THE NEMOURS FOUNDATION AND SUBSIDIARIES from the Alfred I. duPont ... which provides management for...

THE NEMOURS FOUNDATION AND SUBSIDIARIES

Combined Financial Statements and Schedules

December 31, 2012 and 2011

(With Independent Auditors’ Report Thereon)


Table of Contents

Page(s)

Independent Auditors’ Report 1 – 2

Combined Financial Statements:

Combined Balance Sheets 3

Combined Statements of Operations 4

Combined Statements of Changes in Net Assets 5

Combined Statements of Cash Flows 6

Notes to Combined Financial Statements 7 – 38

Combining Information:

Combining Schedule 1 – Balance Sheet Information 39 – 40

Combining Schedule 2 – Revenue and Expense Information 41 – 42

Independent Auditors’ Report

The Board of Directors

The Nemours Foundation:

We have audited the accompanying combined financial statements of The Nemours Foundation and its

subsidiaries, which comprise the combined balance sheets as of December 31, 2012 and 2011, and the

related combined statements of operations, changes in net assets, and cash flows for the years then ended,

and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements

in accordance with U.S. generally accepted accounting principles; this includes the design, implementation,

and maintenance of internal control relevant to the preparation and fair presentation of combined financial

statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. 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 combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

combined financial statements. The procedures selected depend on the auditors’ judgment, including the

assessment of the risks of material misstatement of the combined financial statements, whether due to fraud

or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the combined financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of significant

accounting estimates made by management, as well as evaluating the overall presentation of the combined

financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly in all material respects,

the financial position of The Nemours Foundation and its subsidiaries as of December 31, 2012 and 2011,

and the changes in their net assets and their cash flows for the years then ended in accordance with

U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

KPMG LLP Suite 1100 Independent Square One Independent Drive Jacksonville, FL 32202

2

Other Matter

Our audit was conducted for the purpose of forming an opinion on the combined financial statements as a

whole. The supplementary information in Schedules 1 through 2 is presented for purposes of additional

analysis and is not a required part of the combined financial statements. Such information is the

responsibility of management and was derived from and relates directly to the underlying accounting and

other records used to prepare the combined financial statements. The information has been subjected to the

auditing procedures applied in the audit of the combined financial statements and certain additional

procedures, including comparing and reconciling such information directly to the underlying accounting

and other records used to prepare the combined financial statements or to the combined financial

statements themselves, and other additional procedures in accordance with auditing standards generally

accepted in the United States of America. In our opinion, the information is fairly stated in all material

respects in relation to the combined financial statements as a whole.

Jacksonville, Florida

April 26, 2013

Certified Public Accountants


Combined Balance Sheets


Assets 2012 2011

Current assets:Cash and cash equivalents $ 93,267,877 90,278,951 Short-term investments 36,371,374 41,081,643 Collateral received for securities lending transactions 5,001,648 — Accounts receivable, less allowances for doubtful accounts of approximately $28,600,000 in 2012

and $28,434,000 in 2011 84,907,969 78,080,672 Current portion of assets whose use is limited 11,496,425 4,121,425 Supplies 3,953,449 2,011,151 Prepaid expenses and other current assets 10,627,635 9,773,471

Total current assets 245,626,377 225,347,313

Investments 72,648,758 70,401,039

Assets whose use is limited:Internally designated for self-insurance reserves 70,845,797 67,617,872 Held by trustee under bond indenture — 33,427,634 Internally designated for future Delaware construction 172,416,903 177,230,461 Other designated 36,150,374 33,029,205

279,413,074 311,305,172

Temporarily restricted assets:Cash and investments 273,519,114 379,201,427 Pledges receivable, net 3,183,248 5,042,264 Land held for investment 106,095 106,095 Other assets 107,524 141,792

276,915,981 384,491,578

Property and equipment:Land and land improvements 93,989,287 92,185,815 Buildings and leasehold improvements 640,056,305 351,193,131 Equipment 411,421,783 295,608,954

1,145,467,375 738,987,900

Less accumulated depreciation (422,641,806) (380,115,930)

722,825,569 358,871,970

Construction in progress 85,175,258 308,012,292

808,000,827 666,884,262

Other assets 5,824,324 5,801,766

Permanently restricted assets:Cash and investments 3,337,405 2,716,804 Pledges receivable, net 125,893 175,891

3,463,298 2,892,695

Inexhaustible assets 3,386,733 3,386,733

$ 1,695,279,372 1,670,510,558

Liabilities and Net Assets

Current liabilities:Accounts payable and accrued expenses $ 44,752,126 54,465,036 Accrued compensation and benefits 64,280,317 54,770,530 Liabilities under securities lending transactions 5,001,648 — Current portion of long-term debt 55,400,000 50,625,000 Deferred revenue 2,078,680 2,668,049

Total current liabilities 171,512,771 162,528,615

Self-insurance reserves 61,900,108 58,860,467 Long-term debt, less current portion 311,969,215 318,486,944 Liabilities for pension benefits 193,938,018 122,538,957

Total liabilities 739,320,112 662,414,983

Net assets:Unrestricted 673,210,235 618,341,556 Temporarily restricted 276,915,981 384,491,578 Permanently restricted 5,833,044 5,262,441

Total net assets 955,959,260 1,008,095,575

Commitments and contingencies

$ 1,695,279,372 1,670,510,558

See accompanying notes to combined financial statements.

3


Combined Statements of Operations

Years ended December 31, 2012 and 2011

2012 2011

Unrestricted revenues and other support:Patient service revenue (net of contractual allowances and discounts) $ 655,036,226 609,148,510 Provision for bad debts (23,679,974) (22,090,597)

Net patient service revenue less provision for bad debts 631,356,252 587,057,913

Distribution from the Alfred I. duPont Testamentary Trust 123,484,872 125,231,176 Net assets released from restrictions used for operations 49,123,315 11,968,151 Investment return 14,050,969 8,149,047 Contracted services revenue 15,418,889 14,598,486 Grant revenue 12,402,812 12,959,150 Other income 15,313,315 11,573,431

Total revenues and other support 861,150,424 771,537,354

Operating expenses:Salaries and benefits 540,143,094 453,349,370 Professional fees 33,225,930 28,147,719 Supplies 83,996,956 70,323,440 Repairs and maintenance 16,130,742 13,361,017 Purchased services 41,201,361 34,972,716 Depreciation 43,779,555 37,898,367 Rent and lease expense 11,964,668 10,611,358 Utilities and telephone 17,942,331 15,784,047 Insurance 10,513,872 8,754,518 Interest 3,351,840 1,317,867 Advertising 7,005,358 6,815,290 Other 18,514,826 13,812,407

Total operating expenses 827,770,533 695,148,116

Operating income 33,379,891 76,389,238

Gain on land held for sale — 1,509,345 Net assets released from restrictions used for capital purchases 92,887,849 — Pension liability adjustment (71,399,061) (51,942,808)

Increase in unrestricted net assets $ 54,868,679 25,955,775


4


Combined Statements of Changes in Net Assets


2012 2011

Unrestricted net assets:Operating income $ 33,379,891 76,389,238 Gain on land held for sale — 1,509,345 Net assets released for capital purchases 92,887,849 — Pension liability adjustment (71,399,061) (51,942,808)

Increase in unrestricted net assets 54,868,679 25,955,775

Temporarily restricted net assets:Net assets released from restrictions used for operations (49,123,315) (11,968,151) Net assets released from restrictions used for capital purchases (92,887,849) — Investment return 28,828,307 (878,935) Contributions 5,607,260 6,921,370

Decrease in temporarily restricted net assets (107,575,597) (5,925,716)

Permanently restricted net assets:Contributions 570,603 150,334

Increase in permanently restricted net assets 570,603 150,334

(Decrease) increase in net assets (52,136,315) 20,180,393

Net assets, beginning of year 1,008,095,575 987,915,182

Net assets, end of year $ 955,959,260 1,008,095,575


5


Combined Statements of Cash Flows


2012 2011

Cash flows from operating activities:(Decrease) increase in net assets $ (52,136,315) 20,180,393 Adjustments to reconcile change in net assets to net cash

provided by operating activities:Depreciation 43,779,555 37,898,367 Premium amortization (252,729) (241,614) Net realized and unrealized (gains) losses on investments (30,982,837) 5,957,307 Gain on land held for sale — (1,509,345) Net loss on disposal of property and equipment 114,235 166,680 Provision for bad debts 23,679,974 22,090,597 Restricted contributions (6,177,863) (4,216,203) Increase in patient accounts receivable (30,507,271) (28,198,451) Increase in supplies (1,942,298) (121,024) Increase in prepaid expenses and other assets (920,407) (1,216,258) Decrease (increase) in pledges receivable, net 1,909,014 (2,664,749) Decrease in accounts payable and accrued expenses (24,601,385) (11,045,792) Increase in accrued compensation and benefits 9,509,787 5,018,564 (Decrease) increase in deferred revenue (589,369) 442,341 Increase in self-insurance reserves 3,039,641 3,205,367 Increase in liabilities for pension benefits 71,399,061 51,942,808

Net cash provided by operating activities 5,320,793 97,688,988

Cash flows from investing activities:Purchases of property and equipment (170,160,674) (148,590,760) Proceeds on sale of land — 12,975,345 Sales of investments 397,135,264 373,326,998 Purchases of investments (234,111,067) (336,059,180) Decrease (increase) in other temporarily restricted assets 34,268 (1,256) Proceeds from sale of property and equipment 82,479 56,148

Net cash used in investing activities (7,019,730) (98,292,705)

Cash flows from financing activities:Repayments of long-term debt (1,490,000) (1,600,000) Restricted contributions 6,177,863 4,216,203

Net cash provided by financing activities 4,687,863 2,616,203

Net increase in cash and cash equivalents 2,988,926 2,012,486

Cash and cash equivalents at beginning of year 90,278,951 88,266,465

Cash and cash equivalents at end of year $ 93,267,877 90,278,951

Supplemental disclosures of cash flow information:Cash paid during the year for interest $ 8,595,451 9,678,269 Change in construction in progress in accounts payable 14,888,475 23,327,871


6


Notes to Combined Financial Statements


7 (Continued)

(1) Organization

The Nemours Foundation (Nemours) was formed in 1936, pursuant to the last will and testament of

Alfred I. duPont (the Will), for the primary purpose of providing for the care and treatment of crippled

children, but not of incurables, and for the care of the elderly in Delaware, particularly couples. The Will

specifically provided for the maintenance of a 300-acre estate in Delaware (the estate) and for the

construction of a children’s hospital, The Alfred I. duPont Hospital for Children (AIDHC), on the estate.

Nemours includes the estate, AIDHC, a specialty children’s clinic in and around Delaware (Nemours

Children’s Clinic – Wilmington), three specialty children’s clinics in Florida (Nemours Children’s Clinics

in Jacksonville, Orlando, and Pensacola), a health clinic for the elderly in Delaware (Nemours SeniorCare),

Nemours Health and Prevention Services (H&PS), and Nemours Children’s Hospital (NCH) located in

Orlando, Florida. Nemours also includes Dornoch Sutherland Assurance, Ltd. (Dornoch), a wholly owned

captive insurance company based in the Cayman Islands, Cruden Bay Risk Retention Group, Inc.

