Cleveland Clinic Health System Obligated Group - FMSbonds.com
Cleveland Clinic Health System Obligated Group - FMSbonds.com Cleveland Clinic Health System Obligated Group - FMSbonds.com
The following table sets forth the allocation of the System’s cash and investments at June 30, 2008 andDecember 31, 2007:Cash and Investments(dollars in thousands)December 31, 2007 June 30, 2008Cash and cash equivalents $ 268,081 9% $ 71,543 3%Investments:Cash and short-term investments 476,992 16% 322,528 13%Fixed income securities 513,454 18% 489,486 20%Marketable equity securities 1,097,636 38% 973,658 40%Alternative investments 557,378 19% 574,274 24%Total cash and investments 2,913,541 100% 2,431,489 100%Less restricted investments * (666,359) (573,987)Unrestricted cash and investments $2,247,182 $1,857,502_____________________* Restricted investments include funds held by bond trustees, assets held by captive insurance companies and donorrestricted assets.Included in the System’s cash and investments in the preceding table are investments held by the System’scaptive insurance companies. These assets totaled $223.0 million as of June 30, 2008, with an asset mix of 17%equity securities and 83% cash and fixed income securities. The asset mix reflects the need for liquidity within thecaptives and the lower tolerance for risk and volatility inherent in insurance reserves. The assets are invested usingthe same multiple asset styles and investment managers used in the System’s long-term investment portfolio.Below is a comparison of the System’s cash and investments allocated with and without the assets in thecaptive insurance program:Cash and Investments(dollars in thousands)June 30, 2008with Captive Assets without Captive AssetsCash and cash equivalents $71,543 3% $71,543 3%Investments:Cash and short-term investments 322,528 13% 266,048 12%Fixed income securities 489,486 20% 361,787 17%Marketable equity securities 973,658 40% 934,878 42%Alternative investments 574,274 24% 574,274 26%Total cash and investments $2,431,489 100% $2,208,530 100%Patient Receivables. Patient accounts receivable, net of allowances for uncollectible accounts, increased$59.7 million (10.6%) from December 31, 2007 to June 30, 2008. Days revenue outstanding increased from 47.9days at December 31, 2007 to 50.2 days at June 30, 2008. Contributing to the increase in patient receivables is thegrowth in patient revenues due to rate increases on the System’s managed care contracts and price increases enactedin 2008. Additionally, the System accrued receivables related to favorable settlements of contract disputes withthird-party payors from prior years.Other Current Assets. Other current assets decreased $320.9 million (56.3%) from December 31, 2007 toJune 30, 2008. Included in other current assets are collateralized receivables of $14.0 million, which decreased$345.7 million from December 31, 2007 to June 30, 2008. The collateralized receivables relate to the System’ssecurities lending activity in the investment portfolio. The accounting guidance for securities lending also requiresrecording a corresponding liability of $14.0 million, which is recorded in other current liabilities. The System hassignificantly reduced the securities lending program as it evaluates the liquidity needs within its investmentA-42
portfolio. Offsetting the decrease in collateralized receivables were increases in prepaid expenses of $12.2 millionprimarily due to the timing of annual maintenance contracts and insurance payments, increases in Hospital CareAssurance Program receivables of $8.3 million and increases in inventories of $4.7 million.Investments. Total investments decreased $242.0 million (9.5%) from December 31, 2007 to June 30,2008. Unrestricted investments decreased $193.1 million (9.8%) primarily from negative market returns on theSystem’s long-term investment pool and reclassifications to short-term cash to fund, in particular, the purchase ofbonds in lieu of redemption (See the discussion under “Cash and Investments” above). Donor restricted assetsdecreased $42.8 million (12.7%) primarily from the release of restrictions for capital purchases of the Miller FamilyPavilion and Glickman Tower construction projects. Assets held by captive insurance companies decreased $6.1million (3.5%). The decrease in assets held by captive insurance companies is primarily related to the timing ofreimbursement for claims previously settled and paid by other System entities in excess of insurance premiumsreceived.Property, Plant and Equipment, Net. Net property, plant and equipment increased $109.2 million (4.4%)from December 31, 2007 to June 30, 2008. In 2008, the System acquired $228.2 million in new assets. Theseadditions were offset by a $119.0 million increase in accumulated depreciation for the same period. Included incapital acquisitions were $95.2 million for the Miller Family Pavilion project, $24.6 million for the Glickman Towerproject, $14.3 million for the System’s portion of the Carnegie and 89th Street Garage and Service Center project,$12.0 million for the 93rd Street parking garage expansion at the main campus, $5.2 million for the System’sinvestment in electronic medical records systems, and $3.8 million for the leasehold improvements of office spacein Beachwood that the System began leasing in 2007.Current Liabilities. Accounts payable decreased $19.5 million (6.8%) since December 31, 2007. Thisdecrease is principally attributable to a higher than normal level of large invoices at year-end associated with theSystem’s current construction projects. Compensation and amounts withheld from payroll increased $16.5 million(16.2%) since December 31, 2007 which is primarily the result of the timing of payroll and growth in salaries andFTEs. Other current liabilities decreased $336.2 million (50.4%) since December 31, 2007. Included in othercurrent