Quarterly Financial Reporting Information

Transcription

1 For the Three Months Ended March 31, 2016 Sisters of Charity of Leavenworth Health System, Inc. Disclosure Information as of March 31, 2016 May 26,

2 Table of Contents SCL Health History, Background and Organization 3 Where We Serve 4 Restricted Affiliates Organizational Chart 5 Changes 6 Management s Discussion and Analysis of Financial Performance Summary 7 Financial Analysis 7 Liquidity and Capital Resources 10 Subsequent Events 14 Notice to Readers on Forward Looking Statements 15 Financial Analysis and Utilization Statistics Summary 15 SCL Health Consolidated Financial Statements Consolidated Balance Sheets 18 Consolidated Statements of Operations 20 Consolidated Statements of Changes in Net Assets 21 Consolidated Statements of Cash Flows 22 Restricted Affiliates Statistics and Financial Ratios 23 2

3 SISTERS OF CHARITY OF LEAVENWORTH HEALTH SYSTEM, INC. AND AFFILIATES History, Background and Organization OVERVIEW The Sisters of Charity of Leavenworth (the Sisters or the Congregation ), founded in 1858, have provided more than 158 years of service committed to enhancing the spiritual, health, educational and social well-being of all persons. In 1857, a small congregation of Sisters from Nashville, Tennessee, ventured to the edge of an expanding frontier, settling in the territory of Kansas. Over the years, these women established schools, orphanages and hospitals throughout the western territories as the populations and needs of these communities grew. The Congregation sponsors a variety of ministries in healthcare, education, social welfare, spiritual development and foreign missions. The historical roots of its health-care ministry can be traced to 1864 when the Sisters opened the first private hospital in the state of Kansas. Within the next century the Sisters established, developed and staffed hospitals in Montana, Colorado, Nebraska, New Mexico, California, Kansas and Wyoming. In 1972, following a review of their first century of providing health-care services, the Sisters recognized the need to unify and develop a more cohesive system for the hospitals, strengthening them individually and collectively. As a result of that review, the Sisters sought the incorporation of Sisters of Charity of Leavenworth Health System, Inc. ( SCL Health or the Corporation ), a nonprofit corporation organized under the laws of the State of Kansas. In 2011, the Congregation formed a new canonical entity, Leaven Ministries, which was approved and recognized by the Catholic Church to be the new Sponsor of SCL Health. Leadership of the Sisters of Charity of Leavenworth religious community remains involved in Leaven Ministries. The members of Leaven Ministries include three Sisters and two lay leaders. SCL Health is governed by a 15-member Board of Directors. Headquartered in Broomfield, Colorado, SCL Health is a faith-based nonprofit health-care system that operates nine acute care hospitals, one community hospital, three safety net clinics, one children s mental health center and more than 200 ambulatory service centers in three states Colorado, Kansas and Montana with more than 15,000 associates and over 700 employed providers. SCL Health is the sole member of an Obligated Group under a Master Trust Indenture ( MTI ). Eight hospitals comprise the Restricted Affiliates under the MTI. (See Restricted Affiliates Organizational Chart.) SCL Health and its hospitals have been recognized for clinical quality and patient experience by multiple third-party organizations that rank hospital and health systems nationwide. SCL Health has entered into several strategic partnerships and affiliation agreements from 2012 to the present, including but not limited to: a Joint Operating Agreement with National Jewish Health, a joint venture with Emerus Holdings, Inc., a joint venture with Touchstone Imaging and an affiliation agreement with Platte Valley Medical Center. These reflect the organization s efforts to expand its continuum of care and grow in the communities it serves. 3

4 WHERE WE SERVE 4

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6 SCL Health Changes Restricted Affiliates, Affiliates and Joint Ventures As of March 31, 2016 there were no changes to the restricted affiliates, affiliates or joint ventures since the last disclosure for December 31, Corporate Governance As of March 31, 2016 there were no changes to corporate governance since the last disclosure for December 31, Executive Management As of March 31, 2016 there were no changes to executive management since the last disclosure for December 31,

