Regional Division Inc.

PART X, LINE 2:

“For the for-profit subsidiaries, deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Rdi, sahs, hospital and foundation have received determination letters from the internal revenue service (irs) stating they are tax-exempt under section 501 (c)(3) of the internal revenue code (the code). Realty has received a determination letter from the irs stating that it is tax-exempt under section 501 (c)(2) of the code. Rdi, sahs, hospital, foundation and realty each file a form 990 (return of organization exempt from income tax), and state and charles, inc., lsg building corporation, and sahm each file form 1120 (u.s. Corporation income tax return) annually. When these returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained. Examples of tax positions common to health systems include such matters as the following: tax-exempt status of each entity, the continued tax-exempt status of bonds issued by the obligated group, the nature, characterization and taxability of joint venture income and various positions relative to potential sources of unrelated business taxable income (ubti). Ubti is reported on internal revenue service form 990-t, as appropriate. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes that it is more likely than not that the tax position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions are not offset or aggregated with other positions. Tax positions that meet the "more likely than not" recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely to be realized on settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. At june 30, 2016 and 2015, there were no unrecognized tax benefits identified or recorded as liabilities. The forms 990, forms 990-t and forms 1120 filed by the corporation are subject to examination for up to three years from the extended due date of each return. These returns for rdi and sahs are no longer subject to examination for tax years ended before december 31, 2012 and may 31, 2013, respectively.”