Obligated Group Financial Statements

Obligated Group Financial Statements 2nd Quarter March 31, 2017

Scripps Health Obligated Group Table of Contents For the Quarter and Six Months Ended March 31, 2017 Obligated Group Financial Statements 1a 1f Notes to Financial Statements 2a 2j Management Discussion and Analysis 3a 3d

SCRIPPS HEALTH OBLIGATED GROUP STATEMENTS OF FINANCIAL POSITION March 31, 2017 ($000s) March 2017 March 2016 September 2016 ASSETS Current Assets: Cash and Cash Equivalents $ 324,451 $ 274,058 $ 222,955 Accounts Receivable, Net 365,207 351,395 319,883 Assets Limited As To Use 2,042 2,288 12,103 Other Current Assets 132,129 132,571 140,617 Total Current Assets 823,829 760,312 695,558 Investments: Assets Limited As To Use 210,055 203,288 204,213 Unrestricted 2,118,764 1,953,370 2,188,999 Property, Plant and Equipment 3,310,758 3,053,937 3,168,456 Less Accumulated Depreciation (1,592,071) (1,445,261) (1,516,841) Property, Plant and Equipment, Net 1,718,688 1,608,676 1,651,615 Other Assets 151,702 154,295 152,672 Total Assets $ 5,023,038 $ 4,679,942 $ 4,893,057 LIABILITIES AND EQUITY Current Liabilities: Current Portion of Long-term Debt $ 33,043 $ 34,976 $ 122,980 Line of Credit - - 35,976 Accounts Payable 115,559 136,738 136,787 Accrued Liabilities 235,602 230,771 253,915 Total Current Liabilities 384,203 402,485 549,658 Long Term Debt 996,066 1,034,305 898,439 Other Liabilities 102,675 111,845 104,749 Total Liabilities 1,482,944 1,548,635 1,552,846 Equity: Unrestricted 3,343,849 2,936,349 3,144,983 Temporarily Restricted 109,864 109,422 108,722 Permanently Restricted 86,381 85,536 86,506 Total Equity 3,540,094 3,131,307 3,340,211 Total Liabilities and Equity $ 5,023,038 $ 4,679,942 $ 4,893,057 1a

SCRIPPS HEALTH OBLIGATED GROUP STATEMENT OF OPERATIONS ($000s) FOR THE QUARTER ENDED March 31, 2017. March 31, 2016 Operating revenues: Net patient service revenue, net of contractual allowances and discounts $ 623,551 $ 604,022 Provision for bad debts (13,501) (13,653) Net patient service revenue less provision for bad debts before provider fee 610,051 590,369 Provider fee - 24,761 Net patient service revenue 610,051 615,130 Capitation premium 37,393 31,425 Other 26,919 22,728 Meaningful use 891 8 Net assets released from restrictions used for operations 6,313 8,008 Total operating revenues 681,567 677,299 Operating expenses: Wages and benefits 311,275 291,537 Supplies 122,561 112,947 Physician services 107,607 102,468 Other services 81,031 76,354 Provider fee - 18,652 Capitation services 2,041 1,178 Depreciation and amortization 38,063 33,179 Interest 6,736 6,158 Restructuring - 2,374 Total operating expenses 669,315 644,845 Operating income before corporate overhead allocation & income tax 12,252 32,453 Corporate overhead allocation 1,639 1,751 Provision for income tax expense - (8) Operating income after corporate overhead allocation & income tax 13,891 34,196 Nonoperating gains: Interest and dividends 6,163 5,978 Realized gains (losses) 11,937 (28,101) Unrealized gains on trading portfolio 85,074 5,719 Contributions 535 558 Market adjustment on interest rate swaps 987 (3,965) Loss on early extinguishment of debt (1,002) - Excess of revenues over expenses $ 117,584 $ 14,386 1b

