Cleveland Clinic Health System Obligated Group - FMSbonds.com

Cleveland Clinic Health SystemNotes to Consolidated Financial Statements (continued)2. Affiliations (continued)Prior to October 1, 2006, the Foundation had a 49% interest in a partnership with TenetHealthcare Florida, Inc. (Tenet), a subsidiary of Tenet Healthcare Corporation. The partnership,TCC Partners (TCC), was formed to construct, own and operate a hospital in Weston, Florida(Weston Hospital), which opened in July 2001. On October 1, 2006, the Foundation exercised acontractual option to purchase Tenet’s 51% interest in TCC at a cost of $90.0 million, includingthe assumption of a note payable to Tenet of $51.2 million. The Foundation recorded anonoperating charge of $13.8 million related to a purchase option premium paid to Tenet inaccordance with the Partnership’s Definitive Agreement. The Foundation also recorded a chargeto other unrestricted revenues of $6.4 million comprised of a $9.0 million write-down of thebook value of the Foundation’s interest in TCC to fair value at the purchase date, less a$2.6 million reduction in noncurrent liabilities associated with the purchase transaction. Thetransaction was accounted for using the purchase method of accounting. The purchase price andthe Foundation’s equity investment in TCC of $49.0 million at the acquisition date wereallocated to property, plant, and equipment in the amount of $86.8 million, accounts receivableand other assets of $37.2 million, current liabilities of $17.3 million, and noncurrent liabilities of$57.7 million.Prior to October 1, 2006, the Foundation’s interest in TCC was accounted for using the equitymethod of accounting. Equity income of $4.9 million through the first nine months of 2006 wasbased on an earnings distribution formula as defined in the partnership agreement and is includedin other unrestricted revenues. The Foundation received a distribution of earnings from TCC of$1.2 million in 2006.3. Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements. Estimates also affect the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from those estimates.8