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Abington Health(A Subsidiary of Thomas Jefferson University)Consolidated Financial StatementsJune 30, 2015

Abington Health (A Subsidiary of Thomas Jefferson University)IndexJune 30, 2015

Page(s)

Independent Auditor’s Report ...............................................................................................................1-2

Consolidated Financial Statements

Balance Sheet ..............................................................................................................................................3

Statement of Operations ..............................................................................................................................4

Statement of Changes in Net Assets ...........................................................................................................5

Statement of Cash Flows .............................................................................................................................6

Notes to Financial Statements ................................................................................................................7-24

Supplemental Consolidating Information

Balance Sheet ............................................................................................................................................26

Statement of Operations ............................................................................................................................27

Independent Auditor’s Report

Board of TrusteesAbington Health

We have audited the accompanying consolidated financial statements of Abington Health (a subsidiary ofThomas Jefferson University) and its subsidiaries, which comprise the consolidated balance sheet as ofJune 30, 2015, and the related consolidated statements of operations, of changes in net assets, and ofcash flows for the year then ended.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with accounting principles generally accepted in the United States of America;this includes the design, implementation, and maintenance of internal control relevant to the preparationand fair presentation of consolidated financial statements that are free from material misstatement,whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on our judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, we consider internal control relevant to the Entitiy’spreparation and fair presentation of the consolidated financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Entity’s internal control. Accordingly, we express no such opinion. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness of significantaccounting estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Abington Health, and its subsidiaries, as of June 30, 2015, and theresults of their operations, changes in their net assets, and their cash flows for the year then ended inaccordance with accounting principles generally accepted in the United States of America.

PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19103-7042T: (267) 330 3000, F: (267) 330 3300, www.pwc.com/us

Other Matter

Our audit was conducted for the purpose of forming an opinion on the consolidated financialstatements taken as a whole. The consolidating information is the responsibility of managementand was derived from and relates directly to the underlying accounting and other records used toprepare the consolidated financial statements. The consolidating information has been subjected tothe auditing procedures applied in the audit of the consolidated financial statements and certainadditional procedures, including comparing and reconciling such information directly to theunderlying accounting and other records used to prepare the consolidated financial statements or tothe consolidated financial statements themselves and other additional procedures, in accordancewith auditing standards generally accepted in the United States of America. In our opinion, theconsolidating information is fairly stated, in all material respects, in relation to the consolidatedfinancial statements taken as a whole. The consolidating information is presented for purposes ofadditional analysis of the consolidated financial statements rather than to present the financialposition and results of operations of the individual entities and is not a required part of theconsolidated financial statements. Accordingly, we do not express an opinion on the financialposition and results of operations of the individual entities.

September 22, 2015

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidated Balance SheetJune 30, 2015

The accompanying notes are an integral part of these consolidated financial statements.

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2015

AssetsCurrent

Cash and cash equivalents 135,510,442$Investments 632,691,327Patient and third-party receivables, net ofdoubtful accounts of approximately $13,085,000 89,641,121

Other accounts receivable 19,169,033Prepaid expenses and other assets 10,918,414

Total current assets 887,930,337

Net pledges receivable 10,238,767Assets whose use is limited 83,615,348Property and equipment, netof accumulated depreciation 473,401,155

Other assets, including funds held in trust byothers for the benefit of Abington Memorial Hospital 71,667,021

Other noncurrent assets 52,048,214

Total assets 1,578,900,842$

Liabilities and Net AssetsCurrent

Current maturities of long-term debt 13,413,200$Accounts payable 47,328,294Accrued salaries and wages 49,723,930Third-party and other liabilities 35,789,635

Total current liabilities 146,255,059

Accrued insurance and other liabilities 68,964,011Pension liability 143,887,186Long-term debt, net of current maturities 315,898,917

Total liabilities 675,005,173

Net assetsUnrestricted 758,512,143Temporarily restricted 68,837,022Permanently restricted 76,546,504

Total net assets 903,895,669

Total liabilities and net assets 1,578,900,842$

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidated Statement of OperationsJune 30, 2015


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2015

Revenues

Net patient service revenue 780,570,546$

Provision for bad debts 24,452,401

Net patient service revenue less provision for bad debts 756,118,145

Other operating revenue 34,185,726

Net assets released from restrictions 11,508,879

Total revenues 801,812,750

Expenses

Salaries, wages and employee benefits 446,159,894

Utilities, purchased services and other 125,360,708

Supplies 127,806,004

Depreciation and amortization 46,570,324

Interest 12,942,580

Insurance 10,463,043

Total expenses 769,302,553

Income from operations 32,510,197

Income from investments, trusts, estates and contributions 35,612,844

Excess of revenues over expenses 68,123,041

Change in net unrealized gains (14,218,172)

Change in pension liability (2,529,077)

Net assets released from restrictions used for capital 1,496,902

Increase in unrestricted net assets 52,872,694$

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidated Statement of Changes In Net AssetsJune 30, 2015


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Temporarily Permanently Total

Unrestricted Restricted Restricted Net Assets

Net assets at June 30, 2014 705,639,449 63,348,441 77,299,198 846,287,088

Excess of revenues over expenses 68,123,041 68,123,041

Contributions - 16,781,274 411,869 17,193,143

Investment income - 3,342,720 3,342,720

Increase (decrease) in value of split interest agreements

and trusts - 291,623 (1,164,563) (872,940)

Net change in unrealized gains (loss) on investments (14,218,172) (2,014,727) (16,232,899)

Net assets released from restrictions used for capital 1,496,902 (1,496,902) -

Change in pension liability (2,529,077) (2,529,077)

Net assets released from restrictions used for operations - (11,415,407) (11,415,407)

Increase (decrease) in net assets 52,872,694 5,488,581 (752,694) 57,608,581

Net assets at June 30, 2015 758,512,143$ 68,837,022$ 76,546,504$ 903,895,669$

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidated Statement of Cash FlowsYears Ended June 30, 2015


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2015

Cash flows from operating activitiesIncrease in net assets 57,608,581$Adjustments to reconcile increase in net assets to netcash provided by operating activities