SCRIPPS HEALTH OBLIGATED GROUP STATEMENTS OF CHANGES IN NET ASSETS ($000s) FOR THE QUARTER ENDED March 31, 2017. March 31, 2016 Unrestricted net assets: Excess of revenues over expenses attributable to controlling interests $ 117,584 $ 14,386 Net assets released from restrictions used for purchase of property & equipment 3,844 4,730 Other (90) (118) Increase in unrestricted net assets 121,338 18,998 Temporarily restricted net assets: Contributions 4,753 2,495 Interest and dividends 415 476 Realized gains (losses) 754 (1,134) Unrealized gains (losses) on trading portfolio 4,219 (609) Net assets released from restrictions used for operations (6,313) (8,008) Net assets released from restrictions used for purchases of property & equipment (3,844) (4,730) Change in value of deferred gifts 139 791 Other (25) - Increase (decrease) in temporarily restricted net assets 98 (10,720) Permanently restricted net assets: Contributions (153) 5,058 Change in value of deferred gifts - - Other 25 (3) Decrease (increase) in permanently restricted net assets (128) 5,055 Total increase in net assets $ 121,308 $ 13,333 1c

SCRIPPS HEALTH OBLIGATED GROUP STATEMENT OF OPERATIONS ($000s) FOR THE SIX MONTHS ENDED March 31, 2017. March 31, 2016 Operating revenues: Net patient service revenue, net of contractual allowances and discounts $ 1,245,866 $ 1,189,285 Provision for bad debts (25,830) (19,939) Net patient service revenue less provision for bad debts before provider fee 1,220,035 1,169,346 Provider fee 41,804 45,516 Net patient service revenue 1,261,839 1,214,862 Capitation premium 69,328 62,289 Other 51,919 43,989 Meaningful use 653 866 Net assets released from restrictions used for operations 11,886 13,721 Total operating revenues 1,395,627 1,335,727 Operating expenses: Wages and benefits 607,503 582,670 Supplies 245,365 229,726 Physician services 208,761 199,319 Other services 153,086 153,977 Provider fee 36,458 35,049 Capitation services 3,206 1,981 Depreciation and amortization 75,552 69,051 Interest 13,744 11,995 Restructuring 14 2,374 Total operating expenses 1,343,690 1,286,142 Operating income before corporate overhead allocation & income tax 51,936 49,585 Corporate overhead allocation 3,238 3,532 Provision for income tax expense - (16) Operating income after corporate overhead allocation & income tax 55,174 53,102 Nonoperating gains: Interest and dividends 17,618 18,679 Realized gains (losses) 12,254 (18,740) Unrealized gains on trading portfolio 98,349 24,453 Contributions 1,384 4,460 Market adjustment on interest rate swaps 9,167 (2,615) Loss on early extinguishment of debt (1,002) - Excess of revenues over expenses $ 192,945 $ 79,338 1d

SCRIPPS HEALTH OBLIGATED GROUP STATEMENTS OF CHANGES IN NET ASSETS ($000s) FOR THE SIX MONTHS ENDED March 31, 2017. March 31, 2016 Unrestricted net assets: Excess of revenues over expenses attributable to controlling interests $ 192,945 $ 79,338 Net assets released from restrictions used for purchase of property & equipment 4,872 8,317 Other (141) (188) Increase in unrestricted net assets 197,676 87,467 Temporarily restricted net assets: Contributions 11,407 10,479 Interest and dividends 1,019 1,254 Realized gains (losses) 742 (596) Unrealized gains on trading portfolio 4,674 894 Net assets released from restrictions used for operations (11,886) (13,721) Net assets released from restrictions used for purchases of property & equipment (4,872) (8,317) Change in value of deferred gifts 71 1,067 Other (13) 101 Increase (decrease) in temporarily restricted net assets 1,142 (8,840) Permanently restricted net assets: Contributions (151) 5,275 Change in value of deferred gifts 1 - Other 25 69 Decrease (increase) in permanently restricted net assets (125) 5,344 Total increase in net assets $ 198,693 $ 83,972 1e

