating in metropolitan Phoenix. NAH targets wage rates utilizing data at the 50th percentile of the labor market in Phoenix, as adjusted for the cost of living in the Verde Valley and Flagstaff. Based on this program, NAH management believes it has and will continue to be able to attract staff without adversely affecting its financial performance. Certain corporate expenses are allocated from NAH to each of the Obligated Group Members and other affiliates based on a standard formula. Over the last three fiscal years, the amount of corporate expenses allocated from NAH to the Obligated Group increased by 7.5% from approximately $66.7 million in Fiscal Year 2016 to approximately $71.7 million in Fiscal Year 2017. This increase in NAH allocated expenses is due in large part to increases in overall salary and, to a lesser extent, an increase in purchased services. Provisions for doubtful accounts decreased between Fiscal Year 2016 and Fiscal Year 2017 by approximately $13.2 million or approximately 24.5%. The decrease is primarily due to increases in healthcare insurance coverage provided by new federal regulations further decreasing the number of self-pay patients. A-5

Pension Liability. In Fiscal Year 2017, Northern Arizona Healthcare recognized a decrease in the unfunded pension liability to its defined benefit pension plan of approximately $18.1 million. In Fiscal Year 2016, NAH recognized an increase in the unfunded pension liability of approximately $44.6 million. The change in pension liability between Fiscal Years 2017 and 2016 is a result of the return on investments held by the defined benefit plan as well as certain actuarial determined factors. These changes each year do not have an impact on the Excess of Revenues over Expenses, but do affect NAH s Net Assets. The current underfunded status of the defined benefit plan is $70.7 million at June 30, 2017. See footnote 9 in the 2017 audited Financial Statements of Northern Arizona Healthcare for further discussion of retirement plans. Liquidity. The liquidity position, comprised of cash, investments and board designated assets, of the Obligated Group, has improved from approximately $581.5 million at the end of Fiscal Year 2015 to approximately $636.2 million at the end of Fiscal Year 2017. This growth enabled the Obligated Group to maintain approximately 477.4 days of operating expenses (exclusive of depreciation and amortization) in cash at the end of Fiscal Year 2017. For additional information concerning the Obligated Group s cash management and investment policies, see Table 6 herein. [Remainder of page intentionally left blank] A-6

Sources of Patient Revenue Northern Arizona Healthcare derives its patient service revenue from Medicare, AHCCCS (including AHCCCS managed care plans), commercial insurers and private managed care payors (including health maintenance organizations and preferred provider organizations), self-pay patients and other sources. Table 3 sets forth the mix of net patient service revenue by primary payor category for Northern Arizona Healthcare for the Fiscal Years 2015, 2016, and 2017. The patient service revenue percentages are shown after deductions for contractual adjustments, and are net of allowances estimated for doubtful or uncollectible accounts. Northern Arizona Healthcare is largely dependent on, and could be adversely affected by changes in Federal and State funding. TABLE 3 PERCENT OF NORTHERN ARIZONA HEALTHCARE CONSOLIDATED NET PATIENT SERVICE REVENUE BY PAYOR FOR THE YEAR ENDED JUNE 30. Medicare 33% 36% 33% Medicaid/AHCCCS 12% 10% 5% Other Payors 44% 39% 49% Self-Pay 11% 15% 13% Total 100% 100% 100% (1) Other Payors includes Commercial (including Managed Care HMO and PPO plans) and all Blue Cross Blue Shield contracts, including outof-state. The Obligated Group Members maintain contracts with a number of the major commercial insurance and managed care plans having enrollees residing within the Service Area. Most of the reimbursement received by the Obligated Group from commercial plans and other private third-party payors, including managed care plans, is based on a discounted fee-for-service/percentage of billed charges methodology. However, Blue Cross/Blue Shield of Arizona ( BlueCross ), historically the largest single private third-party payor to the Obligated Group, currently reimburses the Obligated Group Members on a modified Medicare Severity Diagnosis Related Group ( MSDRG ) basis for inpatient claims and on a percentage of billed charges for outpatient claims. Private sector payments currently account for approximately 49% of the net patient service revenue for NAH as a whole. FMC and VVMC have a different relative mix of governmental payors and other payors. Substantially all of the Medicare reimbursement received by the Obligated Group is MSDRG-based for inpatient hospital services and based on the Ambulatory Payment Classification ( APC ) system for those outpatient services where a fee schedule does not apply. Historically, as the Flagstaff Facility and Verde Valley Facility were located more than 35 miles from other similar hospitals, they were designated Sole Community Hospitals for Medicare purposes. Due to this designation, FMC and VVMC may receive additional Medicare payments for services provided and are eligible for adjustment payments covering losses in the event of reduced admissions. A-7

