Aurora Health Care, Inc. and Affiliates

Aurora Health Care, Inc. and Affiliates Unaudited Consolidated Financial Statements and Other Information For the Period Ended June 30, 2014

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AURORA HEALTH CARE, INC. AND AFFILIATES TABLE OF CONTENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION:

Selected Financial Results and Other Information 3

Key Financial Ratios 4

Historical Utilization 5

Overview 6

Business Strategy 6

Analysis of Results of Operations 9

Analysis of Financial Condition 12

Legal and Regulatory Compliance 16

Financial Reporting Initiatives 17

Bond Ratings 18 Industry Risks 18

FINANCIAL INFORMATION:

Unaudited Consolidated Balance Sheets 19 Unaudited Consolidated Statements of Operations and Changes in Unrestricted Net Assets 21 Unaudited Consolidated Statements of Changes in Net Assets 23 Unaudited Consolidated Statements of Cash Flows 25 Notes to Unaudited Consolidated Financial Statements 26

SUPPLEMENTAL CONSOLIDATING INFORMATION FOR THE PERIOD ENDED JUNE 30, 2014:

Unaudited Consolidating Balance Sheet Information 40 Unaudited Consolidating Statement of Operations and Changes in Unrestricted Net Assets Information 42

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND

FINANCIAL POSITION This quarterly report includes the consolidated financial statements and analysis for Aurora Health Care, Inc., a Wisconsin nonstock, nonprofit corporation (the “Corporation”), and its affiliates. References to “Aurora” in this document are to the Corporation and all of the affiliates and subsidiaries consolidated with it pursuant to accounting principles generally accepted in the United States of America (“GAAP”). References to the Corporation are references only to the parent corporation, and should not be read to include any of the Corporation’s affiliates and subsidiaries. The selected financial information as of June 30, 2014, and for the three and six months ended June 30, 2014 and 2013, has been derived from unaudited consolidated financial statements for such periods and includes all adjustments that management considers necessary to present such information in conformity with GAAP. Certain reclassifications have been made to the unaudited consolidated financial statements as of and for the three and six month periods ended June 30, 2013 to conform with the presentation in the unaudited consolidated financial statements as of and for the three and six month periods ended June 30, 2014. The reclassifications included reclassifications within operating expense financial statement categories related to the shared operating expenses associated with Aurora’s centralized laboratory management agreement and the reclassification of the income (loss) from investments in health related unconsolidated entities from non-operating income to other operating revenue. Such reclassifications resulted in an increase to operating income of $0.7 million and $1.9 million for the three month and six month period ended June 30, 2013, respectively, and had no impact on the excess of revenues over expenses for either period. Such financial information is not necessarily indicative of the financial position and operating results to be expected for the entire year ending December 31, 2014. We recommend that you read this discussion together with our unaudited consolidated financial statements and related notes included elsewhere in this report, as well as the audited consolidated financial statements of Aurora as of and for the years ended December 31, 2013 and 2012. The audited consolidated financial statements are available from the Municipal Securities Rulemaking Board (the “MSRB”) on its Electronic Municipal Market Access (“EMMA”) system, found at http://emma.msrb.org. Certain statements included in this quarterly report constitute forward-looking statements that involve risks and uncertainties. Actual results may differ significantly from the results discussed in the forward-looking statements as a result of known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Aurora does not plan to issue any updates or revisions to those forward-looking statements if or when the expectations, or events, conditions or circumstances on which such statements are based occur.

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AURORA HEALTH CARE, INC. AND AFFILIATES

SELECTED FINANCIAL RESULTS AND OTHER INFORMATION FOR THE PERIOD ENDED JUNE 30, 2014

(Dollars in thousands)

Selected Financial Results 2014 2013

Total revenue 2,243,660$ 2,047,400$ 196,260$ 9.6%Total expenses 2,043,288 1,982,841 60,447 3.0%Operating income 200,372 64,559 135,813 210.4%Total nonoperating income, net 30,657 6,711 23,946 356.8%Excess of revenue over expenses 231,029 71,270 159,759 224.2%

Excess of revenue over expenses attributable to Aurora 207,294 56,269 151,025 268.4%Excess of revenue over expenses attributable to noncontrolling interest 23,725 15,001 8,724 58.2%

June 30, December 31,Selected Balance Sheet Information 2014 2013

Unrestricted cash and investments 1,354,861$ 1,324,497$ 30,364$ 2.3%Patient accounts receivable, net 546,517 520,617 25,900 5.0%Property, plant and equipment, net 1,826,067 1,857,437 (31,370) -1.7%Total long-term debt 1,649,172 1,655,144 (5,972) -0.4%Pension obligation 73,339 121,140 (47,801) -39.5%Total unrestricted net assets 1,542,560 1,338,842 203,718 15.2%

Selected Cash Flow Information 2014 2013

Net cash provided by operating activities 121,182$ 37,702$ 83,480$ 221.4%Capital expenditures 58,900 44,047 14,853 33.7%

Six Months Ended June 30,

Comparison

Comparison

Six Months Ended June 30,Comparison

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KEY FINANCIAL RATIOS FOR THE PERIOD ENDED JUNE 30, 2014

2014 2013 2013 2012 2011

Operating Performance: Operating margin(1) 8.9 % 3.2 % 3.7 % 3.3 % 1.7 % EBIDA percent(2) 16.3 10.7 11.6 11.9 9.6

Year Ended December 31,Six Months

Ended June 30,

As ofJune 30,

2014 2013 2012 2011

Liquidity: Days cash on hand(3) 126.4 125.2 106.6 88.4

Financial Position/Leverage Ratios: Net AR days outstanding(4) 48.1 48.9 52.4 50.8 Unrestricted cash to debt(5) 82% 80% 64% 52% Cash to puttable debt(6) 293% 286% 234% 192% Debt to capitalization(7) 52% 55% 65% 70% Debt to cash flow(8) 2.5 3.9 4.1 5.6 Debt service coverage ratio(9) 5.4x 4.1x 4.2x 3.0x

As of December 31,

(1) Operating income/Total revenue. (2) (Excess of revenues over expenses from continuing operations + Interest expense + Depreciation and amortization expense)/Total revenue. (3) (Unrestricted cash and investments)/((Total expenses – Depreciation and amortization expense)/actual number of days in a period). (4) Accounts receivable, net/(Net patient service revenue/actual number of days in a period). (5) (Unrestricted cash and investments)/(Current installments of long-term debt + Long-term debt, less current installments). (6) (Unrestricted cash and investments)/Total variable rate demand bonds outstanding. (7) (Current installments of long-term debt + Long-term debt, less current installments)/(Current installments of long-term debt + Long-term debt, less current installments + Total Unrestricted net assets). (8) (Current installments of long-term debt + Long-term debt, less current installments)/(Excess of revenue over expenses from continuing operations + Depreciation and amortization expense). (9) (Excess of revenues over expenses from continuing operations + Interest expense + Depreciation and amortization expense)/(Principal payments + Interest expense) for the four consecutive quarters.

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HISTORICAL UTILIZATION FOR THE PERIOD ENDED JUNE 30, 2014

2014 2013 2013 2012 2011

Adult inpatient days 217,509 212,394 425,524 421,866 405,804

Adult average daily census 1,202 1,173 1,166 1,156 1,112

Adult average length of stay 4.5 4.2 4.3 4.2 4.3

Adult discharges 48,589 50,252 100,083 99,730 93,804

Emergency room visits 165,236 160,606 259,623 266,386 258,938

Observation and bedded outpatients 17,766 14,504 30,628 32,326 38,275

Surgical cases 51,428 50,630 103,875 103,808 104,231

Physician clinic, hospital outpatient and other visits 3,163,251 3,055,644 6,244,721 6,025,392 5,914,671

Year Ended December 31,Ended June 30,Six Months

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OVERVIEW Aurora is the largest provider of inpatient and outpatient care in the State of Wisconsin. It provides integrated health care services at approximately 250 geographic sites in eastern Wisconsin and northern Illinois, including primary and specialty care, pharmacies, behavioral health care, emergency care, rehabilitation, home care, and end-of-life care. Its operations include 14 acute-care hospitals and one psychiatric hospital, over 150 physician clinic facilities, one of the largest home health care organizations in Wisconsin, over 70 retail pharmacies and other health care and related services. BUSINESS STRATEGY

Aurora launched a strategy in September 2012 titled Our Way Forward, which was designed to ensure its responsiveness to the rapidly changing health care environment. Our Way Forward encompasses three core initiatives: integration, clinical and operational excellence, and strategic growth. Aurora has dedicated significant system capital and resources to successfully execute upon such initiatives. Our Way Forward was designed as a natural extension of Aurora’s purpose and values. We help people live well is Aurora’s stated purpose and sets the tone for its values: (1) every patient deserves the best care; (2) responsibly managing resources; and (3) building a healthy workplace through accountability, teamwork and respect. Our Way Forward was designed to deliver on these value statements, positioning Aurora to deliver the highest quality care at the lowest cost. Our Way Forward includes: Integration. Components of Aurora’s integration strategy include population health management, care redesign, and information technology. Initiatives within those integration strategies include the following: Population Health Management. Aurora has significant experience in population health management, having successfully managed approximately 46,000 covered lives during the last 5 years (including its employees and their dependents), achieving an average rate increase for per-member-per-month costs of 2.7% over 2012 and 2013 (as compared to the national average that has historically risen 8-9% annually per benchmarks by Mercer and Segal, 2013). Building on this experience, Aurora has developed The Aurora Network (formerly known as the Aurora Accountable Care Network or AACN), a network comprised of Aurora hospitals and clinics, physicians employed by Aurora and certain other independent physicians which offers a unique value proposition, including a price guarantee to employers built upon a health care model that improves quality, outcomes, and the patient experience. Aurora has joined with two major health insurers, Anthem and Aetna, to market The Aurora Network to Wisconsin small and medium-sized employers. Aurora has also developed products for large, self-funded employers as well as a product that is offered on the health insurance exchange. The Aurora Network was first offered on January 1, 2013. As of June 30, 2014, Aurora is currently managing approximately 14,000 covered lives for approximately 109 different employers under The Aurora Network and 58,000 covered lives through products offered on the health insurance exchange in addition to its covered employees and their dependents. In addition to The Aurora Network, Aurora is undertaking a number of different pilot projects to enhance its ability to manage populations, while improving patient experience and managing health spending, including participation in a Medicare shared savings program covering approximately 8,500 beneficiaries. In August of 2014, Aurora and five other health care organizations in Wisconsin announced the formation of a strategic partnership that would provide patient’s access to the high quality health care across the state and region. The partnership was developed to build upon and advance the clinical quality, efficiency and customer experience attributes that are shared among the six organizations. The other members of the partnership include Aspirus, Bellin Health, Gundersen Health System, ThedaCare and UW Health. Each organization in the partnership uses the same technology for electronic medical records, making it easier for patients to access