SCRIPPS HEALTH OBLIGATED GROUP STATEMENT OF CASH FLOWS ($000) For the Six Months Ended March 31, 2017 March 31, 2016 Operating activities and nonoperating gains Total increase in net assets $198,693 83,972 Reconciliation of total change in net assets to cash flows provided by (used in) operating activities and nonoperating gains and losses: Depreciation and amortization 75,552 69,051 Amortization of debt issuance costs 197 192 Amortization of original issue premium (296) (302) Provision for bad debts 25,836 19,951 Loss on early extinguishment of debt 1,002 - Realized and unrealized gains on investments (116,019) (6,011) Proceeds from sale of investments designated as trading 186,254 (162,957) Market adjustment on interest rate swaps (9,167) 2,615 (Gain) loss on disposal of property (168) 338 Restricted contributions and investment income (13,017) (16,412) Change in assets and liabilities: Accounts receivables - net (71,160) (74,673) Other current assets 8,488 1,697 Other assets 373 (6,444) Accounts payable and accrued liabilities (26,649) (12,024) Other liabilities (924) 830 Net cash provided by (used in) operating activities: 258,994 (100,178) Investing activities: Purchases of property, plant and equipment (146,082) (115,254) Assets limited as to use 4,219 - Net cash used in investing activities: (141,863) (115,254) Financing activities: Proceeds from restricted contributions and investment income 13,529 14,268 Payments on notes / lease payable (2,053) (1,957) Proceeds from long-term debt 160,000 200,000 Payments on long-term debt (187,135) (15,500) Proceeds from sale of donated financial assets 24 83 Net cash (used in) provided by financing activities: (15,635) 196,893 Increase (decrease) in cash and cash equivalents 101,496 (18,539) Cash and cash equivalents at beginning of period 222,955 292,596 Cash and cash equivalents at end of period $324,451 $274,058 1f

SCRIPPS HEALTH OBLIGATED GROUP NOTES TO THE OBLIGATED GROUP FINANCIAL STATEMENTS (UNAUDITED) NOTE (1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Basis of Presentation In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the statements of financial position and results of operations as of and for the quarter ended March 31, 2017 and 2016 as well as for the year-to-date September 30, 2016 have been made. Immaterial Reclassification In the financial statements for the six months ended March 31, 2016, Scripps Health overstated Patient service revenue, net of contractual allowances and discounts and Wages and benefits expense by $38,499,000 for an unrecorded elimination entry related to healthcare services provided by Scripps Health to its employees under its self-funded group health plan. Scripps Health has corrected the error in the comparative financial statements. The effect on the individual income statement line items and subtotals was quantitatively immaterial. The correction had no impact on operating income or excess of revenue over expenses. In addition, no qualitative factors indicate that the error is material. Adoption of Accounting Pronouncement In August 2015, the FASB issued ASU 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. These costs should be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset and amortization of the costs is reported as interest expense. Scripps adopted ASU 2015-03 effective October 1, 2016 with retrospective comparative presentation made. The impact of adoption was not material. NOTE (2) FAIR VALUE MEASUREMENTS The Organization accounts for certain assets and liabilities at fair value. A fair value hierarchy for valuation inputs prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels and is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are: Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the measurement date. Financial assets and liabilities in Level 1 include U.S. and foreign equity securities. Level 2: Pricing inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by 2a

observable market data for substantially the full term of the asset or liabilities. Financial assets and liabilities in this category generally include U.S. and foreign government securities, asset-backed securities, U.S. and foreign corporate bonds and loans, municipal bonds, commingled funds, interest rate swaps, real estate, and annuity/unitrust liabilities. Level 3: Pricing inputs are generally unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using factors that involve considerable judgment and interpretations, including but not limited to, private and public comparables, third-party appraisals, discounted cash flow models, and fund manager estimates. There are no Level 3 financial assets or liabilities at March 31, 2017 and September 30, 2016. Assets and liabilities measured at fair value are based on one or more of the three valuation techniques. The three valuation techniques are identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows: a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. b) Cost approach. Amount that would be required to replace the service capacity of asset (replacement cost). c) Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing, and excess earnings models). 2b

