quarterly financial reporting information

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Quarterly Financial Reporting Information


For the Six Months Ended June 30, 2019

Sisters of Charity of Leavenworth Health System, Inc.

Disclosure Information as of June 30, 2019

August 12, 2019

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Table of Contents

SCL Health

History, Background and Organization 3

Where We Serve Our Communities 4

Restricted Affiliates Organization Chart 5

SCL Health Changes 6

Management’s Discussion and Analysis of Financial P erformance

Summary 7

Financial Analysis 7

Liquidity and Capital Resources 10

Subsequent Events 14

Notice to Readers on Forward Looking Statements 16

Financial Analysis and Utilization Statistics Summa ry 16

SCL Health Consolidated Financial Statements

Consolidated Balance Sheets 19

Consolidated Statements of Operations 21

Consolidated Statements of Changes in Net Assets 22

Consolidated Statements of Cash Flows 23

Restricted Affiliates Statistics and Financial Rati os

Historical Capitalization Ratio 24

Historical Debt Service Coverage Requirements 25

Financial Performance 26

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SISTERS OF CHARITY OF LEAVENWORTH HEALTH SYSTEM, INC. AND AFFILIATES

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OVERVIEW

History, Background and Organization

The Sisters of Charity of Leavenworth (the Sisters or the Congregation), founded in 1858, have provided more than 160 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 health care, 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), 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 four Sisters and one lay leader. 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 eight acute care hospitals, three safety net clinics, one children’s mental health center and more than 170 ambulatory service locations primarily in Colorado and Montana, with more than 15,000 associates and over 750 employed providers. SCL Health is the sole member of an Obligated Group under a Master Trust Indenture (MTI). Seven hospitals comprise the Restricted Affiliates under the MTI. (See Restricted Affiliates Organization 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 2014 to the present, including but not limited to: a Joint Operating Agreement with National Jewish Health, 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.

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Where We Serve Our Communities

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SCL Health Changes

Restricted Affiliates, Affiliates and Joint Venture s

SCL Health and Providence St. Joseph Health, the parent company of Providence Health & Services, Montana (“Providence”), signed a Letter of Intent on May 9, 2019 (the “Letter of Intent”). The Letter of Intent addresses the proposed creation of a joint operating company, NewCo (the "JOC"), and an integrated network of care involving independent hospitals and provider partners in Montana (the “NewCo Network”). The JOC and the NewCo Network would be created on terms described in the Letter of Intent and in a definitive agreement or agreements to be negotiated between SCL Health and Providence. The execution and delivery of any definitive agreement and the creation of the JOC and the NewCo Network are subject to, among other things, satisfactory completion of negotiations and due diligence, approval of the SCL Health and Providence boards, and necessary regulatory approvals and third-party consents. There can be no assurance that any definitive agreement will be reached between the parties or that the JOC and the NewCo Network will be effectuated. No other changes to the restricted affiliates, affiliates or joint ventures have occurred since the March 30, 2019 disclosure.

Corporate Governance

Effective May 15, 2019, Paul Hughes-Cromwick and Scott J. Keller resigned from the SCL Health board of directors. No other changes to corporate governance have occurred since the March 30, 2019 disclosure.

Executive Management

On May 3, 2019, SCL Health announced that Mark Korth, MBA, MHA, FACHE, would join SCL Health as Executive Vice President and Chief Operating Officer of Hospital Operations. Most recently Mr. Korth, served as Senior Vice President and Service Area President for Dignity Health. Mr. Korth joined SCL Health on June 17, 2019, replacing Michael Taylor, who retired from SCL Health effective June 29, 2019. No other changes to executive management have occurred since the March 30, 2019 disclosure.

Accounting

On January 1, 2019, SCL Health implemented Accounting Standards Update 2016-02, Leases (Topic 842), using a modified retrospective approach. The primary effect of the new guidance is to record right-of-use assets and obligations for operating leases and resulted in increases in both assets and liabilities of approximately $60.0 and $65.0 million, respectively, at January 1, 2019.

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Management’s Discussion and Analysis of Financial Performance

For the Six Months Ended June 30, 2019

Summary

For the six months ended June 30, 2019, SCL Health generated operating income from continuing operations of $93.4 million, an operating margin of 6.6% on total operating revenue of $1,412.5 million. Earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA)(1) of $205.4 million represented an operating EBITDA margin of 14.5%. Non-operating gains of $171.0 million consisted primarily of net investment gains of $172.9 million.

