Cleveland Clinic Health System Obligated Group - FMSbonds.com

Cleveland Clinic will fund $96.2 million and expects to make contributions of $107.0 million and $102.6 million in2009 and 2010, respectively.H. ANTICIPATED EXPENDITURES, FUTURE PLANS AND OUTLOOK FOR OPERATIONSIn 2005, 2006 and 2007, the Obligated Group spent $251.7 million, $378.8 million and $487.1 million,respectively, on net purchases of property, plant and equipment in northeast Ohio and Florida, underscoring itscommitment to make the capital investments that it believes are necessary to sustain and enhance its patient careservice, research and education activities. The Cleveland Clinic’s Board of Trustees approves the ClevelandClinic’s annual capital budget and also approves capital expenditures for major new Health System projects.Cleveland Clinic management continues to anticipate, and remains alert to, changes in the healthcaremarket and is committed to formulating and implementing financial and strategic plans necessary to meet theCleveland Clinic’s strategic objectives and to enable the Cleveland Clinic Health System to remain a recognizedworld leader in healthcare. To that end, Cleveland Clinic management continually evaluates the ways in which itconducts business, as reflected by its restructuring of managed care arrangements and its more strategic approach topricing, billing and charge recovery. In addition, Cleveland Clinic management continues to evaluate new businessopportunities that may involve the addition or acquisition of, or affiliation with, new enterprises, or the divestiture ofenterprises that it or one of its Affiliates currently owns and operates or with which it is affiliated. All suchtransactions will comply with the terms of the Master Trust Indenture. See “APPENDIX C – SUMMARY OFBASIC DOCUMENTS – THE MASTER TRUST INDENTURE.” The Cleveland Clinic may pursue opportunities,affiliations or relationships with other organizations or enterprises that would not be a part of the Obligated Group orthat would not qualify for consolidation in the Cleveland Clinic’s financial statements under generally acceptedaccounting principles in the United States.The Cleveland Clinic has enjoyed substantial increases in patient volumes due to increases in outpatientcare. Cleveland Clinic management seeks to maintain and grow volumes in order to moderate the effect ofinflationary increases in healthcare costs. Several strategies directed to that result have been implemented, including:(i) the establishment with other healthcare organizations of formal relationships, such as contractual affiliations andjoint ventures, (ii) the expansion of strategically located Family Health Centers to extend the Obligated Group’sgeographical coverage and to provide a full range of primary and secondary care services, and to improve access tothe tertiary services for which the Cleveland Clinic is so well known, (iii) entering into collaborative agreementswith other healthcare organizations to provide professional, technical and medical management services to theseorganizations and their patients, and (iv) continued investment in research and education intended to enhance thequality and clinical reputation of the Cleveland Clinic and the ability of the Health System to deliver specialty careto patients with complex medical problems. Despite the increase in patient volumes, certain economic trends in theservice area may adversely affect the financial impact of such increases. See “PART II – THE OBLIGATEDGROUP – D. MARKET DYNAMICS” for a discussion of these economic trends.I. INTEREST RATE HEDGING AGREEMENTSThe Health System’s objectives with respect to management of interest rate risk include (1) managing therisk of increased debt service resulting from rising market interest rates, and (2) managing the risk of an increase inthe fair value of outstanding fixed rate obligations resulting from declining market interest rates. Consistent withthese objectives, the Cleveland Clinic has in the past, and may in the future, enter into interest rate hedgingagreements. See footnote 11 to the audited consolidated financial statements in Appendix B for more informationon the Cleveland Clinic’s interest rate hedging agreements.PART V.NON-OBLIGATED HEALTH SYSTEM PARTICIPANTSThis part of Appendix A presents information concerning certain participants in the Cleveland ClinicHealth System that are not members of the Obligated Group. The only participants of the Cleveland Clinic HealthSystem that have any liability with respect to the Series 2008 Bonds are the members of the Obligated Group.Affiliates that are not members of the Obligated Group include but are not limited to CCHS – WesternRegion, Lakewood, Children’s Hospital and Florida Hospital, each discussed above. Other Affiliates of asubstantial magnitude include:A-44