MEMORIAL SLOAN KETTERING CANCER CENTER QUARTERLY DISCLOSURE REPORT UNAUDITED COMBINED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 2017

Transcription

1 MEMORIAL SLOAN KETTERING CANCER CENTER QUARTERLY DISCLOSURE REPORT UNAUDITED COMBINED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 2017

2 Table of Contents Disclosures... 2 Management s Discussion & Analysis... 3 Combined Financial Statements... 4 Notes to Interim Combined Financial Statements... 8 Debt Compliance Analysis Key Patient Statistics and Other Data

3 SPECIAL NOTE CONCERNING FORWARD-LOOKING FINANCIAL STATEMENTS: Certain statements in this Quarterly Disclosure Report are forward-looking statements that are based on the beliefs of, and assumptions made by, the management of Memorial Sloan Kettering Cancer Center ("MSKCC" or the Institution ). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Institution to be materially different from expected future results or performance. The audited financial statements, which contain a full set of footnotes, are available on the DacBond website, THIS DOCUMENT IS DATED AS OF AUGUST 1, 2017 MSKCC has prepared and released this Quarterly Disclosure Report in order to provide certain information regarding its financial and operating performance for June 30, 2017 and to meet its continuing disclosure obligations under certain of its financing documents. Except as required by law or by its contractual obligations, MSKCC undertakes no obligation to update this Quarterly Disclosure Report after its date. 2

4 Management s Discussion and Analysis of Financial Performance For the Six Months Ended June 30, 2017 and 2016 For the six months ended June 30, 2017, MSKCC generated income from operations of $151.3 million compared to $114.8 million for the same period in Operating revenues increased by $240.5 million or 12.5% in Patient revenues increased by 15.4% driven by strong demand for patient services and increased capacity. Grants and contracts revenue increased by 15.5% which was led by increased supported research activity. Philanthropy remains a strong and consistent source of revenue in support of MSKCC s mission as philanthropic revenues increased 5.2%. Royalty and other revenues declined 14.3% year over year due to a royalty contract that expired in the second quarter of Operating expenses increased by $204.0 million or 11.2%. Salaries, fringe and purchased supplies expense growth was driven by an increase in staffing and supplies necessary to support increased patient volumes, new clinical facilities, and growth in clinical and bench research. Pharmaceutical expenses increased $71.4 million or 27.6% due largely to volume growth, costs for newly approved drugs and market price increases. The Institution s long-term investable portfolio of $3.4 billion has a year-to-date return of 6.1%, which is exclusive of cash and short-term investment returns. The rate of return is reflective of a portfolio that includes 16.8% domestic and 15.1% global equity, 11.1% fixed income and cash, 30.1% hedge funds, 8.7% inflation hedging, and 18.2% private equity and venture capital.

5 and Affiliated Corporations Combined Balance Sheets June 30 December 31, (unaudited) (audited) Assets (In Thousands) Current assets: Cash and cash equivalents $ 613,177 $ 698,872 Short-term investments at fair value 212, ,868 Accounts receivable, less allowance for doubtful accounts 543, ,284 Pledges, trusts and estates receivable 162, ,185 Other current assets 100, ,086 Total current assets 1,631,978 1,671,295 Noncurrent assets: Assets whose use is limited: Investments in marketable securities at fair value: Construction, debt service and repair reserve funds 61,929 63,843 Captive insurance funds 55,573 57,672 Employee benefit funds 78,671 74,464 Total investments in marketable securities whose use is limited 196, ,979 Investments at fair value 3,200,085 3,140,818 Investments internally designated for major capital projects 986,908 1,037,988 Investments in nonmarketable securities at cost 35,573 35,573 Property and equipment net 3,567,605 3,359,348 Mortgages and other loans receivable 34,457 32,709 Pledges, trusts and estates receivable 397, ,503 Other noncurrent assets 51,428 50,279 Total noncurrent assets 8,469,229 8,220,197 Total assets $ 10,101,207 $ 9,891,492 Liabilities and net assets Current liabilities: Accounts payable $ 349,780 $ 430,739 Accrued expenses 318, ,619 Current portion of long-term debt and capital lease obligations 67,702 71,247 Total current liabilities 736, ,605 Noncurrent liabilities: Long-term debt and capital lease obligations, less current portion 2,532,539 2,544,709 Other noncurrent liabilities 809, ,201 Total liabilities 4,077,754 4,160,515 Net assets: Unrestricted: Undesignated 4,403,508 4,170,504 Board-designated 177, ,803 Total unrestricted 4,580,837 4,346,307 Temporarily restricted 790, ,725 Permanently restricted 651, ,945 Total net assets 6,023,453 5,730,977 Total liabilities and net assets $ 10,101,207 $ 9,891,492 4