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their records and share with doctors in the network. An initial commercial insurance plan featuring the six organizations is being offered through Anthem Blue Cross Blue Shield’s Priority network. Care Redesign. Aurora’s care redesign initiative is focused on providing the infrastructure necessary to provide population health management, while improving quality and managing cost and total health care spending. A focus of the care redesign initiative is changing the primary care delivery model such that, through primary care, the patient is provided with a single access point through which all care is coordinated – including specialty care, hospital care and home health care. Under the redesigned model, care is delivered by a team of care providers, which include physicians, advanced practice nurses, physician assistants and others, designed to optimize the use of each caregiver’s skill set within the team. Primary care redesign will better utilize resources and operations with a goal towards improving health outcomes and patient experience relative to cost. Through care redesign, Aurora expects to: (i) significantly increase its primary care capacity, (ii) continuously improve delivery of health outcomes and experience through the team-based care structure, (iii) eliminate the variations in providing care for the same procedure in order to reduce non-value added procedures and advance care standards, and (iv) create a culture of sustained self-improving operational excellence. Information Technology. Aurora has dedicated significant resources to create a universal, shared, electronic health record for each Aurora patient, termed “SmartChart”. SmartChart has created industry-leading levels of electronic connectivity across Aurora’s care spectrum to achieve higher quality outcomes, more efficient care delivery and enhanced patient engagement and experience. The use of SmartChart enables the clinicians to review the patient’s medical history, document the patient visit, order tests and send prescriptions directly to the patient’s pharmacy electronically. SmartChart also includes the information necessary to assist with population health management and care redesign strategies. Aurora completed its system-wide implementation of SmartChart in October of 2013. Management estimates that Aurora will be entitled to approximately $93 million, in the aggregate, of reimbursement related to Medicare and Medicaid “meaningful use” incentive payments. To date, Aurora has received $75.7 million. For the six months ended June 30, 2014 and 2013, Aurora recognized approximately $10.8 million and $11.3 million, respectively, of income from incentive payments. Aurora implemented myAurora, an online patient resource in the first quarter of 2013. myAurora is aimed at providing patients, their families and caregivers with the necessary health information and virtual access tools to help them be effective partners in managing their health and wellness. This resource offers patients secure, integrated access to their health records and Aurora services, and allows patients to schedule appointments, view test results, renew prescriptions, pay bills and communicate with their care team. As of June 30, 2014, there were approximately 180,000 patients enrolled in myAurora.

Aurora is working on other connectivity initiatives, including taking part in a state run pilot program for the sharing of patients’ health information with other providers, regardless of the system from which the records originated.

Clinical and Operational Excellence. Aurora’s strategy for clinical and operational excellence contains both clinical and non-clinical components.

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Clinical Component. The clinical component includes development and implementation of clinical standards throughout Aurora to reduce variability and increase quality of care. Lean efforts focus on creating more efficient processes to produce improved productivity in clinical operations. These efforts include, for example, the implementation of processes designed to improve emergency department throughput and reduce the inpatient length of stay. In addition, Aurora has developed recognized clinical programs in oncology, cardiovascular, hospitalist medicine, orthopedics, neurology/spine and general surgery to improve decision making and set care protocols, supply standards, and utilization guidelines to further reduce variability and increase quality of care. Non-Clinical Component. The non-clinical component includes initiatives directed at enhancing efficiency and effectiveness in core support functions, which includes cost control and revenue cycle improvements, each described in more detail below, as part of an overall operating margin optimization effort:

Cost Control: In 2012, a fixed cost reduction plan was initiated throughout Aurora as a result of a comprehensive assessment by Navigant, Inc., which showed opportunities in various departmental, functional and managerial structures. This plan includes development of initiative teams across many functional areas responsible for identifying and implementing process improvements to achieve the cost savings identified in the assessment. Through December 31, 2013, Aurora has achieved approximately $35 million of cost savings and has identified additional cost savings opportunities in a range of $35 to $74 million in aggregate to be achieved by the end of 2015. Additionally, in 2013, Aurora began a medical technology optimization project with the goal to reduce costs through more efficient use of its medical technology equipment. The first phase of this project was to analyze the utilization of Aurora’s high cost diagnostic imaging equipment in order to align the equipment with Aurora’s operations. As of December 31, 2013, Aurora has achieved $12.5 million in capital avoidance costs and saved $4.4 million in operating and equipment service costs through analyzing diagnostic equipment utilization, maintenance, and condition. The second phase of the project, which began in 2014, is to review the utilization of other medical equipment.

Revenue Cycle Improvement: Considerable focus on the revenue cycle commenced in 2013 as part of a total redesign effort to improve revenue capture, billing accuracy and the patient experience. Beginning with scheduling and pre-registration through pre-service and point of service collections and billing, the goal is to improve completeness, timeliness and accuracy in documenting and charging for services provided to improve performance around denial management, reduce bad debts and improve the patient experience. Through these redesign efforts, Aurora has achieved approximately $27 million in revenue cycle improvements through December 31, 2013, and has identified approximately $45 million of additional opportunities to be achieved in 2014.

Strategic Growth. Aurora is continuously evaluating potential acquisitions, affiliations, joint ventures and divestitures that would enhance its ability to provide high quality, cost effective health care. Management identifies and holds discussions with possible affiliation candidates in new and existing markets to assess their interest and suitability for affiliations with Aurora. Evaluation of potential candidates includes an assessment of various factors such as financial strength, competitive position, scope and location of services, quality and cultural fit.

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Current activity includes: Bay Area Medical Center. On August 19, 2014, Aurora acquired a 49% minority interest in Bay Area Medical Center, a 99 bed general acute care hospital located in Marinette, Wisconsin, for $49.5 million, consisting of cash consideration of $43.0 million and $6.5 million of other consideration.

UW Health. Aurora is in ongoing discussions with UW Health on how the two organizations can collaborate to enhance the delivery of high quality, affordable health care to Wisconsin and the surrounding region. The form of such collaboration, if any, is unknown at this time. UW Health includes UW Hospital and Clinics, American Family Children’s Hospital, UW Carbone Cancer Center, UW School of Medicine and Public Health, Unity Health Insurance and UW Medical Foundation, a group of 1,200 doctors.

ANALYSIS OF RESULTS OF OPERATIONS Management of Aurora anticipates Aurora will benefit over time from the provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”) that have begun to extend insurance coverage through Medicaid or private insurance to a broader segment of the U.S. population. Although we are unable to predict the ultimate net effect of the Affordable Care Act on our future results of operations, and while there have been and will continue to be some adjustments in reimbursement rates by governmental payers, we have begun to receive reimbursement for caring for previously uninsured and underinsured patients in 2014. Results of Operations – Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013 Operating income was $113.4 million for the three months ended June 30, 2014, resulting in an operating margin of 9.8%, as compared to operating income of $33.6 million and an operating margin of 3.2% for the three months ended June 30, 2013. The higher operating income for the three months ended June 30, 2014, was due to higher volumes, an increase in net revenue realization rates, the impact of changes to prior year estimates and certain margin optimization activities implemented primarily in the revenue cycle beginning in the second half of 2013. Nonoperating income was $19.1 million for the three months ended June 30, 2014 compared to a loss of $6.0 million for the same period in 2013. The increase from the prior period is due to higher investment income attributable to overall changes in the financial markets. Overall, Aurora reported an excess of revenue over expenses from continuing operations of $132.5 million for the three months ended June 30, 2014 compared to $27.5 million for the same period in the prior year. Patient service revenue increased $56.8 million (5.6%) in the three months ended June 30, 2014, compared to the same period in 2013. Patient service revenue increased $20.7 million due to changes in estimates related to prior periods for better than expected collections primarily related to legacy system physician receivables that were fully reserved at March 31, 2014 and changes to recorded estimated third-party settlements compared to $10.9 million for the same period in the prior year. Patient service revenue also increased $4.7 million due to increased Medicaid provider attestation reimbursement which was retroactive to January 1, 2013. Additionally, the increase in patient service revenue is due to additional reimbursement received for previously uninsured and underinsured patients that are now insured under commercial insurance products from the health insurance exchanges and childless adults who now qualify for Medicaid as well as the additional volume generated by these patients who are now insured. Adult inpatient days and physician clinic, hospital outpatient and other visits both increased 5% during the three months ended June 30, 2014 compared to the same period in the prior year. Provision for bad debts decreased $55.1 million (91.6%) in the three months ended June 30, 2014, compared to the same period in the prior year. The decrease is due to an increase in the uninsured discount offered to self-pay patients to 45% from 15% beginning November 1, 2013, and a change in the charity care process implemented during the fourth quarter of 2013 to better identify patients who have met the charity care requirements. In addition, a decrease in self-pay patients also contributed to the reduction in the provision for

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bad debts as self-pay patients are typically reserved at a higher rate as there is a higher risk of not receiving payment for services performed. The decrease in self-pay patients is due to childless adults now being covered by the State of Wisconsin Medicaid program beginning April 1, 2014 and previously uninsured and underinsured patients that are now insured under commercial insurance products from the health insurance exchanges. Other revenue increased $11.7 million (13.8%) in the three months ended June 30, 2014, compared to the same period in the prior year. The increase in other revenue is primarily due to increased pharmacy revenue as a result of an increase in sales of specialty pharmacy supplies. Salaries and wages expense increased $19.9 million (4.0%) in the three months ended June 30, 2014, compared to the same period in the prior year. The increase in salaries and wages is primarily due to the annual salary adjustment of 2.5% which was awarded in June of 2013 and became effective in July of 2013. The increase is also due to $2.8 million of additional physician compensation as a result of Medicaid provider attestation and a 1.4% increase in full time equivalent employees.

Fringe benefits expense increased $8.2 million (9.7%) in the three months ended June 30, 2014, compared to the same period in the prior year. This increase is primarily due to an increase in health and dental claims incurred by Aurora’s employees and their dependents as compared to the same period in the prior year. Professional fees decreased $5.4 million (23.3%) in the three months ended June 30, 2014, as compared to the same period in the prior year. This decrease is largely due to a reduction in the utilization of outside radiology and consulting services. Supplies expense increased $21.4 million (11.7%) in the three month period ended June 30, 2014, compared to the same period in the prior year. A change in the fixed asset capitalization policy was made on January 1, 2014, to increase the threshold to measure an expenditure for capitalization from $1,000 to $5,000. This change in policy increased supplies expense by $10.0 million. The remaining increase is due to higher patient service volume period over period, offset by a $1.2 million reduction in supplies expense due to the restructuring of Aurora’s investment in Premier, Inc., Aurora’s group purchasing organization. Supplies expense as a percent of net patient service revenue has remained consistent at 18.2% and 18.1% for the three months ended June 30, 2014 and June 30, 2013, excluding the impact of the previously noted change in capitalization policy. Depreciation and amortization expense decreased $5.5 million (9.7%) in the three month period ended June 30, 2014, compared to the same period in the prior year. This decrease is a result of accelerated depreciation recorded during 2013 related to Cerner, Aurora’s previous electronic medical record system. Cerner was replaced with SmartChart which was implemented system-wide by October 2013. Interest expense decreased $1.1 million (6.4%) in the three months ended June 30, 2014, compared to the same period in the prior year. This decrease is attributable to the refinancing of certain fixed rate series of bonds in August of 2013 and market driven fluctuations in the interest rates on Aurora’s variable rate debt, which approximated 28% of Aurora’s total debt as of June 30, 2014. Purchased services increased $3.6 million (15.1%) in the three months ended June 30, 2014, as compared to the same period in the prior year. This increase is attributable to a variety of outside services such as grounds maintenance, dialysis and mobile imaging, as well as, higher management fees and other expenses. All other expenses, including maintenance and service contracts, building and equipment rental, hospital tax assessment, utilities, and other expense, increased $2.7 million (2.4%) in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. All other expenses as a percent of net patient service revenue has remained relatively consistent at 10.1% and 11.1% for the three months ended June 30, 2014 and 2013, respectively.