7 Summary Management s Discussion and Analysis of Financial Performance For the Three Months Ended March 31, 2016 For the three months ended March 31, 2016, SCL Health generated operating income of $25.8 million, an operating margin of 3.8% on total revenues of $674.0 million. Operating cash flow (1) of $82.9 million represented an operating cash flow margin of 12.3%. Non-operating income consisted primarily of net investment losses of $7.2 million. Financial Analysis Balance Sheet At March 31, 2016, the consolidated balance sheet of SCL Health continued to reflect a strong and stable health system. Total cash and investments of $1.9 billion (a total of 289 days cash and investments on hand) represented a decrease of $31.0 million compared to December 31, 2015, after debt principal payments of $36.2 million and $44.7 million in capital expenditures made in the first quarter of Total assets increased by $30.5 million in 2016 compared to December 31, Total longterm debt, including current maturities, decreased in 2016 by $37.0 million compared to December 31, 2015 due to scheduled debt principal payments and amortization of original issuance premium and debt issuance costs. Total net assets increased by $11.2 million compared to December 31, The increase in net assets and reduction in outstanding debt resulted in a decline in the net long-term debt-to-capitalization ratio from 38.2% at December 31, 2015 to 37.6% at March 31, Volume and Operating Income Volume indicators were generally favorable compared to the first three months of the prior year. Admissions, emergency visits, total surgeries and outpatient visits were 4.4%, 7.8%, 4.7% and 10.4% greater than the prior year, respectively. The average length of stay for inpatients declined slightly to 4.6 days from 4.9 days and the case mix index experienced a slight increase from 1.60 to SCL Health s payer mix experienced a shift, primarily as a result of Medicaid expansion in Colorado and Montana. Increases in Medicaid were offset by decreases in contracted payers and self-pay. In first three months of 2016, Medicaid represented 16.4% of total gross charges, up from 15.1% in first three months of 2015, while commercial and contracted payers declined from 37.0% to 35.7%. Self-pay decreased from 3.0% to 2.8%. (1) Defined as operating income + depreciation and amortization + interest and amortization. 7

8 The combination of increased volumes, payer mix shifts and changes in contracted rates resulted in an increase in net patient revenue of $51.2 million for the first three months of 2016 compared to Excluding Platte Valley Medical Center ( PVMC ), net patient revenue increased by $22.2 million. Non-patient revenue decreased by $3.4 million in the first three months of 2016 compared to The chart below shows the percentage of operating revenue generated by Care Site for the first three months of 2016: % of YTD Operating Revenue by Care Site Lutheran Medical Center, 13.3% St. Vincent Healthcare, 13.7% Good Samaritan Medical Center, 11.0% St Mary's Medical Center, 15.8% St. Francis Health, 7.6% Physician Clinics, 7.4% St. James Healthcare, 4.2% Saint Joseph Hospital, 19.7% Platte Vally Medical Center, 4.1% Other, 1.8% Holy Rosary Healthcare, 1.4% Operating expenses increased by $38.1 million or 6.2% in the first three months of 2016 compared to The number of full-time-equivalent employees (FTEs) increased to 13,968 from 13,436 in 2015, primarily attributable to the addition of PVMC effective October 1, Salaries and benefits costs increased by $25.8 million (8.2%), approximately half of which was due to the affiliation with PVMC. Other operating expenses increased by $21.3 million, largely as a result of the addition of PVMC. In the latter part of 2015, SCL Health re-evaluated the remaining useful lives of its buildings and equipment. As a result of this study, adjustments were made in December to the estimated remaining useful lives which would have resulted in a $12.0 million reduction to depreciation expense if applied retrospectively to the first three months of Including the $12.0 million adjustment, depreciation expense would have increased by $2.6 million in the first three months of 2016 compared to