Financial Analysis

Balance Sheet

At June 30, 2019, the consolidated balance sheet of SCL Health continued to reflect a strong and stable health system. Total cash and investments (net of amounts due to broker) of $2.3 billion (a total of 333 days cash and investments on hand) represented an increase of $181.9 million compared to December 31, 2018.

Total assets have increased by $259.7 million in 2019, largely due to investment returns and implementation of Topic 842. Total long-term debt, including current maturities, decreased by $30.9 million primarily due to scheduled debt principal payments and amortization of original issuance premium. Current liabilities decreased by $15.0 million despite $16.9 million in new operating lease liabilities due to the timing of compensation and accounts payable payments. Other non-current liabilities increased by $41.1 million primarily due to the implementation of Topic 842. Total net assets increased by $265.8 million primarily as a result of net income. The increase in net assets and reduction in outstanding debt resulted in a decrease in the debt-to-capitalization ratio from 31.6% at December 31, 2018 to 30.3% at June 30, 2019.

Volume and Operating Income

Volume indicators generally declined from the prior year. Year-to-date admissions, surgical cases and emergency visits declined 1.1%, 5.0%, and 2.8%, respectively. Other outpatient visits increased 3.1% from the prior year. The average inpatient length of stay increased slightly to 4.9 days from 4.8 days, and the case mix index experienced an increase from 1.74 to 1.76.

(1) Defined as operating income + depreciation and amortization + interest.

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SCL Health’s payer mix is fairly stable reflecting seasonal trends. In the first six months of 2019, Medicaid represented 15.6% of gross patient charges compared to 16.3% during the first six months of 2018. Medicare represented 47.0% of gross patient charges compared to 46.7% during the first six months of 2018. Commercial and other contracted payers represented 34.1% of gross patient charges compared to 34.0% during the first six months of 2018. Self-pay represented 3.3% of gross patient charges compared to 3.0% during the first six months of 2018.

The combination of changes in volumes, payor mix shifts and changes in contracted rates resulted in a $68.3 million increase in net patient revenue for the six months ended June 30, 2019 compared to the prior year. The chart below shows the percentage of total operating revenue generated by Care Site for the first six months of 2019:

Operating expenses increased by $25.7 million or 2.0% during the first six months of 2019 compared to the same period in 2018. Salaries and benefits increased by $20.4 million or 3.0% during the first six months of 2019 compared to the same period in 2018 due to a 0.6% increase in full time equivalent employees coupled with merit increases. Supplies, purchased services and other operating expenses increased only $0.5 million and 0.1% from the same period in 2018. Depreciation expense increased by $5.7 million or 7.3% while interest expense declined by $0.9 million or 3.1% during the first six months of 2019 compared to 2018.

Saint Joseph Hospital, 21.4%

St. Vincent Healthcare,

17.4%

St. Mary's Hospital &

Medical Center, 14.8%

Lutheran Medical Center,

13.2%

Good Samaritan Medical Center,

11.0%Physician

Clinics, 8.6% Platte Valley Medical Center, 4.9%

St. James Healthcare,

4.6%Other, 2.2%

Holy Rosary Healthcare,

1.9%

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Sources of Patient Service Charges

The primary sources of consolidated gross patient service charges include Medicare, state-administered Medicaid programs, contracted rate payers (including health maintenance organizations and preferred provider organizations), commercial insurers and self-paying patients. The following information provides consolidated gross patient service charges for the six months ended June 30, 2019 and 2018 and the year ended December 31, 2018.

Six Months Ended June 30

Year Ended December 31

2019 2018 2018

Medicare 47.0% 46.7% 46.0%

Medicaid 15.6% 16.3% 16.1%

Managed care, commercial and other 34.1% 34.0% 34.7%

Self-pay 3.3% 3.0% 3.2%

Total 100.0% 100.0% 100.0%

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.

