CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Consolidated Financial Statements and Supplementary Information June 30, 2014 and 2013 (With Independent Auditors’ Report Thereon) KPMG LLP Aon Center Suite 5500 200 East Randolph Drive Chicago, IL 60601-6436 Independent Auditors’ Report The Board of Directors CDH/Delnor Health System (d/b/a Cadence Health, and Affiliates): Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of CDH/Delnor Health System, d/b/a Cadence Health, and Affiliates (the Corporations), which comprise the consolidated balance sheets as of June 30, 2014 and 2013, and the related consolidated statements of operations, 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 CDH/Delnor Health System, d/b/a Cadence Health, and Affiliates as of June 30, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity. Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The 2014 supplementary information included in schedules 1 through 3 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. September 19, 2014 2 CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Consolidated Balance Sheets June 30, 2014 and 2013 (In thousands) Assets 2014 2013 Current assets: Cash and cash equivalents $ 107,749 13,570 Receivables: Patient accounts, less allowance for doubtful accounts of $93,035 and $85,191 162,697 162,106 Estimated receivables under third-party reimbursement programs and other 31,779 48,943 Inventories 7,635 5,667 Prepaid expenses 24,094 20,713 Total current assets 333,954 250,999 Assets whose use is limited or restricted: By board for investment 1,363,301 1,233,098 Self-insurance trust 52,771 41,796 Held by trustee under debt agreements 78 4,627 Donor restricted 23,963 17,288 Total assets whose use is limited or restricted 1,440,113 1,296,809 Land, buildings, and equipment, net of accumulated depreciation and amortization 1,063,781 945,189 Other assets: Notes and advances receivable 1,106 24,532 Retirement plan assets 7,184 5,572 Goodwill 107,782 43,381 Investments in joint ventures and other assets 44,312 43,676 Total other assets 160,384 117,161 Total assets $ 2,998,232 2,610,158 See accompanying notes to consolidated financial statements. 3 Liabilities and Net Assets 2014 2013 Current liabilities: Current installments of long-term debt $ 13,751 11,905 Long-term debt subject to short-term remarketing agreements 59,825 121,350 Accounts payable 49,533 42,522 Accrued liabilities: Salaries and wages 72,496 61,733 Pension 4,568 3,691 Interest 5,382 3,824 Other 50,344 42,022 Estimated payables under third-party reimbursement programs 133,646 114,340 Total current liabilities 389,545 401,387 Long-term debt, net of unamortized bond premiums and current installments 609,229 445,984 Retirement plan liabilities 7,184 5,572 Deferred revenue and other liabilities 96,479 93,690 Total liabilities 1,102,437 946,633 Net assets: Unrestricted 1,863,879 1,646,237 Noncontrolling interest in consolidated joint venture 7,953 — Total unrestricted 1,871,832 1,646,237 Temporarily restricted 18,316 11,763 Permanently restricted 5,647 5,525 Total net assets 1,895,795 1,663,525 Total liabilities and net assets $ 2,998,232 2,610,158 4 CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Consolidated Statements of Operations Years ended June 30, 2014 and 2013 (In thousands) 2014 2013 Net patient service revenue $ 1,284,329 1,132,430 Provision for uncollectible accounts (63,412) (65,845) Net patient service revenues less provision for uncollectible accounts 1,220,917 1,066,585 Other revenue 57,959 60,625 Total revenue 1,278,876 1,127,210 Expenses: Salaries and wages 480,550 411,490 Employee benefits 102,538 84,507 Professional fees and purchased services 167,667 149,706 Supplies 184,662 165,520 Interest 36,905 28,877 Depreciation and amortization 107,587 94,286 Other 76,635 69,219 Total expenses 1,156,544 1,003,605 Revenue in excess of expenses 122,332 123,605 Nonoperating gains and losses: Investment return, unrestricted contributions, and other, net 88,919 84,651 Impairment of note receivable and joint venture investment — (61,162) Revenue and gains in excess of expenses and losses 211,251 147,094 Other changes in unrestricted net assets: Change in net unrealized gains and losses on other-than-trading securities — (13,777) Expense reclassification for designated hedges 2,879 — Minority interest and other 9,032 — Net assets released from restriction for the purchase of land, buildings, and equipment 2,433 3,901 Increase in unrestricted net assets $ 225,595 137,218 See accompanying notes to consolidated financial statements. 