Changes in pension liability 2,529,077Depreciation and amortization 46,570,324Realized and unrealized loss in investments, net 16,232,899Decrease in value of split interest agreementsand trusts 872,940

Provision for bad debts 24,452,401Contributions restricted for endowment (411,869)Income on equity investments interests (758,006)Gain on disposal of fixed assets (5,088,017)Changes in assets and liabilities

Accounts and pledges receivable (29,003,526)Prepaid expenses and other assets 4,481,017Accounts payable, accrued expenses and other liabilities 15,006,798

Net cash provided by operating activities 132,492,619

Cash flows from investing activitiesIncrease in assets whose use is limited (994,160)Purchases of property and equipment (28,668,454)Proceeds from sale of property and equipment 9,751,770Purchases of investments (63,778,328)Sale of investments 28,453,606Distribution from equity investments 1,337,562

Net cash used in investing activities (53,898,004)

Cash flows from financing activitiesDecrease in deferred financing fees 252,703Contributions restricted for endowment 411,869Repayments of long-term debt (7,163,200)

Net cash used in financing activities (6,498,628)Net increase in cash and cash equivalents 72,095,987

Cash and cash equivalentsBeginning of the year 63,414,455End of the year 135,510,442$

Abington Health (A Subsidiary of Thomas Jefferson University)Notes to Consolidated Financial StatementsJune 30, 2015

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1. Organization

Abington Health (“AH”) was formed in 2009 as a not for profit holding company and is thecontrolling entity of Abington Memorial Hospital (the “Hospital”), Lansdale Hospital Corporation(“LHC”) and Abington Health Foundation, (“AHF”). AH is the sole corporate member of each entityand as the parent organization strives to continually develop and operate an integrated healthcaredelivery system which provides a comprehensive spectrum of medically necessary healthcareservices to the residents of Pennsylvania counties including: Montgomery, portions of Bucks andPhiladelphia. All entities are exempt from Federal income taxes under the provisions of Section501(c) (3) of the Internal Revenue Code.

Effective April 30, 2015, Thomas Jefferson University (“TJU”) became the sole corporate memberof AH to further expand and enhance AH’s mission of improving the quality of life for all by fosteringhealing, easing suffering, and promoting wellness in a culture of safety, learning and respect. TJUis an independent, non-profit corporation organized under the laws of the Commonwealth ofPennsylvania and recognized as a tax-exempt organization pursuant to Section 501(c) (3) of theInternal Revenue Code. It conducts research and offers undergraduate and graduate instructionthrough the Sidney Kimmel Medical College, the Jefferson Colleges of Nursing, Pharmacy, HealthProfessions, Population Health, and Biomedical Sciences. TJU has approximately 3,600 studentsand is located in Philadelphia, Pennsylvania.

TJU is also the sole corporate member of Thomas Jefferson University Health System (“TJUHS”),an integrated healthcare organization that provides inpatient, outpatient, and emergency careservices through acute care, ambulatory care, physician, and other primary care services forresidents of the Greater Philadelphia Region.

These consolidated financial statements do not include the financial position of TJU nor the resultsof operations for TJU.

2. Summary of Significant Accounting Policies

Basis of PresentationThe consolidated financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America.

Principles of ConsolidationThe consolidated financial statements include the accounts of AHF, the Hospital and LHC. Allsignificant intercompany transactions and balances have been eliminated.

Excess of Revenues over ExpensesThe statement of operations includes excess of revenues over expenses. Changes in unrestrictednet assets which are excluded from excess of revenues over expenses, consistent with industrypractice, include unrealized gains and losses on investments other than trading securities, pensionliability adjustments and net assets released for capital.

Use of EstimatesThe preparation of the financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during the reporting period,including the accompanying notes. Management considers critical accounting policies to be thosethat require more significant judgments and estimates in the preparation of the financial statements


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including, but not limited to, recognition of net patient service revenue, which includes contractualallowances and provisions for bad debt; estimates for healthcare professional and generalliabilities; determination of fair values of certain financial instruments; assignment of useful lives todepreciable assets; and assumptions for measurement of pension liabilities. Management relieson historical experience and other assumptions believed to be reasonable relative to thecircumstances in making judgments and estimates. Actual results could differ from thoseestimates.

Cash and Cash EquivalentsAll highly liquid temporary cash investments purchased with an original maturity of 90 days or lessare considered to be cash equivalents other than those held for investment. The carrying valueapproximates their fair value.

Investments and Investment IncomeInvestments classified as current assets are available to fund current operations as needed. Allinvestments are measured and recorded at fair value based on valuation techniques as discussedunder the heading Fair Value Measurements in this Note. Investment income or loss (includingrealized gains and losses on investments, interest and dividends) is included in the excess ofrevenues over expenses, unless the income or loss is restricted by donor or law. Unrealized gainsand losses on investments are excluded from the excess of revenues over expenses. Other-than-temporary impairment losses are recorded as realized losses and reported in income frominvestments, trusts, estates and contributions.

Assets Whose Use is LimitedAssets whose use is limited represent proceeds from the sale of bonds by the Montgomery CountyHigher Education and Health Authority on behalf of the Hospital. The funds, including interestincome from their temporary investment, are held by a bank trustee for debt service reservesrequired by bond indentures. These amounts were established in connection with the 2012, 2009and 1993 Bond issues discussed in Note 6, and amounted to $486,000 on June 30, 2015. Alsoincluded in Assets whose use is limited are $50,141,000 and $32,988,000 in Temporary andpermanently restricted assets at June 30, 2015.

Beneficial Interest in Perpetual TrustsBeneficial interests in perpetual trusts represent AH’s interest in perpetual trusts that areadministered by independent trustees and generally consist of marketable equity securities.Because the trusts are perpetual and the original corpus cannot be violated by spending, they arereported as permanently restricted net assets.

Investments in Unconsolidated OrganizationsInvestments in unconsolidated organizations represent AH investments in joint ventures orpartnerships. Where applicable, the equity method is used to account for these investments.

