BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Statements and Consolidated Schedules

August 31, 2018 and 2017 (With Independent Auditors' Report Thereon)

KPMG LLP 750 East Pratt Street, 18th Floor Baltimore, MD 21202

Independent Auditors' Report

The Board of Directors Bon Secours Health System, Inc. and Subsidiaries:

We have audited the accompanying consolidated financial statements of Bon Secours Health System, Inc. and its subsidiaries (the System), which comprise the consolidated balance sheets as of August 31, 2018 and 2017, and the related consolidated statements of operations and changes in unrestricted net assets, 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 Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bon Secours Health System, Inc. and its subsidiaries as of August 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.

October 31, 2018

KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

August 31, 2018 and 2017

(In thousands)

Assets

Current assets: Cash and cash equivalents

Accounts receivable, net: Patient and third-party payors Other

Total accounts receivable, net

Assets limited or restricted as to use Inventories Prepaid expenses and other current assets

Total current assets

Assets limited or restricted as to use, less current portion Property, plant, and equipment, net Other long-term assets, net

Total assets

Liabilities and Net Assets

Current liabilities: Current portion of long-term debt Accounts payable Accrued salaries, wages, and benefits Other accrued expenses

Total current liabilities

Long-term debt, less current portion Other long-term liabilities and deferred credits

Total liabilities

Net assets: Unrestricted-controlling interest Unrestricted-noncontrolling interest

Total unrestricted

Temporarily restricted Permanently restricted

Total net assets

Total liabilities and net assets

2018

$

148,481

380,907 44,434

425,341

75,451 63,190 42,176

754,639

1,472,347 961,764 389,337

$

3,578,087

$

18,659

191,601

187,488

112,895

510,643

802,752 462,557

1,775,952

1,417,384 336,435

1,753,819

35,050 13,266

1,802,135

$

3,578,087

See accompanying notes to consolidated financial statements.

2017

274,348

361,892 32,546

394,438 66,984 61,939 44,372

842,081 1,376,059

979,057 368,926 3,566,123

59,656 207,280 175,068 118,453 560,457 830,192 646,871 2,037,520

1,182,153 294,791

1,476,944 38,783 12,876

1,528,603 3,566,123

2

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Changes in Unrestricted Net Assets

Years ended August 31, 2018 and 2017

(In thousands)

Revenues:

Net patient service revenue before bad debts

$

Provision for patient bad debts

Net patient service revenue

Other revenue

Total recurring revenues

Expenses: Salaries, wages, and benefits Supplies Purchased services and other Depreciation and amortization Interest

Total recurring expenses

Recurring operating income

Nonrecurring (losses) gains, net

Operating Income

Nonoperating gains (losses), net: Nonoperating investment gains, net Loss on early retirement of debt Gain on sale/disposal of assets, net Other nonoperating activities, net

Excess of revenues over expenses

Other changes in unrestricted net assets: (Loss) gain from discontinued operations Net change in unrealized gains on other-than-trading securities Net assets released from restrictions used for purchase of property, plant, and equipment Net change in equity of joint ventures Distributions to noncontrolling interest owners Pension and other postretirement adjustments Transfers to affiliates and other changes, net

Increase in unrestricted net assets

Unrestricted net assets, beginning of year

Unrestricted net assets, end of year

$

2018

3,220,699 (136,399) 3,084,300 178,609 3,262,909

1,700,097 604,611 692,186 123,488 30,336

3,150,718 112,191 (24,335) 87,856

102,359 (2,397) 13,288

(38,514) 162,592

(21,764) 682

5,865 6,034 (5,644) 132,562 (3,452) 276,875 1,476,944 1,753,819

See accompanying notes to consolidated financial statements.

2017

3,233,514 (176,007) 3,057,507 148,777 3,206,284

1,675,303 587,699 681,603 129,216 31,642

3,105,463 100,821 28,159 128,980

101,701 -- --

(48,557) 182,124

6,564 490

8,531 (1,219) (5,918) 82,866 (6,128) 267,310 1,209,634 1,476,944

3

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Net Assets

Years ended August 31, 2018 and 2017

(In thousands)

Balance at August 31, 2016

Excess of revenues over expenses Gain from discontinued operations Grants and restricted contributions Net change in unrealized gains on other-than-trading securities Investment income Net assets released from restrictions used for purchase of

property, plant, and equipment Net assets released from restrictions used for operations Net change in equity of joint ventures Distributions to noncontrolling interest owners Pension and other postretirement adjustments Transfers to affiliates and other changes, net

Increase (decrease) in net assets

Balance at August 31, 2017

Excess of revenues over expenses Loss from discontinued operations Grants and restricted contributions Net change in unrealized gains on other-than-trading securities Investment income Net assets released from restrictions used for purchase of

property, plant, and equipment Net assets released from restrictions used for operations Net change in equity of joint ventures Distributions to noncontrolling interest owners Pension and other postretirement adjustments Transfers to affiliates and other changes, net

Increase (decrease) in net assets

Balance at August 31, 2018

Unrestricted net assets

$

1,209,634

182,124 6,564 -- 490 --

8,531 --

(1,219) (5,918) 82,866 (6,128)

267,310

1,476,944

162,592 (21,764)

-- 682

--

5,865 --

6,034 (5,644) 132,562 (3,452)

276,875

$

1,753,819

Temporarily restricted net assets

43,484

-- -- 10,976 930 460

(8,531) (8,536)

-- -- -- --

(4,701)

38,783

-- -- 13,904 407 1,006

(5,865) (13,185)

-- -- -- --

(3,733)

35,050

Permanently restricted net assets

12,362

-- -- 217 297 --

-- -- -- -- -- --

514

12,876

-- -- 390 -- --

-- -- -- -- -- --

390

13,266

See accompanying notes to consolidated financial statements.

Total

1,265,480

182,124 6,564

11,193 1,717 460

-- (8,536) (1,219) (5,918) 82,866 (6,128)

263,123

1,528,603

162,592 (21,764) 14,294

1,089 1,006

-- (13,185)

6,034 (5,644) 132,562 (3,452)

273,532

1,802,135

4

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