9 Sources of Patient Revenue The primary sources of consolidated gross patient service charges include Medicare, stateadministered Medicaid programs, contracted rate payors (including health maintenance organizations and preferred provider organizations), commercial insurers and self-paying patients. SCL Health has experienced an increase in Medicare and Medicaid revenue as a percentage of total gross revenue and a decrease in managed care, commercial and self-pay. The shift is primarily attributed to the expansion of the Medicaid program in Colorado and the launch of Health Insurance Exchanges. The following information provides consolidated gross patient service revenue for the three months ended March 31, 2016 and 2015 and the years ended December 31, 2015 and Three Months Ended March 31 Year Ended December Medicare 45% 45% 44% 44% Medicaid 16% 15% 15% 12% Managed care, commercial and other 36% 37% 37% 39% Self-pay 3% 3% 4% 5% Total 100% 100% 100% 100% Commitments and Contingencies The SCL Health Board of Directors and Sponsors engage in on-going evaluations of the Care Sites and communities it serves for ministry realignment opportunities to better serve the health ministry. Ministry realignment includes, but is not limited to, acquisitions, divestitures, partnerships, management services, and other strategic relationships. The United States Attorney s Office and the Department of Health and Human Services Office of Inspector General have made inquiries regarding certain reimbursements claimed by SCL Health. SCL Health has adopted internal organizational responsibility and compliance programs to address these concerns and seeks to proactively respond to these requests. 9

10 Liquidity and Capital Resources SCL Health s total cash and investments decreased $31.0 million during the three months ended March 31, 2016 and unrestricted cash and investments (which exclude Self-Insured Risks Funds, Trustee Held Funds and Permanently Restricted Net Assets) decreased by $35.6 million. SCL Health had 289 Days Total Cash on Hand (277 Unrestricted Days) at March 31, Cash, Investments and assets limited as to use, stated at fair value and including pooled and separate accounts, as of March 31, 2016 and December 31, 2016 were as follows: Asset Category March 31, 2016 December 31, 2015 (In Millions) Cash and cash equivalents $ 35.5 $ 17.7 Absolute return Core hedge funds Domestic equity Domestic fixed income Global equity Global Infrastructure Master Limited Partnership Opportunistic Real estate Real return Tactical asset allocation Investments held in the Comprehensive Investment Program ( CIP ) 1, ,635.7 Cash and investments held outside of the CIP Platte Valley Medical Center investments $ 1,932.5 $ 1,963.5 SCL Health s investments are exposed to various kinds and levels of risk (interest rate risk, credit risk, market risk and liquidity risk). SCL Health s investments are diversified across a broad range of asset classes, durations and funds to avoid concentrations of risk in any particular company, region or industry. 10

11 SCL Health Liquidity Information As of 3/31/2016 (unaudited) Assets ($ in millions) Daily Liquidity Money Market Funds (Moody's rated Aaa) 5.1 Checking and deposit accounts at P-1 rated bank Overnight Repurchase Agreements (collateralized by Treasuries/Agencies; P-1 rated counterparty) 2.0 US Treasuries & Agencies (<3-year maturity) 62.9 US Treasuries & Agencies (>3-year maturity) 53.4 Other 8.0 Subtotal Daily Liquidity General operating Line of Credit Drawn portion of Line - Net Available Line Subtotal Daily Liquidity Including Line of Credit Weekly Liquidity P-1 Rated Commercial Paper 23.1 Publicly Traded Fixed Income Securities (at least Aa3) Publicly Traded Fixed Income Securities (below Aa3) Exchange Traded Equity (ownership of shares of stock) Equity Funds Subtotal Weekly Liquidity TOTAL DAILY AND WEEKLY LIQUIDITY 1,439.7 Liquidity greater than 7 days Funds, vehicles, investments that allow withdrawals with one week notice or more Total Investments and Cash 1,932.5 Total General operating Line of Credit (net) TOTAL LIQUIDITY 2,