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Liquidity and Capital Resources

SCL Health’s total cash and investments (net of amounts due to broker) increased by $181.9 million during the six months ended June 30, 2019. Unrestricted cash and investments (which exclude self-insured risks funds, trustee held funds and permanently restricted net assets) increased by $180.4 million. SCL Health had 333 days total cash on hand (319 unrestricted days) at June 30, 2019. Cash, investments and assets limited as to use (net of amounts due to broker), stated at fair value and including pooled and separate accounts, as of June 30, 2019 and December 31, 2018 were as follows:

Asset Category June 30,

2019 December 31,

2018 (In Millions)

Cash and cash equivalents $ 30.4 $ 33.3 Equities 796.5 661.5 Domestic fixed income 662.2 560.0 Real return 164.9 190.0 Core hedge funds 113.9 107.1 Global infrastructure 90.5 86.5 Master limited partnerships 85.6 74.3 Opportunistic 75.5 60.7 Real estate 26.7 31.5 Investments held in the Comprehensive Investment Program (CIP) 2,046.2 1,804.9 Cash and investments held outside of the CIP 217.1 276.5

$ 2,263.3 $ 2,081.4

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.

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Assets (In millions)

Daily LiquidityChecking and deposit accounts at P-1 rated bank 150.3$

Overnight Repurchase Agreements (collateralized by Treasuries/Agencies; P-1 rated counterparty) 0.4

US Treasuries & Agencies (<3-year maturity) 54.4

US Treasuries & Agencies (>3-year maturity) 74.6

Other 21.4

Subtotal Daily Liquidity 301.1

General Operating Line of Credit 200.0 Drawn Portion of Line -

Net Available Line 200.0

Subtotal Daily Liquidity Including Line of Credit 501.1

Weekly LiquidityP-1 Rated Commercial Paper 31.1

Publicly Traded Fixed Income Securities (at least Aa3) 268.7

Publicly Traded Fixed Income Securities (below Aa3) 168.9

Exchange Traded Equity (ownership of shares of stock) 411.5

Equity Funds 249.1

Subtotal Weekly Liquidity 1,129.3

TOTAL DAILY AND WEEKLY LIQUIDITY 1,630.4$

Liquidity greater than 7 daysFunds, vehicles, investments that allow withdrawals with one week notice or more 832.9

TOTAL LIQUIDITY 2,463.3$

SCL HealthLiquidity Information

As of June 30, 2019 (unaudited)

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Outstanding Long-Term Debt

Annual Interest Rates June 30,

2019 December 31,

2018 (In Millions) Tax-exempt bond issues:

2016, due through December 2045 Variable rate, 1.89% and 1.73% $ 222.0 $ 222.0

2013, due through January 2044 4.00% to 5.50% 300.0 300.0 2011, due through January 2039 Variable rate, 2.16%

and 2.09% 54.1 55.3 2010, due through January 2040 3.625% to 5.25% 644.3 670.1

Total under the SCL Health MTI 1,220.4 1,247.4 PVMC mortgages (HUD-insured) 2.98% 68.8 70.9 Other notes 2.1 3.8 1,291.3 1,322.1 Original issue premium, net 8.3 8.8 Unamortized debt issuance costs (9.3) (9.7) Current maturities of long-term debt (180.7) (179.4) $ 1,109.6 $ 1,141.8

SCL Health has revolving lines of credit with Bank of America, N.A. and Wells Fargo Bank, N.A. totaling $200 million. As of June 30, 2019, there were no outstanding balances drawn on the lines of credit. Recent Debt Activity In the fourth quarter of 2019, SCL Health anticipates entering into a guaranty of National Jewish Health’s obligations (the “NJH Guaranty”) relating to a new outpatient health center to be constructed on National Jewish Health’s campus. National Jewish Health’s payments will be used to pay debt service on bonds expected to be issued by the Colorado Health Facilities Authority in the approximate amount of $77 million, which bonds will finance the construction of the building. It is not expected that the NJH Guaranty will be secured by an Obligation under the Master Indenture.

On June 27, 2019, SCL Health voluntary disclosed that a financing plan is under consideration to issue bonds in the calendar year 2019 (the “Bonds”) to refund, redeem and/or restructure (the “Refunding”) all or a portion of the outstanding amounts of the following series of bonds (the “Prior Bonds”): Colorado 2010A and B, Colorado 2016A and C, Kansas 2010A, Montana 2010A and B. The issuance of the Bonds and the Refunding of all or a portion of the Prior Bonds are contingent on market conditions, completion of due diligence, board and governmental approvals, and other conditions that are not assured. Consequently, there can be no assurance that the issuance of the Bonds or the Refunding will occur as described or at all. On March 18, 2019, SCL Health executed amendments to the Standby Bond Purchase Agreements with Wells Fargo supporting the series 2016B and D Colorado bonds, extending the expiration dates to May 9, 2022.