Fair Value MeasurementsFair value is defined as the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date. This guidanceestablishes a three-level hierarchy for fair value measurements based upon the transparency ofinputs to the valuation of an asset or liability as of the measurement date. The three levels aredefined as follows:

Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identicalassets or liabilities in active markets.


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Level 2 Inputs to the valuation methodology include quoted prices for similar assets orliabilities in active markets and inputs that are observable for the asset or liability,either directly or indirectly, for substantially the same term of the financial instrument.Alternative investments fair value is based on their net asset value per unit asreported by their managers.

Level 3 Inputs to the valuation methodology are unobservable.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest levelof input that is significant to the fair value measurement.

Assets and liabilities that are measured at fair value are based on one or more of the threevaluation techniques that follow:

Market ApproachPrices and other relevant information generated by market transactions involving identical orcomparable assets or liabilities.

Cost ApproachAmount that would be required to replace the service capacity of an asset (i.e., replacement cost).

Income ApproachTechniques to convert future amounts to a single present amount based on market expectations(including present value techniques and option-pricing models).

Property and EquipmentAH property and equipment is recorded at cost. Major renewals and improvements are capitalizedwhile maintenance and repairs are expensed when incurred. Provisions for depreciation are madeover the estimated useful lives of buildings and equipment using the straight-line method. Whenassets are sold, or otherwise disposed of, the cost and related accumulated depreciation areremoved from their respective accounts. The resulting gain or loss is included in the consolidatedstatements of operations.

Depreciation lives are as follows: land improvements 10 to 15 years, equipment 3 to 15 years,buildings 18 to 40 years. Depreciation expense was approximately $46,461,000 for fiscal year2015.

Temporarily and Permanently Restricted Net AssetsTemporarily restricted net assets are those whose use by the Hospital has been limited by donorsto a specific time period or purpose. Temporarily restricted net assets at June 30, 2015 wereapproximately $68,837,000. Also included in temporarily restricted net assets are unrealizedinvestment gains of $11,755,000 as of June 30, 2015. These temporarily restricted net assets areavailable for health services, education and research and capital expenditures.


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The net assets available by restricted purpose are as follows:

Permanently restricted net assets as of fiscal year ended June 30, 2015 was approximately$76,547,000. These permanently restricted net assets have been restricted by the donors and aremaintained by the hospital in perpetuity, the income of which is for the most part unrestricted and isused to support healthcare services. Permanently restricted net assets also include funds held byindependent trustees of $46,606,000 as of June 30, 2015.

Net Patient Service RevenueThe Hospital has agreements with third-party payors that provide for payments to the Hospital atamounts different from its established rates. The basis for payment under these agreementsinclude prospectively determined rates per discharge and per day, discounts from establishedcharges, capitated per member per month payments, and certain cost reimbursementmethodologies.

Net patient service revenue is reported at the estimated net realizable amounts from patients, thirdparty payors, and others for services rendered, including estimated retroactive adjustments underreimbursement agreements with third party payors. Retroactive adjustments are considered in therecognition of revenue on an estimated basis in the period the related services are rendered andadjusted in future periods as final settlements are determined. Medicare cost reports for all yearsthrough 2010 and 2012 have been audited and final settled as of June 30, 2015. The 2011, 2013and 2014 Medicare cost reports have been filed and are awaiting final settlement as of June 30,2015. The Hospital did not have any amounts included in net patient service revenue for fiscalyear 2015, related to third party payors final settlements.

Included in the Hospital’s net patient service revenues are payments made on behalf of theMedicare and Medicaid programs. These payments represent 29% and 5% of net patient servicerevenue, respectively, for the fiscal year ended June 30, 2015. Laws and regulations governing theMedicare and Medicaid program payments are complex and subject to interpretation. The Hospitalbelieves that it is in compliance with all applicable laws and regulations as they relate to theseprograms. Such laws and regulations can be subject to review and interpretation by the Medicareand Medicaid programs.

Regulatory OversightThe healthcare industry in general and the services that the Hospital provides are subject toextensive federal and state laws and regulations. Additionally, a portion of the Hospital’s netrevenues is from payments by government-sponsored healthcare programs, principally Medicareand Medicaid, and is subject to audit and adjustments by applicable regulatory agencies.

Allowance for Doubtful AccountsThe Hospital records an allowance for doubtful accounts for estimated losses resulting from thefailure of patients to make payments for services. The allowance is determined by analyzinghistorical data and trends. Accounts receivable are written off against the allowance for doubtfulaccounts when management determines that recovery is unlikely and collection efforts cease.

2015

Health services 42,648,000$

Education and research 13,271,000

Capital 12,918,000

68,837,000$


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Other Operating RevenueOther Operating Revenue consists primarily of outpatient pharmacy, rental income, investmentincome, parking income, cafeteria sales, Medicare meaningful use funds and other assorted feesthat the Hospital receives in the course of providing health care services.

Charity Care and Financial AssistanceThe Hospital and LHC, under their financial assistance policies, provide a significant amount ofservices without charge or at amounts less than established rates to patients who are unable tocompensate either entity for their treatments either through third party coverage or their ownresources. Because these amounts are not expected to be paid, they are not reported as revenue.The cost of this care is based on a calculation which applies a ratio of costs to charges to the grossuncompensated charges associated with providing care to these patients. The ratio of costs tocharges is calculated based on the total expenses (less community benefit expense) divided bygross patient service revenue. The estimated cost of caring for these patients for the year endingJune 30, 2015 was $12,686,000.

In addition, the Hospital and LHC provide services and supplies at amounts below cost to personscovered by government programs, including Medicare and Medicaid. The Hospital also sponsorscertain other subsidized programs and charity services that provide substantial benefit to thebroader community. Such services and programs include community service programs designedfor specific healthcare concerns, including health education, support groups and health screenings.

Donor-Restricted GiftsUnconditional promises to give cash and other assets are recognized at the present value of futurecash flows, and are reported at fair value at the date the promise is received. Conditional promisesto give and intentions to give are reported at fair value at the date the gift is received. The gifts arereported as either temporarily or permanently restricted support if they are received with donorstipulations that limit the use of the donated assets.