6 and Affiliated Corporations Combined Statements of Unrestricted Activities Period Ended June 30, Period Ended June 30, (unaudited) (In Thousands) Operating revenues Hospital care and services $ 1,728,594 $ 1,497,804 Grants and contracts 145, ,886 Contributions 98,797 90,428 Net assets released from restrictions pledge payments 36,488 38,181 Royalty and other income 92, ,070 Investment returns allocated to operations 67,750 68,778 Total operating revenues 2,169,630 1,929,147 Operating expenses Salaries and wages 917, ,347 Employee fringe benefits 207, ,981 Purchased supplies and services 385, ,157 Pharmaceuticals 329, ,177 Depreciation and amortization 131, ,561 Provision for bad debts and regulatory assessments 22,344 23,438 Interest 23,027 24,662 Total operating expenses 2,018,334 1,814,323 Income from operations 151, ,824 Nonoperating income and expenses, net Net assets released from restrictions for capital purposes - 7,002 Investment returns, net of allocation to operations and transfers to temporarily restricted net assets 101,692 (68,704) Nonoperating postretirement benefit changes (1,067) (5,834) Other nonoperating income and expenses, net (18,917) (20,896) Total nonoperating income and expenses, net 81,708 (88,432) Increase (decrease) in unrestricted net assets before change in postretirement benefit obligation to be recognized in future periods and Board-designated activities 233,004 26,392 Board-designated Investment income and other additions 1,526 (98) Increase (decrease) in Board-designated 1,526 (98) Increase (decrease) in unrestricted net assets before change in postretirement benefit obligation to be recognized in future periods 234,530 26,294 Increase (decrease) in total unrestricted net assets $ 234,530 $ 26,294 5

7 and Affiliated Corporations Combined Statements of Changes in Net Assets Period Ended June 30, 2017 and Year Ended December 31, 2016 Unrestricted Temporarily Permanently Restricted Restricted (In Thousands) Total Net assets at January 1, ,194, , ,230 5,533,963 Increase in unrestricted net assets 151, ,425 Contributions, pledges and bequests 137,038 18, ,024 Investment return on endowments 38,614 3,729 42,343 Impairment on investment (43,927) (43,927) Net assets released from restrictions (108,851) (108,851) Net assets at December 31, ,346, , ,945 5,730,977 Increase in unrestricted net assets 234, ,530 Contributions, pledges and bequests 41,984 19,635 61,619 Investment return on endowments 27,486 5,329 32,815 Net assets released from restrictions (36,488) (36,488) Net assets at June 30, 2017 $ 4,580,837 $ 790,707 $ 651,909 $ 6,023,453 6

8 and Affiliated Corporations Combined Statements of Cash Flows Period Ended June 30, Period Ended June 30, (unaudited) (In Thousands) Operating activities Change in net assets $ 292,476 $ (8,805) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 131, ,561 Unrealized net losses (gains) (115,510) 45,745 Realized net gains (81,626) (24,741) Temporarily and permanently restricted contributions, pledges and bequests transferred to investing activities (41,984) (18,186) Changes in assets: Accounts receivable, net (44,428) 70,090 Pledges, trusts and estates receivable, net (9,181) 10,777 Other current assets 11,933 9,125 Other noncurrent assets (1,149) (154) Changes in liabilities: Accounts payable and accrued expenses (61,054) (55,193) Other noncurrent liabilities 256 (13,948) Net cash provided by operating activities 81, ,271 Investing activities Net acquisitions of property and equipment (346,120) (259,075) (Increase) decrease in investments, net 154, ,833 Increase in mortgages and other loans receivable (1,748) (683) Temporarily and permanently restricted contributions, pledges and bequests transferred from operating activities 41,984 18,186 Net cash used in investing activities (151,328) (16,739) Financing activities Repayment of debt, net (15,715) 101,353 Net cash provided by (used in) financing activities (15,715) 101,353 Net change in cash and cash equivalents (85,695) 224,885 Cash and cash equivalents at beginning of year 698, ,330 Cash and cash equivalents at end of year $ 613,177 $ 647,215 7

9 and Affiliated Corporations Notes to Interim Combined Financial Statements For the Period Ended June 30, 2017 Note A - Basis of Presentation The accompanying financial statements are presented on a combined basis and include the accounts of the following tax exempt, Section 501(c)(3), incorporated affiliates: Memorial Sloan Kettering Cancer Center, Memorial Hospital for Cancer and Allied Diseases, Sloan Kettering Institute for Cancer Research, S.K.I. Realty, Inc., MSK Insurance US, Inc., MSK Proton, Inc. and the Louis V. Gerstner Jr. Graduate School of Biomedical Sciences. All of these entities are collectively referred to as the Institution. The accompanying unaudited combined financial statements have been prepared in accordance with U.S. generally accepted accounting principles applied on a basis consistent with that of the 2016 audited financial statements of the Institution. The Institution presumes that users of this interim financial information have read or have access to the Institution s audited combined financial statements and that the adequacy of additional disclosures needed for a fair presentation may be determined in that context. Information contained in the Institution s audited combined financial statements for the years ended December 31, 2016 and 2015 is incorporated herein. Footnotes and other disclosures that would substantially duplicate the disclosures contained in the Institution s most recent audited combined financial statements have been omitted. Accordingly, these financial statements do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all transactions considered necessary for a fair presentation have been included. Patient volumes and net operating revenue and results are subject to seasonal variations caused by a number of factors. Monthly and periodic operating results are not necessarily representative of operations for a full year for various reasons, including the level of occupancy and other patient volumes, interest rates, unusual or infrequent items and other seasonal fluctuations. These same considerations apply to year-to-year comparisons. 8