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Interest Rate Swaps

SCL Health is a party to certain interest rate swap agreements utilized to hedge the interest rate risk on a portion of the variable rate bonds, which are summarized in the following table:

Initial Notional Amount

(in millions)

Current Notional Amount

(in millions) Expiry Rate Paid By Counterparty

Rate Paid By SCL Health Counterparty

Fair Value (3)

06/30/2019 (in millions)

$60.0 $18.9 12-1-2023 68% of LIBOR 3.18% MLCS(1) $(1.0) $60.0 $18.9 12-1-2023 SIFMA 3.79% MLCS(1) $(1.2) $60.0 $60.0 12-1-2031 SIFMA 4.22% Wells Fargo(2) $(14.7)

__________________ (1) Merrill Lynch Capital Services, Inc. (2) Wells Fargo Bank, N.A. (3) The fair value of the swap agreements was calculated by Ponder & Co. at the request of SCL Health using Bloomberg mid-

market closing swap curves as reported by Bloomberg as of June 30, 2019 and excluding accrued interest.

The swap agreements do not presently require SCL Health to post collateral to secure the counterparty’s credit exposure. There can be no assurance that 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.

The provisions of the above-referenced interest rate hedge agreements permit SCL Health to terminate them at any time upon payment of any required termination payments.

Liquidity Facilities

The Series 2016B and 2016D Variable Rate Demand Bonds are backed by a Standby Bond Purchase Agreement with Wells Fargo. In the event that bonds bearing interest at a weekly rate are not successfully remarketed, or if funds are not available for remarketing, Wells Fargo will pay the purchase price for debt that is tendered. The Issues supported by the Standby Bond Purchase Agreement are listed below along with the expiration date:

Series Bank Expiration Date Amount

(in millions)

2016B Colorado Wells Fargo May 9, 2022 $ 55.5

2016D Colorado Wells Fargo May 9, 2022 $ 55.5

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Estimated Annual Debt Service at June 30, 2019 (In Millions)

(1) Excludes other notes and lease liabilities (2) Assumes interest rate on variable rate bonds of 2.25% per annum

Ratings In J u l y 2018, Moody’s Investor Services affirmed its rating of ‘Aa3’ and a stable outlook. In August 2018, S&P Global and Fitch Ratings both affirmed their ratings of ‘AA-’ and stable outlooks.

Subsequent Events

On August 7, 2019, S&P Global Ratings affirmed SCL Health’s long-term rating of ‘AA-‘ with a stable outlook.

On August 12, 2019, Fitch Rating, Inc. affirmed SCL Health’s long-term rating of ‘AA-‘ with a stable outlook.

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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 Summa ry

The Consolidated Statements of Operations and Changes in Net Assets in the attached Financial Statements for SCL Health are a summary of activity for the six months ended June 30, 2019 and June 30, 2018. The Consolidated Balance Sheets and Utilization Statistics with respect to the years ended December 31, 2018 and 2017 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, 2018 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 S&P Global, Fitch Ratings and Moody’s Investors Service.

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SCL Health

Financial Analysis of Consolidated Continuing Operations (Unaudited) (Dollars in Millions)

Six Months Ended

June 30

Twelve Months Ended

December 31

2019 2018 2018 2017 Industry Standard Ratios:(1) Operating Margin 6.6% 4.4% 3.8% 5.3% Total Margin 16.7% 6.6% 0.9% 12.1% MTI Ratios:(2)

Adjusted Operating Income Margin 6.5% 4.2% 3.7% 5.9% Operating Income Margin 16.7% 6.6% 0.9% 12.1%

Operating EBITDA Margin(3) 14.5% 12.4% 11.8% 13.4% Return on Net Assets 17.0% 6.2% 0.7% 11.9% Debt Service Coverage(8) 4.1x 6.2x 5.0x 4.6x Total Cash and Investments(4) $2,263.3 $2,135.4 $2,081.4 $2,130.3 Unrestricted Cash and Investments(5) $2,170.2 $2,056.6 $1,989.8 $2,054.5 Days Cash on Hand – Total(6) 333 325 309 335 Days Cash on Hand – Unrestricted(7) 319 313 295 323 Cushion Ratio(8) 20.4x 23.7x 22.4x 23.4x Unrestricted Cash to Net Long-Term Debt(8) 166.6% 159.2% 154.3% 155.4% Debt to Capitalization(8) 30.3% 31.1% 31.6% 32.2%