12 Outstanding Long-Term Debt March 31, Annual Interest Rates 2016 Tax-exempt bond issues: 2014, due through January 2035 Variable rate, 0.66% $ , due through January % to 5.50% , due through December 2031 Variable rate, 0.71% , due through January 2039 Variable rate, 0.79% , due through January % to 5.25% , due through December 2038 Variable rate, 0.37% 24.5 Total under the SCL Health MTI 1,437.7 PVMC mortgages (HUD-Insured) 2.98% 82.2 Other notes and capital leases 4.2 1,524.1 Original issue premium, net 14.4 Less unamortized debt issuance costs 11.7 Less current maturities of long-term debt $ 1,419.2 In April 2015, the Financial Accounting Standards Board issued ASU No , Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs. The recognition and measurement guidance for debt issuance costs are not affected by ASU The adoption of ASU was applied retrospectively and resulted in a reclassification of $11.9 million of debt issuance costs as of December 31, 2015, to bonds payable for a comparable balance sheet presentation. Interest Rate Swaps SCL Health is a party to certain interest rate swap agreements utilized to hedge the interest rate expense on a portion of the variable rate bonds, which are summarized in the following table: Initial Notional Amount Current Notional Amount Expiry Rate Paid By Dealer Rate Paid By SCL Health Counterparty Fair Value 03/31/2016 (3) $60,000,000 $28,195, % of LIBOR 3.18% MLCS(1) $(2,956,481) $60,000,000 $28,195, SIFMA 3.79% MLCS $(3,530,698) $60,000,000 $60,000, SIFMA 4.22% Deutsche Bank(2) $(19,471,592) (1) Merrill Lynch Capital Services, Inc. (2) Deutsche Bank AG, New York (3) The fair value of the swap agreements was calculated by Ponder & Co. at the request of SCL Health using Bloomberg midmarket closing swap curves as reported by Bloomberg as of March 31, 2016 and excluding accrued interest. The swap agreements do not require SCL Health to post collateral to secure the counterparty s credit exposure. There can be no assurance that the SCL Health will not be required to post collateral on any swaps entered into in the future. In addition, market conditions have resulted in swap valuations that would currently obligate SCL Health to make termination payments on existing interest rate hedge agreements, if such swap agreements are terminated. 12

13 The provisions of the above-referenced interest rate hedge agreements permit SCL Health to terminate them at any time upon payment of termination payments, if required. Liquidity Facilities The Series 2003 Variable Rate Demand Bonds are backed by a Standby Bond Purchase Agreement with BNY Mellon. In the event that bonds bearing interest at a weekly rate are not successfully remarketed, or if funds are not available for remarketing, BNY Mellon will pay the purchase price for debt that is tendered. The Issue supported by the Standby Bond Purchase Agreement is listed below along with the expiration date: Series Bank Expiration Date Amount 2003A Colorado BNY Mellon March 1, 2017 $ 24,450,000 Estimated Annual Debt Service at March 31, 2016 (In Millions) (1) Excludes capital lease and other notes (2) Assumes Interest Rate on variable rate bonds of 2.25% per annum 13

14 Subsequent Events On May 2, Kerry W. Kohnen joined SCL Health as Senior Vice President, Payer & Population Health Strategies. In M a y 2016, Moody s Investor Services affirmed its Aa3 with a stable outlook. Standard and Poor s and Fitch Ratings both affirmed their ratings of AA- with stable outlooks. On May 11, 2016, SCL Health cash defeased the outstanding par amount of the Colorado Series 2003A, Kansas Series 2012A, Montana Series 2014A and Colorado Series 2014B variable rate tax-exempt bonds. On May 12, 2016, SCL Health issued the Series 2016A, 2016B, 2016C and 2016D Colorado Health Facilities Authority tax-exempt variable rate revenue bonds in a par amount of $222.0 million. Proceeds of the Series 2016 bonds will be used to finance qualified capital expenditures at Saint Joseph Hospital in Denver, Colorado and St. Mary s Hospital & Medical Center in Grand Junction, Colorado. On May 25, 2016, the Board of Directors of SCL Health authorized and directed senior management of SCL Health to explore the divestiture of the hospital and related assets of St. Francis Health Center, Inc. ( St. Francis ) located in Topeka, Kansas. It is anticipated that as part of such divestiture, St. Francis would withdraw at a future date as a Restricted Affiliate under the Master Trust Indenture (As Amended and Restated), dated as of January 1, 1994, as amended and supplemented, between SCL Health and The Bank of New York Mellon Trust Company, N.A., as master trustee. 14