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Results of Operations – Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013 Operating income was $200.4 million for the six months ended June 30, 2014, resulting in an operating margin of 8.9%, as compared to operating income of $64.6 million and an operating margin of 3.2% for the six months ended June 30, 2013. The higher operating income for the six months ended June 30, 2014, was due to higher volumes, an increase in net revenue realization rates, the impact of changes to prior year estimates, and certain margin optimization activities implemented primarily in the revenue cycle beginning in the second half of 2013. Nonoperating income was $30.7 million for the six months ended June 30, 2014 compared to $6.7 million for the same period in 2013. The increase from the prior period is due to higher investment income attributable to overall changes in the financial markets. Overall, Aurora reported an excess of revenue over expenses from continuing operations of $231.0 million for the six months ended June 30, 2014 compared to $71.3 million for the same period in the prior year. Patient service revenue increased $77.5 million (3.9%) in the six months ended June 30, 2014, compared to the same period in 2013. Patient service revenue increased $23.3 million due to changes in estimates related to prior periods for better than expected collections primarily on legacy system physician receivables that were fully reserved at December 31, 2013 and changes to recorded estimated third-party settlements compared to $12.1 million for the same period in the prior year. Patient service revenue also increased $13.6 million due to increased Medicaid provider attestation reimbursement which was retroactive to January 1, 2013. Additionally, the increase in patient service revenue is due to additional reimbursement received for previously uninsured and underinsured patients that are now insured under commercial insurance products from the health insurance exchanges and childless adults who now qualify for Medicaid as well as the additional volume generated by these patients who are now insured. Adult average length of stay increased 6%, observation and bedded outpatient visits increased 22% and physician clinic, hospital outpatient and other visits increased 4% during the six months ended June 30, 2014 compared to the same period of the prior year. Provision for bad debts decreased $101.5 million (81.3%) in the six months ended June 30, 2014, compared to the same period in the prior year. Charity care and bad debt as a percentage of patient service revenue have also decreased from 9.4% for the six months ended June 30, 2013 to 7.3% for six months ended June 30, 2014. The decrease is due to an increase in the uninsured discount offered to self-pay patients to 45% from 15% beginning November 1, 2013, and a change in the charity care process implemented during the fourth quarter of 2013 to better identify patients who have met the charity care requirements. In addition, a decrease in self-pay patients also contributed to the reduction in the provision for bad debts as self-pay patients are typically reserved at a higher rate as there is a higher risk of not receiving payment for services performed. The decrease in self-pay patients is due to childless adults now being covered by the State of Wisconsin Medicaid program beginning April 1, 2014 and previously uninsured and underinsured patients that are now insured under commercial insurance products from the health insurance exchanges. Other revenue increased $17.2 million (10.1%) in the six months ended June 30, 2014, compared to the same period in the prior year. The increase in other revenue is primarily due to increased pharmacy revenue as a result of an increase in utilization of specialty pharmacy supplies. Salaries and wages expense increased $35.3 million (3.6%) in the six months ended June 30, 2014, compared to the same period in the prior year. The increase in salaries and wages is primarily due to the annual salary adjustment of 2.5% which was awarded in June of 2013 and became effective in July of 2013. The remaining increase is also due to $7.8 million of additional physician compensation as a result of Medicaid provider attestation and a 1.4% increase in full time equivalent employees

Supplies expense increased $26.9 million (7.5%) in the six month period ended June 30, 2014, compared to the same period in the prior year. A change in the fixed asset capitalization policy was made on January 1, 2014, to increase the threshold to measure an expenditure for capitalization from $1,000 to $5,000. This change in policy increased supplies expense by $10.0 million. The remaining increase is due to higher volume

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period over period offset by a $4.2 million reduction in supplies expense due to the restructuring of Aurora’s investment in Premier, Inc., Aurora’s group purchasing organization. Supplies expense as a percent of net patient service revenue has remained relatively consistent at 18.1% and 17.9% for the six months ended June 30, 2014 and June 30, 2013, excluding the impact of the previously noted change in capitalization policy.

Depreciation and amortization expense decreased $10.9 million (9.6%) in the six month period ended June 30, 2014, compared to the same period in the prior year. This decrease is largely due to accelerated depreciation recorded during 2013 related to Cerner, Aurora’s previous electronic medical record system. Cerner was replaced with SmartChart which was implemented system-wide by October 2013. Interest expense decreased $2.3 million (6.8%) in the six months ended June 30, 2014, compared to the same period in the prior year. This decrease is attributable to the refinancing of certain fixed rate series of bonds in August of 2013 and market driven fluctuations in the interest rates on Aurora’s variable rate debt, which approximated 28% of Aurora’s total debt as of June 30, 2014. Purchased services increased $8.4 million (18.8%) in the six months ended June 30, 2014, as compared to the same period in the prior year. This increase is attributable to a variety of outside services such as grounds maintenance, dialysis and mobile imaging, as well as, higher management fees and other expenses. All other expenses, including fringe benefits, professional fees, maintenance and service contracts, building and equipment rental, hospital tax assessment, utilities, and other expense, increased $3.0 million (0.7%) in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. ANALYSIS OF FINANCIAL CONDITION Liquidity – Cash and Investments

Aurora’s objectives for its investment portfolios are to target returns over the long-term within reasonable and prudent levels of risk and to preserve and enhance its strong financial structure. The asset allocation of the portfolios, in aggregate, is (i.) broadly diversified across domestic and international equity, fixed income asset classes and cash equivalents and (ii.) designed to maximize the probability of achieving the long-term investment objectives at an appropriate level of risk while maintaining a level of liquidity to meet the needs of ongoing portfolio management. This allocation is formalized into a strategic policy benchmark that guides the management of the portfolios and provides a standard to use in evaluating the portfolios’ performance. Investments are primarily maintained in a master trust fund administered using a bank as trustee. The management of Aurora’s investments is conducted by external investment management organizations that are monitored by an investment committee of Aurora’s Board of Directors, management and a third-party external advisor. Aurora has established formal investment policies that support Aurora’s investment objectives and provide an appropriate balance between return and risk.

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The following table sets forth the allocation of Aurora’s cash and cash equivalents, investments, and assets whose use is limited or restricted at June 30, 2014 and December 31, 2013 (dollars in thousands):

Cash and cash equivalents 296,502$ 18.8% 336,370$ 21.9%Fixed-income securities 1,061,552 67.4% 988,129 64.5%Equity securities 210,142 13.3% 199,771 13.0%Other 7,278 0.5% 8,579 0.6%

Total cash and investments 1,575,474$ 100.0% 1,532,849$ 100.0%Less restricted investments * (220,613) (208,352) Total unrestricted cash and investments 1,354,861$ 1,324,497$

Days cash on hand 126.4 125.2

December 31,2013

June 30,2014

* Restricted investments include donor restricted funds, contractually restricted funds and funds held by a trustee.

Aurora’s unrestricted cash and investments increased by $30.4 million or 2.3% from December 31, 2013 to June 30, 2014. The increase in unrestricted cash and investments from December 31, 2013 to June 30, 2014 was primarily due to cash provided by operations of $118.8 million offset by capital expenditures of $56.6 million and distributions to minority shareholders of $31.2 million. The cash provided by operations is net of a $69.0 million contribution to the Defined Contribution Plans, and a $43.9 million contribution to the Aurora Pension Plan. Total investment income for Aurora for the six months ended June 30, 2014 and 2013 consisted of the following (in thousands):

2014 2013

Interest income and dividends 13,234$ 10,738$ Net realized gains on securities 7,226 5,349 Changes in unrealized gains on investments, trading 16,520 (3,636)

Total 36,980$ 12,451$

Investment income for the six months ended June 30, 2014 and 2013 were classified in the consolidated financial statements as follows (in thousands):

2014 2013

Other operating revenue 5,193$ 3,960$ Investment income 30,235 6,395 Temporarily restricted net assets 1,552 2,096

Total 36,980$ 12,451$

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Liquidity – Accounts Receivable

Net accounts receivable days outstanding decreased to 48.1 days as of June 30, 2014 compared to 48.9 days as of December 31, 2013. The primary reason for the decrease in net accounts receivable days outstanding from December 31, 2013, is due to the strategic initiatives to improve point of service collections and expedite collections on outstanding accounts receivable, as well as, a decrease in self-pay patients. Indebtedness

Master Indenture Obligations: The Corporation has certain outstanding long-term indebtedness in the form of revenue bonds issued by the Wisconsin Health and Educational Facilities Authority on its behalf (the “Revenue Bonds”). The Corporation’s obligation to pay debt service on the Revenue Bonds is secured by Obligations issued under a Second Restated Master Trust Indenture, dated January 1, 2012, between the Members of the Obligated Group created thereunder and U.S. Bank National Association, as Master Trustee (the “Master Indenture”). The obligations of the Corporation to repay advances made under the J.P. Morgan Line of Credit and the Letters of Credit described below are also secured by Obligations issued under the Master Indenture. At June 30, 2014 and December 31, 2013, the aggregate principal amount of the Revenue Bonds outstanding was as follows (in thousands):

June 30, December 31,2014 2013

Fixed rate revenue bonds 791,097$ 795,839$ Long-term rate revenue bonds 132,475 132,475 Variable rate revenue bonds 462,485 462,485

Total 1,386,057$ 1,390,799$

Fixed Rate Revenue Bonds: At June 30, 2014, the Corporation had outstanding $791.1 million (including $14.7 million of unamortized original premium, net) of Fixed Rate Bonds. The weighted average interest rate on the Fixed Rate Revenue Bonds was 5.11% at June 30, 2014. Long-Term Rate Bonds: The Long-Term Rate Bonds bear interest at fixed rates for specified periods, and are subject to mandatory tender at the end of such periods, on the date and in the principal amount described below. There is no liquidity facility in effect with respect to the Long-Term Rate Bonds to pay the purchase price on the mandatory tender dates. Failure of the Corporation to pay the purchase price on the applicable tender date would constitute an event of default under the related bond documents.

Series Principal Amount Mandatory Tender Date

Series 2009B-1 $65.0 million August 15, 2014* Series 2009B-2 $67.5 million August 15, 2016

_______________________ * The 2009B-1 bonds were remarketed on August 15, 2014 as long-term rate bonds with a fixed

interest rate of 1.25% and an initial mandatory tender date of August 15, 2017. At June 30, 2014 and December 31, 2013, $65.0 million of the long-term rate bonds were classified as current due to the bond holder’s requirement to put the bonds on the mandatory tender date to Aurora without a liquidity facility dedicated to these bonds. The remainder of the long-term rate bonds are classified as long-term at June 30, 2014 and December 31, 2013.