(1) Industry Standard Ratios: SCL Health has adopted industry standards for its operating and performance

indicators: Operating margin = (operating revenue – operating expense) / operating revenue Total margin = consolidated excess of revenue over expense / (total operating revenue + nonoperating 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 expenses Operating income margin = excess (deficit) of revenue over expenses / (total operating revenue + total nonoperating gains (losses))

(3) Defined as operating income + depreciation and amortization + interest

(4) Includes amounts due to/due from broker

(5) Excludes trustee held funds, self-insured risk funds and permanently restricted net assets

(6) Days Cash on Hand – Total = Total Cash and Investments / ((trailing 12-months total operating expenses –

trailing 12-months depreciation and amortization) / 365) (7) Days Cash on Hand – Unrestricted = Unrestricted Cash and Investments / ((trailing 12-months total operating

expenses – trailing 12-months depreciation and amortization) / 365)

(8) For the six months ended June 30, 2019, the ratios are impacted by the new lease accounting standard. Prior periods have not been restated.

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SCL Health Utilization Statistics – Consolidated Operations (Unaudited)

Six Months

Ended June 30 Twelve Months

Ended December 31 2019 2018 2018 2017

Licensed Beds 1,971 1,971 1,971 1,971

Available Beds 1,832 1,704 1,804 1,674

Admissions – Acute 37,367 37,936 75,245 77,292

Admissions – Total 39,864 40,301 80,082 82,072

Adjusted Admissions(1) 78,911 78,018 157,578 156,222

Expense per CMIAA(2) $7,495 $7,572 $7,587 $7,477

Newborn Deliveries 5,861 6,020 12,323 13,146

Patient Days – Acute 167,984 166,844 331,395 333,353

Patient Days – Total 194,252 194,889 382,836 384,457

Adjusted Patient Days(3) 384,523 377,283 753,312 731,802

Occupancy on Available Beds 58.6% 63.2% 58.1% 62.9%

Average Daily Census 1,073 1,077 1,049 1,053

Average Length of Stay 4.9 4.8 4.8 4.7

Emergency Room Visits(5) 150,666 154,989 305,218 313,645

Outpatient Visits(4) (5) 417,903 405,203 815,576 781,954

Inpatient Surgeries 10,652 11,091 22,061 23,487

Outpatient Surgeries(5) 23,104 24,432 48,887 48,522

Full Time Equivalent Employees 13,345 13,262 13,346 13,024

(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 the 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 = Includes hospital based clinic visits, home health visits and all outpatient ancillary visits except surgeries, emergency department visits and observation cases.

(5) Statistics for emergency room visits, outpatient visits and outpatient surgeries include joint venture activity for 2017 and 2018. Joint ventures included are Yellowstone Surgery Center, LLC, Denver West Endoscopy, LLC, E+PET Imaging X, LP, Lutheran Campus ASC, LLC, Touchstone Imaging, GI Endoscopy – Northglenn, Emerus Holdings, Inc., Summit Surgery Center, Grand Valley Surgical Center, LLC and San Juan Cancer Center.

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SCL Health Consolidated Balance Sheets

Unaudited June 30

Audited December 31

2019 2018

(In Millions)

Assets

Current assets:

Cash and cash equivalents $ 134.6 $ 200.9

Current portion of investments 206.4 205.7

Accounts receivable:

Patient 293.8 290.9

Pledges and other 43.4 45.6

Third-party settlements 4.5 5.0

Inventory 50.7 50.4

Prepaid and other assets 42.8 47.0

Total current assets 776.2 845.5

Investments:

Investments, net of current portion 1,884.1 1,631.2

Assets limited as to use:

Restricted funds – self-insured risks 43.1 45.8

Trustee-held funds 13.6 13.0

56.7 58.8

Land, buildings, and equipment, net 2,137.5 2,118.8

Other assets:

Investments in joint ventures 28.1 26.3

Pledges receivable, net 2.2 2.6

Right-of-use asset 55.8 –

Other assets 20.3 18.0

106.4 46.9

Total assets $ 4,960.9 $ 4,701.2

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SCL Health Consolidated Balance Sheets (continued)

Unaudited June 30

Audited December 31

2019 2018 (In Millions) Liabilities and net assets Current liabilities:

Accounts payable $ 79.9 $ 109.2 Accrued salaries, wages, and benefits 109.4 114.9 Accrued interest payable 24.4 25.1 Other accrued expenses 32.8 28.3 Third-party settlements 44.8 50.3 Current maturities of long-term obligations 180.7 179.4 Due to broker 18.5 15.2 Operating lease liability 16.9 –

Total current liabilities 507.4 522.4 Other noncurrent liabilities:

Reserve for self-insured risks 43.1 45.8 Accrued pension liability 5.4 4.8 Accrued swap liability 16.9 13.3 Operating lease liability 42.1 – Other liabilities 38.2 40.7

145.7 104.6 Capital structure:

Bonds payable 1,219.4 1,248.1 Other notes and capital lease obligations 70.9 73.1

1,290.3 1,321.2 Less current maturities 180.7 179.4 1,109.6 1,141.8 Total liabilities 1,762.7 1,768.8 Net assets: Net assets attributable to SCL Health 3,121.2 2,857.8 Net assets attributable to non-controlling interest 1.4 2.1 Total net assets without donor restrictions 3,122.6 2,859.9

Net assets with donor restrictions 75.6 72.5 Total net assets 3,198.2 2,932.4 Total liabilities and net assets $ 4,960.9 $ 4,701.2

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SCL Health Consolidated Statements of Operations

Unaudited Six Months Ended June 30

2019 2018 (In Millions)

Operating Revenue:

Net patient service revenue $ 1,375.9 $ 1,307.6

Other operating revenue 31.8 36.9

Net assets released from restrictions 3.7 5.7

Net gain (loss) from joint ventures 0.8 -

Net gain from disposal of assets 0.3 3.3

Total operating revenue 1,412.5 1,353.5

Operating Expenses:

Salaries and wages 568.2 549.6

Associate benefits 127.6 125.8

Supplies 248.5 246.5

Other operating expenses 262.8 264.3

Depreciation and amortization 83.6 77.9

Interest and amortization 28.4 29.3

Total operating expenses 1,319.1 1,293.4

Income from continuing operations 93.4 60.1

Non-operating Gains (Losses)

Income tax expense (1.9) (1.4)

Investment income (loss) 172.9 32.8

Total non-operating gains (losses), net 171.0 31.4

Excess of revenue over expenses 264.4 91.5

Less amounts attributable to non-controlling interest 1.4 1.5

Excess of revenue over expenses attributable to SCL Health

$ 263.0 $ 90.0

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SCL Health Consolidated Statements of Changes in Net Assets

Six Months Ended June 30

2019

(Unaudited) 2018 (Unaudited)

Total Controlling Non-

controlling Total (In Millions) Net assets without donor restriction Excess of revenue over expenses $ 264.4 $ 263.0 $ 1.4 $ 91.4 Gain related to discontinued operations 1.2 1.2 – – Amortization of accumulated losses on

interest rate swaps 0.9 0.9 – 0.5 Distributions to non-controlling interest (2.1) – (2.1) (1.5) Net assets released for capital

acquisitions – – – 0.3 Net assets reclassification (0.1) (0.1) – (1.1) Change in accounting principle (2.4) (2.4) – – Other 0.8 0.8 – – 262.7 263.4 (0.7) 89.6 Net assets with donor restrictions Contributions 3.9 3.9 – 6.7 Net investment activity 2.6 2.6 – 0.2 Net assets released from restrictions (3.7) (3.7) – (6.0) Net assets reclassification 0.1 0.1 – 1.1 Other 0.2 0.2 – (0.6) 3.1 3.1 – 1.4 Increase (decrease) in net assets 265.8 266.5 (0.7) 91.0 Beginning net assets 2,932.4 2,930.3 2.1 2,906.3 Ending net assets $ 3,198.2 $ 3,196.8 $ 1.4 $ 2,997.3

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SCL Health Consolidated Statements of Cash Flows

Unaudited Six Months Ended June 30

2019 2018 (In Millions)

Operating activities Increase in net assets $ 265.8 $ 91.0 Adjustments to reconcile increase in net assets to net cash

provided by operating activities: Depreciation and amortization 86.2 77.8 Change in accounting principle 2.4 – Provision for bad debts 39.8 30.8 Increase in accounts receivable, net of allowances (40.1) (30.5)Amortization of accumulated losses on interest rate swaps (0.9) (0.5)Contributions with donor restrictions (3.9) (6.7)(Gain) loss from joint ventures (0.8) – Gain from disposal of assets (0.3) (3.3)Increase in investments (251.5) (16.9)Decrease in other assets 9.5 3.1 Decrease in liabilities (42.7) (60.4)