The following represents financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 (in thousands). Alternative investments are accounted for using net asset value (NAV) of accounting, which is not a fair value measurement. Active Markets for Identical Assets Significant Other Observable Inputs Valuation Technique March 31, 2017 (Level 1) (Level 2) NAV (a,b,c) Investments: Liquid investments Cash equivalents $ 12,778 $ 12,778 $ - $ - a Equity securities U.S. equity $ 475,579 $ 475,579 $ - $ - a Foreign equity 416,580 416,580 - - a Foreign equity (commingled) [X] 213,118-213,118 - a $ 1,105,277 $ 892,159 $ 213,118 $ - Fixed income securities U.S. government $ 23,948 $ - $ 23,948 $ - a U.S. government agencies 5,787-5,787 - a U.S. federal agency mortgage-backed 25,175-25,175 - a Foreign government 440-440 - a U.S. corporate 465,973-465,973 - a U.S. corporate (commingled) [Y] 246,351-246,351 - a Foreign corporate 15,302-15,302 - a $ 782,976 $ - $ 782,976 $ - Other investments Multi-strategy hedge funds [W] $ 375,977 $ - - $ 375,977 a Private equity funds [Z] 46,457 - - 46,457 a Real estate 7,397-7,397 - a $ 429,831 $ - $ 7,397 $ 422,434 Total investments $ 2,330,862 $ 904,937 $ 1,003,491 $ 422,434 Other assets Land held for sale 710-710 - a $ 710 $ - $ 710 $ - Total assets at fair value $ 2,331,572 $ 904,937 $ 1,004,201 $ 422,434 Current liabilities Swap hedge $ 19,996 $ - $ 19,996 $ - c Other liabilities Annuity/unitrust liabilities $ 11,152 $ - $ 11,152 $ - c Total liabilities at fair value $ 31,148 $ - $ 31,148 $ - 2c

The following represents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 (in thousands). Alternative investments are accounted for using net asset value (NAV) of accounting, which is not a fair value measurement. Active Markets for Identical Assets Significant Other Observable Inputs Valuation Technique September 30, 2016 (Level 1) (Level 2) NAV (a,b,c) Investments: Liquid investments Cash equivalents $ 22,744 $ 22,744 $ - $ - a Equity securities U.S. equity $ 427,794 $ 427,794 $ - $ - a Foreign equity 380,248 380,248 - - a Foreign equity (commingled) 197,843-197,843 - a $ 1,005,885 $ 808,042 $ 197,843 $ - Fixed income securities U.S. government $ 71,801 $ - $ 71,801 $ - a U.S. government agencies 3,894-3,894 - a U.S. federal agency mortgage-backed 21,858-21,858 - a Foreign government 441-441 - a U.S. corporate 399,478-399,478 - a U.S. corporate (commingled) 441,833-441,833 - a Foreign corporate 16,810-16,810 - a $ 956,115 $ - $ 956,115 $ - Other investments Multi-strategy hedge funds $ 371,565 $ - - $ 371,565 a Private equity funds 41,608 - - 41,608 a Real estate 7,398-7,398 - a $ 420,571 $ - $ 7,398 $ 413,173 Total assets at fair value $ 2,405,315 $ 830,786 $ 1,161,356 $ 413,173 Current liabilities Swap hedge $ 29,163 $ - $ 29,163 $ - c Other liabilities Annuity/unitrust liabilities $ 10,716 $ - $ 10,716 $ - c Total liabilities at fair value $ 39,879 $ - $ 39,879 $ - 2d

Transfers to/from Levels 1 and 2 are recognized at the end of the reporting period. There were no transfers for the years ended March 31, 2017 and 2016. As of March 31, 2017 and 2016, the Level 2 instruments listed in the fair value hierarchy table above use the following valuation techniques and inputs: U.S. and Foreign Government Securities The fair value of investments in U.S. and foreign government securities, classified as Level 2, was primarily determined using techniques consistent with the market approach. Significant observable inputs to the income approach include data points for benchmark constant maturity curves and spreads. U.S. and Foreign Corporate Bonds The fair value of the investments in U.S. and foreign corporate bonds, including mutual and commingled funds that invest primarily in such bonds, classified as Level 2 was primarily determined using techniques that are consistent with the market approach. Significant observable inputs include benchmark yields, reported trades, observable broker/dealer quotes, issuer spreads, and security specific characteristics (such as early redemption options). Real Estate The fair value of the real estate investments classified as Level 2 was primarily determined using techniques that are consistent with the market approach. Significant observable inputs include sales of comparable properties, market rents and market rent growth trends. Annuity/Unitrust Liabilities The fair value of the annuity/unitrust liabilities as Level 2 was primarily determined using techniques that are consistent with the income approach. Significant observable inputs to the income approach include data points for benchmark constant maturity curves and spreads. Commingled Funds The fair value of commingled fund investments classified as Level 2 was determined using the calculated NAV. The values for underlying investments are fair value estimates determined either internally or by an external fund manager based on recent filings, operating results, balance sheet stability, growth, and other business and market sector fundamentals. Due to the significant unobservable inputs present in these valuations, Scripps Health classifies all such investments as Level 2. Swap Hedge The fair value of the Swap hedge liability classified as Level 2 is based on independent valuations obtained and is determined by calculating the fair value of the discounted cash flows of the differences between the fixed interest rate of the interest rate swaps and the counterparty s forward LIBOR curve, which is the input used in the valuation, taking also into account any nonperformance risk. 2e