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Variable Rate Demand Bonds (“VRDBs”): The VRDBs bear interest at variable rates (currently in daily, weekly, or Unit Pricing interest rate modes) and are subject to optional tender for purchase by their holders. At June 30, 2014, all of the VRDBs are secured by letters of credit issued by commercial banks (the “Letters of Credit”). Subject to certain requirements in the related Reimbursement Agreements, the Letters of Credit may be drawn on to pay the purchase price of the VRDBs in the event they are not remarketed. The Letters of Credit expire at various dates through 2015 (as set forth in the table below) and have various repayment terms. Subject to certain limitations, all advances under each of the Letters of Credit are subject to monthly interest-only payments for the first year. Principal payments for any advances under each of the Letters of Credit begin the earlier of one year from the date of the advance and two months after the expiration date of the Letter of Credit. The principal payments for any advance under the Letters of Credit amortize over a two or three-year period. Each Letter of Credit is subject to extension of its expiration date at the sole discretion of the related commercial bank.

Bank Par (in thousands) Expiration J.P. Morgan $50,822 10/01/2015 J.P. Morgan 84,384 09/20/2015 J.P. Morgan 84,384 09/20/2015 Bank of America 108,902 12/09/2014 Bank of Montreal 43,143 02/7/2015 Bank of Montreal 43,143 02/7/2015 Bank of Montreal 65,212 02/7/2015 Total $ 479,990

At June 30, 2014 $35.9 million of the VRDBs were classified as current due to the principal repayment terms of the related Letters of Credit.

Line of Credit. At June 30, 2014 and December 31, 2013, the Corporation had a $60.0 million line of credit, under which letters of credit can also be issued, with J.P. Morgan Chase Bank, N.A., bearing interest at the commercial bank floating rate or LIBOR plus a spread, based upon the option of the Corporation. As of June 30, 2014 and December 31, 2013, two letters of credit issued under the line of credit totaling $34.6 million and $33.3 million, respectively, were outstanding. There are currently no outstanding draws on the line of credit or letters of credit. Other Indebtedness. Aurora is obligated under capital lease and financing arrangements entered into in connection with certain sale-leaseback transactions which are reflected as long-term debt in the consolidated financial statements of Aurora. These arrangements, which relate to various administrative and medical support buildings, had initial lease terms of 15 to 25 years. Aurora is also obligated under capital leases for certain medical imaging equipment that expire at various dates during the next three years. The equipment leases are collateralized by the leased equipment. At June 30, 2014 and December 31, 2013, the outstanding amount of capital lease obligations and financing arrangements was $248.0 million and $248.5 million, respectively. Aurora is also obligated under a term note and various other debt. The term note is an obligation of Aurora BayCare Medical Center, and is collateralized by a mortgage on the orthopedic and sports medicine complex and a pledge of Aurora BayCare Medical Center’s interest in, and proceeds from, certain lease agreements.

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Aurora’s total long-term debt at June 30, 2014 and December 31, 2013 is as follows (in thousands):


Total Revenue Bonds 1,386,057$ 1,390,799$ Capital lease obligations and financing arrangements 247,999 248,505 Term note 11,480 11,884 Various notes payable 3,636 3,956

Total long-term debt 1,649,172$ 1,655,144$ Interest Rate Swap Agreement

Aurora has a fixed-to-variable interest rate swap agreement (the “Swap Agreement”) with Merrill Lynch Capital Services, Inc. (“MLCS”) with respect to the Wisconsin Health and Educational Facilities Authority Revenue Bonds, Series 1993 (Aurora Health Care Obligated Group), maturing in August 2023 (the “Series 1993 Bonds”). During the term of the Swap Agreement, Aurora continues to pay interest on the Series 1993 Bonds at their fixed interest rates, and pays MLCS a variable-rate based on the Securities Industry and Financial Markets Association Index (SIFMA) plus a spread calculated on a notional amount equal to the principal amount of the Series 1993 Bonds outstanding plus a premium. In turn, Aurora receives fixed-rate payments from MLCS based on a notional amount equal to the principal amount of the Series 1993 Bonds outstanding. At June 30, 2014 and December 31, 2013, the fair value of the Swap Agreement was a liability of $2.7 million. The Swap Agreement terminates in February 2018. Pursuant to the terms of the Swap Agreement, MLCS also has the right to optionally terminate the Agreement on December 1, 2015. Upon such termination, Aurora would be required to pay to MLCS an amount equal to the outstanding par amount of the Series 1993 Bonds multiplied by the difference between the underlying market value of the Series 1993 Bonds and the outstanding par amount of the Series 1993 Bonds. In addition, the terms of the Swap Agreement require Aurora to transfer collateral to MLCS if its liability, determined on a mark-to-market basis, exceeds a specified threshold that varies based on the rating of the Series 1993 Bonds. Aurora’s payment obligations under the Swap Agreement are secured by an Obligation issued under the Master Indenture. As of June 30, 2014 and December 31, 2013, no collateral was required. The Corporation received net swap payments of $2.0 million and $1.8 million during the six months ended June 30, 2014 and 2013, respectively. LEGAL AND REGULATORY COMPLIANCE

Aurora operates in a highly regulated and litigious industry. As a result, various lawsuits, claims, and legal and regulatory proceedings have been instituted or asserted against it from time to time. While it is impossible to predict the likelihood of future claims or inquiries, Aurora expects that new matters will be initiated against it in regular course. The results of claims, lawsuits and investigations cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on Aurora’s business, financial position, results of operations, or cash flows.

Except as described below under “Pending Matter” there are currently no pending legal proceedings and investigations that are not in the ordinary course of business, within applicable insurance coverages, or for which management has determined the amount of ultimate liability with respect to such proceedings and investigations will materially affect Aurora’s consolidated results of operations or net assets.

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Pending Matter

Implantable Cardioverter Defibrillators (“ICDs”) Investigations – In 2010, the Department of Justice served subpoenas on and issued letters to a number of hospitals and health systems across the country, including Aurora, as part of a fraud investigation into whether hospitals billed Medicare for ICDs for patients whose conditions did not satisfy coverage criteria set forth in the Center for Medicare and Medicaid Services National Coverage Determination. As the investigation is being conducted under the False Claims Act, those targeted by the government are at risk for significant damages under the False Claims Act’s treble damages and civil penalties provision. Management has cooperated fully with the investigation and expects it to be resolved by the end of 2014. Management does not expect the resolution of this investigation to have a material adverse effect on Aurora’s financial position, results of operations, or cash flows.

Compliance and Internal Audit Programs

Aurora has a corporate compliance department and maintains a corporate compliance program intended to be consistent with laws and government guidance relating to compliance programs in health care entities. The program includes mandatory education of all employees about certain significant legal and regulatory requirements applicable to the organization, including HIPAA and other privacy regulations, and includes steps to monitor and promote compliance with these requirements. All employees are provided a copy of the Aurora Code of Ethical Conduct and sign a document acknowledging they have read it and understand it. A “hotline” is available to all employees and physicians to report any areas of potential concern. In addition, Aurora has adopted policies designed to address specific risk areas and has instituted processes intended to correct problems identified through the hotline or its other compliance activities.

Aurora also has an internal audit department responsible for providing independent and objective assurance and consulting services designed to add value and improve Aurora’s operations and control environment. The internal audit department reports functionally to the Chief Administrative Officer and administratively to the Audit Committee of the Board of Directors. The responsibilities of the internal audit department include assessing the effectiveness of internal controls, reviewing compliance with applicable laws and regulations and assessing the reliability of financial reporting.

Debt Compliance Program

Aurora has adopted a debt compliance policy, which establishes uniform guidelines in connection with its tax-exempt bonds and other financial arrangements. The purpose of the policy is to ensure compliance with all federal tax laws relating to tax-exempt bonds including, but not limited to, rules relating to ownership and use of bond-financed property and investment of bond proceeds; compliance with all securities laws relating to Aurora and its bonds including ongoing public disclosure requirements and compliance with all financial and other covenants imposed under the Master Indenture, loan agreements and other agreements related to its bonds and financial arrangements. Preparing and maintaining documentation necessary to provide a record of compliance is an integral aspect of the policy.

FINANCIAL REPORTING INITIATIVES

In 2013, Aurora began an initiative to evaluate its internal control environment and to create efficiencies in Aurora’s financial reporting processes. The initiative is based upon concepts established in the Sarbanes-Oxley Act of 2002 (“SOX”), even though Aurora is not subject to the provisions of SOX. The goals of the initiative are to ensure the integrity and reliability of financial information, strengthen internal controls in the reporting process, reduce the risk of fraud and improve efficiencies in the financial reporting process. The initiative will review all aspects of the financial reporting process, identify potential risks and ensure the risks have been mitigated utilizing a management self-assessment process.

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BOND RATINGS Aurora’s outstanding bonds have been assigned ratings of A (stable outlook) and A3 (stable outlook) by Fitch and Moody’s, respectively. In July 2014, Fitch affirmed its rating and outlook and Moody’s affirmed its rating and changed its outlook to positive. INDUSTRY RISKS For a description of industry risks, see “BONDHOLDERS’ RISKS” in Appendix A to the Remarketing Circular dated July 23, 2014, relating to the Series 2009B-1 Bonds. The Official Statement can be accessed from the MSRB on its EMMA system, found at http://emma.msrb.org.

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ASSETS

CURRENT ASSETS: Cash and cash equivalents 272,721$ 310,076$ Investments 917,609 847,904 Assets whose use is limited or restricted 6,218 5,652 Patient accounts receivable — net of allowance for doubtful accounts of $199,719 and $280,153 in 2014 and 2013, respectively 546,517 520,617 Other receivables 62,904 75,904 Inventory 65,825 64,760 Prepaids and other current assets 46,116 38,359

Total current assets 1,917,910 1,863,272

ASSETS WHOSE USE IS LIMITED OR RESTRICTED: Board-designated and other 164,531 166,517 Contractually-restricted 126,272 118,514 Donor restricted 56,056 52,132 Debt service reserve 32,067 32,054

Total assets whose use is limited or restricted 378,926 369,217

PROPERTY, PLANT, AND EQUIPMENT — Net 1,826,067 1,857,437

OTHER ASSETS: Intangible assets — net 22,405 24,596 Investments in unconsolidated entities 15,312 12,839 Deferred financing costs — net 16,592 17,375 Other 31,130 36,028

Total other assets 85,439 90,838

TOTAL 4,208,342$ 4,180,764$

(Continued)

AURORA HEALTH CARE, INC. AND AFFILIATESUNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

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LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Current installments of long-term debt 151,411$ 119,125$ Accounts payable 177,063 222,843 Accrued salaries and wages 263,404 301,208 Other accrued expenses 158,178 196,216 Estimated third-party payor settlements 28,060 33,480

Total current liabilities 778,116 872,872

LONG-TERM DEBT — Less current installments 1,497,761 1,536,019

OTHER LIABILITIES: Pension and other employee benefit liabilities 160,671 198,876 Self-insured liabilities 58,452 62,314 Deferred gain 49,825 52,864 Other 56,568 58,606

Total other liabilities 325,516 372,660

Total liabilities 2,601,393 2,781,551

NET ASSETS: Unrestricted: Controlling interest 1,472,568 1,261,395 Noncontrolling interest in subsidiaries 69,992 77,447

Total unrestricted net assets 1,542,560 1,338,842

Temporarily restricted 46,050 42,033 Permanently restricted 18,339 18,338

Total net assets 1,606,949 1,399,213

TOTAL 4,208,342$ 4,180,764$

See accompanying notes to unaudited consolidated financial statements. (Concluded)

AURORA HEALTH CARE, INC. AND AFFILIATESUNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

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2014 2013REVENUE: Patient service revenue (net of contractual allowances and discounts) 1,065,368$ 1,008,584$ Less: provision for bad debts 5,025 60,099

Net patient service revenue less provision for bad debts 1,060,343 948,485

Other revenue 96,655 84,936

Total revenue 1,156,998 1,033,421

EXPENSES: Salaries and wages 517,272 497,397 Fringe benefits 93,421 85,181 Professional fees 17,760 23,168 Supplies 203,801 182,443 Depreciation and amortization 51,392 56,927 Interest 15,732 16,810 Maintenance and service contracts 25,966 23,893 Building and equipment rental 19,882 20,768 Hospital tax assessment 23,916 23,232 Utilities 10,911 10,977 Purchased services 27,147 23,593 Other expenses 36,410 35,480

Total expenses 1,043,610 999,869

OPERATING INCOME 113,388 33,552

NONOPERATING INCOME (LOSS): Investment income (loss) 18,887 (6,312) Other nonoperating income 207 271

Total nonoperating income (loss) — net 19,094 (6,041)

EXCESS OF REVENUE OVER EXPENSES 132,482 27,511

Pension-related changes other than periodic pension cost 1,543 2,875

Net assets released from restriction for purchase of property and equipment 231 156

Distributions to noncontrolling interests (23,275) (15,686)

Other - net 300 (83)

INCREASE IN UNRESTRICTED NET ASSETS 111,281$ 14,773$

See accompanying notes to unaudited consolidated financial statements.