5 CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Consolidated Statements of Changes in Net Assets Years ended June 30, 2014 and 2013 (In thousands) 2014 2013 Increase in unrestricted net assets $ 225,595 137,218 Temporarily restricted net assets: Contributions for specific purposes 12,112 7,827 Investment return 1,088 135 Net assets released from restriction and used for operations (4,214) (5,309) Net assets released from restriction for the purchase of land, buildings, and equipment (2,433) (3,901) Increase (decrease) in temporarily restricted net assets 6,553 (1,248) Permanently restricted net assets: Contributions to be held in perpetuity — 12 Investment return 122 30 Increase in permanently restricted net assets 122 42 Change in net assets 232,270 136,012 Net assets at beginning of year 1,663,525 1,527,513 Net assets at end of year $ 1,895,795 1,663,525 See accompanying notes to consolidated financial statements. 6 See accompanying notes to consolidated financial statements. d/b/a Cadence Health, and Affiliates Consolidated Statements of Cash Flows Years ended June 30, 2014 and 2013 (In thousands) 2014 2013 Cash flows from operating activities and gains and losses: Change in net assets $ 232,270 136,012 Adjustments to reconcile change in net assets to net cash provided by operating activities and gains and losses: Depreciation and amortization 107,336 93,334 Amortization of net bond premiums (160) (112) Provision for uncollectible accounts 63,412 65,845 Impairment of note receivable and joint venture investment — 61,162 Impairment of equipment 251 952 Realized gains and losses and change in unrealized gains and losses on investments, net (69,752) (24,399) Minority interest and other (9,032) — Change in fair value of derivative instruments (2,315) (18,840) Amortization of entrance fees (396) (459) Net refunds of entrance fees — 397 Restricted contributions and investment return (13,322) (8,004) Net assets released from restriction and used for operations 4,214 5,309 Equity earnings in joint ventures, net of cash distributions received (887) (809) Changes in assets and liabilities: Receivables, net (44,573) (75,229) Inventories and prepaid expenses (4,633) (2,060) Accounts payable, accrued liabilities, and other liabilities 24,349 12,201 Estimated payables under third-party reimbursement programs 19,306 11,220 Net cash provided by operating activities 306,068 256,520 Cash flows from investing activities: Purchases of assets whose use is limited or restricted (3,121,530) (2,138,726) Proceeds from sales or maturities of assets whose use is limited or restricted 3,046,366 2,123,899 Acquisition of land, buildings, and equipment (130,429) (140,137) Purchase of physician practices and ambulatory surgery center — (82,503) Net change in other assets 28,884 (10,014) Incremental investment in CDH Proton Center, net of cash acquired (46,464) — Net cash used in investing activities (223,173) (247,481) Cash flows from financing activities: Principal payments of long-term debt (12,044) (4,078) Proceeds from issuance of long-term debt 14,220 — Net assets released from restriction and used for operations (4,214) (5,309) Restricted contributions and investment return 13,322 8,004 Net cash provided by (used in) financing activities 11,284 (1,383) Net change in cash and cash equivalents 94,179 7,656 Cash and cash equivalents at beginning of period 13,570 5,914 Cash and cash equivalents at end of period $ 107,749 13,570 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 35,347 29,067 See accompanying notes to consolidated financial statements 7 CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Notes to Consolidated Financial Statements June 30, 2014 and 2013 (1) CDH-Delnor Health System and Affiliates The accompanying consolidated financial statements include the accounts of Cadence Health, which was incorporated to promote and encourage health and human services in the communities it serves, and the following affiliates (collectively referred to as the Corporations):  Central DuPage Hospital Association (CDH), a not-for-profit acute care hospital. CDH provides inpatient, outpatient, and emergency care for residents in the Wheaton, Winfield, West Chicago, Glen Ellyn, and surrounding areas.  