Included within the assets above are investments in certain entities that report fair value using a calculated NAV or its equivalent. The following table and explanations identify attributes relating to the nature and risk of such investments as of March 31, 2017 (in thousands): NAV Valuation Fair Value Unfunded Commitments Redemption Frequency (if Currently Eligible) Redemption Notice Period Commingled: Equity securities (1) $ 213,118 $ - Monthly 10 days Fixed income securities (2) 246,351 - Daily 15 days $ 459,469 $ - Alternative Investments: Hedge Funds (3) $ 375,977 $ - Monthly to Bi- Annually 45 to 120 days Private Equity (4) 46,457 27,350 N/A N/A $ 422,434 $ 27,350 (1) Commingled Funds: Equity This category includes investments in commingled funds with underlying investments that are fair value estimates determined either internally or by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. The investments are diversified by geography, sector, and organization. Liquidity is provided on a monthly basis. (2) Commingled Funds: Fixed Income This category includes investments in two commingled funds with underlying investments that are fair value estimates determined either internally or by an external fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. The investments are diversified by geography, sector, maturity, and issue. Liquidity is provided on a daily basis. As of march 31, 2017, the category consisted of 100% daily liquidity. (3) Hedge Funds This category includes investments in thirteen multi-strategy funds with underlying investments that are fair value estimates determined by a third-party administrator based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. The investments are diversified by geography, sector, and organization. Liquidity is provided on a monthly, quarterly, and annual basis. As of March 31, 2017, the category consisted of 23.1% monthly liquidity, 53.8% quarterly liquidity, 15.4% annual liquidity and 7.7% bi-annual liquidity. (4) Private Equity This category includes investments in four private equity funds with underlying investments that are fair value estimates determined either internally or by a third-party administrator based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. The investments are diversified by geography, sector, maturity, and issue. All funds have liquidity in excess of one year. 2f

NOTE (3) ENDOWMENTS The Organization s endowments consist of 87 individual funds as of March 31, 2017 and 2016, respectively, established for a variety of purposes. Net assets associated with the endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. On September 30, 2008, California Senate Bill No. 1329 was signed into law which enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) for California. The Board of Trustees of the Organization has interpreted this as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of the interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence described by UPMIFA. In accordance with UPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) duration and preservation of the fund, (2) purposes of the Organization and the donor-restricted endowment fund, (3) general economic conditions, (4) possible effect of inflation or deflation, (5) expected total return from income and the appreciation of investments, (6) other resources of the Organization, and (7) investment policies of the Organization. From time to time, the fair value of assets associated with individual endowment funds may fall below the level that the donor or UPMIFA requires the Organization to retain as a fund of perpetual duration. The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results while assuming a moderate level of investment risk. The Organization expects its endowment funds, over time, to provide an average rate of return of approximately 5% over the rate of inflation annually. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places an emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Organization has a policy of appropriating for distribution each year 4% (with an additional 1% administrative fee) of its endowment fund s average fair value over the prior three-year rolling average market values. In establishing this policy, the Organization considered the long-term expected return on its endowment. Accordingly, over the long term, the Organization expects the current spending policy to allow its endowment to grow at an average of 3% to 4% annually, above inflation. This is consistent with the 2g