Three Months EndedJune 30,

AURORA HEALTH CARE, INC. AND AFFILIATESCONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN UNRESTRICTED NET ASSETS

(In thousands)Unaudited

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2014 2013REVENUE: Patient service revenue (net of contractual allowances and discounts) 2,078,600$ 2,001,113$ Less: provision for bad debts 23,327 124,875

Net patient service revenue less provision for bad debts 2,055,273 1,876,238

Other revenue 188,387 171,162

Total revenue 2,243,660 2,047,400

EXPENSES: Salaries and wages 1,014,477 979,166 Fringe benefits 185,900 185,790 Professional fees 35,737 39,403 Supplies 385,262 358,380 Depreciation and amortization 103,052 113,950 Interest 31,509 33,799 Maintenance and service contracts 52,162 47,772 Building and equipment rental 38,436 42,204 Hospital tax assessment 47,886 46,562 Utilities 23,156 22,294 Purchased services 53,331 44,910 Other expenses 72,380 68,611

Total expenses 2,043,288 1,982,841

OPERATING INCOME 200,372 64,559

NONOPERATING INCOME: Investment income 30,235 6,395 Other nonoperating income 422 316

Total nonoperating income — net 30,657 6,711

EXCESS OF REVENUE OVER EXPENSES 231,029 71,270

Pension-related changes other than periodic pension cost 3,186 5,750

Net assets released from restriction for purchase of property and equipment 356 362

Distributions to noncontrolling interests (31,190) (20,654)

Other - net 337 301

INCREASE IN UNRESTRICTED NET ASSETS 203,718$ 57,029$


Six Months EndedJune 30,

AURORA HEALTH CARE, INC. AND AFFILIATESCONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN UNRESTRICTED NET ASSETS

(In thousands)Unaudited

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Controlling NoncontrollingInterest Interest Total Temporarily Permanently

Unrestricted Unrestricted Unrestricted Restricted Restricted Total

NET ASSETS — March 31, 2013 888,343$ 67,986$ 956,329$ 38,190$ 18,310$ 1,012,829$

Excess of revenue over expenses 19,895 7,616 27,511 - - 27,511 Pension-related changes other than net periodic pension costs 2,875 - 2,875 - - 2,875 Change in unrealized gains and losses on investments - - - - - - Contributions - - - 1,060 - 1,060 Investment income - - - 1,035 - 1,035 Net assets released from restrictions for operations - - - (449) - (449) Net assets released from restrictions for purchase of property and equipment 156 - 156 (156) - - Distributions to noncontrolling interest - (15,686) (15,686) - - (15,686) Other — net (83) - (83) 272 - 189

Increase in net assets 22,843 (8,070) 14,773 1,762 - 16,535

NET ASSETS — June 30, 2013 911,186$ 59,916$ 971,102$ 39,952$ 18,310$ 1,029,364$

NET ASSETS — March 31, 2014 1,351,980 79,299 1,431,279 45,374 18,338 1,494,991

Excess of revenue over expenses 118,514 13,968 132,482 - - 132,482 Pension-related changes other than net periodic pension costs 1,543 - 1,543 - - 1,543 Change in unrealized gains and losses on investments - - - 1,283 - 1,283 Contributions - - - 1,738 1 1,739 Investment income - - - (212) - (212) Change in beneficial interests in assets held by others and remainder trusts - - - (1,039) - (1,039) Net assets released from restrictions for operations - - - (820) - (820) Net assets released from restrictions for purchase of property and equipment 231 - 231 (231) - - Distributions to noncontrolling interest - (23,275) (23,275) - - (23,275) Other — net 300 - 300 (43) - 257

Increase in net assets 120,588 (9,307) 111,281 676 1 111,958

NET ASSETS — June 30, 2014 1,472,568$ 69,992$ 1,542,560$ 46,050$ 18,339$ 1,606,949$


UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013

(In thousands)


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Controlling NoncontrollingInterest Interest Total Temporarily Permanently

Unrestricted Unrestricted Unrestricted Restricted Restricted Total

NET ASSETS — December 31, 2012 848,504$ 65,569$ 914,073$ 36,660$ 18,310$ 969,043$

Excess of revenue over expenses 56,269 15,001 71,270 - - 71,270 Pension-related changes other than net periodic pension costs 5,750 - 5,750 - - 5,750 Change in unrealized gains and losses on investments - - - - - - Contributions - - - 2,101 - 2,101 Investment income - - - 2,096 - 2,096 Net assets released from restrictions for operations - - - (889) - (889) Net assets released from restrictions for purchase of property and equipment 362 - 362 (362) - - Distributions to noncontrolling interest - (20,654) (20,654) - - (20,654) Other — net 301 - 301 346 - 647

Increase in net assets 62,682 (5,653) 57,029 3,292 - 60,321

NET ASSETS — June 30, 2013 911,186 59,916 971,102 39,952 18,310 1,029,364

NET ASSETS — December 31, 2013 1,261,395$ 77,447$ 1,338,842$ 42,033$ 18,338$ 1,399,213$

Excess of revenue over expenses 207,294 23,735 231,029 - - 231,029 Pension-related changes other than net periodic pension costs 3,186 - 3,186 - - 3,186 Change in unrealized gains and losses on investments - - - 1,297 - 1,297 Contributions - - - 5,158 1 5,159 Investment income - - - 255 - 255 Change in beneficial interests in assets held by others and remainder trusts - - - (1,028) - (1,028) Net assets released from restrictions for operations - - - (1,273) - (1,273) Net assets released from restrictions for purchase of property and equipment 356 - 356 (356) - - Distributions to noncontrolling interest - (31,190) (31,190) - - (31,190)

Other — net 337 - 337 (36) - 301

Increase in net assets 211,173 (7,455) 203,718 4,017 1 207,736

NET ASSETS — June 30, 2014 1,472,568$ 69,992$ 1,542,560$ 46,050$ 18,339$ 1,606,949$


UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

(In thousands)


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2014 2013CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets 207,736$ 60,321$ Adjustments to reconcile change in net assets to net cash used in operating activities: Restricted contributions and investment income (1) (4,197) Pension-related changes other than net periodic pension cost (3,186) (5,750) Realized and unrealized gains on investments, net (23,746) (1,713) Gain on sale of property, plant, and equipment (432) (180) Impairment of long-lived assets 48 - Amortization of intangible assets and other items 3,273 5,321 Amortization of deferred gains (3,039) (3,039) Depreciation and amortization 103,052 113,950 Provision for bad debts 23,327 124,875 Distribution to noncontrolling interest 31,190 20,654 Increase in accounts receivable (49,227) (90,562) Decrease in accounts payable and accrued expenses (126,575) (73,379) Decrease in estimated third-party payor settlements (5,420) (3,454) Decrease in pension and other employee benefit liabilities (35,019) (114,583) Decrease in self-insured liabilities (3,862) (1,521)

Other changes in assets and liabilities, net 3,063 10,959

Net cash provided by operating activities 121,182 37,702

CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (58,900) (44,047) Proceeds from sales of property, plant, and equipment 432 180 Investment in unconsolidated entities (1,400) - Distributions from unconsolidated entities 1,855 - Purchases of investments (238,420) (327,827) Sales of investments 182,186 216,330

Net cash used in investing activities (114,247) (155,364)

CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt, capital leases, and financing arrangements (13,101) (13,882) Distribution to noncontrolling interest (31,190) (20,654) Restricted contributions and investment income 1 4,197 Net cash used in financing activities (44,290) (30,339)

NET DECREASE IN CASH AND CASH EQUIVALENTS (37,355) (148,001)

CASH AND CASH EQUIVALENTS:

Beginning of period 310,076 499,908

End of period 272,721$ 351,907$

See notes to accompanying unaudited consolidated financial statements.

Six Months EndedJune 30,

AURORA HEALTH CARE, INC. AND AFFILIATESUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 2014

1. DESCRIPTION OF BUSINESS

Aurora Health Care, Inc. and its affiliates (collectively, Aurora) constitute an integrated health care system providing health care services to communities throughout eastern Wisconsin and northern Illinois. Aurora provides a variety of health care related activities, education, philanthropic, medical research and other benefits to the communities in which they operate. Health care services include primary and specialty care, pharmacies, behavioral health care, emergency care, rehabilitation, home care, and end-of-life care.

Aurora Health Care, Inc. (the Corporation) is a Wisconsin nonstock, not-for-profit corporation. The Corporation is the parent corporation of a group of nonprofit and for profit corporations and other organizations that own and operate 14 acute-care hospital campuses, one psychiatric hospital, a network of over 150 physician clinic facilities, home health services, over 70 retail pharmacies, and other health care and related services.

The accompanying unaudited consolidated financial statements include the Corporation and its wholly owned or controlled affiliates. All intercompany accounts and transactions have been eliminated in the preparation of the unaudited consolidated financial statements.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited consolidated financial statements of Aurora as of June 30, 2014, and for the three and six months ended June 30, 2014 and 2013, include all adjustments that management considers necessary to present such information on a basis consistent with that of the audited consolidated financial statements. Certain reclassifications have been made to the unaudited consolidated financial statements as of and for the three and six month periods ended June 30, 2013 to conform with the presentation in the unaudited consolidated financial statements as of and for the three and six month periods ended June 30, 2014. The reclassifications included reclassifications within operating expense financial statement categories related to the shared operating expenses associated with Aurora’s centralized laboratory management agreement and the reclassification of the income (loss) from investments in health related unconsolidated entities from non-operating income to other operating revenue. Such reclassifications resulted in an increase to operating income of $0.7 million and $1.9 million for the three month and six month period ended June 30, 2013, respectively, and had no impact on the excess of revenues over expenses for either period. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim reporting, and accordingly, do not include all of the disclosures required in annual financial statements. As such, these unaudited consolidated financial statements should be read in conjunction with the information included under Management’s Discussion and Analysis of Results of Operations and Financial Position, and the audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012, and the related notes.

The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the operating results to be expected for the entire year ending December 31, 2014.