When a donor restriction expires, that is, when a stipulated time restriction ends or purposerestriction is accomplished, temporarily restricted net assets are reclassified to unrestricted netassets. Donor-restricted contributions whose restrictions are met within the same year as receivedare reflected as unrestricted contributions in the accompanying financial statements.

Other Noncurrent AssetsOther noncurrent assets include hospital acquisitions whose purchase price exceeded the value ofthe assets received. These amounts have been classified as Intangible Assets and are evaluatedfor impairment annually or whenever events or changes in circumstances indicate that the carryingvalue of the asset may not be recoverable from the estimated future cash flows expected from theiruse.

Retirement PlansAbington Memorial Hospital sponsors a noncontributory defined benefit pension plan covering alleligible employees. Plan benefits are generally based on years of service and employees’earnings during the five highest of the last ten years of covered employment. Abington MemorialHospital’s policy is to fund annually at least the minimum amount required by the EmployeeRetirement Income Security Act of 1974. On January 1, 2011, the Hospital closed the definedbenefit plan to new hires and established a defined contribution plan that is available to all newhires after January 1, 2011. After one year of service, participants will be eligible to receivematching funds based on contributions they make to the Hospital’s 403(b) retirement savings planas well as core employee contributions, which will vary based on years of service. LansdaleHospital sponsors a 401(k) defined contribution plan covering all eligible employees. The plan has


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a 50% employer match with a 4% maximum. Total retirement plan expense was $25,773,000 forJune 30, 2015.

Accrued Insurance and Other LiabilitiesAccrued insurance and other liabilities primarily consists of estimated liabilities for reported andincurred but not reported claims related to professional liability, workers compensation andemployee health care. Professional liabilities recorded on the consolidated balance sheets havebeen discounted using a 3.5% discount rate for 2015.

Accounting For Long Lived AssetsThe Hospital reviews the realizably of long-lived assets and certain tangible assets wheneverevents and circumstances occur which indicate recorded costs may not be recoverable. Noimpairments of long-lived assets were recognized during 2015.

New Accounting PronouncementsThe Financial Accounting Standards Board ("FASB") issued an accounting standard update in May2014 regarding the accounting for and disclosure of revenue recognition. Specifically, the updateoutlined a single comprehensive model for entities to use in accounting for revenue arising fromcontracts with customers, which will be common to both US GAAP and International FinancialReporting Standards. The guidance was effective for annual periods beginning after December 15,2016, which allowed for full retrospective adoption of prior period data or a modified retrospectiveadoption. Early adoption was not permitted. In July 2015, the FASB issued an update to delay theeffective date of the new revenue standard by one year, or, in other words, to be effective forannual and interim periods beginning after December 15, 2018. Entities will be permitted to adoptthe new revenue standard early, but not before the original public organization effective date. AH iscurrently evaluating the effects of this guidance.

The FASB issued an accounting standard update in May 2015 regarding the required disclosuresfor entities that elect to measure the fair value of certain investments using the net asset value pershare (or its equivalent) practical expedient in accordance with the fair value measurementauthoritative guidance. The update removes the requirement to categorize within the fair valuehierarchy, and also, limits the requirement to make certain other disclosures, for all suchinvestments. The amendments in this update are effective for fiscal years beginning afterDecember 15, 2016, and interim periods within those fiscal years, and should be applied on aretrospective basis for the periods presented. Early adoption is permitted. AH is currentlyevaluating the effects of this guidance.

The FASB issued an accounting standard update in April 2015 regarding the presentation of debtissuance costs on the balance sheet. The update requires capitalized debt issuance costs bepresented on the balance sheet as a reduction to debt, rather than recorded as a separate asset.The amendments in this update are effective for annual and interim periods beginning afterDecember 15, 2015 and should be applied on a retrospective basis for the periods presented. Earlyadoption is permitted and the AH’s consolidated balance sheet at June 30, 2015 reflects capitalizeddebt issuance costs as a reduction of debt.


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3. The Investments and Investment Income

Investments that are measured at fair value are presented in the consolidated balance sheetsunder the following classifications:

The following table presents the financial instruments carried at fair value as of June 30, 2015,categorized based on the fair value hierarchy described in Note 2:

As of June 30, 2015, AHF recorded transfers of $27,486,000 from Level 1 to Level 2 and$15,891,000 from Level 2 to Level 1 due to a combination of investment portfolio additions andrebalancing.

The following table is a roll forward of the financial instruments classified as Level 3:

2015

Investments 632,691,000$

Assets whose use is limited 83,615,000

Other investments, including funds held in trust by others

for the benefit of Abington Health 71,667,000

787,973,000$

Level 1 Level 2 Level 3 Total

Assets

Cash and cash equivalents 20,016,000$ -$ -$ 20,016,000$

Fixed income securities 32,589,000 130,105,000 - 162,694,000

Unregistered fixed income funds - 113,923,000 - 113,923,000

Mutual funds 336,569,000 - - 336,569,000

Mutual funds-unregistered - 92,949,000 - 92,949,000

Beneficial interests in perpetual and charitable remainder trusts - - 54,999,000 54,999,000

Total assets measured at fair value 389,174,000$ 336,977,000$ 54,999,000$ 781,150,000

Investments not subject to fair value leveling 6,823,000

Total investments and assets whose use is limited 787,973,000$

Investments

Fair value at June 30, 2014 55,503,000$

Contributions 1,115,000

Income attributed to the hospital 1,739,000Distributions to the hospital (1,739,000)Change in value of perpetual and charitable remainder trusts (1,619,000)

Fair value at June 30, 2015 54,999,000$


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Investment income for 2015 is comprised of the following:

The following tables shows the investments’ gross unrealized losses and fair value aggregated byinvestment category and length of time that individual securities have been in a continuousunrealized loss position, as of June 30, 2015:

Abington Health reviews the carrying value of its investments for declines in value that could beconsidered other than temporary. The unrealized losses reported involve investments where themarket value was not deemed to be impaired on an other than temporary basis under the AbingtonHealth’s impairment policy. Abington Health has the intent and the ability to hold theseinvestments until the fair value recovers back to its carrying value. In general, Abington Healthpresumes that an individual security in an unrealized loss position of greater than 25% for acontinuous period of 12 months or longer has suffered a decline in value that is other thantemporary. Abington Health carries out further analysis on individual securities to either validate itspresumption or understand why the decline in value is temporary. There were no other thantemporary impairments recorded in 2015.