15 Forward-Looking Statements This Quarterly Report contains disclosures which constitute forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words like may, believe, will, expect, project, estimate, anticipate, plan, initiative or continue. These forward-looking statements are based on the current plans and expectations of SCL Health and are subject to a number of known and unknown uncertainties and risks, many of which are beyond SCL Health s control that could significantly affect current plans and expectations and SCL Health s future financial position and results of operations. These factors include, but are not limited to, (i) the highly competitive nature of the health care business, (ii) the efforts of insurers, health care providers and others to contain health care costs, (iii) possible changes in the Medicare and Medicaid programs (including changes to Medicare outlier payments) that may impact reimbursements to health care providers and insurers, (iv) the ability to achieve expected levels of patient volumes and control the costs of providing services, (v) changes in Federal, state or local regulations affecting the health care industry, (vi) the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical support personnel, (vii) liabilities and other claims asserted against SCL Health (vii) changes in accounting practices, (ix) changes in general economic conditions including growing numbers of uninsured and unemployed patients, (x) changes in revenue mix and the ability to enter into and renew managed care provider arrangements on acceptable terms and (xii) the collectability of uninsured accounts and deductible and co-pay amounts. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of SCL Health. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, including in Management s Discussion and Analysis of Financial Performance. Financial Analysis and Utilization Statistics Summary The Consolidated Statements of Operations and Changes in Net Assets in the attached Financial Statements for SCL Health (Consolidated) are a summary of activity for the three months ended March 31, 2016 and March 31, The Consolidated Statements of Operations and Changes in Net Assets with respect to the years ended December 31, 2015, 2014 and 2013 should be read in conjunction with the Audited Financial Statements, including the notes thereto, and the reports of Ernst & Young LLP, independent auditors. The information discussed below and illustrated in the various financial tables is generally derived from the consolidated financial statements which are in conformity with U.S. generally accepted accounting principles, except for the omission of Notes to Consolidated Financial Statements. The two major indicators, Operating Indicator and Performance Indicator, respectively known as Income from Operations and Excess of Revenues over Expenses, are defined terms and are generally fully detailed in the Notes to Consolidated Financial Statements from the December 31, 2015 Audited Financial Statements within the section entitled, Summary of Significant Accounting Policies. Operating and Performance Indicator information is also presented in an alternative form prescribed by the Master Trust Indenture (MTI). These ratios are unique to the MTI and differ from ratios commonly used by rating agencies such as Standard & Poor s, Fitch Ratings and Moody s Investors Service. 15

16 SCL Health Continuing Operations Consolidated (Unaudited) (Dollars in Millions) Three Months Ended March 31 Twelve Months Ended December Industry Standard Ratios (1): Operating Margin 3.8% 2.6% 3.0% 2.2% 1.8% Total Margin 2.6% 6.0% 8.1% 4.7% 7.8% MTI Ratios (2): Adjusted Operating Income Margin 4.2% 2.0% 2.8% 2.0% 1.4% Operating Income Margin 2.6% 6.0% 8.1% 4.7% 7.8% Operating Cash Flow Margin 12.3% 13.1% 11.6% 12.2% 12.0% Return on Net Assets (Annualized) 2.8% 6.9% 8.8% 5.0% 8.7% Debt Service Coverage (Annualized) 2.9x 3.4x 3.2x 4.2x 3.1x Total Cash and Investments $1,932.5 $1,909.0 $1,963.5 $1,927.1 $1,878.0 Unrestricted Cash and Investments (3) $1,847.6 $1,830.2 $1,883.2 $1,846.2 $1,731.7 Days Total Cash on Hand Days Unrestricted Cash on Hand (3) Cushion Ratio 16.9x 17.4x 18.4x 19.8x 15.5x Unrestricted Cash to Net Long-Term Debt (4) 124.6% 126.0% 124.7% 125.5% 114.4% Percentage of Net Long-Term Debt to Total Capitalization (4) 37.6% % 39.7% 41.0% (1) Industry Standard Ratios: Operating margin = (operating revenue operating expense) / operating revenue Total margin = consolidated excess of revenue over expense / (total operating revenue + non-operating gains/losses) (2) MTI Ratios: Adjusted operating revenue = net patient service revenue + other operating revenue + net assets released from restrictions Adjusted operating income = adjusted operating revenue total operating expenses Adjusted operating income margin = adjusted operating income / adjusted operating revenue Operating income margin = excess (deficit) of revenue over expenses / (total operating revenue + total non-operating gains (losses)) (3) Excludes trustee held funds, self-insured risk funds and permanently restricted net assets (4) Ratios for the three months ended March 31, 2015, twelve months ended December 31, 2015, 2014 and 2013 have been restated to reflect debt issuance costs as a direct deduction from bonds payable 16