(Cruden), a wholly owned subsidiary based in the State of Vermont, Pediatric Medical Services of Florida,

Inc. (PMSI), a wholly owned subsidiary located in Central Florida, and a Home Office in Jacksonville,

Florida, which provides management for the multidivisional corporate structure.

AIDHC, an operating division of Nemours, is a full-service, 200-bed children’s hospital serving the

Delaware Valley.

NCH, an operating division of Nemours, is a full-service 95-bed children’s hospital, which opened October

22, 2012 serving Central Florida.

The Nemours Children’s Clinics (Clinics) provide services to children suffering from a multitude of

crippling but not incurable disorders.

H&PS has been established to promote children’s health and strive to prevent disease before it arises by

fashioning a holistic system of health and healthcare in Delaware.

Nemours SeniorCare (SeniorCare) provides and supervises care and treatment for the elderly, particularly

couples, through its facilities in Delaware. Services provided include dental, ear, and eye care.

Dornoch was established by Nemours through the investment of $700,000 for 100% of the subsidiary’s

capital stock. Dornoch provides insurance coverage to Nemours for risks such as general, professional, and

patient care liability.

Cruden was established by Nemours through a contribution of $1,000 and is the sole Class A Member.

Cruden has been recognized as exempt from federal income taxes on related income under Section 501(a)

of the Internal Revenue Code as an organization described in Section 501(c)(3). Cruden provides insurance

coverage to Nemours’ physicians practicing in Pennsylvania and Florida.

PMSI was established by Nemours through an investment of $1,806,000 and is the corporation’s sole

member. PMSI has been recognized as exempt from federal income taxes on related income under Section

501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3). PMSI operates

Children’s Health Alliance (CHA) which provides primary care services to pediatric patients in Central

Florida.




8 (Continued)

Cash requirements of Nemours’ operating divisions or wholly-owned subsidiaries not met through normal

operations are funded by Nemours.

As provided in the Will, Nemours received income from the Alfred I. duPont Testamentary Trust

(the Trust) for use in the performance of the above-described activities. The trustees of the Trust are the

Members of Nemours. During 2012 and 2011, Nemours received total distributions from the Trust

amounting to $123,484,872 and $125,231,176, respectively, which are recognized as revenues and other

support in the accompanying combined statements of operations. Certain trustees of the Trust also serve as

Directors of Nemours.

(2) Significant Accounting Policies

(a) Principles of Combination

The combined financial statements include the accounts of Nemours and its operating divisions and

wholly-owned subsidiaries. The assets and liabilities of the Trust are not included in these combined

financial statements. Significant transactions between operating divisions and subsidiaries have been

eliminated.

(b) Basis of Presentation

These combined financial statements, which are presented on the accrual basis of accounting, have

been prepared to focus on Nemours as a whole and to present balances and transactions according to

the existence or absence of donor-imposed restrictions. This has been accomplished by classification

of net assets and transactions as unrestricted, temporarily restricted, and permanently restricted as

follows:

– Unrestricted net assets are resources generated from operations and unrestricted donations and

are not subject to donor-imposed stipulations.

– Temporarily restricted net assets are those whose use has been limited by donors to a specific

time period or purpose (see note 7).

– Permanently restricted net assets have been restricted by donors to be maintained in perpetuity

(see note 7).

(c) Use of Estimates

The preparation of combined 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 and disclosure of contingent assets and liabilities at the date

of the combined financial statements and the reported amounts of revenue and expenses during the

reporting period. Actual results could differ from those estimates.

(d) Concentrations of Credit Risk

Financial instruments that potentially expose Nemours to concentrations of credit risk consist

primarily of patient accounts receivable. Nemours has not experienced significant losses related to

receivables from individual customers or groups of customers in a particular industry or geographic




9 (Continued)

area. Due to these factors, management believes no additional credit risk beyond amounts provided

for collection losses is inherent in Nemours’ patient accounts receivable.

(e) Cash and Cash Equivalents

Nemours considers all highly liquid investments with a maturity of three months or less when

purchased to be cash equivalents.

(f) Investments

Investments are measured at fair value in the accompanying combined balance sheets. Investments in

securities listed on a national securities exchange or securities traded in the over-the-counter market

are stated at the last reported sale or bid prices.

Partnerships and private equity and real estate funds are nonmarketable securities – securities for

which there is no public market. Partnerships and private equity and real estate funds are carried at

estimated fair value as determined by the general partner of the partnership using the latest available

information at the valuation date. Factors considered in valuing individual securities include the

financial condition and operating results of the underlying portfolio companies, prices of recent

significant private placements of securities of the same issuer, the nature and duration of restriction

on disposition of the securities, changes in the circumstances and prospects of the issuer, and any

other factors, which the general partner considers to be relevant.

Hedge funds hold both marketable and nonmarketable illiquid securities and can engage in complex

strategies including short selling, margin borrowing, derivatives, and other aggressive investment

strategies. At times, the securities markets experience great volatility and unpredictability thus

creating some degree of market risk.

The valuation of the partnership’s securities and other investments may involve uncertainties and

judgmental determinations. Securities held by hedge funds may routinely trade with bid-ask spreads

that may be significant and certain securities may, occasionally, be valued at the mean between such

spreads. If valuations prove to be incorrect, Nemours could be adversely affected. Independent

pricing information may not be available at times or may be difficult to obtain, and therefore, certain

investments may be difficult to value and may be subject to varying interpretations of value. In such

cases, the value may be determined by utilizing marked to market prices provided by dealers and

pricing services and through relative value pricing.

Investment return (including realized and unrealized gains and losses on investments, interest, and

dividends) is included in operating income unless such earnings are subject to donor-imposed

restrictions or by law. Investment return restricted by donor stipulations is reported as an increase in

temporarily restricted net assets.

(g) Supplies

Supplies are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis.




10 (Continued)

(h) Assets Whose Use Is Limited

Assets whose use is limited include assets held by trustees under indenture agreements for future

capital improvements and designated assets set aside by the Board of Directors. These assets consist

of cash and cash equivalents and investments as described in note 4.

(i) Debt Issue Costs

Debt issue costs, net of accumulated amortization of $237,000 and $167,000, were approximately

$1,837,000 and $1,907,000 and are included in other assets at December 31, 2012 and 2011,

respectively. Debt issue costs are being amortized using the straight-line method over the life of the

related debt, which approximates the effective-interest method. Amortization of debt issue costs

during the construction period of $44,000 has been capitalized as a component of construction in

progress in the combined balance sheets as of December 31, 2012 and 2011, respectively.

Amortization of debt issue costs for completed projects is included in interest expense in the

combined statements of operations.

(j) Bond Premiums

Bond premiums are amortized using the effective interest method over the life of the related debt.

Bond premiums, net of accumulated amortization of approximately $773,000 and $520,000, were

approximately $8,434,000 and $8,687,000 and are included with the related debt on the combined

balance sheets at December 31, 2012 and 2011, respectively.

(k) Property and Equipment

Property and equipment have been recorded at historical cost at the date of acquisition or fair value

at the date of donation. Major asset classifications and useful lives are generally in accordance with

those recommended by the American Hospital Association and range from 3 to 40 years. The

straight-line method of computing depreciation is used for all depreciable assets.

Interest costs incurred during the construction period on borrowings for specified construction

projects, net of investment income on bond proceeds, are capitalized. Interest costs of approximately

$6,463,000 and $10,197,000, net of related investment income were capitalized during the years

ended December 31, 2012 and 2011, respectively.

(l) Inexhaustible Assets

Inexhaustible assets consist of the Nemours Mansion (Mansion), located on the Estate in Delaware,

and contents that are primarily paintings and antiques stated at cost if purchased or the appraised

value, if determinable, as of the date of donation.

(m) Grant and Deferred Revenue

Nemours defers recognition of grant revenue received from outside parties until expenditures are

incurred or patients are seen.




11 (Continued)

(n) Net Patient Service Revenue

Net patient service revenue is reported at the estimated net realizable amounts from patients,

third-party payors, and others for services rendered.

(o) Contracted Services Revenue

Nemours contracts to provide certain medical services to other healthcare providers. The

reimbursement for these services is classified as contracted services revenue, and is recognized when

earned.

(p) Operating Income

The combined statements of operations include operating income. Transactions deemed by Nemours

to be ongoing, major, or central to the provision of services are reported as operating income.

(q) Community Benefit

Nemours has a long history of providing community benefits and has quantified these benefits into

the following categories: financial assistance, community health improvement services, education for

healthcare professionals, subsidized health services, research, and donations.

Nemours has policies providing financial assistance for patients requiring care but who have limited

or no means to pay for that care. These policies provide free or discounted health and health related

services to patients who qualify under certain income and asset criteria. Because Nemours does not

pursue collection of amounts determined to qualify for financial assistance, they are not reported as

net patient service revenue. Nemours maintains records to identify and monitor levels of financial

assistance it provides. Charges forgone for services provided under Nemours’ financial assistance

policy as a percentage of total charges for the year ended December 31, 2012 and 2011 was

approximately 1.6% and 0.9%, respectively.

In addition to providing financial assistance, Nemours also provides other benefits for the

community, the cost of which can exceed the revenue sources available. Examples of these

community benefits include:

– Community health improvement services focuses on leadership and programs dealing with not

just healthcare, but also children’s health promotion and disease prevention.

– Education for healthcare professionals centers on training the next generation of pediatric

specialists as well as supporting continuing medical education.

– Research services improve children’s lives through the power of discovery. Nemours

continues to integrate research findings at the bedside and exam room where they have the

greatest impact on children.




12 (Continued)

Nemours community benefits at cost for the year ended December 31, 2012 and 2011 are as

follows:

2012 2011

Charity care:Financial assistance at cost $ 13,141,539 6,033,528 Unreimbursed Medicaid 66,348,482 47,694,604

Net unreimbursed financial assistance 79,490,021 53,728,132

Other community benefits:Community health improvement services 25,869,919 25,512,719 Research 18,070,983 16,684,004 Education for healthcare professionals 6,002,315 5,465,637 Donations 550,592 574,825

Total quantified benefits 50,493,809 48,237,185

Total community benefits $ 129,983,830 101,965,317

The cost of financial assistance provided was determined by applying Nemours’ overall patient care

cost to charge ratio to total charges. Cost of the other community benefits represents actual expenses

incurred net of any related revenue earned for providing such services.

(r) Income Taxes

Nemours is exempt from federal income taxes on related income under Section 501(a) of the Internal

Revenue Code as an organization described in Section 501(c)(3), and is also exempt from state

income taxes. Management believes that the unrelated business income generated by Nemours is not

material to the combined financial statements.

