UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS HOUSTON METHODIST March 31, 2018 Contents Consolidated Balance Sheets ........................................................................................................ 1 Consolidated Statements of Operations ...................................................................................... .2 Consolidated Statements of Changes in Net Assets .................................................................... 3 Consolidated Statements of Cash Flows....................................................................................... 4 Key Hospital Volume Indicators ..................................................................................................... 6 Payor Mix Summary ........................................................................................................................ 7 UNAUDITED CONSOLIDATED BALANCE SHEETS HOUSTON METHODIST (In Thousands) March 31, 2018 December 31, 2017 Assets Current Assets Cash and cash equivalents Assets limited as to use Patient accounts receivable, net Inventory and other current assets Total Current Assets $ 105,593 1,489,944 548,850 111,034 2,255,421 $ 102,958 1,495,872 550,515 102,531 2,251,876 Assets limited as to use, net of amounts required to meet current obligations Property and equipment, net Other assets Total Assets 2,315,625 4,145,401 89,498 $8,805,945 2,305,531 4,085,269 88,674 $8,731,350 $ 585,350 101,960 1,368,746 2,056,056 $ 616,560 57,670 1,368,798 2,043,028 304,785 304,800 Total Liabilities 61,649 2,422,490 61,743 2,409,571 Total Net Assets Total Liabilities and Net Assets 5,922,690 201,733 259,032 6,383,455 $8,805,945 5,860,520 203,051 258,208 6,321,779 $8,731,350 Liabilities and Net Assets Current Liabilities Accounts payable and accrued expense Estimated third-party settlements Short-term bond debt Total Current Liabilities Long-term debt Other long-term obligations, primarily related to self-insurance Net Assets Unrestricted Temporarily restricted Permanently restricted -1- UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS HOUSTON METHODIST (In Thousands) Three Months Ended March 31, 2018 2017 Revenue Net patient revenue (net of program and policy-based free, uncompensated care) Uncollectible, uncompensated care Net patient revenue Other revenue Total Revenue $ 1,056,970 (72,853) 984,117 39,282 1,023,399 Expense Salaries, wages, and related personnel costs Supplies and pharmaceuticals Services and other expense Earnings Before Interest, Depreciation and Amortization Depreciation and amortization Interest, net Operating Income Other income, primarily investment earnings, net Excess of Revenue Over Expense $ -2- $ 915,492 (57,773) 857,719 40,183 897,902 566,192 185,579 132,009 883,780 501,687 170,931 129,919 802,537 139,619 95,365 71,376 7,093 78,469 61,150 64,773 4,682 69,455 25,910 763 132,890 61,913 $ 158,800 UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS HOUSTON METHODIST (In Thousands) Three Months Ended March 31, 2018 2017 Unrestricted Net Assets Excess of revenue over expense Transfer of matching funds to temporarily or permanently restricted net assets Transfer from temporarily restricted net assets Increase in Unrestricted Net Assets 61,913 $ 158,800 (49) 306 62,170 (105) 285 158,980 (395) 4,494 (256) 42 (5,203) 9,410 7,686 (162) 55 (4,249) (1,318) 12,740 Permanently Restricted Net Assets Contributions Transfer from temporarily restricted net assets Transfer from unrestricted net assets Increase in Permanently Restricted Net Assets 561 256 7 824 17,768 162 50 17,980 Increase in Net Assets Net assets, beginning of year 61,676 6,321,779 189,700 5,639,876 $6,383,455 $5,829,576 Temporarily Restricted Net Assets Investment earnings, net Contributions Transfer to permanently restricted net assets Transfer from unrestricted net assets Other, primarily assets released from restrictions (Decrease) Increase in Temporarily Restricted Net Assets Net Assets, March 31 -3- $ UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS HOUSTON METHODIST (In Thousands) Three Months Ended March 31, 2018 2017 Operating Activities Cash received from patient services Other receipts from operations Interest income, dividends and other income received Cash paid to or on behalf of employees Cash paid for supplies and services Interest paid Net Cash Provided by Operating Activities Investing Activities Purchase of property and equipment Net (increase) decrease in assets limited as to use $ 1,040,326 37,903 7,894 (575,212) (364,350) (7,983) 138,578 $ 880,151 34,232 8,420 (532,397) (312,080) (6,896) 71,430 (128,838) (13,549) (206,086) 138,083 (142,387) (68,003) 6,444 3,023 Net Cash Provided by Financing Activities 6,444 3,023 Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at March 31 2,635 102,958 $ 105,593 6,450 56,619 $ 63,069 Net Cash Used in Investing Activities Financing Activities Contributions received for permanently restricted net assets -4- UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued HOUSTON METHODIST (In Thousands) Three Months Ended March 31, 2018 2017 Reconciliation of Increase in Net Assets to Net Cash Provided by Operating Activities Increase in Net Assets $ 61,676 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Net losses (gains) on investments 3,001 Permanently and temporarily restricted activities not related to operations 194 Depreciation and amortization 71,376 Uncollectible, uncompensated care 72,853 Other noncash items (936) Increase in patient accounts receivable (71,188) Increase in inventory and other current assets (8,503) (Increase) decrease in other assets (824) Decrease in accounts payable and accrued expense (33,489) Increase in estimated third-party settlements 44,290 Increase in other long-term obligations 128 Net Cash Provided by Operating Activities -5- $ 138,578 $ 189,700 (130,772) (29,313) 64,773 57,773 (2,095) (70,674) (3,967) 37 (35,495) 29,571 1,892 $ 71,430 HOUSTON METHODIST KEY HOSPITAL VOLUME INDICATORS For the Three Months Ended March 31 2018 2017 Admissions 27,515 25,702 Equivalent Admissions(1) 51,119 46,437 150,950 142,609 Average Length of Stay 5.49 5.55 Percentage of Occupancy(2) 75% 74% Operating Beds 2,247 2,139 Beds Licensed 2,794 2,620 Outpatient Revenue(3) 44% 43% Medicare case mix index 2.00 1.93 Inpatient Days Expressed as outpatient revenue / inpatient revenue x inpatient admissions + inpatient admissions Percent occupancy computed based on operating beds. (3) Expressed as a percentage of gross patient revenue. (1) (2) -6- HOUSTON METHODIST PAYOR MIX SUMMARY For the Three Months Ended March 31, 2018 2017 Managed Care and Other 39% 40% Medicare 50% 49% Medicaid 6% 6% Self- Pay 5% 5% 100% 100% Total -7-