4. Patient Service Revenue

Patient service revenue, net of contractual allowances and discounts (but before the provision forbad debts), recognized in the period from major payer sources, and is as follows for the year endedJune 30, 2015:

2015

Investment income included in income from

investments, trusts, estates and contributions

Interest and dividends 24,071,000$

Net realized gains/losses 11,542,000

35,613,000$

Unrealized Unrealized

Fair Value Loss Fair Value Gain (Loss)

Fixed income securities 31,999,000$ (2,974,000)$ -$ -$

31,999,000$ (2,974,000)$ -$ -$

2015

Less Than 12 Months 12 Months or Greater

2015

Medicare 228,398,000$

Medicaid 41,301,000

Managed Care and Other 508,709,000

Uninsured 2,162,000

780,570,000

Provision for Bad Debts 24,452,000

756,118,000$


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The provision for bad debt expense is based upon management’s assessment of expected netcollections considering economic conditions, historical experience, trends in healthcare coverageand other collection indicators. Periodically throughout the year, management assesses theadequacy of the allowance for uncollectible accounts based upon historical write-off experience bypayer category, including those amounts not covered by insurance and history of cash collections.The results of this review are then used to make any modifications to the provision for bad debtexpense to establish an appropriate allowance for uncollectible accounts. After satisfaction ofamounts due from insurance and reasonable efforts to collect from the patient have beenexhausted both the Hospital and LH follow established guidelines for placing certain past duepatient balances with collection agencies, subject to terms of certain restrictions on collectionefforts as determined by the two healthcare entities. Accounts Receivable are written off aftercollection efforts have been followed in accordance with established policies.

5. Property and Equipment

Property and equipment are recorded at cost for purchased items and at fair value for contributeditems. Major renewals and improvements are capitalized while maintenance repairs are expensedwhen incurred. Depreciation is provided over the estimated life of each class of depreciable assetand is computed using the straight-line method. Land, buildings and equipment and accumulateddepreciation consist of the following at June 30, 2015:

6. Long-term Debt

Long-term debt outstanding at June 30, 2015 consisted of the following:

2015

Land and land improvements 79,123,000$

Buildings 559,836,000

Equipment 382,111,000

Construction-in-progress 1,836,000

1,022,906,000

Accumulated depreciation (549,505,000)

473,401,000$

2015Amounts payable to Montgomery County HigherEducation and Health Authority

Series A Revenue Bonds 2012 (a) 138,415,000$Series B Revenue Bonds 2012 (a) 50,000,000Series A Revenue Bonds 2009 (b) 121,280,000Series A Revenue Bonds 1993 (c) 8,790,000

Other notes payable 713,000Unamortized Premium 12,879,000Unamortized Discount and Debt Issuance Cost (2,765,000)

329,312,000

Current maturities (13,413,000)

315,899,000$


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The fair value of the Hospital’s tax-exempt debt is calculated based upon yields available in thequoted market as of June 30, 2015 for bonds with comparable maturities and credit quality. Theestimated aggregate fair value of the Hospital’s long-term debt at June 30, 2015 approximated$341,785,000.

a. In August 2012 at the Hospital’s request, the Montgomery County Higher Education andHealth Authority (“Authority”) issued $138,415,000 Hospital Series A (2012A) and$50,000,000 Series B Revenue Bonds of 2012 (2012B). The Series A Bonds consist of$80,320,000 of serial bonds maturing from June 2018 through June 2027 with interest rates of3.25% or 5% and yields of 1.70% to 3.48%. In addition, there is another $58,095,000 of termbonds due June 2031 with interest rates of 3.75% or 5% and yields ranging from 3.45% to3.92%. The Series B bonds consist of $50,000,000 of variable rate direct placement bondsmaturing from June 2020 through June 2035. The proceeds of the 2012A and 2012B bondswere used together with other available funds to finance a project consisting of: (a) therefunding of the Authority’s 1998 bonds, (b) the refunding of the Authority’s 2002 bonds, (c)the payment or reimbursement of the Hospital and LH of certain capital expenditures, and (d)payment of the costs of issuance of the 2012A and 2012B Bonds. The effect of the refundingof the 1998 and 2002 bond issues resulted in a gain of $1,363,000.

b. In November 2009, at the Hospital’s request, the Montgomery County Higher Education andHealth Authority (“Authority”) issued $152,935,000 Hospital Revenue Bonds Series A of 2009(Abington Memorial Hospital Obligated Group) (“2009 Bonds”). The 2009 Bonds consist of$152,935,000 of term bonds maturing from June 2011 to June 2033 with interest rates rangingfrom 3% to 5.25% with yields ranging from 2.22% to 5.27%. The proceeds from this bondissue were used to refinance the lines of credit and advance refund a portion of the 1998Bonds.

c. In January 1993, at the Hospital’s request, the Authority issued Hospital Revenue Bonds,Series A of 1993 (“1993 Bonds”). The 1993 Bonds are dated January 1, 1993 and mature invarious years through June 1, 2022, with interest rates ranging from 4.7% to 6.1%. InJuly 2003, the Hospital called its 1993 bonds, consistent with the bond’s call option, at a callprice of 102%. Upon receipt of the called 1993 bonds, the Hospital remarketed them, withouta call option, resulting in a non-operating net gain to the Hospital of $3,051,000.