VVMC currently maintains its sole community hospital designation with Medicare by first classifying as rural under a federal law that recognizes a state law that classifies a county as rural that has less than 400,000 people. The two step process is necessitated by a hospital located approximately 31 miles away from VVMC in Prescott Valley. The rural designation allows VVMC to qualify for its Sole Community status based on the driving distance, as measured by time, for which it qualifies. The Medicare Sole Community Hospital ( SCH ) payments, while incremental, serve as a floor for computing Medicare payments. As a result, any changes in disproportionate share, wage index, or outlier payments for inpatient Medicare services are fully offset through either increases or decreases in the SCH payments. Medicare s MSDRG payments are comprised of two components, a labor component and a non-labor component. The labor component is adjusted for prevailing wages within either the applicable Core Based Statistical Area ( CBSA ) or rural area within the State. Since there are only three hospitals within the Flagstaff CBSA, two of which are not included in the wage index calculation and because each is either a CAH or an IHS facility, wages paid at the Flagstaff Facility are the basis for approximately 100% of the wage index in its CBSA and thus influence the labor portion components of Medicare inpatient MSDRG and outpatient APC payments to FMC. AHCCCS is a federal and state supported research and demonstration program. AHCCCS is Arizona s alternative to the Medicaid program and is designed to provide for a portion of the cost of indigent healthcare needs. Prior to 2014, for inpatient services, FMC and VVMC receive a per diem rate depending on the nature of the services provided. Rates paid to FMC and VVMC by AHCCCS and AHCCCS- sponsored health plans are established at levels that generally do not cover FMC s and VVMC s costs. Effective October 1, 2014, AHCCCS changed from a per diem reimbursement methodology to an APR-DRG methodology. In 2002, Arizona voters approved a statewide proposition which provides public funding for trauma services. Ninety percent of the funds raised through Arizona Proposition 202, the Indian Gaming Initiative, are to be used for trauma funding. FMC s portion of this funding was approximately $1.7 million in Fiscal Year 2017 and $1.5 million in Fiscal Year 2016. VVMC receives additional money from the State through AHCCCS under its Rural Hospital program (previously SAVE (Stable, Accessible, Viable and Efficient Rural Hospital Program)). Hospitals located outside of Maricopa (Phoenix) and Pima (Tucson) counties are eligible if they have less than 100 acute care beds. VVMC received approximately, $1.5 million in Fiscal Year 2017 and $1.7 million in Fiscal Year 2016. In Fiscal Year 2017, FMC had contracts with two of the AHCCCS managed care plans serving Coconino County, while VVMC had one contract with an AHCCCS managed care plan serving Yavapai County. FMC and VVMC each receive significant volumes of AHCCCS business because each is the sole provider of inpatient and other hospital-based services in their respective communities. All of the AHCCCS reimbursement received by the Obligated Group from AHCCCS managed care plans or directly from AHCCCS is based on statutory AHCCCS reimbursement formulas. A-8

Historic Coverage of Principal and Interest Requirements Table 4 sets forth the historic coverage of principal and interest requirements for the Obligated Group for the Fiscal Years 2015, 2016 and 2017, based on the revenue of the Obligated Group available to pay debt service and the actual debt service in each year. TABLE 4 HISTORIC COVERAGE OF PRINCIPAL AND INTEREST REQUIREMENTS BY THE OBLIGATED GROUP FOR THE YEAR ENDED JUNE 30. Excess of revenue over expenses 37,711 25,628 37,976 Plus: Depreciation and amortization 30,376 33,083 35,430 Plus: Interest expense 2,998 6,341 5,970 Plus: Loss from extinguishment of debt 408 - - Plus/Less: Unrealized (gains) losses on investments 4,075 16,623 (43,514) Plus: Unrealized Loss from write-down of assets - 9,917 7,903 Income available for debt service: 75,568 91,592 43,765 Historical debt service requirements: Interest 2,988 2,988 4,205 Principal 9,750 9,750 9,750 Total debt service requirements 12,738 12,738 13,955 Coverage of historical debt service 5.93 7.19 3.14 Maximum annual debt service after issuance of Series 2017A Bonds 12,738 12,738 13,955 A-9