(s) Impairment of Long-Lived Assets

Management regularly evaluates whether events or changes in circumstances have occurred that

could indicate impairment in the value of long-lived assets. In accordance with the provisions of

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 45,

Accounting for the Impairment or Disposal of Long-Lived Assets, if there is an indication that the

carrying amount of an asset is not recoverable. Nemours estimates the projected undiscounted cash

flows, excluding interest, to determine if an impairment loss should be recognized. The amount of

impairment loss, if any, is determined by comparing the historical carrying value of the asset to its

estimated fair value.

In addition to consideration of impairment upon the events or changes in circumstances described

above, management regularly evaluates the remaining lives of its long-lived assets. If estimates are

revised, the carrying value of affected assets is depreciated or amortized over the remaining lives. No

such adjustments were recorded during the years ended December 31, 2012 and 2011.

No impairments were recorded during the years ended December 31, 2012 and 2011.




13 (Continued)

(t) Pledges Receivable

Nemours reports unconditional promises to give as contributions. If pledges are expected to be

collected in less than one year, they are recorded at the estimated amount to be ultimately realized. If

pledges are to be paid to the organization over a period of years, they are recorded at the present

value of their estimated cash flows using the prime rate as of the date of the donation. Amortization

of discounts is included in contribution revenue. The allowance for uncollectible pledges receivable

is determined based on management’s evaluation of the collectibility of individual promises. Pledges

that remain uncollected more than one year after their due date are written off unless the donors

indicate that payment is merely postponed.

(u) Fair Value Measurements

Nemours follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures, for

fair value measurements and disclosures of financial assets and financial liabilities and for fair value

measurements of nonfinancial items that are recognized or disclosed at fair value in the combined

financial statements on a recurring basis. ASC 820 defines fair value as 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 also establishes a framework for measuring fair value

and expands disclosures about fair value measurements (see note 13).

(v) Reclassifications

Certain reclassifications are reflected in the 2011 combined financial statements to conform to the

2012 presentation.

(3) Net Patient Service Revenue

Nemours has agreements with third-party payors that provide for payment to Nemours healthcare

operations at amounts different from their established rates. Net patient service revenue is reported at the

estimated net realizable amounts from patients, third-party payors, and others for services rendered,

including estimated retroactive adjustment under reimbursement agreements with third-party payors.

Net patient service revenue consists of the following for the years ended December 31, 2012 and 2011:

2012 2011

Gross patient charges $ 1,568,005,345 1,418,398,268 Contractual adjustments (912,969,119) (809,249,758) Provision for bad debts (23,679,974) (22,090,597)

Net patient service revenue $ 631,356,252 587,057,913




14 (Continued)

The 2012 gross patient charges comprise of the following:

Percentage Percentage Percentage Percentageinpatient outpatient physician totalrevenue revenue revenue revenue

Payor:Managed Care 45% 57% 51% 50%Medicaid – Managed Care 33 26 30 30Medicaid – Traditional 14 11 14 14Child Financial Services 2 1 1 1Other 6 5 4 5

Total 100% 100% 100% 100%

The 2011 gross patient charges comprise of the following

Percentage Percentage Percentage Percentageinpatient outpatient physician totalrevenue revenue revenue revenue

Payor:Managed Care 45% 58% 52% 51%Medicaid – Managed Care 35 26 30 31Medicaid – Traditional 15 10 13 13Child Financial Services 2 1 1 1Other 3 5 4 4

Total 100% 100% 100% 100%

Medicaid

Nemours, specifically AIDHC, services patients from different states, mainly due to its location and

proximity to multiple states. The two main sources of Medicaid revenue are Delaware and Pennsylvania.

Inpatient services rendered to Delaware Medicaid program beneficiaries are reimbursed for services based

on a case rate while outpatient services are reimbursed based, for the most part, on a fee schedule.

Pennsylvania Medicaid reimburses for inpatient services based on a diagnostic related group and outpatient

services are paid based on a fee schedule. The reimbursable cost in the Medicaid cost report is not directly

used to determine reimbursement for services in Delaware or Pennsylvania. Rather, the information in the

cost report is used to update certain factors and to determine if AIDHC is eligible for Disproportionate

Share Payments (DSH). Currently, AIDHC is not eligible for Pennsylvania Medicaid DSH payments. The

state of Delaware does not have a DSH program.

Medicaid is a significant payor for NCH. Currently, Florida Medicaid pays for inpatient services based on

a per diem and for outpatient services based on an occasion of service rate. Due to provisions in the

Certificate of Need agreement, these rates are equal to the average of other Florida free-standing children’s

hospital Medicaid rates.




15 (Continued)

Medicaid reimburses for physician services (Clinics & CHA) primarily based on a fee schedule. The

Clinics and CHA are not required to file Medicaid cost reports in any state.

The classification of patients and the appropriateness of their admission are subject to review by the fiscal

intermediaries administering the Medicaid programs.

Laws and regulations governing the Medicaid programs are complex and subject to interpretation. As a

result, a possibility exists that recorded estimates associated with this program will change by a material

amount in the near term. Nemours believes that it is in compliance with all applicable laws and regulations.

Compliance with such laws and regulations can be subject to future governmental review and

interpretation as well as significant regulatory action including fines, penalties, and exclusion from the

Medicaid programs.

Other Payors

Nemours has also entered into payment arrangements with certain commercial insurance carriers, health

maintenance organizations, and preferred provider organizations. The basis for payment under these

arrangements includes prospectively determined rates per discharge, discounts from established charges,

and prospectively determined rates. Some of these arrangements provide for review of paid claims for

compliance with the terms of the contract and result in retroactive settlement with third parties. Retroactive

adjustments for other third-party claims are recorded in the period when final settlement is determined.

(4) Investments, Assets Whose Use Is Limited, and Temporarily and Permanently Restricted Assets

Nemours accounts for investments, held by trustee under bond indenture, and internally designated for

future Delaware construction, based on the concept of pooling, excluding those funds internally designated

for self-insurance. In pooling, assets with similar time horizons are merged into a single pool for

investment purposes and are managed under various asset diversification strategies depending upon the

specific pool’s objectives.

Investments are designated as current or noncurrent assets based upon the pool in which they are invested.

Nemours has established three pools as follows:

Short-term pool – composed of cash and money market securities and expected to be consumed

within the next year.

Intermediate pool – composed of fixed income securities with an expected use in greater than

one year but less than five years.

Long-term pool – composed of equity, fixed income securities, partnerships, hedge funds, and real

estate with an expected use that exceeds five years.

Investments, assets whose use is limited, and temporarily and permanently restricted cash and investments,

excluding those held by trustee under bond indenture, at December 31, 2012 and 2011 are summarized as

follows:




16 (Continued)

2012 2011

Cash and cash equivalents $ 94,433,589 83,885,122Mutual funds 11,885,159 20,614,240U.S. treasury bills, notes, and bonds 112,957,595 141,831,699U.S. government agencies 5,502,735 1,737,853Municipal bonds and notes 4,605,218 4,649,649Asset-backed securities 2,656,158 805,295Corporate bonds and notes 152,305,130 171,496,832U.S. government mortgage obligations 50,197,400 100,046,498Marketable equity securities 106,448,015 116,227,165Partnerships 51,219,840 53,404,509Private equity 20,976,948 18,048,066Hedge funds 26,293,004 32,235,333Real estate 23,539,952 23,436,324Interest receivable 2,268,982 2,859,866

665,289,725 771,278,451

Less:Temporarily restricted cash and investments 273,519,114 379,201,427Permanently restricted cash and investments 3,337,405 2,716,804

Unrestricted cash and investments, excludinginvestments held by trustee under bondindenture and investment in affiliate $ 388,433,206 389,360,220

The composition of assets held by trustee under bond indenture at December 31, 2012 and 2011 is

summarized as follows:

2012 2011

Cash and cash equivalents $ 11,496,425 26,647,613 U.S. treasury bills, notes, and bonds — 2,501,563 Corporate bonds and notes — 3,273,499 U.S. government mortgage obligations — 5,001,600 Interest receivable — 124,784

11,496,425 37,549,059

Less current portion of assets whose use is limited 11,496,425 4,121,425

Assets held by trustee under bondindenture, less current portion $ — 33,427,634

Investment return on assets whose use is limited, cash and cash equivalents, and investments are comprised

of the following for the years ended December 31, 2012 and 2011:




17 (Continued)

2012 2011

Unrestricted net assets:Investment return:

Interest and dividend income, net $ 9,296,213 8,900,302 Realized gains on sales of securities 55,427 1,797,000 Net unrealized gains (losses) on investments 4,699,329 (2,548,255)

$ 14,050,969 8,149,047

Temporarily restricted net assets:Investment return:

Interest and dividend income, net $ 2,600,226 4,327,117 Realized gains on sales of securities 18,581,330 15,360,468 Net unrealized gains (losses) on investments 7,646,751 (20,566,520)

$ 28,828,307 (878,935)

During 2012 and 2011, Nemours had a securities lending agreement with an independent third-party on

certain securities for the purpose of increasing investment income. Nemours receives lending fees and

continues to earn interest and dividends on the loaned securities. When Nemours lends securities, the risk

of failure by the borrower to return the loaned securities is alleviated by such loans being continuously

collateralized by securities of the borrower.

At December 31, 2012, the collateral securities were in an amount equal to 102% and 106% of the market

value of the U.S. and non-U.S. loaned securities, respectively, and were held by a third-party safekeeping

agent.

On September 9, 2011, Nemours transitioned to a noncash collateral lending program (U.S. Treasury and

agency securities only) alleviating any positioning strategy and liquidity concerns. As a result, at

December 31, 2011, no securities were on loan due to the small lendable base.

Included in investments was $4,901,448 of securities pledged to borrowers as of December 31, 2012. No

amounts were pledged as of December 31, 2011. The following table provides a summary of securities lent

and the related collateral as of December 31, 2012 and 2011:

2012 2011

Market value of securities on loan against noncash collateral $ 4,901,448 —

Total market value of securities on loan $ 4,901,448 —

Total noncash collateral value $ 5,001,648 —

Total collateral value $ 5,001,648 —

(5) Long-Term Debt

On January 26, 2005, the Delaware Health Facilities Authority (Delaware Authority) issued $50,950,000 in

tax exempt, auction rate revenue bonds (Delaware Bonds) pursuant to a bond trust indenture between the




18 (Continued)

Delaware Authority and Nemours. The proceeds of the Delaware Bonds were used by Nemours to

(a) finance the cost of the acquisition and renovation of an office building adjacent to the AIDHC campus;

(b) finance the cost of the acquisition and installation of equipment to be used in connection with the

operation of AIDHC; (c) finance the construction of a parking garage containing approximately

1,500 spaces located on the campus of AIDHC; and (d) pay certain expenses of issuing the Delaware

Bonds. The estimated fair value of the outstanding principal of the Delaware Bonds at December 31, 2012

and 2011 was $42,765,000 and $43,975,000, respectively. The Delaware Bonds mature in various years

beginning January 1, 2006 through January 1, 2035. The interest rate at December 31, 2012 and 2011 was

0.13%.