17 SCL Health Consolidated Utilization Statistics from Continuing Operations (Unaudited) Three Months Ended March 31, Twelve Months Ended December 31, Licensed Beds 2,369 2,283 2,369 2,283 2,448 Staffed Beds 1,933 1,875 1,933 1,872 1,890 Admissions Acute 21,219 20,336 80,012 78,458 79,840 Admissions Total 22,539 21,587 85,142 83,581 84,773 Adjusted Admissions (1) 42,406 40, , , ,997 Expense per CMIAA (2) $7,569 $7,202 $7,560 $7,291 $7,079 Newborn Deliveries 3,700 3,579 14,872 14,603 14,388 Patient Days Acute 90,473 90, , , ,778 Patient Days Total 104, , , , ,168 Adjusted Patient Days (3) 196, , , , ,866 Occupancy on Staffed Beds 59.3% 62.5% 59.1% 59.0% 59.0% Average Daily Census 1,146 1,173 1,112 1,104 1,116 Average Length Of Stay Emergency Department Visits 82,356 76, , , ,199 Outpatient Visits (4) 228, , , , ,359 Inpatient Surgeries 6,623 6,323 26,319 25,664 25,589 Outpatient Surgeries 8,276 7,909 32,154 32,437 32,185 Full Time Equivalent Employees 13,968 13,436 13,959 13,255 12,961 (1) Adjusted Admissions = Total Admissions + (Outpatient Revenue/(Inpatient Revenue/Total Admissions)) (2) Expense per CMIAA = Acute Hospital costs (excluding Medicare Provider Fees, depreciation, interest and one-time costs associated with replacement of the Saint Joseph facility) / Case Mix Index Adjusted Admissions (3) Adjusted Patient Days = Total Patient Days + (Outpatient Revenue/(Inpatient Revenue/Total Patient Days)) (4) Outpatient Visits = the sum of all series visits (i.e. rehab, radiation oncology, therapy, lab, etc.) and all nonseries visits (i.e. short stays, day surgeries, specialty services, etc.) excluding inpatient and outpatient emergency department visits, home health visits, outpatient clinic visits and outpatient surgeries. Information for the fiscal year ended 2013 has been restated for this definition. Outpatient visits include 26,711 and 7,467 patient visits from the Touchstone Joint Venture for the first three months of 2016 and 2015, respectively. 17

18 SCL Health Consolidated Balance Sheets Assets Current assets: Unaudited March 31 Audited December (In Millions) Cash and cash equivalents $ $ 80.3 Current portion of investments Accounts receivable: Patient (less allowance for uncollectible accounts of $114.6 million at March 31, 2016 and $113.0 million at December 31, 2015) Pledges and other Inventory Prepaids and other assets Total current assets Investments: Investments, net of current portion 1, ,687.9 Assets limited as to use: Restricted funds self-insured risks Trustee-held funds Land, buildings, and equipment, net 2, ,077.0 Other assets: Investments in joint ventures Pledges receivable, net Other assets Total assets $ 4,487.1 $ 4,

