LIFEBRIDGE HEALTH, INC. and SUBSIDIARIES Consolidated
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LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Consolidated Financial Statements and Supplementary Financial Information June 30, 2019 and 2018 (With Independent Auditors’ Report Thereon) LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Table of Contents Page Independent Auditors’ Report 1 Consolidated Financial Statements: Consolidated Balance Sheets 3 Consolidated Statements of Operations 5 Consolidated Statements of Changes in Net Assets 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Supplementary Financial Information Schedule 1 – Consolidating Balance Sheet Information 46 Schedule 2 – Consolidating Statement of Operations Information 48 KPMG LLP 750 East Pratt Street, 18th Floor Baltimore, MD 21202 Independent Auditors’ Report The Board of Directors LifeBridge Health, Inc. and Subsidiaries: We have audited the accompanying consolidated financial statements of LifeBridge Health, Inc. and Subsidiaries (the Corporation), which comprise the consolidated balance sheets as of June 30, 2019 and 2018, and the related consolidated statements of operations, changes in net assets and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly in all material respects, the financial position of LifeBridge Health, Inc. and Subsidiaries as of June 30, 2019 and 2018, and the results of their operations, 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 and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Emphasis of Matter As discussed in Note 2 (x) to the consolidated financial statements, the Corporation adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and ASU No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, during the year ended June 30, 2019, on a modified retrospective basis, and retrospective basis, respectively. Our opinion is not modified with respect to these matters. Supplemental Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information included in Schedules 1 and 2 is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole. October 23, 2019 2 LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2019 and 2018 (Dollars in thousands) Assets 2019 2018 Current assets: Cash and cash equivalents $ 167,802 177,954 Investments 219,672 253,389 Assets limited as to use, current portion 39,733 51,511 Patient service receivables, net 171,245 150,742 Other receivables 21,216 18,803 Inventory 34,280 33,054 Prepaid expenses 22,237 19,280 Pledges receivable, current portion 2,841 3,119 Total current assets 679,026 707,852 Board-designated investments 213,856 226,529 Long-term investments 382,848 299,076 Donor-restricted investments 56,508 61,155 Reinsurance recovery receivable 21,401 26,254 Assets limited as to use, net of current portion 59,955 31,620 Pledges receivable, net of current portion 7,567 3,108 Property and equipment, net 672,491 665,126 Beneficial interest in split interest agreement 4,997 5,294 Investment in unconsolidated affiliates 47,701 48,484 Other assets, net 77,461 82,158 Total assets $ 2,223,811 2,156,656 3 (Continued) LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2019 and 2018 (Dollars in thousands) Liabilities and Net Assets 2019 2018 Current liabilities: Accounts payable and accrued liabilities $ 106,640 125,302 Accrued salaries, wages and benefits 94,250 83,284 Advances from third-party payors 36,772 42,806 Current portion of long-term debt and capital lease obligations, net 14,957 14,401 Other current liabilities 29,377 26,378 Total current liabilities 281,996 292,171 Other long-term liabilities 141,448 120,285 Long-term debt and capital lease obligations, net 537,831 546,432 Total liabilities 961,275 958,888 Net assets: Net assets without donor restrictions 1,170,838 1,106,696 Noncontrolling interest in consolidated subsidiaries 19,785 18,396 Total net assets without donor restrictions 1,190,623 1,125,092 Net assets with donor restrictions 71,913 72,676 Total net assets 1,262,536 1,197,768 Total liabilities and net assets $ 2,223,811 2,156,656 See accompanying notes to consolidated financial statements. 4 LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended June 30, 2019 and 2018 (Dollars in thousands) 2019 2018 Unrestricted revenues, gains and other support: Patient service revenue (net of contractual allowances and discounts) $ 1,559,747 Provision for bad debts (54,483) Net patient service revenue 1,521,903 1,505,264 Net assets released from restrictions used for operations 4,101 3,598 Other operating revenue 84,391 68,297 Total operating revenues 1,610,395 1,577,159 Expenses: Salaries and employee benefits 868,537 845,430 Supplies 267,679 266,940 Purchased services 276,338 289,484 Depreciation, amortization and gain/loss on sale of assets 86,949 80,352 Repairs and maintenance 27,448 22,397 Interest 26,312 26,779 Total expenses 1,553,263 1,531,382 Operating income 57,132 45,777 Other income (loss), net: Investment income 38,838 28,743 Unrealized gain on trading investments 3,181 17,274 Other 2,037 2,314 Gain on refinancing of debt — 270 Total other income, net 44,056 48,601 Excess of revenues over expenses 101,188 94,378 Net assets released from restrictions used for the purchases of property and equipment 3,533 5,156 Net change in value of beneficial interest in split interest agreement 224 — Adjustment to pension liability (32,548) 25,630 Other (6,866) 1,392 Increase in unrestricted net assets $ 65,531 126,556 See accompanying notes to consolidated financial statements. 5 LIFEBRIDGE HEALTH, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Net Assets Years ended June 30, 2019 and 2018 (Dollars in thousands) Without Donor With Donor Total restrictions restrictions net assets Net assets at June 30, 2017 $ 998,536 70,723 1,069,259 Excess of revenues over expenses 94,378 — 94,378 Unrealized gain on investments — 2,127 2,127 Net assets released from restrictions used for the purchase of property and equipment 5,156 (5,156) — Restricted gifts and bequests — 8,043 8,043 Net assets released from restrictions used for operations — (3,598) (3,598)