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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as of the date and period of the consolidated financial statements. Actual results could differ from those estimates.

Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which outlines a single comprehensive model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. This ASU is effective for fiscal years beginning after December 15, 2016. Aurora will adopt this ASU on January 1, 2017 and is currently evaluating the impact on its revenue recognition policies, procedures and control framework and the resulting impact on its consolidated financial position, results of operations and cash flows.

In April 2014, the FASB issued ASU No. 2014-08, which changes the requirements for reporting discontinued operations in FASB Accounting Standards Codification Subtopic 205-20, such that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 requires an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position, as well as additional disclosures about discontinued operations. Additionally, ASU 2014-08 requires disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements and expands the disclosures about an entity’s significant continuing involvement with a discontinued operation. We are currently evaluating the potential impact of this guidance, which will be effective for us beginning in 2015.

3. ACQUISITIONS AND DIVESTITURES

There were no acquisitions or divestitures in the six months ended June 30, 2014.

In October of 2013, Aurora acquired an ambulatory surgery center for $3.2 million. The results of this acquisition did not significantly impact operating results for the six months ended June 30, 2014.

4. PATIENT SERVICE REVENUE AND PATIENT RECEIVABLES

Wisconsin legislation assesses a fee or tax on the gross patient hospital revenue. The revenues from this assessment are used to increase payments made to hospitals for services provided to Medicaid and other medically indigent patients. Aurora’s patient service revenue reflects this increase in payment for services to Medicaid and other medically indigent patients, and hospital tax assessment expense reflects the fees assessed by the State. Patient service revenue for the six months ended June 30, 2014 and 2013 includes $46.3 million and $48.1 million, respectively, related to this program, and expenses include $47.9 million and $46.6 million, respectively, of tax assessment fees.

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The composition of patient service revenue, net of contractual allowances and discounts (before the provision for bad debts), by payor is as follows for the six months ended June 30:

2014 2013

Managed care and all other 62 % 59 % Medicare 30 30 Medicaid 8 6 Self-pay - 5

100 % 100 %

June 30,

Net self-pay patient service revenue has decreased from 5.0% of patient service revenue as of June 30, 2013 to 0.0% as of June 30, 2014. The decrease in net self-pay patient service revenue is due to an increase in the uninsured discount offered to self-pay patients to 45% from 15% beginning November 1, 2013, and a change in the charity care process implemented during the fourth quarter of 2013 to better identify patients who have met the charity care requirements.

Laws and regulations governing government and other payment programs are complex and subject to interpretation. As a result, there is a reasonable possibility that recorded estimated third-party settlements could change by a material amount. Changes in estimates relating to prior years increased patient service revenue by approximately $5.7 million and $12.1 million for the six months ended June 30, 2014 and 2013, respectively.

Aurora has filed formal appeals relating to the settlement of certain prior year Medicare cost reports. The ultimate outcome of other appeals cannot be determined at this time.

Aurora’s allowance for doubtful accounts decreased from 35.0% of gross accounts receivable less contractual allowances at December 31, 2013, to 26.8% of gross accounts receivable less contractual allowances at June 30, 2014. The decrease in the allowance for doubtful accounts as a percentage of gross accounts receivable less contractual allowances was due to an increase in the uninsured discount offered to self-pay patients to 45% from 15% and a change in the charity care process to better identify patients who have met the charity care requirements. Aurora’s combined allowance for doubtful accounts, uninsured discounts and charity care covered 100% of the Aurora’s hospital’s true self-pay accounts receivable at June 30, 2014. Aurora does not maintain a material allowance for doubtful accounts from third-party payors and did not have significant write-offs from third-party payors.

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The composition of patient accounts receivable, net of contractual allowances (before the allowance for doubtful accounts) is summarized as follows as of June 30, 2014 and December 31, 2013:


Managed care and all other 53 % 44 % Medicare 17 15 Medicaid 4 4 Self-pay 26 37

100 % 100 %

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5. FAIR VALUE

The fair values of financial assets and liabilities that are measured by the level of significant input as of June 30, 2014 and December 31, 2013 are as follows:

Quoted Prices Otherin Active Significant Significant

Markets for Observable UnobservableJune 30, Identical Assets Inputs Inputs

2014 (Level 1) (Level 2) (Level 3)Assets

Recurring fair value measurements:Cash equivalents 77,769$ 20,972$ 56,797$ -$ Fixed-income securities: U.S. Treasury 133,040 - 133,040 - Corporate bonds and other debt securities 317,949 - 316,945 1,004 Federal agency 129,257 - 129,257 - Fixed income mutual funds 481,306 481,306 - - Domestic equity securities: Large-cap 19,834 19,234 600 - Mid-cap 10,983 10,983 - - Small-cap 21,344 21,344 - - Real estate 556 556 - - Equity mutual funds and exchange-traded funds 91,124 91,124 - - Real estate investments 10,065 - - 10,065 International equity securities 45,650 45,650 - - International equity limited partnership 10,586 - 10,586 - Other 4,619 4,385 - 234 Total recurring fair value measurements 1,354,083$ 695,554$ 647,225$ 11,303$

Cash 218,733 Accrued interest 2,659

Total cash and cash equivalents, investments and assets whose use is limited 1,575,475$

Nonrecurring fair value measurements:Long-lived asset held for use 2,275$ - $ 2,275$ - $ Long-lived assets held for sale 8,095 - 8,095 -

Total nonrecurring fair value measurements 10,370$ - $ 10,370$ - $

Liabilities

Recurring fair value measurements:Other noncurrent liabilities — interest rate swap agreement (2,734)$ (2,734)$ - $ - $

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Quoted Prices Otherin Active Significant Significant

Markets for Observable UnobservableDecember 31, Identical Assets Inputs Inputs

2013 (Level 1) (Level 2) (Level 3)Assets

Recurring fair value measurements:Cash equivalents 78,842$ 21,915$ 56,927$ - $ Fixed-income securities: U.S. Treasury 126,623 - 126,623 - Corporate bonds and other debt securities 304,938 - 304,323 615 Federal agency 138,100 - 138,100 - Fixed income mutual funds 418,468 418,468 - - Domestic equity securities: Large-cap 24,258 23,727 531 - Mid-cap 11,315 11,315 - - Small-cap 20,888 20,888 - - Real estate 2,285 2,285 - - Equity mutual funds and exchange-traded funds 81,252 81,252 - - International equity securities 50,035 50,035 - - International equity limited partnership 9,738 - 9,738 - Other 6,006 5,768 6 232

Total recurring fair value measurements 1,272,748$ 635,653$ 636,248$ 847$

Cash 257,528 Accrued interest 2,573

Total cash and cash equivalents, investments and assets whose use is limited 1,532,849$

Nonrecurring fair value measurements:Long-lived asset held for use 2,275$ - $ 2,275$ - $ Long-lived assets held for sale 8,302 - 8,302 -

Total nonrecurring fair value measurements 10,577$ - $ 10,577$ - $

Liabilities

Recurring fair value measurements:Other noncurrent liabilities — interest rate swap agreement (2,734)$ - $ (2,734)$ - $

Changes to the fair values based on significant unobservable inputs as of June 30, 2014 and December 31, 2013 were not significant.

Aurora categorizes assets and liabilities measured at fair value in the consolidated financial statements based upon whether the inputs used to determine their fair values are observable or unobservable. Observable inputs are inputs which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about pricing the asset or liability, based on the best information available under the circumstances.

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The fair value of all assets and liabilities recognized or disclosed at fair value are classified based on the lowest level of significant inputs. Assets and liabilities that are measured at fair value are disclosed and classified in one of the three categories. Category inputs are defined as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities on the reporting date. Investments in this level generally include exchange-traded equity securities, futures, pooled short-term investment funds, options, and exchange-traded mutual funds.

Level 2 — Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Investments in this level generally include fixed income securities, including fixed income government obligations; asset-backed securities; certificates of deposit; derivatives; as well as certain U.S. and international equities, which are not traded on an active exchange.

Level 3 — Inputs that are unobservable for the asset or liability.

Aurora believes its valuation methods and classification in fair value levels are appropriate and consistent with other market participants based on information readily available from its service providers. Transfers between fair value levels are only done when new or additional information regarding the observability of pricing inputs is received that could result in a different classification as of the reporting date. Aurora measures the transfer between fair value levels as of the end of the reporting period, December 31. There were no significant transfers between fair value levels during the six months ended June 30, 2014 or 2013.

The Level 2 and 3 instruments listed in the fair value tables above utilize the following valuation techniques and inputs:

Cash Equivalents — Cash equivalents are comprised of commercial paper and certificates of deposit, whose fair value is based on amortized cost and cost plus accrued interest, respectively. Significant observable inputs include security cost, maturity, credit rating, and relevant interest rates.

Fixed-Income Securities — The fair value of fixed-income securities is primarily determined with techniques consistent with the market approach. Significant observable inputs include benchmark yields, reported trades, observable broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Domestic Equity Securities —The fair value of domestic equity securities is primarily determined using quoted market prices in active markets. Real Estate Investments - The real estate investments are part of a real estate investment trust which is valued based upon the fair values of real estate properties held in the trust. The fair values of the real estate properties are determined giving consideration to the income, cost and sales comparison approaches of estimating property value. International Equity Securities — The fair value of international equity securities is primarily determined using prices from the non-NASD (National Association of Securities Dealers) over-the-counter markets.

International Equity Limited Partnership — This fund is valued at net asset value based upon the most recent fund financial statements.

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Interest Rate Swap Instrument — The fair value of the interest rate swap instrument was determined using an industry standard valuation model, which is based on a market approach.

Aurora holds interests in a Limited Partnership where the fair value of the investment held is estimated based on the net asset value of the fund. The following table summarizes the attributes relating to the nature and risk of this investment (dollars in thousands):

Fair Unfunded Redemption RedemptionValue Commitments Frequency Notice Period

International equity limited partnership $10,586 $0 monthly 15 days The international equity limited partnership’s investment objective is long-term total return. The fund pursues its investment objective primarily by investing in equity securities of non-U.S. emerging market companies. The following table presents additional information about Level 3 assets measured at fair value on a recurring basis as of June 30, 2014 (dollars in thousands):

Beginning Balance -

December 31, 2013

Realization of Previously

Unrealized (Gains) Losses

Unrealized Gains

Purchases, Sales and Other

Settlements

Ending Balance - June

30, 2014

Corporate bonds and other debt securities 615$ -$ (1)$ 390$ 1,004$ Real estate investments - 25 40 10,000 10,065 Other 232 - 2 - 234

Total 847$ 25$ 41$ 10,390$ 11,303$

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6. LONG-TERM DEBT

Long-term debt at June 30, 2014 and December 31, 2013 is summarized as follows (in thousands):


Wisconsin Health and Educational Facilities Authority (WHEFA) fixed-rate bonds: Series 1993 (5.25% weighted average coupon for 2014 and 2013) 91,130$ 91,130$ Series 2009A (5.04% weighted average coupon for 2014 and 5.01% for 2013) 25,300 25,300 Series 2009B (4.94% weighted average coupon for 2014 and 2013) 132,475 132,475 Series 2010A (5.45% weighted average coupon for 2014 and 5.44% for 2013) 210,980 214,975 Series 2010B (5.00% weighted average coupon for 2014 and 2013) 115,655 115,655 Series 2012A (4.74% weighted average coupon for 2014 and 4.71% for 2013) 217,550 217,550 Series 2013A (5.19% weighted average coupon for 2014 and 2013) 115,750 115,750