Principal

Unamortized

Premium/

(Discount and Debt

Issuance Costs)

Amounts payable to Montgomery County Higher

Education and Health Authority

Series A Revenue Bonds 2012 (a) 138,415,000$ 11,320,000$Series B Revenue Bonds 2012 (a) 50,000,000 -Series A Revenue Bonds 2009 (b) 121,280,000 (600,000)Series A Revenue Bonds 1993 (c) 8,790,000 (134,000)

Other notes payable 713,000 (472,000)

Total 319,198,000$ 10,114,000$


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The Hospital and AHF formed an Obligated Group, consisting of the Hospital and AHF, and haveentered into a Master Trust Indenture, dated June 1, 2004. Pursuant to this agreement, theHospital and AHF have as members of the Obligated Group assumed financial liability for alloutstanding Hospital bond issues including the 1993 bonds. Lansdale Hospital Corporationbecame part of the obligated group upon issuance of the 2009 bonds. Under the terms of theMaster Trust Indenture, the Obligated Group has pledged and granted a lien on and a securityinterest in their gross revenues. The Obligated Group generated the required income available fordebt service, as defined in the financing agreement, as amended and restated, of at least 110% ofannual debt service.

Principal and interest on the 1993 bonds are covered by Municipal Bond insurance.

Cash paid for interest approximated $13,969,000 in 2015.

Deferred financing costs represent bond issuance costs which are being amortized over the life ofthe bonds, using the effective interest method. Amortization expense, in relation to the bonds, wasapproximately $227,000 for the year ended June 30, 2015.

Aggregate annual maturities for long-term debt for each of the five fiscal years and thereaftersubsequent to June 30, 2015 are as follows:

7. Insurance Coverage

Professional Liability and Other InsuranceIn compliance with the Healthcare Services Malpractice Act of Pennsylvania (“Act 111”, of 1975),The Hospital and LHC utilize a captive insurance company to provide its professional liabilityinsurance. Specifically, the Hospital insurance provider, Cassatt RRG, is owned by variousregional non-profit hospitals including Abington Memorial Hospital. Cassatt RRG is incorporatedunder the laws of the state of Vermont and operates as a Risk Retention Group under the FederalLiability Risk Retention Act of 1986. Cassatt RRG reinsures with Cassatt Insurance Company,LTD which is owned by the various regional non-profit hospitals, including the Hospital, andincorporated as an insurance company under the laws of Bermuda.

The Hospital and LHC maintain primary professional liability insurance in the amount of $500,000per occurrence and $2,500,000 per annual aggregate, utilizing a guaranteed cost policyunderwritten by Cassatt RRG, Inc. In addition, as required by state legislation, the two entitiesparticipate in the “Pennsylvania Medical Care and Reduction of Error Fund (“MCARE Fund”) whichprovides limits of $500,000 per occurrence and $1,500,000 per annual aggregate in excess of theprimary limits. Premium payments for the MCARE Fund are based upon each individual licensedhealthcare provider’s rating with the Joint Underwriters Association and may be subject to futureincreases to cover any funding deficiencies within the Fund. The MCARE Fund currently has anunfunded liability and depending upon the ultimate resolution of this matter the Hospital may incuradditional insurance costs.

2016 13,413,0002017 11,078,0002018 11,138,0002019 11,483,0002020 12,433,0002021 and thereafter 259,653,000


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The Hospital and LHC believe that Cassatt Insurance Company has been adequately funded andhas sufficient reserves to meet its projected liabilities; however, the Hospital may incur additionalinsurance costs depending on the claims experience of Cassatt Insurance Company. The CassattRRG, Inc. policy also provides general liability coverage in the amount of $1,000,000 peroccurrence and $2,000,000 per annual aggregate. Cassatt Insurance Company has alsohistorically provided professional liability insurance coverage above the MCARE Fund per claimlimit. For the period ended June 30, 2015, Cassatt Insurance Company provides coverage inexcess of the MCARE per claim limit to $4,000,000 and through reinsurance provides layeredexcess professional liability coverage of $15,000,000 per occurrence with a $45,000,000 annualaggregate.

The Hospital and LHC supplement the above coverage with the purchase of an Umbrella Liabilitypolicy, also written by Cassatt RRG, Inc., providing nonprofessional layered liability coverage of$49,000,000 per occurrence with a $49,000,000 annual aggregate. For the year ended June 30,2015, the annual general and professional liability insurance premium paid (including the MCAREFund and excess policy) was approximately $8,267,000.

At June 30, 2015, the estimated liability recorded in the accompanying balance sheets related toprofessional liability amounted to approximately $59,111,000. Anticipated insurance recoveriesfrom third parties associated with these liabilities for June 30, 2015 was $46,218,000.

Workers’ Compensation InsuranceAbington Memorial Hospital is self-insured for workers’ compensation claims. At June 30, 2015,the estimated liability recorded in the accompanying balance sheets amounted to approximately$7,113,000. The Hospital has historically purchased stop loss insurance for individual claims, andcurrently purchases stop-loss insurance for individual claims in excess of $750,000. LansdaleHospital Corporation has purchased a $250,000 deductible (per claim) commercial worker’scompensation policy through PMA Insurance Group.

8. Pension Plan

Current accounting guidance requires employers to recognize the overfunded or underfundedprojected benefit obligation (“PBO”) of a defined benefit pension plan as an asset or liability in thestatement of financial position. The PBO represents the actuarial present value of benefitsattributable to employee service rendered to date, including the effects of estimated future salaryincreases. Employers are also required to recognize annual changes in gains or losses, priorservice costs, or other credits that have not been recognized as a component of net periodicpension cost through unrestricted net assets.

Current accounting guidance requires an employer to measure defined benefit plan assets andobligation as of the date of its year-end balance sheet, with limited exceptions. The plan has ameasurement date of June 30th.

