BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Financial Statements and Consolidating Schedules August 31, 2017 and 2016

(With Independent Auditors' Report Thereon)

KPMG LLP 1 East Pratt Street Baltimore, MD 21202-1128

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, 2017 and 2016, 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, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles.

November 2, 2017

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, 2017 and 2016 (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

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

See accompanying notes to consolidated financial statements.

2016

217,931

372,917 42,113

415,030 91,030 57,800 32,036

813,827 1,227,356 1,013,195

372,036 3,426,414

39,809 173,021 165,315 112,585 490,730 888,514 781,690 2,160,934

944,928 264,706 1,209,634

43,484 12,362 1,265,480 3,426,414

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BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Changes in Unrestricted Net Assets Years ended August 31, 2017 and 2016 (In thousands)

Revenues: Net patient service revenue before bad debts Provision for patient bad debts

Net patient service revenue

Other revenue

Total revenues

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

Total expenses

Operating Income

Nonoperating gains (losses), net: Nonoperating investment gains, net Other nonoperating activities, net

Excess of revenues over expenses

Other changes in unrestricted net assets: Grants for capital 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 (decrease) in unrestricted net assets

Unrestricted net assets, beginning of year

Unrestricted net assets, end of year

2017

$

3,344,000

(179,304)

3,164,696

180,754

3,345,450

1,727,750 596,203 717,312 135,542 33,099

3,209,906

135,544

101,701 (48,557)

188,688

20

490

8,531 (1,219) (5,918) 82,866 (6,148)

267,310

1,209,634

$

1,476,944

2016

3,308,143 (199,503)

3,108,640 144,897

3,253,537

1,687,599 562,539 714,437 136,499 30,871

3,131,945 121,592

12,668 (46,554) 87,706

174

362

1,942 1,194 (7,666) (145,840) (4,369) (66,497) 1,276,131 1,209,634

See accompanying notes to consolidated financial statements.

3

BON SECOURS HEALTH SYSTEM, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Net Assets Years ended August 31, 2017 and 2016 (In thousands)

Balance at August 31, 2015

Excess of revenues over expenses Grants and restricted contributions Grants for capital 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 Inherent contribution ? restricted Transfers to affiliates and other changes, net

(Decrease) increase in net assets

Balance at August 31, 2016

Excess of revenues over expenses Grants and restricted contributions Grants for capital 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

Unrestricted net assets

$

1,276,131

87,706 --

174 362

--

1,942 --

1,194 (7,666) (145,840)

-- (4,369)

(66,497)

1,209,634

188,688 -- 20

490 --

8,531 --

(1,219) (5,918) 82,866 (6,148)

267,310

$

1,476,944

Temporarily restricted net assets

39,008

-- 14,658

-- 74 240

(1,942) (8,479)

-- -- -- -- (75)

4,476

43,484

-- 10,976

-- 930 460

(8,531) (8,536)

-- -- -- --

(4,701)

38,783

Permanently restricted net assets

7,763

-- 505

-- 2 --

-- -- -- -- -- 4,092 --

4,599

12,362

-- 217

-- 297

--

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

514

12,876

See accompanying notes to consolidated financial statements.

Total

1,322,902

87,706 15,163

174 438 240

-- (8,479) 1,194 (7,666) (145,840) 4,092 (4,444)

(57,422)

1,265,480

188,688 11,193 20 1,717 460

-- (8,536) (1,219) (5,918) 82,866 (6,148)

263,123

1,528,603

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