During 2008, Nemours converted the Delaware Bonds from auction rate revenue bonds to variable rate

demand bonds bearing interest in variable rate weekly mode. In conjunction with the conversion, Nemours

entered into a standby bond purchase agreement with Bank of America, N.A. (Bank), which will expire on

April 20, 2017. Under the terms of the agreement, the Bank has agreed to purchase those bonds, if any,

which have been optionally tendered for purchase or that are subject to mandatory tender for purchase but

are not remarketed.

On October 15, 2009, the Orange County Health Facilities Authority (Florida Authority) issued

$167,035,000 in tax-exempt, fixed rate bonds (Series 2009A bonds), $100,000,000 in tax-exempt, variable

rate demand bonds (Series 2009B bonds), $25,555,000 in tax-exempt, variable rate demand bonds

(Series 2009C1 bonds), and $24,445,000 in tax-exempt, variable rate demand bonds (Series 2009C2

bonds), collectively referred to as the 2009 bonds. The 2009 A, B and C1 bonds were issued for the

purpose of providing funds, which, together with other available funds, were used (a) to finance a portion

of the cost of the acquisition, construction, installation, and equipping of NCH and the outpatient clinic to

be owned and operated by Nemours, and related facilities, equipment, fixtures, and furnishings, to be

located in Orange County, Florida; (b) with respect to the series 2009C2 bonds, to refund Jacksonville

Bonds issued for the benefit of Nemours; and (c) to pay certain expenses of issuing the 2009 bonds.

The Series 2009A bonds were issued at fixed rates between 4% and 5% and mature in various years

beginning January 1, 2013 through January 1, 2039. The estimated fair value of the series 2009A bonds at

December 31, 2012 and 2011 was approximately $182,339,000 and $171,196,000, respectively.

The Series 2009B bonds mature in various years beginning January 1, 2013 through January 1, 2037. The

estimated fair value of the outstanding principal of the Series 2009B bonds was approximately

$100,000,000 with an interest rate of 0.14% and 0.13% at December 31, 2012 and 2011, respectively. The

Series 2009B bonds are supported by a $100,000,000 irrevocable direct pay letter of credit issued by the

Bank to provide security for the payment of the principal amount, and premium, if any, plus accrued

unpaid interest through October 15, 2015.

The 2009C1 bonds mature in various years beginning January 1, 2013 through January 1, 2039. The

estimated fair value of the outstanding principal of the 2009C1 bonds was approximately $25,555,000 with

an interest rate of 0.14% and 0.10% at December 31, 2012 and 2011, respectively.

The 2009C2 bonds mature in various years beginning in January 1, 2010 through January 1, 2036. The

estimated fair value of the series 2009C2 bonds at December 31, 2012 and 2011 was approximately




19 (Continued)

$23,580,000 and $23,860,000, respectively. The interest rate at December 31, 2012 and 2011 was 0.14%

and 0.10%, respectively.

The principal and interest payments for the Delaware and Florida Authority Series 2009C1 and 2009C2

bonds are unsecured general obligations of Nemours.

The master trust agreements and related documents for the Delaware and Orange County Bonds contain

certain covenants and restrictions with which Nemours is required to comply. Noncompliance with any of

these covenants or the occurrence of any other event of default, if not waived or corrected, could accelerate

the maturity of the borrowings outstanding under the indenture. Management believes that Nemours is in

compliance with such covenants at December 31, 2012.

Long-term debt consists of the following at December 31, 2012 and 2011:

2012 2011

Delaware Health Facilities Authority Revenue Bonds,The Nemours Foundation Project, Series 2005 $ 42,765,000 43,975,000

Orange County Health Facilities Authority Revenue Bonds,The Nemours Foundation Project, Series 2009A, includingunamortized premium of $8,434,215 and $8,686,944at December 31, 2012 and 2011, respectively 175,469,215 175,721,944

The Nemours Foundation Project, Series 2009B 100,000,000 100,000,000 The Nemours Foundation Project, Series 2009C1 25,555,000 25,555,000 The Nemours Foundation Project, Series 2009C2 23,580,000 23,860,000

367,369,215 369,111,944

Less current portion of long-term debt 55,400,000 50,625,000

Long-term debt, less current portion $ 311,969,215 318,486,944

Scheduled principal repayments of long-term debt as of December 31, 2012 are as follows:

2013 $ 7,375,000 2014 7,715,000 2015 7,955,000 2016 8,325,000 2017 8,685,000 Thereafter 318,880,000

358,935,000

Unamortized premium 8,434,215

$ 367,369,215

In accordance with ASC 470, Debt, variable rate demand obligations are classified as current, unless

certain criteria are met, such as a liquidation facility that extends beyond one year from the date of the




20 (Continued)

combined balance sheets. The principal and interest related to the 2009C1 and 2009C2 variable rate

demand bonds do not have such a liquidation facility, and as such, they have been classified as current

portion of long-term debt in the accompanying combined balance sheets as of December 31, 2012 and

2011. Approximately $48,025,000 of the current portion of long-term debt is not included in the scheduled

2012 principal repayments above as the amounts are classified as current due to the provisions of

authoritative guidance above; however, Nemours expects to pay this principal and interest in accordance

with the scheduled repayment terms of the bond agreements.

(6) Construction in Progress

Construction in progress at December 31, 2012 consists primarily of amounts expended for NCH, which

amounted to approximately $6,600,000 and amounts spent related to the AIDHC inpatient facility, which

amounted to approximately $75,400,000. The remaining construction in progress represents ongoing

remodeling projects at various locations.

Construction in progress at December 31, 2011 consists primarily of amounts expended for NCH, which

amounted to approximately $273,500,000 and amounts spent related to the AIDHC inpatient facility,

which amounted to approximately $18,200,000. The remaining construction in progress represents ongoing

remodeling projects at various locations.

At December 31, 2012, the remaining commitment on the various ongoing capital projects currently under

contract was approximately $198,000,000, of which $4,500,000 remains for NCH and $193,500,000

remains for the AIDHC inpatient facility project. The total NCH facility and AIDHC inpatient facility

costs will be approximately $397,800,000 and $269,000,000 respectively.

(7) Restricted Net Assets

Edward Ball, in his last will and testament, instructed his personal representatives, who were also directors

of Nemours, to transfer all stock in his estate, not otherwise bequeathed in his will, to Nemours at their

discretion at any time during the probate of the estate. He further directed his personal representatives to

transfer the remainder of the estate to Nemours upon the completion of probate. All of the net assets at

December 31, 2012 and 2011 are restricted to the care and treatment of physically handicapped children in

Florida and are considered to be temporarily restricted for financial reporting purposes. The following is a

summarization of the Edward Ball fund activity since inception:

Contributions received $ 160,574,729 Net assets released from restrictions (412,093,135) Investment earnings 483,779,349 Unrealized gains on investments 37,033,141 Grant (600,000)

Balance at December 31, 2012 $ 268,694,084

In addition to the Edward Ball temporarily restricted assets, Nemours has temporarily restricted gifts from

other donors, including temporarily restricted investment return on permanently restricted endowments, of

$8,221,897 and $12,838,100 at December 31, 2012 and 2011, respectively. Net assets were released from




21 (Continued)

donor restrictions by incurring costs satisfying various restricted operating and capital purposes in the

amount of $142,011,164 and $11,968,151 in 2012 and 2011, respectively.

The permanently restricted net assets consist of the following as of December 31, 2012 and 2011:

2012 2011

Nemours Mansion and Gardens $ 2,369,746 2,369,746 Robinson D. Harley Research Endowment 1,511,897 1,511,729 Garrett B. Lyons Dental Program Endowment 570,247 569,523 Orthopaedic Endowed Chair 867,933 357,150 Other endowments 513,221 454,293

$ 5,833,044 5,262,441

Nemours’ endowments have been established for a variety of purposes. The endowments are all donor

restricted and internally controlled. As required by relevant accounting literature, net assets associated with

endowment funds are classified and reported based on the existence of donor-imposed restrictions. There

are restrictions on the use of the related income of all endowments. As discussed in note 4, Nemours has

established investment pools. The endowment investments are a portion of the long-term pool and have a

target allocation of approximately 50% equity, 20% fixed income, 15% real asset, and 15% absolute return

investments.

Nemours classifies as permanently restricted net assets (a) the original value of gifts donated to the

permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and

(c) accumulations to the permanent endowment made in accordance with the direction of the applicable

donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the

donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as

temporarily restricted net assets until those amounts are appropriated for expenditure by Nemours in a

manner consistent with the donor designations.

(8) Pension Plans

(a) Defined Contribution Plan

Nemours sponsors a 403(b) defined contribution plan (403(b) Plan), which covers substantially all

employees. Nemours formalized its existing 403(b) Plan to include base contribution and employer

match provisions. Nemours’ contribution to the 403(b) Plan were approximately $6,605,000 and

$3,886,000 in 2012 and 2011, respectively, which is included in salaries and benefits expense in the

accompanying combined statements of operations.

Nemours sponsors a 401(k) defined contribution plan (401(k) Plan) for CHA employees. Nemours’

contribution to the 401(k) Plan was approximately $29,000 and $0 in 2012 and 2011, respectively.

(b) Noncontributory Defined Benefit Plan

Nemours also sponsors a noncontributory defined benefit pension plan (the Plan). Effective

January 1, 2010, Nemours closed the Plan to new participants. Benefits under the Plan are based on




22 (Continued)

years of service and the employee’s final average compensation. Nemours funds amounts required to

meet or exceed minimum Employee Retirement Income Security Act (ERISA) requirements.

The Plan permits early retirement at reduced retirement benefits to participants who have attained

age 55 and have completed at least 10 years of credited service. In addition, the Plan allowed full

retirement without reduced retirement benefits to eligible participants whose attained age plus

completed years of credited service equaled or exceeded 80 prior to January 1, 2011.

The Plan provides annual benefits equal to 1.5% of the average annual earnings (represents the

average of the employee’s highest compensation for five consecutive years out of the last ten years

of service) for the first 10 years of credited service plus 2.0% of the average annual earnings for

years of credited service greater than 10 years. Early retirement benefits are the accrued benefits as

of the early retirement date reduced by one-half of 1.0% for each full month prior to the participant

reaching age 65.

Effective January 1, 2011, the definition of average annual earnings changed and will be phased-in

for nongrandfathered participants. Nongrandfathered participants are active participants as of

January 1, 2011, who have not attained the age of 55 or whose age and years of vesting service,

when added together, total less than 60. For these participants, average earnings will be calculated

using the 10 consecutive years of the participant’s last 15 years of service, which produce the highest

average.

The following are deferred pension costs that have not yet been recognized in periodic pension

expense but instead are accrued in unrestricted net assets, as of December 31, 2012 and 2011.

Unrecognized actuarial losses represent unexpected changes in the projected benefit obligation and

plan assets over time, primarily due to changes in assumed discount rates and investing experience.

Unrecognized prior service cost is the impact of changes in plan benefits applied retrospectively to

employee service previously rendered. Deferred pension costs are amortized into annual pension

expense over the average remaining assumed service period for active employees.