19 SCL Health Consolidated Balance Sheets (continued) Unaudited March 31 Audited December (In Millions) Liabilities and net assets Current liabilities: Accounts payable $ 85.2 $ 98.2 Accrued salaries, wages, and benefits Accrued interest payable Other accrued expenses Current maturities of long-term obligations Total current liabilities Other noncurrent liabilities: Reserve for self-insured risks Accrued pension liability Accrued swap liability Other liabilities Capital structure: Bonds payable 1, ,481.6 Other notes and capital lease obligations , ,563.1 Less current maturities , ,456.2 Total liabilities 1, ,008.5 Net assets: Noncontrolling interest Unrestricted 2, ,441.4 Temporarily restricted Permanently restricted Total net assets 2, ,509.1 Total liabilities and net assets $ 4,487.1 $ 4,

20 SCL Health Consolidated Statements of Operations Unaudited Three Months Ended March (In Millions) Operating Revenue: Net patient service revenue before provision for bad debts $ $ Provision for bad debts (22.5) (19.5) Net patient service revenue Other operating revenue Net assets released from restrictions Net gain/(loss) from joint ventures (2.7) 3.1 Net gain/(loss) from disposal of assets 0.3 Total operating revenue Operating Expenses: Salaries and wages Employee benefits Other operating expenses Depreciation and amortization Interest Total operating expenses Income from operations Non-operating Gains (Losses) Income tax expense (1.0) (0.5) Investment income (loss) (7.2) 23.6 Total non-operating gains (losses), net (8.2) 23.1 Consolidated excess of revenue over expenses Less amounts attributable to noncontrolling interest Excess of revenue over expenses attributable to SCL Health $ 16.9 $

21 SCL Health Consolidated Statements of Changes in Net Assets Unaudited Three Months Ended March (Unaudited) 2015 (Unaudited) Total Controlling Non- Controlling Total (In Millions) Unrestricted net assets Excess of revenue over expenses $ $ 39.2 Change in unrealized value of interest rate swaps (2.5) (2.5) (1.8) Proceeds from Minority Partner contribution in Touchstone 14.5 Distributions to noncontrolling interest (0.6) (0.6) (0.7) Pension-related charges other than net periodic pension costs Net assets released for capital acquisitions Temporarily restricted net assets Contributions Net investment activity (0.1) (0.1) 0.2 Net assets released from restrictions (5.9) (5.9) (5.8) (3.6) (3.6) 10.2 Permanently restricted net assets Contributions 0.1 Net investment activity Increase (decrease) in net assets Beginning net assets 2, , ,299.9 Ending net assets $ 2,520.3 $ 2,515.0 $ 5.3 $ 2,

22 SCL Health Consolidated Statements of Cash Flows Unaudited Three Months Ended March (In Millions) Operating activities Increase in net assets $ 11.2 $ 62.6 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation and amortization Provision for bad debts Increase in accounts receivable, net of allowances (24.8) (41.3) Change in unrealized value of interest rate swaps Restricted contributions (2.4) (15.9) Pension-related charges other than net periodic pension costs (0.2) Net assets released for capital acquisitions (0.1) (0.9) Net gain from joint ventures 2.7 (3.1) Net gain from disposal of assets 0.3 Increase (decrease) in investments (Increase) decrease in other assets 2.9 (8.4) Increase (decrease) in liabilities (7.6) (23.3) Net cash provided by operating activities Investing activities Acquisition of land, buildings, and equipment (44.7) (42.0) (Increase) decrease in investments in joint ventures 0.6 (0.2) Net cash used in investing activities (44.1) (42.2) Financing activities Restricted contributions Net assets released for capital acquisitions Payments on bonds, notes and capital leases payable (36.2) (33.1) Net cash used in financing activities (33.7) (16.3) Net increase in cash and cash equivalents Beginning cash and cash equivalents Ending cash and cash equivalents $ $

