Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Financial Report December 31, 2018 Contents Independent auditor’s report 1-2 Consolidated financial statements Consolidated balance sheets 3-4 Consolidated statements of operations and changes in net assets 5-7 Consolidated statements of cash flows 8 Notes to consolidated financial statements 9-46 Independent Auditor’s Report The Board of Directors Parkview Health System, Inc. Report on the Financial Statements We have audited the accompanying consolidated financial statements of Parkview Health System, Inc. and Subsidiaries (the Corporation), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, the related consolidated statements of operations and changes in net assets and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parkview Health System, Inc. and Subsidiaries as of December 31, 2018 and 2017, and the results of their operations, changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Chicago, Illinois March 27, 2019 2 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Balance Sheets December 31, 2018 and 2017 (In Thousands) 2018 2017 Assets Current assets: Cash and cash equivalents $ 203,676 $ 124,044 Short-term investments 315 309 Patient accounts receivable 245,700 211,441 Inventories 31,749 24,653 Prepaid expenses and other current assets 33,691 29,752 Estimated third-party payer settlements 6,653 2,784 Due from investment brokers 189,648 245,343 Total current assets 711,432 638,326 Investments: Board-designated investments 1,160,934 1,096,024 Funds held by trustees 87,430 15,636 Other investments 887 874 1,249,251 1,112,534 Property and equipment: Cost 2,113,625 1,962,636 Less accumulated depreciation and amortization 957,321 861,013 1,156,304 1,101,623 Other assets: Interest rate swaps 2,801 2,344 Investments in joint ventures 2,424 1,986 Goodwill and intangible assets, net 101,755 101,947 Other assets 32,031 29,856 139,011 136,133 Total assets$ 3,255,998 $ 2,988,616 -Continued- 3 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Balance Sheets December 31, 2018 and 2017 (In Thousands) 2018 2017 Liabilities and Net Assets Current liabilities: Accounts payable and accrued expenses $ 128,571 $ 95,707 Salaries, wages and related liabilities 118,673 110,807 Accrued interest 3,466 3,098 Estimated third-party payer settlements 12,627 5,509 Current portion of long-term debt 41,371 21,346 Due to investment brokers 330,030 291,729 Total current liabilities 634,738 528,196 Noncurrent liabilities: Long-term debt, less current portion 710,203 616,815 Interest rate swaps 57,048 67,967 Accrued pension obligations 91,607 106,123 Other 24,547 25,629 883,405 816,534 Net assets: Parkview Health System, Inc. 1,686,148 1,593,032 Noncontrolling interest in subsidiaries 38,631 35,466 Total net assets without donor restrictions 1,724,779 1,628,498 Net assets with donor restrictions 13,076 15,388 Total net assets 1,737,855 1,643,886 Total liabilities and net assets $ 3,255,998 $ 2,988,616 See notes to consolidated financial statements. 4 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Statements of Operations and Changes in Net Assets Years Ended December 31, 2018 and 2017 (In Thousands) 2018 2017 Revenues: Net patient care service revenue before provision for bad debts $ 1,668,998 Provision for bad debts (102,959) Patient care service revenue $ 1,744,975 1,566,039 Capitation revenue 44,885 55,058 Other revenue 63,344 47,701 1,853,204 1,668,798 Expenses: Salaries and benefits 945,252 853,848 Supplies 279,683 249,114 Purchased services 172,417 156,037 Utilities, repairs and maintenance 70,381 61,449 Depreciation and amortization 106,829 99,396 Hospital assessment fee 57,400 49,004 Interest and financing costs 22,617 24,132 Other, net 80,270 69,233 1,734,849 1,562,213 Operating income 118,355 106,585 Nonoperating income (expense): Interest, dividends and realized gains on sales of investments, net 26,187 70,344 Unrealized (losses) gains on investments, net (56,656) 27,983 Unrealized gains on interest rate swaps, net 11,281 5,694 Loss on early refunding of long-term debt (196) (9,480) Contribution of net assets without donor restrictions of Park Center, Inc. 12,656 - Other, net (176) (173) (6,904) 94,368 Excess of revenues over expenses 111,451 200,953 Excess of revenues over expenses attributable to noncontrolling interest in subsidiaries 36,291 29,342 Excess of revenues over expenses attributable to Parkview Health System, Inc. $ 75,160 $ 171,611 See notes to consolidated financial statements. 5 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Statements of Operations and Changes in Net Assets (Continued) Years Ended December 31, 2018 and 2017 (In Thousands) Year Ended December 31, 2018 Controlling Noncontrolling Total Interest Interest Net assets without donor restrictions: Excess of revenues over expenses $ 111,451 $ 75,160 $ 36,291 Distributions to noncontrolling interests (33,165) - (33,165) Pension-related changes other than net periodic pension cost 14,520 14,520 - Net assets released from restriction used for property and equipment, and other 3,475 3,436 39 Increase in net assets without donor restrictions 96,281 93,116 3,165 Net assets with donor restrictions: Contributions 3,873 3,873 - Investment loss (42) (42) - Net assets released from restrictions (6,143) (6,143) - Decrease in net assets with donor restrictions (2,312) (2,312) - Increase in net assets 93,969 90,804 3,165 Net assets: Beginning of year 1,643,886 1,608,420 35,466 End of year $ 1,737,855 $ 1,699,224 $ 38,631 See notes to consolidated financial statements. 6 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Statements of Operations and Changes in Net Assets (Continued) Years Ended December 31, 2018 and 2017 (In Thousands) Year Ended December 31, 2017 Controlling Noncontrolling Total Interest Interest Net assets without donor restrictions: Excess of revenues over expenses $ 200,953 $ 171,611 $ 29,342 Distributions to noncontrolling interests (25,243) - (25,243) Pension-related changes other than net periodic pension cost (15,268) (15,268) - Net assets released from restriction used for property and equipment, and other 3,472 3,472 - Increase in net assets without donor restrictions 163,914 159,815 4,099 Net assets with donor restrictions: Contributions 5,127 5,127 - Investment gain 100 100 - Net assets released from restrictions (4,803) (4,803) - Increase in net assets with donor restrictions 424 424 - Increase in net assets 164,338 160,239 4,099 Net assets: Beginning of year 1,479,548 1,448,181 31,367 End of year$ 1,643,886 $ 1,608,420 $ 35,466 See notes to consolidated financial statements. 7 Parkview Health System, Inc. and Subsidiaries d/b/a Parkview Health Consolidated Statements of Cash Flows Years Ended December 31, 2018 and 2017 (In Thousands) 2018 2017 Cash flows from operating activities: Increase in net assets $ 93,969 $ 164,338 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Provision for bad debts - 102,959 Depreciation and amortization 106,829 99,396 Contributions restricted for capital (3,873) (2,078) Undistributed loss (earnings) from alternative investments 6,253 (6,834) Unrealized gains on interest rate swaps, net (11,281) (5,832) Amortization of deferred financing costs and net premium (3,056) (2,362) Loss on early refinancing of long-term debt 196 9,480 Loss from disposal of property and equipment 600 429 Pension-related changes other than net periodic pension cost (14,520) 15,268 Contribution of net assets without donor restrictions of Park Center, Inc.