Net cash provided by operating activities 63.5 84.4 Investing activities Acquisition of land, buildings and equipment, excluding capitalized original issue discount (102.1) (106.9) Proceeds from disposal of land, buildings and equipment 0.1 – (Increase) decrease in investments in joint ventures (1.0) 0.6 Net cash used in investing activities (103.0) (106.3) Financing activities

Contributions with donor restrictions 3.9 6.7 Payments on bonds, notes and capital lease obligations (30.7) (27.3)Net cash used in financing activities (26.8) (20.6) Net decrease in cash and cash equivalents (66.3) (42.5)Beginning cash and cash equivalents 200.9 137.4 Ending cash and cash equivalents $ 134.6 $ 94.9

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Restricted Affiliates Statistics and Financial Rati os

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 2018 Consolidated Financial Statements.

Historical Capitalization Ratio ( Unaudited)

The following table presents the capitalization of continuing operations of SCL Health Restricted Affiliates as of June 30, 2019 and December 31, 2018 and 2017.

Restricted June 30 December 31 2019 2018 2017 (In Millions)

Long-term debt:

Master Indenture debt (net of original issue premium and issuance costs, net ) $ 1,219.4 $ 1,246.5 $ 1,272.0

Other long-term indebtedness 30.4 3.8 4.0

Total long-term debt 1,249.8 1,250.3 1,276.0

Less current maturities (187.3) (175.1) (173.2)

Plus variable portion not scheduled 148.0 148.0 148.0

Net long-term debt 1,210.5 1,223.2 1,250.8

Net assets attributable to obligated group without donor restrictions 2,922.9 2,628.8 2,771.0

Total capitalization $ 4,133.4 $ 3,852.0 $ 4,021.8

Percent of net long-term debt to total capitalization(1) 29.3% 31.8% 31.1%

(1) For the six months ended June 30, 2019, the ratio is impacted by the new lease accounting standard. Prior periods have not been restated.

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Historical Debt Service Coverage Requirements ( Unaudited)

The table below presents the debt service coverage for the continuing operations of SCL Health Restricted Affiliates for the six months ended June 30, 2019 and the years ended December 31, 2018 and 2017.

Restricted

Six Months

Ended June 30 Year Ended

December 31 2019 2018 2017

(In Millions)

Income available for debt service:

Excess of revenue over expenses attributable to SCL Health $ 292.3 $ 96.7 $ 420.4

Business acquisitions (gains) losses, net – – (5.4)

Change in unrealized (gains) losses, net (145.6) 205.7 (127.2)

Depreciation and amortization 76.3 145.7 139.9

Interest 27.2 54.4 56.5

Total income available for debt service $ 250.2 $ 502.5 $ 484.2

Consolidated annual debt service requirements(1) $ 94.0 $ 84.4 $ 83.0

Actual debt service coverage ratio – all long-term debt(2)(3) 5.4x 6.0x 5.8x

(1) Annual debt service = principal paid + interest paid + 20% of interest and principal for guaranteed debt.

(2) Debt service coverage = total income available for debt service / annual debt service. Six months debt service calculation is annualized.

(3) For the six months ended June 30, 2019, the ratio is impacted by the new lease accounting standard. Prior periods have not been restated.

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Financial Performance ( Unaudited)

The following table highlights the financial results for continuing operations of SCL Health Restricted Affiliates for the six months ended June 30, 2019 and the years ended December 31, 2018 and 2017.

Restricted

Six Months

Ended June 30 Year Ended

December 31 MTI Ratios: 2019 2018 2017 Adjusted operating income margin(1) 13.5% 7.5% 9.7%

Operating income margin(2) 21.5% 4.4% 17.2%

Return on net assets(3)(7) 20.2% 3.7% 15.1%

Debt service coverage(4)( 7) 5.4x 6.0x 5.8x

Days cash on hand (excluding self-insured risk funds, trustee-held funds and permanently restricted net assets)(5)

372 338 373

Cushion ratio(6) 21.8x 22.2x 23.2x

(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. Six 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. (7) For the six months ended June 30, 2019, the ratio is impacted by the new lease accounting standard.

Prior periods have not been restated.

quarterly financial reporting information

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