Total fixed-rate bonds 908,840 912,835

WHEFA variable-rate bonds: Series 1999C (0.06% effective rate for 2014 and 0.09% for 2013) 50,000 50,000 Series 2008A (0.16% effective rate for 2014 and 0.20% for 2013) 80,000 80,000 Series 2008B (0.17% effective rate for 2014 and 0.20% for 2013) 80,000 80,000 Series 2010C (0.13% effective rate for 2014 and 0.17% for 2013) 103,245 103,245 Series 2012B (0.05% effective rate for 2014 and 0.08% for 2013) 42,500 42,500 Series 2012C (0.05% effective rate for 2014 and 0.08% for 2013) 42,500 42,500 Series 2012D (0.06% effective rate for 2014 and 0.08% for 2013) 64,240 64,240

Total variable-rate bonds 462,485 462,485

Unamortized original issue premium, net 14,732 15,479

Total WHEFA debt 1,386,057 1,390,799

Capital lease obligations and financing arrangements 247,999 248,505 Term note 11,480 11,884 Notes payable 3,636 3,956

Total long-term debt 1,649,172 1,655,144

Current installments (86,411) (54,125) Long-term rate bonds classified as current (65,000) (65,000)

Long-term debt — less current installments 1,497,761$ 1,536,019$

Under the terms of a Master Trust Indenture (the “Aurora Indenture”), Aurora’s Obligated Group has issued revenue bonds through WHEFA. All outstanding debt under the Aurora Indenture represents general, joint, and several obligations of the members of the Obligated Group. Of the total fixed-rate WHEFA bonds, $47,430,000 is collateralized by bond insurance.

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The variable-rate demand bonds are collateralized by $480.0 million of irrevocable standby letters of credit issued by commercial banks, which provide interim financing to Aurora in the event that remarketing efforts fail for tendered bonds. The letters of credit expire at various dates through 2015 and have various repayment terms. Subject to certain limitations, all advances under each of the letters of credit are subject to monthly interest-only payments for the first year. The principal payments for any advance under the Letters of Credit amortize over a two or three-year period. For $328.5 million of the standby letters of credit, principal payments are due quarterly, beginning the earlier of one year from the date of the advance or two months after the expiration date of the letter of credit and shall amortize over a three-year period, not to exceed three years from the letter of credit’s stated expiration date. For the remaining $151.5 million of standby letters of credit, principal payments are due quarterly, beginning the earlier of one year from the date of the advance or two months after the expiration date of the letter of credit and shall amortize over a two-year period, not to exceed two years from the letter of credit’s stated expiration date. At June 30, 2014 and December 31, 2013, no draws were outstanding under the standby letters of credit.

At June 30, 2014 and December 31, 2013, Aurora had outstanding $132.5 million of long-term rate bonds. The long-term rate bonds bear interest at fixed rates for specified periods, and are subject to mandatory tender at the end of such periods, on the date and in the principal amount described below. There is no liquidity facility in effect with respect to the long-term rate bonds to pay the purchase price on the mandatory tender dates.

(In thousands)Principal Mandatory

Series Amount Tender Date

Series 2009B-1 65,000$ August 15, 2014 Series 2009B-2 67,475 August 15, 2016

Total 132,475$

At June 30, 2014 and December 31, 2013, $65.0 million of the long-term rate bonds were classified as current due to the bond holder’s requirement to put the bonds on the mandatory tender date to Aurora without a liquidity facility dedicated to these bonds. The remainder of the long-term rate bonds are classified as long-term as of June 30, 2014.

The 2009B-1 bonds were remarketed on August 15, 2014 as long-term rate bonds with a fixed interest rate of 1.25% and an initial mandatory tender date of August 15, 2017.

At June 30, 2014 and December 31, 2013, Aurora had a $60.0 million line of credit with a commercial bank, bearing interest at either the commercial bank floating rate or LIBOR plus 1.00%, based upon the option of Aurora. As of June 30, 2014 and December 31, 2013, two letters of credit issued under the line of credit totaling $34.6 million and $33.3 million, respectively, were outstanding. There were no outstanding draws on the line of credit or letters of credit as of June 30, 2014 or December 31, 2013.

7. EMPLOYEES’ BENEFIT PLANS

Aurora has a defined benefit pension plan (the Pension Plan) covering substantially all of its employees, hired before January 1, 2013, with at least 1,000 hours of work in a calendar year. Benefits are based on years of service and the employees’ final average earnings, as defined. Aurora funds the Pension Plan based on the amount determined by third party actuaries to meet the minimum Employee Retirement

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Income Security Act (ERISA) funding requirements. During the six months ended June 30, 2014, Aurora contributed $43.9 million to the Pension Plan. The Pension Plan assets and obligations are measured at December 31 (the Measurement Date).

In 2012, Aurora’s Board of Directors approved an amendment to freeze the Pension Plan effective December 31, 2012. As a result, the plan recognized a decrease in the projected benefit obligation of $175.4 million and a curtailment gain of $71.5 million. Employees hired after the Pension Plan freeze are not covered by the Pension Plan.

Estimated amounts of the components of net periodic pension cost (income) for the six months ended June 30, 2014 and 2013 were as follows (in thousands):

June 30, June 30,2014 2013

Service cost - $ - $ Interest cost on projected benefit obligation 33,724 32,100 Expected return on plan assets (36,578) (39,900) Net amortization and deferral 3,186 5,750 Net periodic pension cost (income) 332$ (2,050)$

The amount of net periodic pension cost (income) will be adjusted at year-end to reflect actual results, based upon the final annual actuarial valuation.

A net actuarial loss of $302.5 million and $305.7 million as of June 30, 2014 and December 31, 2013, respectively, has not yet recognized as a component of net periodic pension cost (income).

Assumptions used to determine the net periodic pension cost (income) for six months ended June 30, 2014 and 2013 were as follows:

2014 2013

Discount rate 5.22 % 4.45 %Expected long-term rate of return on assets 6.25 % 7.50 %

The discount rate used by Aurora is based on a hypothetical portfolio of high-quality bonds with cash flows matching the Pension Plan’s expected benefit payments.

The expected long-term rate of return is based on the total portfolio of the Pension Plan’s investments rather than the accumulation of returns on individual asset categories. Aurora’s investment objective is to achieve its targeted long-term rate of return while avoiding excessive risk. Risk is effectively managed through diversification, which is achieved by employing various investment managers and mutual funds to direct investments over a broad spectrum of assets, including domestic equities, international equities, and fixed-income securities. These investments are readily marketable and can be sold to fund benefit payment obligations as they become payable.

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The asset allocation of the Pension Plan assets at June 30, 2014 and December 31, 2013, was as follows:

Strategic StrategicTarget Actual Target Actual

Equity securities 33 % 39 % 33 % 36 % Fixed-income securities 64 59 64 60 Cash and cash equivalents 3 2 3 4

Total 100 % 100 % 100 % 100 %

2014 2013June 30, December 31,

Aurora sponsors defined contribution and retirement savings plans (the Defined Contribution Plans), whereby Aurora contributes a percentage of participants’ qualifying compensation up to certain limits as outlined in the Defined Contribution Plans or other amounts as designated by the affiliates’ board of directors. In connection with the Pension Plan freeze, Aurora’s Board of Directors approved an enhanced match for participants in the Defined Contribution Plans and an additional non-match for all employees to the Defined Contribution Plans beginning in 2013. Included in fringe benefits expense in the accompanying unaudited consolidated statements of operations and changes in unrestricted net assets for the six months ended June 30, 2014 and 2013 is $67.3 million and $64.7 million, respectively, for contributions to the Defined Contribution Plans.

Aurora also sponsors a noncontributory Section 457(b) defined contribution plan (the “457(b) Plan”) covering selected employees, where participants may contribute a percentage of qualifying compensation up to certain limits as defined by the 457(b) Plan. The 457(b) Plan assets and liabilities, totaling $74.6 million and $65.2 million at June 30, 2014 and December 31, 2013, respectively, are included in long-term assets whose use is limited or restricted and pension and other employee benefit liabilities, respectively, in the accompanying unaudited consolidated financial statements. The assets of this 457(b) Plan are subject to the claims of the general creditors of Aurora. Income and expense under the 457(b) Plan were $4.1 million and $4.0 million for the six months ended June 30, 2014 and 2013, respectively, which are included in other operating revenue and fringe benefits expense in the accompanying unaudited consolidated statements of operations and changes in unrestricted net assets.

8. GENERAL AND PROFESSIONAL LIABILITY INSURANCE

Aurora formed Aurora Liability Assurance, Ltd. (ALA) to assume its primary professional and general liability risks. Aurora’s professional and general liability insurance is on an occurrence basis, while managed care errors and omissions liability risks are written on a claims-made basis. Insurance companies have issued policies covering these liabilities and ceded the risks back to ALA through reinsurance agreements.

Aurora’s hospitals, clinics, and physicians are qualified health care providers as defined by Wisconsin state statute, and have separate professional liability limits of $1,000,000 per claim and $3,000,000 annual aggregate applied to each qualified provider. Losses in excess of these amounts are fully covered through mandatory participation in the State of Wisconsin Injured Patients and Families Compensation Fund (the Fund).

Aurora also has professional liability coverage for its providers and affiliates that do not qualify for the Fund coverage, as well as general liability for all of its entities. These coverages provide a number of

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shared professional liability limits and shared general liability limits totaling $2,000,000 per occurrence and $4,000,000 annual aggregate for most providers.

Independent actuaries evaluate the required provision for outstanding losses related to the professional liability, general liability, and managed care errors and omissions policies whose risk is ceded back to ALA. At June 30, 2014 and December 31, 2013, Aurora has recorded a liability for outstanding losses, including incurred but not reported, discounted at 5.0%, totaling $36.4 million and $38.4 million, respectively. Of this amount, a portion of the liability for outstanding losses was included in accrued expenses and a portion was included in self-insured liabilities. In the opinion of management, the ultimate disposition of claims incurred to date will not have a material adverse effect on Aurora’s consolidated financial position or results of operations.

ALA maintains a reinsurance trust account, which in total represents security required by the reinsurance agreement between ALA and the insurance companies.

9. SUBSEQUENT EVENTS

For the six months ended June 30, 2014, Aurora has evaluated subsequent events for potential recognition and disclosure through August 29, 2014, the date of financial statement issuance.

On August 19, 2014, Aurora acquired a 49% minority interest in Bay Area Medical Center, a 99 bed general acute care hospital located in Marinette, Wisconsin, for $49.5 million, consisting of cash consideration of $43.0 million and $6.5 million of other consideration.