Organization s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. Changes in endowment net assets for the six months ended March 31, 2017 are as follows (in thousands): Temporarily Restricted Permanently Restricted Total Endowment net assets as of September 30, 2016 $ 28,723 $ 86,506 $ 115,229 Investment return: Investment income 920-920 Net depreciation (realized and unrealized) 4,994-4,994 Total investment return 5,914-5,914 Contributions - (151) (151) Appropriation of endowment assets for expenditure (4,151) - (4,151) Other changes - 1 1 Endowment net assets as of March 31, 2017 $ 30,486 $ 86,356 $ 116,842 2h

Changes in endowment net assets for the six months ended March 31, 2015 are as follows (in thousands): Temporarily Restricted Permanently Restricted Total Endowment net assets as of September 30, 2015 $ 27,629 $ 80,192 $ 107,821 Investment return: Investment income 1,111 1,111 Net depreciation (realized and unrealized) 356 359 Total investment return 1,470-1,470 Contributions - 5,275 5,275 Appropriation of endowment assets for expenditure (5,161) (5,161) Other changes 69 69 Endowment net assets as of March 31, 2016 $ 23,938 $ 85,536 $ 109,474 Temporarily restricted endowment net assets is as follows at March 31 (in thousands): 2017 2016 Temporarily restricted net assets: The portion of perpetual endowment funds subject to a time restriction under UPMIFA: Without purpose restrictions $ 1,129 $ 565 With purpose restrictions 29,357 23,373 Total endowment funds classified as temporarily restricted net assets $ 30,486 $ 23,938 NOTE (4) GOODWILL Goodwill Impairment assessments of the carrying amount of goodwill are completed annually, or whenever impairment indicators are present for SMF, which includes Scripps Clinic and Scripps Coastal Medical Centers. No goodwill impairment was recorded in 2017 or 2016. Scripps Clinic In 2000, Scripps Health acquired all the outstanding shares of SCPO and its wholly owned subsidiaries and substantially all the assets and liabilities of Scripps Clinic Medical Group (SCMG). As a result of the SCMG acquisition, the excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill in the accompanying consolidated statements of financial position in the amount of $50,216,000. Accumulated amortization of goodwill totaled $20,421,000 at March 31, 2017 and 2016. Amortization ceased in fiscal year 2011. 2i

Scripps Coastal Medical Centers In 2008, Scripps Health purchased substantially all of the net assets of Sharp Mission Park Medical Clinic. As a result of the acquisition, the excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill in the accompanying consolidated statements of financial position in the amount of $6,884,000. Accumulated amortization of goodwill totaled $2,983,000 at March 31, 2017 and 2016. Amortization ceased in fiscal year 2011. NOTE (5) SUBSEQUENT EVENTS Scripps Health has evaluated subsequent events occurring between the quarter ended March 31, 2017 and April 19, 2017, the date the financial statements were issued. 2j

SCRIPPS HEALTH OBLIGATED GROUP FINANCIAL STATEMENTS MANAGEMENT DISCUSSION AND ANALYSIS FOR THE QUARTER AND SIX MONTHS ENDED MARCH 31, 2017 For the Quarter Ended March 31, 2017 March 31, 2016 Actual ($000s) Actual Operating Revenue $681,567 $677,299 Operating Revenue (Excluding Provider Fee) $681,567 $652,537 Operating Income $13,891 $34,196 Operating Income (Excluding Net Proceeds from Provider Fee) $13,891 $28,087 Operating Margin 2.0% 5.0% Operating Margin (Excluding Net Proceeds from Provider Fee) 2.0% 4.3% Operating EBIT DA $58,690 $73,540 Operating EBIT DA (Excluding Net Proceeds from Provider Fee) $58,690 $67,431 Operating EBITDA Margin 8.6% 10.9% Operating EBITDA Margin (Excluding Net Proceeds from Provider 8.6% 10.3% Excess Margin $117,584 $14,386 Excess Margin % 15.0% 2.2% Operating revenue for the quarter ended March 31, 2017 was $4,268,000 higher than the quarter ended March 31, 2016 primarily attributable to higher patient service revenue. Patient service revenue, including capitation premium revenue, increased by $25,651,000 due to an increase in trauma cases and member months partially offset by $24,761,000 lower provider fee revenue. Operating expenses for the quarter ended March 31, 2017 were $24,469,000 higher than the quarter ended March 31, 2016 primarily attributable to $19,738,000 increase in wages and benefits due to higher full-time employee headcount and merit increases, $9,614,000 higher supplies expense primarily due to increases in pharmaceutical and prosthesis expenses, $5,140,000 increase in physician services expense and $4,678,000 in other services partially offset by $18,652,000 lower provider fee expense. Excess margin for the quarter ended March 31, 2017 compared to the quarter ended March 31, 2016 was $103,199,000 higher than prior year primarily attributable to $119,392,000 increase in realized and unrealized investment income partially offset by a $20,305,000 decrease in operating income. 3a