Items included in unrestricted net assets represent amounts that have not been recognized in netperiodic pension expense. The components recognized in unrestricted net assets, as of June 30,is as follows:

2015

Net actuarial loss 139,390,000$

Prior service cost 3,000

139,393,000$


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Year-end amounts in unrestricted net assets expected to be recognized as components of netperiodic pension expense during the next fiscal year are as follows:

The following table sets forth the change in the Hospital’s projected benefit obligation and thechange in the fair value of plan assets, as well as the amounts recognized in the financialstatements, at June 30, 2015:

2015

Amortization of net actuarial loss 6,494,000$

Amortization of service cost 2,000

6,496,000$

2015

Change in projected benefit obligation

Benefit obligation at beginning of year 637,330,000$

Service cost 26,837,000

Interest cost 28,350,000

Actuarial (gain) loss (4,285,000)

Benefits paid (13,167,000)

Projected benefit obligation at end of year 675,065,000

Change in plan assets

Fair value of plan assets at beginning of year 493,946,000

Actual return on plan assets, net of expenses 26,398,000

Employer contributions 24,000,000

Benefits paid (13,166,000)

Fair value of plan assets at end of year 531,178,000

Funded status 143,887,000$

Reconciliation of the funded status

Unrecognized prior service cost (3,000)$

Unrecognized actuarial loss (139,390,000)

Cumulative contributions (less than) in excess of

Cumulative net periodic benefit cost (4,494,000)

Net amount recognized at year-end (143,887,000)$

Amounts recognized in statement of

financial position consist ofAccrued pension liability (143,387,000)$

Accumulated benefit obligation at the end of year 575,831,000$


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The principal assumptions used in determining the actuarial present value of the benefit obligationswere as follows:

Plan assets are allocated at June 30, 2015 as follows:

The following table presents the Plan’s financial instruments as of June 30, 2015, measured at fairvalue on a recurring basis using the fair value hierarchy defined in Note 2.

The Hospital invests plan assets with the objective of funding plan liabilities, maintaining liquiditysufficient to pay current year benefit requirements, earn a return above the actuarial assumptionand diversify adequately among asset classes so as to earn a reasonable return relative to the riskof capital loss. Consistent with this investment objective the Plan has established a targetinvestment allocation of 57.5% (range 50%-70%) equity, 37.5% (range 30%-50%) fixed income,and 5% (range 0%-10%) alternative investments.

2015

Weighted average assumptions as of June 30

Discount rate 4.70 %

Rate of compensation increase 4.06 %

2015

Components of net periodic benefit cost

Service cost 26,837,000$

Interest cost 28,349,000

Expected return on plan assets (39,809,000)

Amortization of prior service cost 3,000

Recognized actuarial gain or loss 6,594,000

Net periodic benefit cost 21,974,000$

2015

Equity securities 71.10 %

Cash and Debt securities 28.90

100.00 %

Allocation Percentage

June 30

Level 1 Level 2 Level 3 Total

Pension investment programCash and cash equivalents 12,980,000$ -$ -$ 12,980,000$Equity securities 301,635,000 76,030,000 - 377,665,000Debt securities - 140,533,000 - 140,533,000

Total pension investment program 314,615,000$ 216,563,000$ -$ 531,178,000$


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The principal assumptions used in determining the Net Periodic Benefit Cost are as follows:

The Hospital’s expected rate of return on plan assets assumption was developed based onhistorical returns for the major asset classes. This review also considered both current marketconditions and projected future conditions.

Employer contributions expected for fiscal year 2016 is $24,000,000.

Estimated Future Benefit Payments for the next five fiscal years:

9. Concentration of Credit Risk

The Hospital provides healthcare services to its patients, most of who are local residents and areinsured under third-party agreements and publicly funded programs. The mix of receivables frompatients and third-party payors was as follows:

10. Lease Commitments

The Hospital and LHC lease office space and certain equipment under operating leases. Rentalexpense was approximately $8,770,000 in 2015.

2015

Discount rate 4.50 %

Rate of compensation increase 4.06 %

Expected return on plan assets 8.00 %

2016 16,126,0002017 17,885,0002018 19,824,0002019 22,122,0002020 24,651,000

2015

Medicare 21%

Medicaid 7%

Blue Cross 14%

Managed Care 42%

Other third-party payors 9%

Self-Pay 7%

100%


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Future payments for operating leases as of June 30, 2015 are as follows:

11. Other Commitments and Contingencies

LitigationAbington Health is involved in litigation arising in the ordinary course of business. In the opinion ofmanagement, all such matters are adequately covered by commercial insurance or by accruals,and if not so covered, are without merit or are of such kind, or involve such amounts, as would nothave a material adverse effect on the financial position or results of operations of the Hospital.

12. Functional Expenses

The Hospital serves patients who reside principally in the Montgomery and Bucks countycommunities through a number of specialty inpatient and outpatient programs, including cardiology,oncology, psychiatry, obstetrics, perinatology, neonatology, pediatrics, orthopedics, rehabilitativemedicine and trauma care. Expenses for primary, secondary and tertiary services (including thoselisted above) are as follows:

13. Funds Held in Trust by Others

Nonoperating revenue includes approximately $1,739,000 received by the Hospital in 2015, asbeneficiary of several trust funds which are controlled by outside trustees. The Hospital is anincome beneficiary of these trusts for which the assets have been placed in perpetuity with atrustee. These assets, with a fair market value of approximately $46,606,000, respectively, havebeen included as part of other investments and permanently restricted net assets at June 30, 2015.

2016 3,791,000

2017 2,835,000

2018 1,742,000

2019 1,337,000

2020 1,300,000

2021 and thereafter 11,946,000

2015

Healthcare services 642,884,000$

General and administrative 126,419,000

769,303,000$


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14. Pledges Receivable

At June 30, 2015, AH’s pledges receivable of $10,239,000 consists of unconditional promises togive and are expected to be realized as follows:

15. Endowments

Abington Health endowments consist of individual donor restricted funds for a variety of purposesplus the following where the assets have been designated for endowment: pledges receivables,split interest agreements, and other net assets. The net assets associated with endowmentfunding are classified and reported based on the existence or absence of donor imposedrestrictions.

The Commonwealth of Pennsylvania law permits AMH to allocate to income each year a portion ofendowment return. The law allows non-profit organizations to spend a percentage of the marketvalue of their endowment funds, including realized and unrealized gains. The percentage, whichby law must be between 2% and 7%, is to be elected annually. In 2015 AMH’s Board of Trusteesadopted a spending policy which elected a payout of 7% of endowment market value based on anaverage spanning three years.