* * * * *

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SUPPLEMENTARY CONSOLIDATING INFORMATION

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UNAUDITED CONSOLIDATING BALANCE SHEET INFORMATION(In thousands)

Consolidating ConsolidatingObligated Non-Obligated Adjustments & Obligated Non-Obligated Adjustments &

Group Group Eliminations Consolidated Group Group Eliminations ConsolidatedASSETS

CURRENT ASSETS: Cash and cash equivalents (47,535)$ 323,465$ (3,209)$ 272,721$ (26,158)$ 338,663$ (2,429)$ 310,076$ Investments 917,609 - - 917,609 847,904 - - 847,904 Assets whose use is limited or restricted - 6,218 - 6,218 - 5,652 - 5,652 Patient accounts receivable — net 392,257 157,911 (3,651) 546,517 375,790 145,987 (1,160) 520,617 Due from affiliates 84 104,199 (104,283) - - 135,806 (135,806) - Other receivables 38,348 24,556 - 62,904 53,414 22,490 - 75,904 Inventory 35,237 30,588 - 65,825 37,274 27,486 - 64,760 Prepaids and other current assets 34,723 12,784 (1,391) 46,116 39,262 (903) - 38,359

Total current assets 1,370,723 659,721 (112,534) 1,917,910 1,327,486 675,181 (139,395) 1,863,272

ASSETS WHOSE USE IS LIMITED OR RESTRICTED 106,680 272,246 - 378,926 97,215 272,002 - 369,217

PROPERTY, PLANT AND EQUIPMENT — Net 1,519,182 292,200 14,685 1,826,067 1,559,154 283,405 14,878 1,857,437

OTHER ASSETS: Intangible assets — net 4,689 18,700 (984) 22,405 5,844 19,736 (984) 24,596 Investments in unconsolidated entities 288,579 16,333 (289,600) 15,312 328,203 8,372 (323,736) 12,839 Deferred financing costs — net 16,586 6 - 16,592 17,367 8 - 17,375 Other 181,297 52,264 (202,431) 31,130 176,780 47,155 (187,907) 36,028

Total other assets 491,151 87,303 (493,015) 85,439 528,194 75,271 (512,627) 90,838

TOTAL 3,487,736$ 1,311,470$ (590,864)$ 4,208,342$ 3,512,049$ 1,305,859$ (637,144)$ 4,180,764$

(Continued)

June 30, 2014 December 31, 2013

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UNAUDITED CONSOLIDATING BALANCE SHEET INFORMATION(In thousands)


Group Group Eliminations Consolidated Group Group Eliminations Consolidated

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Current installments of long-term debt 147,731$ 12,152$ (8,472)$ 151,411$ 115,478$ 12,119$ (8,472)$ 119,125$ Accounts payable 142,276 34,787 - 177,063 179,460 43,383 - 222,843 Accrued salaries and wages 200,968 62,436 - 263,404 236,419 64,789 - 301,208 Other accrued expenses 125,570 33,191 (583) 158,178 175,674 31,335 (10,793) 196,216 Due to Affiliates 104,199 84 (104,283) - 135,806 - (135,806) - Estimated third-party payor settlements 20,628 7,432 - 28,060 25,487 7,993 - 33,480

Total current liabilities 741,372 150,082 (113,338) 778,116 868,324 159,619 (155,071) 872,872

LONG-TERM DEBT — Less current installments 1,460,625 90,358 (53,222) 1,497,761 1,497,667 100,046 (61,694) 1,536,019

OTHER LIABILITIES: Pension and other employee benefit liabilities 140,087 20,584 - 160,671 177,390 21,486 - 198,876 Self-insured liabilities 28,720 30,819 (1,087) 58,452 32,871 35,424 (5,981) 62,314 Deferred gain 49,825 - - 49,825 52,864 - - 52,864 Other 15,055 41,035 478 56,568 17,244 41,841 (479) 58,606

Total other liabilities 233,687 92,438 (609) 325,516 280,369 98,751 (6,460) 372,660

Total liabilities 2,435,684 332,878 (167,169) 2,601,393 2,646,360 358,416 (223,225) 2,781,551

NET ASSETS: Unrestricted: Controlling interest 855,825 885,916 (269,173) 1,472,568 675,654 865,466 (279,725) 1,261,395 Noncontrolling interest in subsidiaries - 889 69,103 69,992 - 950 76,497 77,447

Total unrestricted net assets 855,825 886,805 (200,070) 1,542,560 675,654 866,416 (203,228) 1,338,842

Temporarily restricted 182,777 68,559 (205,286) 46,050 174,173 60,213 (192,353) 42,033 Permanently restricted 13,451 23,227 (18,339) 18,339 15,860 20,816 (18,338) 18,338

Total net assets 1,052,053 978,591 (423,695) 1,606,949 865,687 947,445 (413,919) 1,399,213

TOTAL 3,487,737$ 1,311,469$ (590,864)$ 4,208,342$ 3,512,047$ 1,305,861$ (637,144)$ 4,180,764$

(Concluded)

June 30, 2014 December 31, 2013

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UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS AND CHANGES IN UNRESTRICTED NET ASSETS INFORMATIONFOR THE PERIODS ENDED JUNE 30, 2014 AND 2013(In thousands)



REVENUES: Patient service revenue (net of contractual allowances and discounts) 771,266$ 286,123$ 7,979$ 1,065,368$ 743,570$ 275,095$ (10,081)$ 1,008,584$ Less provision for bad debt (492) 5,517 5,025 47,753 13,526 (1,180) 60,099

Net patient service revenue less provision for bad debt 771,758 280,606 7,979 1,060,343 695,817 261,569 (8,901) 948,485

Other revenue 63,110 96,964 (63,419) 96,655 40,871 62,752 (18,687) 84,936

Total revenue 834,868 377,570 (55,440) 1,156,998 736,688 324,321 (27,588) 1,033,421

EXPENSES: Salaries and wages 381,036 146,429 (10,193) 517,272 370,332 125,943 1,122 497,397 Fringe benefits 78,611 6,955 7,855 93,421 62,167 34,817 (11,803) 85,181 Professional fees 13,718 4,137 (95) 17,760 18,721 3,197 1,250 23,168 Supplies 131,404 72,397 - 203,801 119,626 63,705 (888) 182,443 Depreciation and amortization 42,402 8,990 - 51,392 48,441 8,486 - 56,927 Interest 15,453 279 - 15,732 15,171 1,639 - 16,810 Maintenance and service contracts 24,325 1,755 (114) 25,966 20,633 3,260 - 23,893 Building and equipment rental 12,667 10,525 (3,310) 19,882 13,492 8,391 (1,115) 20,768 Hospital tax assessment 19,506 4,410 - 23,916 18,795 4,437 - 23,232 Utilities 7,787 3,160 (36) 10,911 8,144 2,833 - 10,977 Purchased services 17,791 6,809 2,547 27,147 8,529 14,548 516 23,593 Other expenses (3,454) 56,518 (16,654) 36,410 (330) 40,738 (4,928) 35,480

Total expenses 741,246 322,364 (20,000) 1,043,610 703,721 311,994 (15,846) 999,869

Operating income (loss) 93,622 55,206 (35,440) 113,388 32,967 12,327 (11,742) 33,552

NONOPERATING INCOME (LOSS): Investment income 10,276 8,611 18,887 (6,530) 11,337 (11,119) (6,312) Other nonoperating income (loss) 200 7 207 157 (81) 195 271

Total nonoperating income (loss) — net 10,476 8,618 19,094 (6,373) 11,256 (10,924) (6,041)

EXCESS OF REVENUES OVER EXPENSES 104,098 63,824 (35,440) 132,482 26,594 23,583 (22,666) 27,511

PENSION-RELATED CHANGES OTHER THAN NET PERIODIC PENSION COST 1,543 - - 1,543 2,875 - - 2,875

NET ASSETS RELEASED FROM RESTRICTIONS FOR PURCHASE OF PROPERTY AND EQUIPMENT 231 - - 231 - 156 - 156 DISTRIBUTIONS TO NONCONTROLLING INTERESTS (23,275) - - (23,275) - (15,686) - (15,686) OTHER — Net 300 - - 300 - (83) - (83)

INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS 82,897$ 63,824$ (35,440)$ 111,281$ 29,469$ 7,970$ (22,666)$ 14,773$

Three Months Ended June 30, 2014 Three Months Ended June 30, 2013

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UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS AND CHANGES IN UNRESTRICTED NET ASSETS INFORMATIONFOR THE PERIODS ENDED JUNE 30, 2014 AND 2013(In thousands)



REVENUES: Patient service revenue (net of contractual allowances and discounts) 1,502,888$ 600,447$ (24,735)$ 2,078,600$ 1,473,963$ 556,276$ (29,126)$ 2,001,113$ Less provision for bad debt 12,821 10,506 - 23,327 99,003 25,872 - 124,875

Net patient service revenue less provision for bad debt 1,490,067 589,941 (24,735) 2,055,273 1,374,960 530,404 (29,126) 1,876,238

Other revenue 117,536 136,142 (65,291) 188,387 88,375 126,365 (43,578) 171,162

Total revenue 1,607,603 726,083 (90,026) 2,243,660 1,463,335 656,769 (72,704) 2,047,400

EXPENSES: Salaries and wages 753,444 271,226 (10,193) 1,014,477 731,319 257,917 (10,070) 979,166 Fringe benefits 148,506 62,325 (24,931) 185,900 139,209 70,384 (23,803) 185,790 Professional fees 26,685 9,147 (95) 35,737 31,832 7,832 (261) 39,403 Supplies 246,791 138,471 - 385,262 231,688 126,692 - 358,380 Depreciation and amortization 84,903 18,149 - 103,052 96,984 16,966 - 113,950 Interest 30,763 746 - 31,509 30,630 3,169 - 33,799 Maintenance and service contracts 48,204 4,072 (114) 52,162 41,316 6,456 - 47,772 Building and equipment rental 24,886 16,860 (3,310) 38,436 28,112 17,313 (3,221) 42,204 Hospital tax assessment 39,042 8,844 - 47,886 37,595 8,967 - 46,562 Utilities 17,009 6,183 (36) 23,156 16,597 5,697 - 22,294 Purchased services 36,613 14,171 2,547 53,331 33,162 12,102 (354) 44,910 Other expenses (1,380) 92,214 (18,454) 72,380 42 82,574 (14,005) 68,611

Total expenses 1,455,466 642,408 (54,586) 2,043,288 1,418,486 616,069 (51,714) 1,982,841

Operating income (loss) 152,137 83,675 (35,440) 200,372 44,849 40,700 (20,990) 64,559

NONOPERATING INCOME (LOSS): Investment income 18,814 11,421 - 30,235 (5,783) 13,250 (1,072) 6,395 Other nonoperating income (loss) 411 11 - 422 282 34 - 316

Total nonoperating income (loss) — net 19,225 11,432 30,657 (5,501) 13,284 (1,072) 6,711

EXCESS OF REVENUES OVER EXPENSES 171,362 95,107 (35,440) 231,029 39,348 53,984 (22,062) 71,270

PENSION-RELATED CHANGES OTHER THAN NET PERIODIC PENSION COST 3,186 - - 3,186 5,750 - - 5,750

NET ASSETS RELEASED FROM RESTRICTIONS FOR PURCHASE OF PROPERTY AND EQUIPMENT 356 - - 356 - 362 - 362

DISTRIBUTIONS TO NONCONTROLLING INTERESTS (31,190) - - (31,190) - (20,654) - (20,654)

OTHER — Net 337 - - 337 2,803 (2,502) - 301

INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS 144,051$ 95,107$ (35,440)$ 203,718$ 47,901$ 31,190$ (22,062)$ 57,029$

Six Months Ended June 30, 2014 Six Months Ended June 30, 2013

Documents

Aurora Health Care, Inc. and Affiliates