Delnor-Community Hospital (Delnor Hospital), a charitable not-for-profit organization providing acute healthcare services primarily to the St. Charles, Geneva, Batavia, and Elburn, Illinois communities.  Cadence Physician Group (CPG), a not-for-profit corporation that contracts with licensed physicians to provide medical services to patients, hospitals, affiliated group practices, or other medical care facilities.  Community Nursing Service of DuPage County, Inc. d/b/a CNS Home Health (CNS), a not-for-profit corporation that provides home healthcare and hospice services.  DuPage Health Services, Inc. (DHSI), a wholly owned for-profit subsidiary of Cadence Health. DHSI provides various physician support as well as other business activities in furtherance of the interests of DHSI and the Cadence Health healthcare delivery system.  PAHCS II, d/b/a Central DuPage Business Health, a not-for-profit corporation that operates a business dedicated to the advancement and promotion of health for employees of companies within the communities served by Cadence Health and its affiliates.  Central DuPage Special Health Association (Special Health), a not-for-profit corporation that operates a pharmaceutical distribution center serving the Corporations and their patients.  Central DuPage Health Foundation (Foundation), a not-for-profit organization that promotes and supports patient-centered services and programs of Cadence Health and its affiliates. As of July 1, 2012, the Foundation and the Delnor-Community Health Care Foundation merged to become the Cadence Health Foundation (Cadence Foundation).  DelCom Corporation (DelCom), an Illinois taxable for-profit organization that engages in for-profit healthcare and related ventures.  Delnor-Community Residential Living, Inc. (Residential Living), d/b/a Delnor Glen, a not-for-profit organization that owns and operates a residential supportive living facility that includes 78 residential supportive living units and related facilities.  Living Well Cancer Resource Center (Living Well), a not-for-profit organization established in 2006 for the purpose of providing cancer support and wellness.  Unified Professionals Insurance Company, Ltd. (UPIC) was incorporated as an Exempted Company under the Companies Law of the Cayman Islands on September 12, 2011. UPIC is licensed as an 8 (Continued) CDH/DELNOR HEALTH SYSTEM d/b/a Cadence Health, and Affiliates Notes to Consolidated Financial Statements June 30, 2014 and 2013 Unrestricted Class “B” Insurer under Section 4(2) of the Cayman Islands’ Insurance Law and is a wholly owned subsidiary of Cadence Health.  Cadence Ambulatory Surgery Center (CASC) is an Illinois limited liability corporation that exists to provide orthopedic surgical services throughout Chicago’s western suburbs.  Cadence Medical Partners, as an Illinois limited liability corporation established to create a physician-hospital organization that provides a shared platform to meet the future demands of healthcare.  Illinois Proton Center, LLC (CDH Proton Center) is a proton therapy facility in Warrenville, Illinois for use in the treatment of cancer. Beginning in 2009, the Corporations held an approximate 12.2% equity interest in the CDH Proton Center. On August 31, 2013, the Corporations made in incremental investment in the CDH Proton Center, resulting in an 81.25% interest in the CDH Proton Center. Accordingly, the CDH Proton Center is consolidated in the June 30, 2014 consolidated financial statements. The following table sets forth the composition of the balance sheet of the CDH Proton Center as of the effective date of consolidation: August 31, Assets 2013 Current assets: Cash and cash equivalents $ 5,540 Accounts receivable, net trade and other 2,982 Total current assets 8,522 Land, buildings, and equipment, net of accumulated depreciation and amortization 95,750 Other assets: Goodwill 64,401 Deferred financing costs, net and other 5,207 Total assets $ 173,880 9 (Continued)