10 and Affiliated Corporations Notes to Interim Combined Financial Statements (continued) Note B Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make prudent and conservative estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note C - Recent Accounting Pronouncements The Institution early adopted Accounting Standards Update (ASU) , Compensation Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU addresses how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the net periodic benefit cost in the income statement. Employers are required to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Employers present the other components of the net periodic benefit cost separately from the line item that includes the service cost and outside of any subtotal of operating income, if one is presented. Adoption of ASU requires the Institution to include the service cost component of net periodic benefit cost related to its defined benefit plan and other postretirement benefit plan within salaries and wages on the combined statement of unrestricted activities and to present all other components as a separate line item excluded from the subtotal for operating income. Upon adoption of ASU , the Institution reclassified its defined benefit plan and postretirement benefit plan service cost components from employee fringe benefit expense to salaries and wages expense for approximately $40.7 million and $33.2 million as of June 30, 2017 and 2016, respectively. Additionally, the Institution reclassified the other components of the benefit plans from employee fringe benefit expense to other nonoperating postretirement benefit changes for approximately $1.2 million and $5.8 million as of June 30, 2017 and 2016, respectively. Net periodic benefit cost was previously reported entirely within employee fringe benefits expense on the combined statements of unrestricted activities. 9

11 MEMORIAL SLOAN KETTERING CANCER CENTER DEBT COMPLIANCE ANALYSIS $000 DEBT RATIO ANALYSIS 6/30/ /31/2016 Debt Ratio Cash & Equivalents 613, ,872 Short Term Investments 212, ,868 Assets Whose Use is Limited 196, ,979 Investments 4,186,993 4,178,806 Total Cash & Investments 5,208,410 5,251,525 Permanently Restricted Net Assets 651, ,945 Less: Current Restricted Pledges 5,682 6,476 Less: Non-Current Restricted Pledges 13,375 8,349 PRNA Net of Restricted Pledges 632, ,120 Unrestricted Cash & Investments 4,575,558 4,639,405 Long Term Debt 2,600,241 2,615, Minimum Debt Ratio Required Pass Pass Loss Allowed Income (Loss) From Operations 151, ,170 Less: Investment Income Supporting Operations (67,750) (136,979) Add: Net Assets Released from Restrictions -Capital 0 22,001 Add: 8% of Unrestricted Investments (3 yr avg) 351, ,973 Adjusted Operating Income (Loss) 435, ,165 Maximum Loss Allowed (50,000) (50,000) Pass Pass Calculation of 8% of Unrestricted Investments Total Cash and Investments 5,208,410 5,251,525 Less: Permanent Net Assets 632, ,120 Less: Assets Whose Use is Limited 196, ,979 Unrestricted Investments 4,379,385 4,443,426 3 yr average 4,398,716 4,362,160 X 8% 351, , , ,973 LT Debt to Unrestricted Net Assets Ratio Unrestricted net assets 4,580,837 4,346,307 Long-term debt 2,600,241 2,615, LT Debt to Unrestricted NA Ratio not to exceed Pass Pass 10

12 Key Patient Statistics and Other Data Period Ended Period Ended Year Ended June 30, June 30, December 31, Licensed Beds Beds in Service Admissions 11,715 11,646 23,078 Discharges 11,604 11,528 23,060 Average Length of Stay Occupancy Rate (1) 93.6% 93.1% 92.5% Patient Days 79,598 78, ,872 Total Outpatient Visits: 357, , ,495 Manhattan 264, , ,142 Regional Network 93,320 75, ,353 Surgical Cases 12,718 11,542 23,066 Inpatient 5,028 4,879 9,633 Outpatient 7,690 6,663 13,433 Radiation Treatments & Implants: 67,027 58, ,394 Manhattan 30,126 29,516 58,926 Regional Network 36,901 29,295 45,468 X-ray Examinations & Special Procedures 250, , ,867 Laboratory Procedures (2) 2,279,793 2,174,973 4,373,809 Full Time Equivalents 16,147 15,087 15,460 (1) Based on adjusted bed count (2) Includes surgical pathology, cytology, and molecular diagnostic test 11

13 Case Mix Index and Patient Revenue Distribution Period Ended June 30, Period Ended June 30, Year Ended December 31, Case Mix Index (1) Medicare Only CMI Revenue Distribution (2) Medicare 25.0% 21.9% 27.8% Medicaid 3.1% 2.9% 3.0% Commercial, Self Pay & Managed Care 6.7% 13.9% 7.2% non-contracted Managed Care Contracted 65.2% 61.3% 62.0% 100% 100% 100% (1) The grouper and weights applicable at the time of discharge were used in the CMI calculation. This CMI is for the total Hospital. (2) Includes net inpatient, outpatient, and medical practice revenue 12