The Board of Trustees has interpreted the State Prudent Management of Institution Funds Act(“SPMIFA”) as requiring the preservation of the fair value of the original gift as of the date of thedonor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result ofthis interpretation AH classifies as permanently restricted net assets (a) the original value of giftsdonated to a permanent endowment, (b) the original value of subsequent gifts to a permanentendowment, and (c) accumulations to a permanent endowment made in accordance with thedirection 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, except for beneficial interests inperpetual trust that is classified in permanently restricted net assets is classified as temporaryrestricted net assets until those amounts are appropriated for expenditure by AH in a mannerconsistent with the standard of prudence prescribed by SPMIFA.

2015

Between one year and five years 10,528,000$More than five years -

10,528,000

Discount and allowance for uncollectible pledges (289,000)

Net pledges 10,239,000$


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Changes in endowment net assets for the year ended June 30, 2015:

16. Subsequent Events

AH has performed an evaluation of subsequent events through September 22, 2015, which is thedate the financial statements were issued.

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Endowment net assets,beginning of year -$ 12,560,000$ 77,299,000$ 89,859,000$

Investment returnInvestment income 1,739,000 - - 1,739,000Net change in market value - (1,159,000) (1,165,000) (2,324,000)

Total investment return 1,739,000 (1,159,000) (1,165,000) (585,000)

Gifts 635,000 413,000 1,048,000Appropriation of endowmentassets for expenditure (3,739,000) - - (3,739,000)

Transfer balance of netappreciation to unrestricted 2,000,000 (2,000,000) - -

Endowment net assets,end of year -$ 10,036,000$ 76,547,000$ 86,583,000$

Supplemental Consolidating Information

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidating Balance SheetJune 30, 2015

26

AMH AHF LHC Elimina ting Consolida te d

Asse ts

Current

Cash and cash equivalents 132,684,312$ 24,228$ 2,801,902$ -$ 135,510,442$

Investments - 632,691,327 - - 632,691,327

Patient and third- party receivables, net of

doubtful accounts of approximately $13,085,000 80,162,707 - 9,478,414 - 89,641,121

Other accounts receivable 27,470,812 367,635 1,279,658 (9,949,072) 19,169,033

Prepaid expenses and other assets 9,918,369 - 1,000,045 - 10,918,414

Total current assets 250,236,200 633,083,190 14,560,019 (9,949,072) 887,930,337

Net pledges receivable - 10,238,767 - - 10,238,767

Assets whose use is limited 1,498,289 82,117,059 - - 83,615,348

Property and equipment, net

of accumulated depreciation 410,905,780 - 62,495,375 - 473,401,155

Other assets, including funds held in trust by

others for the benefit of Abington Memorial Hospital 53,403,053 18,237,628 26,340 - 71,667,021

Other noncurrent assets 49,646,988 - 2,401,226 - 52,048,214

Total assets 765,690,310$ 743,676,644$ 79,482,960$ (9,949,072)$ 1,578,900,842$

Lia bilitie s a nd Ne t Asse ts

Current

Current maturities of long- term debt 9,633,489$ -$ 3,779,711$ -$ 13,413,200$

Accounts payable 43,020,308 201,485 4,106,501 - 47,328,294

Accrued salaries and wages 46,744,190 - 2,979,740 - 49,723,930

Third- party and other liabilities 33,230,131 9,601,751 2,906,825 (9,949,072) 35,789,635

Total current liabilities 132,628,118 9,803,236 13,772,777 (9,949,072) 146,255,059

Accrued insurance and other liabilities 54,968,271 10,620,038 3,375,702 - 68,964,011

Pension liability 143,887,186 - - - 143,887,186

Long- term debt, net of current maturities 276,062,716 - 39,836,201 - 315,898,917

Total liabilities 607,546,291 20,423,274 56,984,680 (9,949,072) 675,005,173

Ne t a sse ts

Unrestricted 110,525,179 625,488,684 22,498,280 - 758,512,143

Temporarily restricted 1,012,568 67,824,454 - - 68,837,022

Permanently restric ted 46,606,272 29,940,232 - - 76,546,504

Total net assets 158,144,019 723,253,370 22,498,280 - 903,895,669

Total liabilities and net assets 765,690,310$ 743,676,644$ 79,482,960$ (9,949,072)$ 1,578,900,842$

Abington Health (A Subsidiary of Thomas Jefferson University)Consolidating Statement of OperationsYear Ended June 30, 2015

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AMH AHF LHC Eliminating Consolidated

Revenues

Net patient service revenue 697,654,455$ -$ 82,916,091$ 780,570,546$

Provision for bad debts 21,167,038 - 3,285,363 24,452,401

Net patient service revenue less 676,487,417 - 79,630,728 - 756,118,145

provision for bad debts

Other operating revenue 31,555,534 - 2,630,192 - 34,185,726

Net assets released from restrictions 11,297,809 - 211,070 - 11,508,879

Total revenues 719,340,760 - 82,471,990 - 801,812,750

Expenses

Salaries, wages and employee benefits 410,988,236 - 35,171,658 - 446,159,894

Utilities, purchased services and other 104,486,366 420,952 20,453,390 - 125,360,708

Supplies 116,095,070 - 11,710,934 - 127,806,004

Depreciation and amortization 41,622,144 - 4,948,180 - 46,570,324

Interest 10,570,218 - 2,372,362 - 12,942,580

Insurance 8,839,917 25,906 1,597,220 - 10,463,043

Total expenses 692,601,951 446,858 76,253,744 - 769,302,553

Income from operations 26,738,809 (446,858) 6,218,246 - 32,510,197

Income from investments, trusts, estates and contributions 1,739,141 33,873,703 - - 35,612,844

Excess of revenues over expenses 28,477,950 33,426,845 6,218,246 - 68,123,041

Change in net unrealized gains - (14,218,172) - - (14,218,172)

Change in pension liability (2,529,077) - - - (2,529,077)

Net assets released from restrictions used for capital 1,496,902 - - - 1,496,902

Increase in unrestricted net assets 27,445,775$ 19,208,673$ 6,218,246$ -$ 52,872,694$

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