Amounts Amountsrecognized in recognized inunrestricted unrestrictednet assets at net assets at

December 31, December 31,2012 2011

Net prior service credit $ (2,574,146) (2,903,680) Net actuarial loss 196,512,164 125,442,637

Total $ 193,938,018 122,538,957

Contributions to the Plan amounted to $33,514,659 and $23,204,237 during the years ended

December 31, 2012 and 2011, respectively, and are included in salaries and benefits in the

accompanying combined statements of operations. Management expects to make contributions of

approximately $38,423,000 during the year ended December 31, 2013. The funding decisions are




23 (Continued)

made based on the actuarial studies performed by consulting actuaries as of January 1 and the

disclosures are based on a measurement date of December 31.

The projected benefit obligation is the actuarial present value of that portion of the projected benefits

attributable to employee service rendered to date and includes assumptions about future

compensation levels. Benefit cost includes the actuarial present value of the portion of the projected

benefits attributable to employee service rendered during the year and the interest cost on the benefit

obligation.

The accumulated benefit obligation is the actuarial present value of benefits attributable to employee

service rendered to date, which does not include assumptions about future compensation levels. The

accumulated benefit obligation for the Plan was $483,839,350 and $370,284,664 at December 31,

2012 and 2011, respectively.

The benefits expected to be paid out of the Plan in each year for the years ending December 31, 2013

through December 31, 2017 are approximately $8,955,000, $10,630,000, $12,695,000, 15,183,000

and $17,569,000, respectively. The aggregate benefits expected to be paid in the five years from

2018 through 2021 are approximately $135,273,000. The expected benefits to be paid are based on

the same assumptions used to measure the benefit obligation at December 31, 2012.

Weighted average assumptions used to determine the benefit obligation at December 31, 2012 and

2011 were as follows:

2012 2011

Discount rate 4.40% 5.25%Expected return on plan assets 8.00 8.50Rate of compensation increase 2.50% – 6.00% 2.50% – 6.00%

Weighted average assumptions used to determine the net periodic pension cost as of December 31,

2012 and 2011 were as follows:

2012 2011

Discount rate 5.25% 5.75%Expected return on plan assets 8.00 8.50Rate of compensation increase 2.50% – 6.50% 3.00% – 6.50%

The assumption for the discount rate and expected long-term rate of return on assets is an estimate

based on the current short-term interest rate environment and historical returns for portfolios heavily

weighted toward long-term investments, such as long-term bonds and equity securities. The

calculation of these pension benefits is dependent on the significant assumptions listed above. Any

changes in the significant assumptions can materially affect the calculation.




24 (Continued)

The change in projected benefit obligation for the Plan for the years ended December 31, 2012 and

2011 included the following components:

2012 2011

Projected benefit obligation, beginning of year $ 432,332,911 369,054,105 Service cost 27,181,642 24,104,627 Interest cost 23,367,871 21,603,410 Benefit payments (7,514,110) (6,612,323) Actuarial loss 91,855,076 24,183,092

Projected benefit obligation, end of year $ 567,223,390 432,332,911

The actuarially computed net periodic pension cost for the Plan for the years ended December 31,

2012 and 2011 included the following components:

2012 2011

Service cost – benefits earned during the period $ 27,181,642 24,104,627 Interest cost on projected benefit obligation 23,367,871 21,603,410 Expected return on plan assets (25,448,196) (26,050,815) Amortization of actuarial loss and prior service cost 8,413,342 4,000,109

Net periodic pension cost $ 33,514,659 23,657,331

The change in plan assets for the Plan for the years ended December 31, 2012 and 2011 included the

following components:

2012 2011

Fair value of plan assets at beginning of year $ 309,793,954 298,911,050 Employer contributions 33,514,659 23,204,237 Benefit payments (7,514,110) (6,612,323) Administrative expenses (1,202,076) (846,333) Actual gain (loss) on plan assets 38,692,945 (4,862,677)

Fair value of plan assets at end of year $ 373,285,372 309,793,954

Plan assets for the pension plan consist principally of money market funds, government securities,

asset-backed securities, corporate bonds, common stocks, and marketable debt and equity securities,

which are managed by professional investment managers in accordance with an investment policy

under the supervision of an independent pension investment committee. The plan assets are long

term in nature and are intended to generate returns while preserving capital. The target allocation for

investments is approximately 50% global equity, 15% real assets, 15% absolute return (primarily,

hedge funds), and 20% fixed income, with a small portion of the assets held as cash to meet

participant payment requirements.




25 (Continued)

Weighted average asset allocations by asset category as of December 31, 2012 and 2011:

2012 2011

Cash and cash equivalents 7% 5%Mutual funds 4 4Equities 47 43Fixed income 13 15Hedge funds 12 14Real assets 10 12Distressed debt and specialty finance 7 7

Total 100% 100%

The table below summarizes the fair values of plan assets as of December 31, 2012:

Fair value measurements at reporting date using

Quoted prices

in active Significant

markets for other Significant

identical observable unobservable

December 31, assets inputs inputs

2012 (Level 1) (Level 2) (Level 3)

Assets:

Cash $ 24,746,104 24,746,104 — —

Mutual funds:

International equity index 2,191,640 2,191,640 — —

U.S. Equity index 11,640,914 11,640,914 — —

Equity securities:

International small-cap 8,653,380 4,597,008 4,056,372 —

Global large-cap 144,804,886 — 144,804,886 —

Emerging markets 21,232,927 3,021,233 18,211,694 —

Fixed income securities:

U.S. treasury bills, notes,

and bonds 26,659,985 — 26,659,985 —

U.S. government agencies 613,928 — 613,928 —

Municipal bonds and notes 1,640,908 — 1,640,908 —

Asset-backed securities 1,116,541 — 1,116,541 —

Corporate bonds and notes 11,108,107 — 11,108,107 —

U.S. government mortgage

obligations 7,372,305 — 7,372,305 —




26 (Continued)


Quoted prices






Other types of investments:

Equity long/short hedge

funds (a) $ 9,495,452 — — 9,495,452

Event driven hedge funds (b) 3,119,371 — — 3,119,371

Global opportunities hedge

funds (c) 7,651,568 — — 7,651,568

Multi-strategy hedge funds (d) 24,572,872 — — 24,572,872

Private real asset funds (e) 12,410,834 — — 12,410,834

Public real asset funds (f) 8,549,229 — 3,710,559 4,838,670

Distressed debt funds

and specialty finance (g) 27,776,962 — — 27,776,962

Real estate 17,630,314 — 2,965,399 14,664,915

Derivatives – Assets 512,487 512,487 — —

Derivatives – Liabilities (517,250) (517,250) — —

Receivables 301,908 301,908 — —

373,285,372 46,494,044 222,260,684 104,530,644

Collateral received for security

lending transactions 654,068 219,579 434,489 —

$ 373,939,440 46,713,623 222,695,173 104,530,644

Liabilities:

Liabilities under securitylending transactions $ 654,068 219,579 434,489 —

(a) This class invests long and short primarily in common stocks.

(b) This class comprises strategies that invest long and short in equities and credit, dependent

upon some catalyzing event or situation.

(c) This class comprises strategies that invest in equities, fixed income, interest rates, and

currencies to capitalize on opportunities relating to broad economic themes.

(d) This class invests in multiple strategies to diversify risk and reduce volatility including

arbitrage, distressed debt, event driven, and private equity strategies.

(e) This class invests in energy, natural resources/commodities and infrastructure with the

objective of generating long-term absolute returns, hedging against unanticipated inflation, and

increasing overall diversification.




27 (Continued)

(f) This class invests in energy and natural resources with the objective of generating long-term

absolute returns, hedging against unanticipated inflation, and increasing overall diversification.

(g) This class invests in distressed asset funds, middle market debt, royalties and equity

investments.

The table below summarizes the fair values of plan assets as of December 31, 2011:


Quoted prices






Assets:

Cash $ 16,602,958 16,602,958 — —

Mutual funds:

International equity index 1,865,677 — 1,865,677 —

U.S. Equity index 9,733,373 9,733,373 — —

Equity securities:

International small-cap 7,344,191 — 7,344,191 —

Global large-cap 112,568,194 — 112,568,194 —

Emerging markets 14,990,419 — 14,990,419 —

Fixed income securities:


and bonds 23,882,958 — 23,882,958 —

U.S. government agencies 630,115 — 630,115 —


Asset-backed securities 756,533 — 756,533 —

Corporate bonds and notes 10,009,862 — 10,009,862 —


obligations 9,374,191 — 9,374,191 —




28 (Continued)


Quoted prices






Other types of investments:

Equity long/short hedge

funds (a) $ 8,621,113 — — 8,621,113

Event driven hedge funds (b) 8,781,227 — — 8,781,227

Global opportunities hedge

funds (c) 7,150,604 — — 7,150,604

Multistrategy hedge funds (d) 19,658,989 — — 19,658,989

Private real asset funds (e) 9,655,861 — — 9,655,861

Public real asset funds (f) 10,017,145 — 5,286,124 4,731,021

Distressed and mezzanine

debt funds (g) 20,362,840 — — 20,362,840

Real estate 16,058,381 — 3,356,311 12,702,070

Derivatives – Assets 554,400 554,400 — —

Derivatives – Liabilities (560,952) (560,952) — —

Receivables 256,046 256,046 — —

Total $ 309,793,954 26,585,825 191,544,404 91,663,725

(a) This class invests long and short primarily in common stocks.

(b) This class comprises strategies that invest long and short in equities and credit, dependent

upon some catalyzing event or situation.

(c) This class comprises strategies that invest in equities, fixed income, interest rates, and

currencies to capitalize on opportunities relating to broad economic themes.

(d) This class invests in multiple strategies to diversify risk and reduce volatility including

arbitrage, distressed debt, event driven, and private equity strategies.

(e) This class invests in energy, natural resources/commodities and infrastructure with the

objective of generating long-term absolute returns, hedging against unanticipated inflation, and

increasing overall diversification.

(f) This class invests in energy and natural resources with the objective of generating long-term

absolute returns, hedging against unanticipated inflation, and increasing overall diversification.

(g) This class invests in distressed asset funds, middle market debt, royalties and equity

investments.




29 (Continued)

Nemours’ policy is to recognize transfers in and transfers out of the different levels as of the actual

date of the event or circumstance that caused the transfer. International equity index mutual funds

with an asset value of approximately $2,200,000 at December 31, 2012 were transferred from

Level 2 to Level 1.