Operating revenue for the six months ended March 31, 2017 was $59,900,000 higher than the six months ended March 31, 2016 primarily attributable to $50,689,000 or 5% higher patient service revenue. Patient service revenue increased due to 3% higher census and an increase in outpatient revenues and trauma cases. Operating expenses for the six months ended March 31, 2017 were $57,549,000 higher than the six months ended March 31, 2016 primarily attributable to $24,833,000 increase in wages and benefits due to merit increases, $15,639,000 higher supplies expense primarily due to increases in pharmaceutical and prosthesis expenses, $9,442,000 increase in physician services expense and $6,501,000 increase in depreciation and amortization. Excess margin for the six months ended March 31, 2017 compared to the six months ended March 31, 2016 was $113,607,000 higher than prior year primarily attributable to $104,890,000 increase in realized and unrealized investment income and $11,782,000 increase in market adjustment on interest rate swaps. * Amounts and ratios exclude the impact of provider tax revenues and expenses. For the Six Months Ended March 31, 2017 March 31, 2016 Actual ($000s) Actual Operating Revenue $1,395,627 $1,335,727 Operating Revenue (Excluding Provider Fee) $1,353,823 $1,290,211 Operating Income $55,174 $53,102 Operating Income (Excluding Net Proceeds from Provider Fee) $49,829 $42,635 Operating Margin 4.0% 4.0% Operating Margin (Excluding Net Proceeds from Provider Fee) 3.7% 3.3% Operating EBIT DA $144,470 $134,163 Operating EBIT DA (Excluding Net Proceeds from Provider Fee) $139,125 $123,696 Operating EBITDA Margin 10.4% 10.0% Operating EBITDA Margin (Excluding Net Proceeds from Provider 10.3% 9.6% Excess Margin $192,945 $79,338 Excess Margin % 12.6% 5.8% March 31, 2017 March 31, 2016 September 30, 2016 Unrestricted Cash & Investments ($000s) $ 2,443,215 $ 2,227,429 $ 2,411,955 Days Unrestricted Cash on Hand * 372.2 346.4 376.3 Days in AR, Net * 54.5 55.0 49.8 Accounts Payable & Accrued Liabilities ($000s)* $ 348,026 $ 348,607 $369,843 Days in AP & Accrued Liabilities * 51.6 54.1 57.7 Unrestricted Cash & Investments to Total Debt 237.4% 208.3% 228.1% Long Term Debt ($000s) $ 996,066 $ 1,034,304 $ 898,439 Current Portion of Long-Term Debt ($000s) $ 33,042 $ 34,976 $ 158,956 Total Debt ($000s) $ 1,029,108 $ 1,069,280 $ 1,057,395 Debt to Capitalization 23.5% 26.7% 25.2% 3b