liabilities is a payable of $14.0 million associated with securities lending activity, which decreased $345.7million from December 31, 2007. (See the discussion under “Other Current Assets” above.) Offsetting this decreaseis a $6.1 million increase in third party payor deposits that are expected to be refunded in 2008 and a $5.5 millionincrease in research deferred revenue related to research activities.Long-Term Debt. Hospital revenue bonds payable decreased $332.9 million (22.7%) since December 31,2007. The decrease was primarily the result of the System’s payment of $329.4 million to purchase bonds in lieu ofredemption. Notes payable and capital leases decreased $6.2 million (11.9%) since December 31, 2007. Thedecrease was the result of regularly scheduled debt payments and the reclassification of payments from noncurrentto current.Non-Current Liabilities. Other liabilities increased $26.5 million (3.2%) since December 31, 2007. Theincrease is the result of a $9.5 million increase in accrued malpractice liabilities, a $4.7 million increase in accruedretirement benefits, and a $12.3 million increase in other noncurrent liabilities. The increase in other noncurrentliabilities was primarily due to a $9.7 million increase in noncurrent paid time off and a $2.8 million increase inderivative liabilities.Net Assets. Total net assets increased $19.5 million (0.6%) from December 31, 2007 to June 30, 2008.Unrestricted net assets increased $68.1 million (2.5%) comprised primarily of $41.5 million of excess of revenuesover expenses, and $50.0 million of donated capital and assets released from restrictions offset by a $21.1 millionreduction related to the adoption of FASB Statement No. 158 and a $2.2 million change in unrealized investment netlosses on nontrading investments. Restricted net assets decreased $48.6 million (7.3%) comprised of $25.3 millionof restricted gifts and $0.5 million increase in beneficial interest in foundations, less $65.0 million of assets releasedfrom restrictions and $9.4 million net investment loss.G. PENSION PLANThe Health System, including both the Obligated Group and other affiliated entities, has non-contributorydefined benefit pension plans covering most employees. As of December 31, 2007, the projected benefit obligationexceeded the fair value of the pension assets by approximately $306.9 million. The Cleveland Clinic’s funding forits pension plans were $3.0 million in 2007, $92.0 million in 2006, and $113.0 million in 2005. In 2008, theA-43
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The following table sets forth the allocation of the <strong>System</strong>’s cash and investments at June 30, 2008 andDecember 31, 2007:Cash and Investments(dollars in thousands)December 31, 2007 June 30, 2008Cash and cash equivalents $ 268,081 9% $ 71,543 3%Investments:Cash and short-term investments 476,992 16% 322,528 13%Fixed in<strong>com</strong>e securities 513,454 18% 489,486 20%Marketable equity securities 1,097,636 38% 973,658 40%Alternative investments 557,378 19% 574,274 24%Total cash and investments 2,913,541 100% 2,431,489 100%Less restricted investments * (666,359) (573,987)Unrestricted cash and investments $2,247,182 $1,857,502_____________________* Restricted investments include funds held by bond trustees, assets held by captive insurance <strong>com</strong>panies and donorrestricted assets.Included in the <strong>System</strong>’s cash and investments in the preceding table are investments held by the <strong>System</strong>’scaptive insurance <strong>com</strong>panies. These assets totaled $223.0 million as of June 30, 2008, with an asset mix of 17%equity securities and 83% cash and fixed in<strong>com</strong>e securities. The asset mix reflects the need for liquidity within thecaptives and the lower tolerance for risk and volatility inherent in insurance reserves. The assets are invested usingthe same multiple asset styles and investment managers used in the <strong>System</strong>’s long-term investment portfolio.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:Cash and Investments(dollars in thousands)June 30, 2008with Captive Assets without Captive AssetsCash and cash equivalents $71,543 3% $71,543 3%Investments:Cash and short-term investments 322,528 13% 266,048 12%Fixed in<strong>com</strong>e securities 489,486 20% 361,787 17%Marketable equity securities 973,658 40% 934,878 42%Alternative investments 574,274 24% 574,274 26%Total cash and investments $2,431,489 100% $2,208,530 100%Patient Receivables. Patient accounts receivable, net of allowances for uncollectible accounts, increased$59.7 million (10.6%) from December 31, 2007 to June 30, 2008. Days revenue outstanding increased from 47.9days at December 31, 2007 to 50.2 days at June 30, 2008. Contributing to the increase in patient receivables is thegrowth in patient revenues due to rate increases on the <strong>System</strong>’s managed care contracts and price increases enactedin 2008. Additionally, the <strong>System</strong> accrued receivables related to favorable settlements of contract disputes withthird-party payors from prior years.Other Current Assets. Other current assets decreased $320.9 million (56.3%) from December 31, 2007 toJune 30, 2008. Included in other current assets are collateralized receivables of $14.0 million, which decreased$345.7 million from December 31, 2007 to June 30, 2008. The collateralized receivables relate to the <strong>System</strong>’ssecurities lending activity in the investment portfolio. The accounting guidance for securities lending also requiresrecording a corresponding liability of $14.0 million, which is recorded in other current liabilities. The <strong>System</strong> hassignificantly reduced the securities lending program as it evaluates the liquidity needs within its investmentA-42
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