Historic Capitalization The following Table 5 sets forth the combined capitalization of the Obligated Group for the Fiscal Years 2015, 2016 and 2017. TABLE 5 HISTORIC CAPITALIZATION OF THE OBLIGATED GROUP FOR THE YEAR ENDED JUNE 30. Outstanding long-term debt: Long-Term Debt Fixed Rate Series 2011 66,121 61,953 57,138 Series 2015A 80,395 78,295 76,595 Series 2015B 45,615 45,615 45,615 Fixed Rate Debt 192,131 185,863 179,348 Long-Term Debt Variable Rate Series 2017A - - 40,000 Variable Rate Debt - - 40,000 Miscellaneous Debt - - - Less: Current portion of long-term debt (5,640) (5,930) (6,200) Total long-term debt 186,491 179,933 213,148 Net assets 713,820 654,819 671,104 Total capitalization 900,311 834,752 884,252 Long-term debt to total capitalization (%) 21% 22% 24% (1) Net assets includes, restricted assets with a value of less than 6% of value of the net assets shown at June 30, 2017. A-10

Cash Management and Investment Policies Northern Arizona Healthcare s asset allocation and investment strategies are designed to earn returns on plan assets consistent with a reasonable and prudent level of risk. Investments are diversified across classes, sectors, and manager style to minimize the risk of large losses. Northern Arizona Healthcare uses investment managers specializing in each asset category and, where appropriate, provides the investment manager with specific guidelines, which include allowable and/or prohibited investment types. Northern Arizona Healthcare regularly monitors manager performance and compliance with investment guidelines established under its investment policy. It has retained an independent investment consultant to make recommendations and oversee its investments in different classes of securities. Equity securities include U.S. and international investments and range from large-cap to small-cap companies. Fixed income securities include corporate bonds of companies from diversified industries, mortgagebacked securities, and U.S. Treasuries. The following Table 6 sets forth the cash, cash equivalents, short-term investments, and marketable securities including board designated assets, but excluding donor restricted assets and certain funds held by the Bond Trustee, actually held by the Obligated Group as of Fiscal Years 2015, 2016 and 2017. Table 6 also includes a calculation of the Obligated Group s days of cash on hand at the end of each such fiscal year. TABLE 6 HISTORIC CASH, INVESTMENTS AND DAYS CASH ON HAND OF THE OBLIGATED GROUP AS OF JUNE 30. Investment Category Cash and cash equivalents 97,429 75,677 56,251 Equities 261,841 203,628 260,765 Bonds 115,529 205,160 195,907 Alternatives 106,741 108,380 123,299 Total value of investments 581,540 592,845 636,222 Days cash on hand 404.4 453.5 477.4 (1) Cash and cash equivalents are composed of assets that are or may be immediately converted to cash. A-11

The information contained in this Supplement is provided as of the dates specified above and is subject to change without notice, and the filing of this Supplement shall not, under any circumstances, create any implication that there has been no change in the affairs of the Obligated Group or in the other matters described herein since the date as of which such information is provided. The information in this Supplement is provided solely to comply with the Obligated Group s contractual commitment to provide the information specified therein. This Supplement is not made by the Obligated Group in connection with a purchase or sale of bonds and accordingly is not intended to contain all information material to a decision to purchase or sell bonds. The Obligated Group s address and contact information are noted below. October 28, 2017 Northern Arizona Healthcare Corporation Attention: Jeffrey Treasure, NAH CFO 1200 North Beaver Flagstaff, Arizona 86001 telephone number (928) 773-2340 A-12