SIGNIFICANT TRANSACTIONS Tax Exempt Bonds In October 2016, Scripps Health made scheduled annual bond principal payments amounting to $15,665,000, which included $9,835,000 payment on the 2008A, $3,250,000 payment on the 2008G taxexempt bond series, and $2,580,000 payment on the 2016A tax-exempt bond. In November 2016, Scripps Health made scheduled annual principal payments amounting to $2,975,000 on the 2010A tax-exempt bond series. In January 2017, Scripps Health received $160,000,000 from the issuance of Series 2017A Bonds through California Health Facilities Financing Authority ( CHFFA ) on behalf of Scripps Health. The bonds will have a fifteen-year term and an interest rate of 2.07%. Proceeds of the financing, together with $8,495,000 of cash, were used to refund the Series 2008B-F Bonds in the amount of $168,495,000. In January 2017, Scripps Health reduced the Union Bank line of credit from $150,000,000 to $50,000,000 and extended the term by 3 years. Scripps Health also renewed the Northern Trust letter of credit that supports the 2010C Bonds for a 5-Year period. In February 2017, Scripps Health entered into a 3-Year, $100,000,000 line of credit agreement with Bank of America. Scripps Health also renewed the US Bank letter of credit that supports the 2007A Bonds for a 5- Year period. Provider Fee Program CY2014-CY2016 Provider Fee Program In September 2013, SB 239 was approved and created a three-year hospital fee program effective January 1, 2014 through December 31, 2016. It is estimated to result in nearly $10 billion in new federal Medi-Cal funding for California hospitals by making supplemental payments for inpatient and outpatient traditional and managed care services, as well as specialty care including trauma, high acuity, inpatient psychiatric, sub-acute care and transplant services. On December 10, 2014, CHA announced that the Centers for Medicare & Medicaid Services (CMS) approved the fee-for-service payments for CY2014-CY2016. On June 30, 2015 the Centers for Medicare & Medicaid Services approved the non-expansion managed care rates for the first six months of the CY2014-16 hospital fee program. On March 29, 2016, the Centers for Medicare & Medicaid Services (CMS) issued the approval letters for the 2014-16 hospital fee program expansion population managed care rates for January 1, 2014 to June 30, 2014. On December 30, 2016, the Centers for Medicare & Medicaid Services (CMS) issued the approval letters for the 2014-16 hospital fee program managed care rates for July 1, 2014 to June 30, 2015. In FY2017, Scripps Health recognized $5,346,000 net program income based on final CHA model for 2014-2016 Provider Fee Program as follows: 3c

Medi-Cal Supplemental Provider Fee Schedule for 2014-2016 Program For the Six Months Ended 3/31/17 ($000s) Hospitals Supplemental Revenue Provider Fee CHFT Fee Net Operating Income (Loss) La Jolla $ - $ - $ - $ - Green 705 (5,022) - (4,317) Encinitas 3,014 (5,837) - (2,823) Mercy 38,085 (25,509) (90) 12,486 Hospitals $ 41,804 $ (36,368) $ (90) $ 5,346 Scripps is waiting for financial model for calendar year 2017-2019 provider fee program for the impact to Scripps financials as well as the timing of cash receipts and payments. CHA released a draft version of the 2017-2019 QAF model. CMS partial approval is not expected until the end of calendar year 2017. Epic On April 30, 2015, the Board of Trustees of Scripps Health approved the implementation of an integrated information platform for Scripps Health inpatient and ambulatory Electronic Health Record ( EHR ) and revenue cycle management system ( Epic Capital Project ), in accordance with the project plan, cost model, and timeline presented by management. Epic Systems Corporation was selected as the vendor for the new Scripps EHR and revenue cycle system. Accordingly, the Chief Executive Officer of Scripps Health executed the License and Support Agreement with Epic Systems Corporation for the project plan, implementation cost, and system support, as described and recommended by Management. The project has an approved capital plan budget of $308.6 million and an estimated operating cost of $360.5 million over 10 years ($279.5 million and $174.9 million respectively, net of savings from retiring the software applications being replaced by the Epic implementation). As of March 2017 life-to-date, Scripps Health has capitalized $134.6 million of related costs and incurred $29.9 million of related operating expenses. The capital costs to date are accumulated in designated CIP accounts on the balance sheet until various modules of the EHR and revenue cycle system are placed in service (system go-live dates). At in-service date(s), Scripps will record identifiable equipment and software assets from CIP and will begin depreciating these assets on a straight line basis over the estimated useful lives of the EHR and revenue cycle system modules. The planned go-live dates range from April 2017 to March 2018. Credit Ratings In March 2017, S&P, Moody s and Fitch all affirmed Scripps long-term and short-term ratings at AA/A-1+, Aa3/VMIG1, and AA/F-1+, respectively, each with a stable outlook. 3d