The table below summarizes the changes in Level 3 assets for the year ended December 31, 2012:

Fair value measurements using significant

unobservable inputs (Level 3)

Distressed debt

and specialty Private real Public real

Real estate Hedge funds finance asset funds asset funds Total

Beginning balance $ 12,702,070 44,211,933 20,362,840 9,655,861 4,731,021 91,663,725 Reclassification — (6,025,136) 6,006,044 19,092 — — Total gains

included in changesin net assets 171,153 2,429,553 2,465,722 147,122 107,649 5,321,199

Purchases 3,202,286 6,968,134 5,343,834 3,354,743 — 18,868,997

Sales — (470,720) (1,543,892) — — (2,014,612) Settlements (1,410,594) (2,274,501) (4,857,586) (765,984) — (9,308,665)

Ending balance $ 14,664,915 44,839,263 27,776,962 12,410,834 4,838,670 104,530,644


Fair value measurements using significant

unobservable inputs (Level 3)

Distressed and

Mezzanine Private real Public real

Real estate Hedge funds debt funds asset funds asset funds Total

Beginning balance $ 10,891,780 45,981,227 12,911,201 7,372,803 4,691,799 81,848,810 Total gains (losses)

included in changes

in net assets 631,686 (1,753,033) 348,109 340,134 39,222 (393,882) Purchases 4,083,024 1,000,000 8,781,639 2,518,562 200,000 16,583,225 Sales (1,549,136) (16,261) — — (200,000) (1,765,397)

Settlements (1,355,284) (1,000,000) (1,678,109) (575,638) — (4,609,031)

Ending balance $ 12,702,070 44,211,933 20,362,840 9,655,861 4,731,021 91,663,725

The following table summarizes the components of the funded status of the Plan as of December 31,

2012 and 2011:

2012 2011

Projected benefit obligation $ (567,223,390) (432,332,911) Fair value of plan assets 373,285,372 309,793,954

Funded status $ (193,938,018) (122,538,957)




30 (Continued)

(9) Concentrations of Credit Risk

Nemours grants credit without collateral to its patients, most of whom are local patients, and are insured

under third-party payor agreements. The percentage of receivables from patients and third-party payors at

December 31, 2012 and 2011 was as follows:

2012 2011

Managed care 41% 34%Medicaid - Managed Care 24 26Medicaid Traditional 11 12Child Financial Services — 1Other 24 27

100% 100%

(10) Lease Commitments

Nemours leases certain office space and equipment under cancelable and noncancelable operating leases.

Rental expense relating to these leases was approximately $11,965,000 and $10,611,000 in 2012 and 2011,

respectively. Minimum future rentals on existing noncancelable operating leases as of December 31, 2012

are as follows:

Year ending December 31:2013 $ 10,632,811 2014 7,750,035 2015 3,237,688 2016 1,793,564 2017 1,507,385

$ 24,921,483




31 (Continued)

(11) Commitments

Nemours has partnership interests with hedge funds and various venture capital, buyout, growth capital,

real estate, energy, and distressed securities funds. Under the terms of the various partnership agreements,

Nemours is potentially obligated to contribute approximately an additional $21,067,000, in the aggregate,

to such partnerships as of December 31, 2012.

(12) Functional Expenses

Nemours provides healthcare and other services to residents within its respective geographic locations and

research and educational activities. Expenses in 2012 and 2011 related to providing these services are as

follows:

2012 2011

Healthcare services $ 584,659,730 492,572,583 Research 25,624,251 24,077,679 Education 22,048,188 21,664,671 Fund raising 3,308,846 2,744,001 General and administrative 192,129,518 154,089,182

$ 827,770,533 695,148,116

Expenses associated with occupying and maintaining the organization’s facilities have been allocated to

the respective functional area based on the square footage of space occupied by each program and

supporting service.

(13) Fair Value Measurements

FASB ASC 820 defines fair value as the exit price that would be received to sell an asset or paid to transfer

a liability in the principal or most advantageous market in an orderly transaction between market

participants on the measurement date. ASC 820 requires investments to be grouped into three categories

based on certain criteria as noted below:

Level 1: Fair value is determined by using quoted prices for identical assets or liabilities in active

markets.

Level 2: Fair value is determined by using other than quoted prices that are observable for the asset

(e.g., quoted prices for identical assets in inactive markets, quoted prices for similar assets in active

markets, observable inputs other than quoted prices, and inputs derived principally from or

corroborated by observable market data by correlation or other means).

Level 3: Fair value is determined by using inputs based on management assumptions that are not

directly observable.




32 (Continued)

The tables below summarizes the fair values of Nemours significant financial assets and liabilities as of

December 31, 2012 and 2011:

Fair value measurements at reporting

date using

Quoted

prices Significant

in active other Significant

markets for observable unobservable

December 31, identical assets inputs inputs


Assets:

Cash and cash equivalents $ 105,930,014 105,930,014 — —

Mutual funds:

U.S. equity index 8,908,852 8,908,852 — —

International equity index 2,481,366 2,481,366 — —

Fixed income 494,941 494,941 — —

Marketable equity securities:


Large cap 86,620,984 11,512,624 75,108,360 —

Small cap 5,901,165 2,128,968 3,772,197 —

Fixed income:


and bonds 112,957,595 — 112,957,595 —

U.S. government agencies 5,502,735 — 5,502,735 —


Asset-backed securities 2,656,158 — 2,656,158 —

Corporate bonds and notes 152,305,130 636,346 151,668,784 —


obligations 50,197,400 — 50,197,400 —

Hedge funds (absolute return):

Equity long/short 5,712,366 — — 5,712,366

Global opportunities 6,538,399 — — 6,538,399

Multi-strategy 13,721,904 — — 13,721,904

Public real assets 320,335 — — 320,335

Partnerships:

Distressed debt

and specialty finance 21,575,848 — — 21,575,848

Private real assets 26,008,692 — — 26,008,692

Public real assets 3,635,300 — 3,635,300 —

Private equity 20,976,948 — — 20,976,948

Real estate 23,539,952 — — 23,539,952

Interest receivable 2,268,982 2,268,982 — —

676,786,150 143,247,358 415,144,348 118,394,444

Collateral received for security

lending transactions 5,001,648 86,753 4,914,895 —

$ 681,787,798 143,334,111 420,059,243 118,394,444

Liabilities:

Liabilities under security

lending transactions $ 5,001,648 86,753 4,914,895 —




33 (Continued)

Fair value measurements at reporting

date using

Quoted

prices Significant

in active other Significant

markets for observable unobservable

December 31, identical assets inputs inputs


Assets:

Cash and cash equivalents $ 110,532,735 110,532,735 — —

Mutual funds:

U.S. equity index 12,665,419 12,665,419 — —

International equity index 2,952,588 1,086,911 1,865,677 —

Fixed income 4,996,233 4,996,233 — —

Marketable equity securities:


Large cap 96,508,593 — 96,508,593 —

Small cap 6,621,360 3,616,978 3,004,382 —

Fixed income:


and bonds 144,333,262 — 144,333,262 —

U.S. government agencies 1,737,853 — 1,737,853 —


Asset-backed securities 805,295 — 805,295 —

Corporate bonds and notes 174,770,331 464,352 174,305,979 —


obligations 105,048,098 — 105,048,098 —

Hedge funds (absolute return):

Credit 4,292,155 — — 4,292,155

Equity long/short 7,057,554 — — 7,057,554

Global opportunities 6,399,625 — — 6,399,625

Multi-strategy 12,291,600 — — 12,291,600

Public real assets 2,194,399 — — 2,194,399

Partnerships:

Distressed debt 19,897,208 — — 19,897,208

Mezzanine debt 3,948,253 — — 3,948,253

Private real assets 26,203,558 — — 26,203,558

Public real assets 3,355,490 — 3,355,490 —

Private equity 18,048,066 — — 18,048,066

Real estate 23,436,324 — — 23,436,324

Interest receivable 2,984,650 2,984,650 — —

Total $ 808,827,510 144,569,618 540,489,150 123,768,742

Level 1 assets and liabilities include cash, mutual funds, trading investments in marketable equity

securities, Treasury bills, notes, and bonds, corporate bonds and notes and interest receivable and are

valued at the quoted market prices.




34 (Continued)

Level 2 assets include trading investments in mutual funds, Treasury bills, notes and bonds, trading

investments in marketable equity securities, government agencies, asset-backed securities, corporate bonds

and notes, municipal bonds and notes, government mortgage obligations, and partnerships, with fair values

modeled by external pricing vendors.

Level 3 assets include hedge funds, partnerships, private equity, and real estate.

Nemours’ policy is to recognize transfers in and transfers out of the different levels as of the actual date of

the event or circumstance that caused the transfer. No significant transfers occurred between Level 1 and

Level 2 for the years ended December 31, 2012 and 2011.


Fair value measurements using significant unobservable inputs (Level 3)

Hedge Real Private

funds Partnerships estate equity Total

Beginning balance $ 32,235,333 50,049,019 23,436,324 18,048,066 123,768,742

Reclassifications (2,485,924) 2,485,924 — — —

Transfers into Level 3 — — — — —

Transfers out of Level 3 — — — — —

Total gains (losses) included in

changes in net assets 2,029,387 226,678 683,398 1,491,889 4,431,352

Purchases 129,584 4,897,316 1,450,717 4,105,009 10,582,626

Issuances — — — — —

Sales (4,434,754) — — (1,118,982) (5,553,736)

Settlements (1,180,622) (10,074,397) (2,030,487) (1,549,034) (14,834,540)

Ending balance $ 26,293,004 47,584,540 23,539,952 20,976,948 118,394,444


Fair value measurements using significant unobservable inputs (Level 3)

Hedge Real Private

funds Partnerships estate equity Total

Beginning balance $ 38,444,501 49,725,985 20,808,217 13,088,502 122,067,205

Reclassifications — — — — —

Transfers into Level 3 — — — — —

Transfers out of Level 3 — (694,343) — — (694,343)

Total gains (losses) included in

changes in net assets (2,170,870) (2,688,441) 1,202,421 698,469 (2,958,421)

Purchases 1,005,683 9,232,814 4,327,002 4,661,257 19,226,756

Issuances — — — — —

Sales (2,543,981) (61,254) — — (2,605,235)

Settlements (2,500,000) (5,465,742) (2,901,316) (400,162) (11,267,220)

Ending balance $ 32,235,333 50,049,019 23,436,324 18,048,066 123,768,742




35 (Continued)

Realized and unrealized gains (losses) for Level 3 assets included in changes in net assets for the year

ended December 31, 2012 and 2011 are reported in investment return as follows:

December 312012 2011

Total gains (losses) included in investment return $ 4,431,352 (2,958,421)

Change in unrealized losses relating to assets still heldat reporting date $ (1,975,150) (10,282,636)

Estimates of fair values are subjective in nature and involve uncertainties and matters of significant

judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect the

estimates.

The fair values of the following investments have been estimated using the net asset value per share of the

investments as of December 31, 2012:

Unfunded Redemption Redemption Redemption

Fair value commitments frequency notice period restrictions

Commingled funds $ 83,921,159 — Ranges from daily Ranges from No redemption

to quarterly 3 to 90 days restrictions

Hedge funds 25,972,669 — Ranges from monthly Ranges from 1% by value (1 fund)

to annually 45 to 180 days is locked up as of

December 31, 2012.

The lockup period for

this fund

is 3 years.

