Cleveland Clinic Health System Obligated Group - FMSbonds.com
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Cleveland Clinic Health System Obligated Group - FMSbonds.com

Cleveland Clinic Health System Obligated Group - FMSbonds.com Cleveland Clinic Health System Obligated Group - FMSbonds.com

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System’s securities lending activity in the investment portfolio. The accounting guidance for securities lending alsorequires recording of a liability of $359.7 million, which was recorded in other current liabilities. The other majorcomponents of the increase in other current assets were increases in research receivables of $10.2 million, reflectingcontinued growth in the System’s research programs, and an increase in the current portion of pledges receivable of$14.0 million.Investments. Total investments increased $371.0 million (17.1%) from December 31, 2006 toDecember 31, 2007. Unrestricted investments increased $576.0 million (41.1%) and donor restricted assetsincreased $59.0 million (21.1%) from December 31, 2006 to December 31, 2007. Strong operating performance andsolid market returns on the System’s long-term investment pool contributed to the increase. Offsetting theseincreases were a decrease in funds held by bond trustees of $185.0 million (77.0%), primarily related to capitalprojects were financed with proceeds of the Series 2004 Bonds and the Series 2006 Bonds, and a decrease in assetsheld by captive insurance companies of $79.1 million (31.6%). The System’s captive insurance companies issued adividend and returned to the Clinic contributed capital totaling $110 million in 2007.Property, Plant and Equipment, Net. Net property, plant and equipment increased $328.5 million(15.1%) from December 31, 2006 to December 31, 2007. In 2007, the System acquired $538.2 million in newassets. These additions were offset by a $209.7 million increase in accumulated depreciation for the same period.Included in capital acquisitions were $153.5 million for the Miller Family Pavilion, $36.2 million for the GlickmanTower, $36.0 million for the Beachwood Campus, $26.7 million for the 93rd Street parking garage expansion at themain campus, $21.1 million for the System’s investment in electronic medical records systems, $10.2 million for thecardiovascular expansion at Fairview, $8.0 million for the ICU/ER expansion at Marymount, $7.9 million for theleasehold improvements of the new office space at the Beachwood Campus and $6.9 million for the BrunswickFamily Health Center.Other Noncurrent Assets. Other noncurrent assets decreased $124.9 million (62.5%) from December 31,2006 to December 31, 2007. The decrease was primarily due to the reduction of prepaid pension expense by $110.4million, a decrease in market value of the System’s interest rate swaps of $8.8 million, and a decrease in variousnotes receivable of $5.0 million. The majority of the interest rate swap agreements convert the variable rate intereston certain hospital revenue bonds to a fixed rate.Current Liabilities. Other current liabilities increased $173.3 million (35.1%) from December 31, 2006 toDecember 31, 2007. Included in other current liabilities was a payable of $359.7 million associated with securitieslending activity, which increased $150.9 million from December 31, 2006. (See the discussion under “Other CurrentAssets” above.) Other increases included a $20.0 million reclassification of malpractice reserves from noncurrent tocurrent, a $16.9 million increase in deferred revenue related to international management contracts and a $3.8million increase in research deferred revenue reflecting a higher volume of research grants. Offsetting theseincreases is an $11.9 million reduction in credit balances from patient accounts receivable, a $5.4 million decrease inthe current portion of pension liability, and a $3.5 million reduction in accrued healthcare benefits.Long-Term Debt. Notes payable and capital leases decreased $10.5 million (16.7%) from December 31,2006 to December 31, 2007. The decrease was the result of regularly scheduled debt payments and thereclassification of payments from noncurrent to current.Noncurrent Liabilities. Other liabilities decreased $45.9 million (5.2%) from December 31, 2006 toDecember 31, 2007 . The decrease is the result of an $81.8 million decrease in accrued malpractice liabilities offsetby increases in accrued retirement benefits of $12.8 million and in other noncurrent liabilities of $23.1 million. Thedecrease in accrued malpractice liabilities was the result of the numerous initiatives undertaken by the System toreduce its medical malpractice expense (see insurance expense discussion above) and the reclassification ofmalpractice reserves from noncurrent to current (see the discussion under “Current Liabilities” above.)Net Assets. Total net assets increased $528.5 million (18.2%) from December 31, 2006 to December 31,2007, reflecting $486.4 million of excess revenues over expenses, $94.7 million of minimum pension liabilityadjustment, $87.1 million of net gains on restricted net assets (comprised of $105.3 million of restricted gifts, $22.2million of investment income, $8.5 million change on beneficial interest in foundations and perpetual trusts, less$48.9 million of assets released from restrictions), $8.3 million gain on unrealized gains on other than tradinginvestments, a $1.7 million gain on derivatives contracts, and $0.4 million of unrestricted donated capital, less the$141.8 million adjustment from the adoption of FASB Statement No. 158 (which required entities to recognize theirA-38