23 Restricted Affiliates Statistics and Financial Ratios The financial and statistical tables which follow are presented for the continuing operations of the Obligated Group under the Master Indenture (Restricted Affiliates). A complete list of the Restricted Affiliates can be found in the 2015 Consolidated Financial Statements. Historical Capitalization Ratio (Unaudited) The following table presents the capitalization of continuing operations of SCL Health and Restricted Affiliates (Restricted) as of March 31, 2016, December 31, 2015 and December 31, Effective January 1, 2015, a majority of the Physician Practices converted from hospitalowned to free standing clinics. As a result, they are no longer classified as restricted affiliates. The 2014 information has been restated to conform to the 2015 presentation. The 2015 and 2014 information has also been restated to reflect debt issuance costs as a direct deduction from bonds payable. Restricted March 31 December (In Millions) Long-term debt: Master Indenture debt (net of original issue premium and issuance costs, net ) $ 1,440.4 $ 1,475.9 $ 1,512.6 Other long-term indebtedness Total long-term debt 1, , ,514.6 Less current maturities (103.6) (102.9) (44.0) Plus variable portion not scheduled Net long-term debt 1, , ,478.0 Unrestricted net assets 2, , ,231.9 Total capitalization $ 3,792.2 $ 3,793.6 $ 3,709.9 Percent of net long-term debt to total capitalization 37.0% 38.0% 39.8% 23

24 Historical Debt Service Coverage Requirements (Unaudited) The table below presents the debt service coverage for the continuing operations of SCL Health and Restricted Affiliates (Restricted) for the three months ended March 31, 2016 and the years ended December 31, 2015 and Effective January 1, 2015, a majority of the Physician Practices converted from hospital-owned to free standing clinics. As a result, they are no longer classified as restricted affiliates. The 2014 information has been restated to conform to the 2015 presentation. Restricted Three Months Ended March 31 Year Ended December (In Millions) Consolidated income available for debt service: Excess of revenue over expenses attributable to SCL Health $ 38.4 $ $ Business acquisitions (gains) losses, net Change in unrealized (gains) losses, net Depreciation and amortization Interest Total income available for debt service $ 96.4 $ $ Consolidated annual debt service requirements (1) $ $ $ 94.8 Actual debt service coverage ratio all long-term debt (2) 3.7x 3.8x 4.1x (1) (2) Annual debt service = principal paid + interest paid + 20% of interest and principal for guaranteed debt. Debt service coverage = total income available for debt service / annual debt service. Three months debt service calculation is annualized. 24

25 Financial Performance (Unaudited) The following table highlights the financial results for continuing operations of SCL Health and Restricted Affiliates (Restricted) for the three months ended March 31, 2016 and the years ended December 31, 2015 and Effective January 1, 2015, a majority of the Physician Practices converted from hospital-owned to free standing clinics. As a result, they are no longer classified as restricted affiliates. The 2014 information has been restated to conform to the 2015 presentation. Restricted Thee Months Ended March 31 Year Ended December 31 MTI Ratios: Adjusted operating income margin (1) 8.2% 6.1% 2.4% Operating income margin (2) 6.7% 4.6% 4.8% Return on net assets (3) 6.5% 4.4% 4.8% Debt service coverage (4) 3.7x 3.8x 4.1x Days cash on hand (excluding self-insured risk funds, trustee-held funds and permanently restricted net assets) (5) Cushion ratio (6) 15.8x 16.4x 18.2x (1) Adjusted operating revenue = net patient service revenue + other operating revenue + net assets released from restrictions. Adjusted operating income = adjusted operating revenue total operating expenses. Adjusted operating income margin = adjusted operating income / adjusted operating revenue. (2) Operating income margin = excess of revenue over expenses / (total operating revenue + (total nonoperating gains (losses)). (3) Return on net assets = excess of revenue over expenses / unrestricted net assets. Three months return on net assets calculation is annualized. (4) Debt service coverage = (excess of revenue over expenses change in unrealized gains (losses), net + depreciation and amortization + interest and amortization) / annual debt service. (5) Days cash on hand = (cash and cash equivalents + investments permanently restricted net assets) / ((total operating expenses depreciation and amortization) / cumulative days). (6) Cushion ratio = (cash and cash equivalents + investments + trustee-held funds) / annual debt service. 25