Private equity 20,976,948 7,632,105 Not eligible for Not eligible for Not eligible for

redemption redemption redemption

Real assets 53,504,279 10,981,067 92% by value are in Ranges from 45 Private funds not

private structures, to 90 days eligible for

with no redemption redemption

ability. For the rest,

redemptions are

permitted quarterly.

Distressed and 21,575,848 2,453,754 83% by value are in 90 days 4% by value (1 fund)

specialty finance private structures, is locked up as of

with no redemption December 31, 2012.

ability. For the rest, The lockup period for

terms range from this fund

quarterly to annually. is 3 years.

$ 205,950,903 21,066,926




36 (Continued)

The fair values of the following investments have been estimated using the net asset value per share of the

investments as of December 31, 2011:

Unfunded Redemption Redemption Redemption

Fair value commitments frequency notice period restrictions

Commingled funds $ 104,387,847 — Ranges from daily Ranges from 1% by value (1 fund)

to quarterly 3 to 90 days is in liquidation; full

liquidation is expected

by June 30, 2012.

Hedge funds 30,040,933 — Ranges from monthly Ranges from 10% by value (2 funds)

to annually 45 to 180 days are locked up as of

December 31, 2011.

The lockup period for

these funds range

from 2 to 3 years.

Private equity 18,048,066 10,605,351 Not eligible for Not eligible for Not eligible for

redemption redemption redemption

Real assets 55,189,771 15,928,321 90% by value are in Ranges from 45 Private funds not

private structures, to 90 days for eligible for

with no redemption public funds redemption;

ability. 10% by value public funds have

are in public funds no redemption

with terms that range restrictions.

from quarterly to

semi-annually.

Distressed and 23,845,461 2,980,735 Not eligible for Not eligible for Not eligible for

mezzanine debt redemption redemption redemption

$ 231,512,078 29,514,407

(14) Contingencies

(a) Self-Insurance Reserves

Effective February 22, 1993, Nemours established a self-insurance trust fund to provide for losses

sustained on general, professional, and patient care liability claims reported and incurred but not

reported during the period subsequent to the effective date. The self-insurance trust fund is

administered by a trustee and provides for the first layer of coverage of professional and patient care

claims for Nemours healthcare operations. Professional insurance consultants have been utilized to

determine funding requirements for this first layer. The self-insurance trust fund is reported as assets

whose use is limited. Nemours has purchased a policy to cover claims occurring prior to but reported

subsequent to February 22, 1993.




37 (Continued)

Excess policy coverage has been purchased for losses exceeding the self-insurance trust fund’s

retention and for claims occurring prior to February 18, 2002, from an unrelated insurance company.

With the establishment of Dornoch, effective February 18, 2002, Nemours’ excess policy coverage

for losses exceeding the self-insurance trust fund’s retention has been secured through Dornoch and

other unrelated insurance companies. Nemours funds Dornoch as required by the laws and

regulations of the Cayman Islands.

The estimated reserves for general, professional, and patient care liabilities presented in the

accompanying combined financial statements amounted to approximately $53,821,000 and

$51,734,000 at December 31, 2012 and 2011, respectively. Reserves are estimated using an actuarial

study that calculates the estimated liability for self-insured general, professional, and patient care

liabilities. This study provides for estimates of losses from reported claims and incidents incurred but

not reported at December 31, 2012 and 2011. These estimates are prepared using the discounted

method of accounting for these risks and are discounted at a rate of 3% for 2012 and 2011. Estimated

reserves on an undiscounted basis were approximately $59,172,000 and $57,070,000 at

December 31, 2012 and 2011, respectively. Self-insurance liabilities for workers’ compensation

were $3,843,000 and $3,560,000 as of December 31, 2012 and 2011, respectively.

Self-insurance liabilities for health insurance were $4,236,000 and $3,566,000 as of December 31,

2012 and 2011, respectively. Insurance expense for general, professional, and patient care liabilities

recognized for the years ended December 31, 2012 and 2011 was approximately $9,012,000 and

$7,745,000, respectively.

(b) Litigation

Nemours is involved in litigation arising from the ordinary course of business. In the opinion of

management, after consultation with legal counsel, these matters will be resolved without a material

adverse effect to Nemours’ financial position.

(c) Conditional Asset Retirement Obligation

AIDHC has buildings that were constructed with certain asbestos products that, based on regulations,

may require special handling and disposal if AIDHC undergoes major renovations. An asset

retirement obligation has not been recorded as the fair value cannot be reasonably estimated. No

activity requiring special treatment has occurred in the current year and no such activity is currently

planned in future periods.

(d) Healthcare Industry

The healthcare industry is highly regulated, and no reassurance exists that the regulatory

environment in which Nemours operates will not change significantly and adversely in the future. In

general, regulation of healthcare providers and companies is increasing.

Federal and state laws regulate the healthcare industry, the relationship between hospitals and

physicians, and the relationship among physicians and other providers of healthcare services.




38

(15) Subsequent Events

Nemours evaluated events through April 26, 2013, the date on which the combined financial statements

were available for issuance.

COMBINING INFORMATION


Combining Schedule 1 – Balance Sheet Information

December 31, 2012

Alfred I. NemoursThe duPont Nemours Nemours Health & Nemours

Nemours Hospital Children’s Senior Prevention Children’sAssets Foundation For Children Clinics Care Services Hospital Eliminations Total

Current assets:Cash and cash equivalents $ 93,251,154 1,850 12,573 550 — 1,750 — 93,267,877 Short-term investments 36,371,374 — — — — — — 36,371,374 Collateral received for securities lending transactions 2,669,454 2,332,194 — — — — — 5,001,648 Accounts receivable, less allowances (186,530) 53,766,217 27,267,146 16,557 — 4,044,579 — 84,907,969 Current portion of assets whose use is limited 330,000 1,370,000 — — — 9,796,425 — 11,496,425 Supplies — 2,711,655 7,522 — — 1,234,272 — 3,953,449 Due from affiliates — 4,646,106 10,737,208 180,315 16,164 5,924,214 (21,504,007) — Prepaid expenses and other current assets 7,644,118 774,726 1,176,550 — 179,468 852,773 — 10,627,635

Total current assets 140,079,570 65,602,748 39,200,999 197,422 195,632 21,854,013 (21,504,007) 245,626,377

Investments 72,648,758 — — — — — — 72,648,758 Assets whose use is limited 106,996,171 172,416,903 — — — — — 279,413,074 Temporarily restricted assets 273,732,733 2,618,754 1,422 — — 563,072 — 276,915,981

Property and equipment: — Land and land improvements 25,517,317 10,694,087 7,326,782 — — 50,451,101 — 93,989,287 Buildings and leasehold improvements 43,644,947 269,506,072 40,016,834 316,910 2,222,528 284,349,014 — 640,056,305 Equipment 84,789,595 202,137,667 37,169,016 1,323,437 1,341,777 84,660,291 — 411,421,783

153,951,859 482,337,826 84,512,632 1,640,347 3,564,305 419,460,406 — 1,145,467,375

Less accumulated depreciation (67,220,139) (290,294,732) (54,843,130) (1,014,076) (2,889,781) (6,379,948) — (422,641,806)

86,731,720 192,043,094 29,669,502 626,271 674,524 413,080,458 — 722,825,569

Construction in progress 1,799,482 75,404,869 454,229 — — 7,516,678 — 85,175,258

88,531,202 267,447,963 30,123,731 626,271 674,524 420,597,136 — 808,000,827

Other assets 3,063,761 585,521 269,379 — 650 1,905,013 — 5,824,324 Permanently assets 3,367,405 12,091 83,802 — — — — 3,463,298 Inexhaustible assets 3,386,733 — — — — — — 3,386,733

$ 691,806,333 508,683,980 69,679,333 823,693 870,806 444,919,234 (21,504,007) 1,695,279,372


Current liabilities:Accounts payable and accrued expenses $ 7,393,674 18,197,517 2,806,878 65,739 235,773 16,052,545 — 44,752,126 Accrued compensation and benefits 14,359,842 11,971,298 34,484,470 186,157 566,056 2,712,494 — 64,280,317 Liabilities under securities lending transactions 2,669,454 2,332,194 — — — — — 5,001,648 Current portion of long-term debt 23,580,000 1,370,000 — — — 30,450,000 — 55,400,000 Deferred revenue 1,604,188 175,495 274,863 — — 24,134 — 2,078,680 Due to affiliates 21,504,007 — — — — — (21,504,007) —

Total current liabilities 71,111,165 34,046,504 37,566,211 251,896 801,829 49,239,173 (21,504,007) 171,512,771

Self-insurance reserves 61,787,429 15,335 — — — 97,344 — 61,900,108 Long-term debt, less current portion — 41,395,000 — — — 270,574,215 — 311,969,215 Liabilities for pension benefits 193,938,018 — — — — — — 193,938,018

Total liabilities 326,836,612 75,456,839 37,566,211 251,896 801,829 319,910,732 (21,504,007) 739,320,112

Net assets:Unrestricted 91,916,331 429,603,204 27,434,722 571,797 59,046 123,625,135 — 673,210,235 Temporarily restricted 270,329,144 3,588,937 1,604,602 — 9,931 1,383,367 — 276,915,981 Permanently restricted 2,724,246 35,000 3,073,798 — — — — 5,833,044

Total net assets 364,969,721 433,227,141 32,113,122 571,797 68,977 125,008,502 — 955,959,260

$ 691,806,333 508,683,980 69,679,333 823,693 870,806 444,919,234 (21,504,007) 1,695,279,372

See accompanying independent auditors’ report.

