Consolidated Financial Statements and …

Consolidated Financial Statements and Supplementary Information

Adventist Health System/West

Year Ended December 31, 2017 with Report of Independent Auditors

Audited Consolidated Financial Statements Adventist Health December 31, 2017

Audited Consolidated Financial Statements Report of Independent Auditors................................................................................................................... 1 Consolidated Balance Sheets ....................................................................................................................... 2 Consolidated Statements of Operations and Changes in Net Assets ........................................................... 4 Consolidated Statements of Cash Flows ...................................................................................................... 6 Notes to Consolidated Financial Statements................................................................................................ 7 Supplementary Information Report of Independent Auditors on Supplementary Information .............................................................. 25 Consolidating Balance Sheets .................................................................................................................... 26 Consolidating Statement of Operations and Changes in Net Assets.......................................................... 30

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Report of Independent Auditors

The Board of Directors Adventist Health System/West

We have audited the accompanying consolidated financial statements of Adventist Health System/West, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and 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.

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Adventist Health System/West at December 31, 2017 and 2016, and the consolidated results of their operations and changes in net assets, and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

April 20, 2018

ey

A member firm of Ernst & Young Global Limited

-1-

Adventist Health

Consolidated Balance Sheets (In thousands of dollars)

December 31

2017

2016

As s e ts

Current assets: Cash and cash equivalents Marketable securities Assets whose use is limited

$ 728,269 137,423 46,871

$ 579,659 293,802 34,800

Patient accounts receivable, net of allowance for

uncollectible accounts of approximately $126,208 and $117,000 at December 31, 2017 and 2016, respectively Receivables from third-party payors Other receivables Inventories

467,210 349,110

95,286 56,758

513,516 206,161 103,848 53,989

Prepaid expenses and other current assets Assets held for sale

34,734 15,846

34,834 15,769

Total current assets

1,931,507

1,836,378

Other assets: Notes receivable Marketable securities Assets whose use is limited Long-term investments Other long-term assets

Total other assets

Property and equipment, net

7,229 782,006 309,040 113,821

59,595 1,271,691

1,853,850

21,114 623,925 311,570 91,920 56,611 1,105,140

1,807,776

Total assets

$ 5,057,048

$ 4,749,294

See notes to consolidated financial statements. -2-

Adventist Health

Consolidated Balance Sheets (continued) (In thousands of dollars)

Liabilities and net assets Current liabilities:

Accounts payable Accrued compensation and related payables Accrued interest Liabilities to third-party payors Other current liabilities Current maturities of long-term debt Total current liabilities

Long-term debt, net of current maturities

Other noncurrent liabilities Total liabilities

Net assets: Unrestricted Temporarily restricted Permanently restricted

Total net assets

December 31

2017

2016

$ 254,056 247,642 14,439 52,914 59,137 37,570 665,758

1,749,655

314,179 2,729,592

$ 244,832 221,326 14,349 60,580 44,741 34,073 619,901

1,659,348

342,547 2,621,796

2,251,420 66,678 9,358

2,327,456

2,042,647 77,454 7,397

2,127,498

Total liabilities and net assets

$ 5,057,048 $ 4,749,294

See notes to consolidated financial statements. -3-

Adventist Health

Consolidated Statements of Operations and Changes in Net Assets (In thousands of dollars)

Year Ended December 31

2017

2016

Unrestricted revenues and support: Net patient service revenue Less provision for bad debts

Net patient service revenue less provision for bad debts

$ 3,809,674 85,269

3,724,405

$ 3,642,451 92,271

3,550,180

Premium revenue Other revenue Net assets released from restrictions for operations Total unrestricted revenues and support

Expe ns e s : Employee compensation Professional fees Supplies Purchased services and other Interest Depreciation and amortization

Total expenses

199,423 178,670

12,024 4,114,522

1,888,093 431,327 506,232 874,746 45,151 165,024

3,910,573

161,231 164,473 13,311 3,889,195

1,823,168 398,309 498,070 775,673 45,585 165,604

3,706,409

Income from operations

203,949

182,786

Nonoperating income (loss): Investment income Loss on early extinguishment of debt Other nonoperating gains

Total nonoperating income (loss)

Excess of revenues over expenses from continuing operations

25,516 -

319 25,835 $ 229,784

17,732 (31,459)

(13,727) $ 169,059

See notes to consolidated financial statements. -4-

Adventist Health

Consolidated Statements of Operations and Changes in Net Assets (continued) (In thousands of dollars)

Unrestricted net assets: Excess of revenues over expenses from continuing operations (from page 4) Net unrealized (losses) gains on other-than-trading securities Donated property and equipment Net assets released from restrictions for capital additions Increase in unrestricted net assets before discontinued operations

Net loss from discontinued operations

Year Ended December 31

2017

2016

$ 229,784 (16,047) 1,887 15,228

$ 169,059 5,925 2,910 3,659

230,852 (22,079)

181,553 (3,893)

Increase in unrestricted net assets

208,773

177,660

Temporarily restricted net assets: Restricted gifts and grants Net realized and unrealized gains on investments Change in value of split-interest agreements Net assets released from restrictions

(Decrease) increase in temporarily restricted net assets

Permanently restricted net assets: Restricted gifts and grants Net realized and unrealized gains on investments

Increase in permanently restricted net assets

Increase in net assets

Net assets, beginning of year Net assets, end of year

14,612 732

1,132 (27,252)

(10,776)

24,379 61 79

(16,970)

7,549

1,891 70

1,961

199,958

2,127,498 $ 2,327,456

169 23 192

185,401

1,942,097 $ 2,127,498

See notes to consolidated financial statements. -5-

Adventist Health

Consolidated Statements of Cash Flows (In thousands of dollars)

Year Ended December 31

2017

2016

Operating activities Change in net assets Adjustments to reconcile increase in net assets to net cash

provided by operating activities of continuing operations: Loss from discontinued operations Depreciation and amortization Loss on early extinguishment of debt Amortization of bond issuance costs and discount/premium Provision for bad debts Provision for loss on notes receivable Net realized and unrealized loss (gain) on investments Net (gain) loss on sale of property and equipment Net changes in operating assets and liabilities: Patient accounts receivable Other assets Net receivables to third-party payors Other liabilities

Net cash provided by operating activities of continuing operations

Investing activities Purchases of property and equipment Proceeds from sale of property and equipment Issuance of notes receivable Collections on notes receivable Purchase of investments Proceeds from sale of investments

Net cash used in investing activities of continuing operations

Financing activities Proceeds from lines of credit Payments on lines of credit Proceeds from issuance of long-term debt Payments on long-term debt

Net cash provided by financing activities of continuing operations

Cash used in discontinued operations

Increase in cash and cash equivalents

$ 199,958 $ 185,401

22,079 165,024

(2,792) 85,269

26 18,011

(688)

(44,266) 687

(150,106) 21,383

314,585

(211,900) 4,995 (1,474)

10,144 (501,071) 449,919 (249,387)

640,469 (662,386) 150,000

(31,486) 96,597 (13,185)

148,610

3,893 165,604 31,459

(1,366) 92,271 3,030 (6,112)

261

(77,652) (67,908) (90,351) 124,447 362,977

(210,309) 1,277 (7,863) 9,422

(271,799) 212,161 (267,111)

164,000 (150,000) 507,706 (340,847) 180,859

(4,139)

272,586

Cash and cash equivalents, beginning of year

579,659

307,073

Cash and cash equivalents, end of year

$ 728,269 $ 579,659

See notes to consolidated financial statements. -6-

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