pension plans’ funded status in the balance sheet), and the $8.3 million cumulative effect of change in accountingfor income taxes.E. BALANCE SHEET – DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005Cash and Investments. At December 31, 2006, total cash and investments for the System (includingrestricted funds) were $2.7 billion, up $447.3 million from $2.2 billion at December 31, 2005. This increase wasprimarily due to net cash provided by operating activities (excluding transactions from trading investments of$677.5 million), increases in restricted gifts of $110.2 million, an increase in proceeds from long-term borrowings of$109.8 million, net activity from discontinued operations of $67.1 million, and the change in interests in foundationsof $3.3 million. Partially offsetting these increases were capital expenditures of $458.8 million, payments on shorttermborrowings of $38.4 million, principal payments on long-term debt of $11.1 million, payments to redeem longterm debt of $9.3 million and $3.0 million of deferred debt issuance costs.In 2006, the System increased the portfolio’s diversification by investing $306.0 million of cash in hedgefunds and $17.9 in venture capital and other alternative investments. The hedge fund, venture capital and otheralternative investments are categorized as alternative investments in the Cash and Investments Table providedbelow.The following table sets forth the allocation of the System’s cash and investments, net of short-termborrowings and restricted investments, at December 31, 2006 and December 31, 2005:Cash and Investments(dollars in thousands)December 31, 2005 December 31, 2006Cash and cash equivalents $ 430,959 19% $ 460,632 17%Investments:Cash and short-term investments 237,515 11% 275,758 10%Fixed income securities 921,126 41% 650,059 24%Marketable equity securities 637,431 28% 954,570 36%Alternative investments 21,058 1% 354,397 13%Total cash and investments 2,248,089 100% 2,695,416 100%Less restricted investments * (771,763) (831,726)Unrestricted cash and investments $1,476,326 $1,863,690_____________________* Restricted investments include funds held by bond trustees, assets held by captive insurance companies and donorrestricted assets.The preceding table includes assets totaling $286.6 million as of December 31, 2006 relating to investmentsheld by the System’s captive insurance companies, with an asset mix of 26% equity securities and 74% fixed incomesecurities. Below is a comparison of the System’s cash and investments allocated with and without the assets in thecaptive insurance program:A-39

pension plans’ funded status in the balance sheet), and the $8.3 million cumulative effect of change in accountingfor in<strong>com</strong>e taxes.E. BALANCE SHEET – DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005Cash and Investments. At December 31, 2006, total cash and investments for the <strong>System</strong> (includingrestricted funds) were $2.7 billion, up $447.3 million from $2.2 billion at December 31, 2005. This increase wasprimarily due to net cash provided by operating activities (excluding transactions from trading investments of$677.5 million), increases in restricted gifts of $110.2 million, an increase in proceeds from long-term borrowings of$109.8 million, net activity from discontinued operations of $67.1 million, and the change in interests in foundationsof $3.3 million. Partially offsetting these increases were capital expenditures of $458.8 million, payments on shorttermborrowings of $38.4 million, principal payments on long-term debt of $11.1 million, payments to redeem longterm debt of $9.3 million and $3.0 million of deferred debt issuance costs.In 2006, the <strong>System</strong> increased the portfolio’s diversification by investing $306.0 million of cash in hedgefunds and $17.9 in venture capital and other alternative investments. The hedge fund, venture capital and otheralternative investments are categorized as alternative investments in the Cash and Investments Table providedbelow.The following table sets forth the allocation of the <strong>System</strong>’s cash and investments, net of short-termborrowings and restricted investments, at December 31, 2006 and December 31, 2005:Cash and Investments(dollars in thousands)December 31, 2005 December 31, 2006Cash and cash equivalents $ 430,959 19% $ 460,632 17%Investments:Cash and short-term investments 237,515 11% 275,758 10%Fixed in<strong>com</strong>e securities 921,126 41% 650,059 24%Marketable equity securities 637,431 28% 954,570 36%Alternative investments 21,058 1% 354,397 13%Total cash and investments 2,248,089 100% 2,695,416 100%Less restricted investments * (771,763) (831,726)Unrestricted cash and investments $1,476,326 $1,863,690_____________________* Restricted investments include funds held by bond trustees, assets held by captive insurance <strong>com</strong>panies and donorrestricted assets.The preceding table includes assets totaling $286.6 million as of December 31, 2006 relating to investmentsheld by the <strong>System</strong>’s captive insurance <strong>com</strong>panies, with an asset mix of 26% equity securities and 74% fixed in<strong>com</strong>esecurities. Below is a <strong>com</strong>parison of the <strong>System</strong>’s cash and investments allocated with and without the assets in thecaptive insurance program:A-39

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