39


Combining Schedule 1 – Balance Sheet Information

December 31, 2011


Nemours Hospital Children’s Senior Prevention Children’sAssets Foundation For Children Clinics Care Services Hospital Eliminations Total

Current assets:Cash and cash equivalents $ 90,262,968 1,850 13,083 550 — 500 — 90,278,951 Short-term investments 41,081,643 — — — — — — 41,081,643 Collateral received for securities lending transactions — — — — — — — — Accounts receivable, less allowances (811,794) 56,479,975 22,343,583 68,908 — — — 78,080,672 Current portion of assets whose use is limited — — — — — 4,121,425 — 4,121,425 Supplies — 2,000,595 10,556 — — — — 2,011,151 Due from affiliates 16,226,908 — 6,426,183 61,403 65,222 — (22,779,716) — Prepaid expenses and other current assets 7,019,495 719,616 1,371,889 — 127,265 535,206 — 9,773,471

Total current assets 153,779,220 59,202,036 30,165,294 130,861 192,487 4,657,131 (22,779,716) 225,347,313

Investments 70,401,039 — — — — — — 70,401,039 Assets whose use is limited 100,647,077 177,230,461 — — — 33,427,634 — 311,305,172 Temporarily restricted assets 379,449,314 4,025,016 1,378 — — 1,015,870 — 384,491,578

Property and equipment:Land and land improvements 25,413,432 10,644,409 7,316,169 — — 48,811,805 — 92,185,815 Buildings and leasehold improvements 42,707,178 265,107,797 39,979,630 316,910 2,206,146 875,470 — 351,193,131 Equipment 74,518,270 182,252,716 35,534,272 1,150,882 1,307,813 845,001 — 295,608,954

142,638,880 458,004,922 82,830,071 1,467,792 3,513,959 50,532,276 — 738,987,900

Less accumulated depreciation (57,330,642) (267,476,069) (50,725,259) (877,185) (2,573,306) (1,133,469) — (380,115,930)

85,308,238 190,528,853 32,104,812 590,607 940,653 49,398,807 — 358,871,970

Construction in progress 3,441,402 30,772,268 248,231 450 — 273,549,941 — 308,012,292

88,749,640 221,301,121 32,353,043 591,057 940,653 322,948,748 — 666,884,262

Other assets 2,961,030 596,807 333,115 — 650 1,910,164 — 5,801,766 Permanently assets 2,745,860 17,090 129,745 — — — — 2,892,695 Inexhaustible assets 3,386,733 — — — — — — 3,386,733

$ 802,119,913 462,372,531 62,982,575 721,918 1,133,790 363,959,547 (22,779,716) 1,670,510,558


Current liabilities:Accounts payable and accrued expenses $ 9,694,331 15,217,810 3,077,202 153,456 384,084 25,938,153 — 54,465,036 Accrued compensation and benefits 11,520,297 10,483,265 31,551,073 161,564 496,761 557,570 — 54,770,530 Liabilities under securities lending transactions — — — — — — — — Current portion of long-term debt 23,860,000 1,210,000 — — — 25,555,000 — 50,625,000 Deferred revenue 1,997,392 171,381 466,959 — — 32,317 — 2,668,049 Due to affiliates — 8,579,885 — — — 14,199,831 (22,779,716) —

Total current liabilities 47,072,020 35,662,341 35,095,234 315,020 880,845 66,282,871 (22,779,716) 162,528,615

Self-insurance reserves 58,714,882 — — — — 145,585 — 58,860,467 Long-term debt, less current portion — 42,765,000 — — — 275,721,944 — 318,486,944 Liabilities for pension benefits 122,538,957 — — — — — — 122,538,957

Total liabilities 228,325,859 78,427,341 35,095,234 315,020 880,845 342,150,400 (22,779,716) 662,414,983

Net assets:Unrestricted 197,852,953 375,997,892 23,933,581 406,871 231,339 19,918,920 — 618,341,556 Temporarily restricted 373,245,299 7,930,158 1,404,261 27 21,606 1,890,227 — 384,491,578 Permanently restricted 2,695,802 17,140 2,549,499 — — — — 5,262,441

Total net assets 573,794,054 383,945,190 27,887,341 406,898 252,945 21,809,147 — 1,008,095,575

$ 802,119,913 462,372,531 62,982,575 721,918 1,133,790 363,959,547 (22,779,716) 1,670,510,558


40


Combining Schedule 2 – Revenue and Expense Information

Year ended December 31, 2012


Nemours Hospital Children’s Senior Prevention Children’sFoundation For Children Clinics Care Services Hospital Eliminations Total

Unrestricted revenues and other support:Patient service revenue (net of contractual allowances and discounts) $ 2,959,209 379,375,704 267,810,073 744,305 — 4,146,935 — 655,036,226 Provision for bad debts (64,353) (9,391,980) (14,212,872) (10,068) — (701) — (23,679,974)

Net patient service revenue less provision for bad debts 2,894,856 369,983,724 253,597,201 734,237 — 4,146,234 — 631,356,252

Distribution from the Alfred I. duPont Testamentary Trust 123,484,872 — — — — — — 123,484,872 Net assets released from restrictions used for operations 48,734,950 132,186 214,543 27 12,900 28,709 — 49,123,315 Contributions from The Nemours Foundation — — 56,797,806 5,031,268 9,748,065 — (71,577,139) — Investment return 12,785,283 1,142,953 — — — 122,733 — 14,050,969 Contracted services revenue 1,984,583 1,271,333 12,160,373 — — 2,600 — 15,418,889 Grant revenue 9,766,696 1,022,292 944,547 — 588,879 80,398 — 12,402,812 Other income 3,273,542 4,684,248 15,855,187 10,878 2,152 122,833 (8,635,525) 15,313,315

Total revenues and other support 202,924,782 378,236,736 339,569,657 5,776,410 10,351,996 4,503,507 (80,212,664) 861,150,424

Operating expenses:Salaries and benefits 40,798,246 184,387,727 272,031,884 2,947,632 7,310,306 32,667,299 — 540,143,094 Professional fees 3,768,862 22,699,204 9,348,900 1,264,784 828,756 3,405,789 (8,090,365) 33,225,930 Supplies 3,645,004 58,301,786 12,476,606 546,792 183,071 8,843,697 — 83,996,956 Repairs and maintenance 1,755,295 6,922,582 5,377,156 79,987 90,242 1,905,480 — 16,130,742 Purchased services 4,204,085 24,077,047 8,489,732 67,423 155,977 4,207,097 — 41,201,361 Depreciation 3,638,784 26,149,324 7,224,855 176,337 377,259 6,212,996 — 43,779,555 Rent and lease expense 634,679 1,936,990 7,391,140 630,483 871,469 1,045,067 (545,160) 11,964,668 Utilities and telephone 827,142 9,427,408 4,078,258 44,761 71,176 3,493,586 — 17,942,331 Insurance 206,225 1,717,802 8,072,032 44,185 10,992 462,636 — 10,513,872 Interest 3,769 413,826 28,455 362 577 2,904,851 — 3,351,840 Advertising 439,165 3,702,913 376,298 2,644 154,319 2,330,019 — 7,005,358 Other 2,332,161 5,337,067 6,726,638 46,925 471,944 3,600,091 — 18,514,826 Distributions to Nemours Children’s Clinics 56,797,806 — — — — — (56,797,806) — Distributions to Nemours Health & Prevention Services 9,748,065 — — — — — (9,748,065) — Distributions to Nemours SeniorCare 5,031,268 — — — — — (5,031,268) — Distributions to NCH 69,947,438 — — — — — (69,947,438) —

Total operating expenses 203,777,994 345,073,676 341,621,954 5,852,315 10,526,088 71,078,608 (150,160,102) 827,770,533

Operating income (loss) (853,212) 33,163,060 (2,052,297) (75,905) (174,092) (66,575,101) 69,947,438 33,379,891

Pension liability adjustment (71,399,061) — — — — — — (71,399,061) Net assets released for capital purchases 83,115,846 8,607,998 85,647 — — 1,078,358 — 92,887,849 Distributions from (to) The Nemours Foundation for capital — — — — — 69,947,438 (69,947,438) — Distributions from (to) The Nemours Foundation for operations (116,800,195) 11,834,254 5,467,791 240,831 1,799 99,255,520 — —

Increase (decrease) in unrestricted net assets $ (105,936,622) 53,605,312 3,501,141 164,926 (172,293) 103,706,215 — 54,868,679


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Combining Schedule 2 – Revenue and Expense Information

Year ended December 31, 2011


Nemours Hospital Children’s Senior Prevention Children’sFoundation For Children Clinics Care Services Hospital Eliminations Total

Unrestricted revenues and other support:Patient service revenue (net of contractual allowances and discounts) $ 1,808,159 358,477,913 248,127,457 734,981 — — — 609,148,510 Provision for bad debts 11,287 (7,062,611) (15,026,951) (12,322) — — — (22,090,597)

Net patient service revenue less provision for bad debts 1,819,446 351,415,302 233,100,506 722,659 — — — 587,057,913

Distribution from the Alfred I. duPont Testamentary Trust 125,231,176 — — — — — — 125,231,176 Net assets released from restrictions used for operations 10,769,507 616,038 428,347 93 18,781 135,385 — 11,968,151 Contributions from The Nemours Foundation — — 27,346,635 4,812,115 9,165,231 16,273,724 (57,597,705) — Investment return 5,644,462 597,446 — — — 1,907,139 — 8,149,047 Contracted services revenue 1,990,590 484,984 12,095,096 — — 27,816 — 14,598,486 Grant revenue 9,876,774 434,566 682,358 — 1,455,049 510,403 — 12,959,150 Other income 13,095,995 7,576,918 9,380,248 4,683 157 105,999 (18,590,569) 11,573,431

Total revenues and other support 168,427,950 361,125,254 283,033,190 5,539,550 10,639,218 18,960,466 (76,188,274) 771,537,354

Operating expenses:Salaries and benefits 51,925,565 160,634,366 231,695,013 2,748,513 7,130,072 6,258,930 (7,043,089) 453,349,370 Professional fees 6,276,601 19,507,899 6,535,320 1,197,338 1,438,288 2,949,614 (9,757,341) 28,147,719 Supplies 3,996,598 53,150,136 12,061,375 600,251 132,464 494,783 (112,167) 70,323,440 Repairs and maintenance 2,146,674 5,882,971 4,650,110 80,303 110,225 518,008 (27,274) 13,361,017 Purchased services 4,917,578 22,288,913 7,194,836 51,065 300,807 346,588 (127,071) 34,972,716 Depreciation 4,897,253 24,338,491 7,212,445 179,262 403,847 903,026 (35,957) 37,898,367 Rent and lease expense 399,894 1,560,469 7,033,340 630,253 905,231 672,205 (590,034) 10,611,358 Utilities and telephone 1,181,199 9,700,386 3,904,652 50,664 86,630 889,113 (28,597) 15,784,047 Insurance 299,562 1,793,637 6,674,633 47,148 12,040 5,616 (78,118) 8,754,518 Interest 70,464 478,236 — — — 769,167 — 1,317,867 Advertising 536,042 2,514,344 1,075,221 15,932 198,167 2,484,426 (8,842) 6,815,290 Other 3,971,973 3,767,390 4,477,251 53,324 538,540 1,786,008 (782,079) 13,812,407 Distributions to Nemours Children’s Clinics 27,346,636 — — — — — (27,346,636) — Distributions to Nemours Health & Prevention Services 9,165,230 — — — — — (9,165,230) — Distributions to Nemours SeniorCare 4,812,115 — — — — — (4,812,115) — Distributions to NCH 16,273,724 — — — — — (16,273,724) —

Total operating expenses 138,217,108 305,617,238 292,514,196 5,654,053 11,256,311 18,077,484 (76,188,274) 695,148,116

Operating income (loss) 30,210,842 55,508,016 (9,481,006) (114,503) (617,093) 882,982 — 76,389,238

Gain on land valuation 1,509,345 — — — — — — 1,509,345 Pension liability adjustment (51,942,808) — — — — — — (51,942,808) Distributions from (to) The Nemours Foundation for capital (495,821) 642,099 (117,061) (29,217) — — — — Distributions from (to) The Nemours Foundation for operations (37,473,897) 17,934,794 4,066,337 101,226 — 15,371,540 — —

Increase (decrease) in unrestricted net assets $ (58,192,339) 74,084,909 (5,531,730) (42,494) (617,093) 16,254,522 — 25,955,775


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THE NEMOURS FOUNDATION AND SUBSIDIARIES from the Alfred I. duPont ... which provides management for...

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