FINANCIAL REPORT NINE MONTHS ENDED MARCH 31, 2010 FYE 06/30/10

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1 CEDARS-SINAI HEALTH SYSTEM FINANCIAL REPORT NINE MONTHS ENDED MARCH 31, FYE 06/30/10 STATISTICS: Average occupied beds for the month of March were 808 or 44 (5.8%) more than the budgeted amount of 764 and 1.1% more than last year s 799 average occupied beds. Year-to-date average occupied beds totaled 751 or 2.0% less than the budgeted average occupied beds of 766. Average length of stay (patient days / admissions) for the month of March was 5.6 days which were 0.2 (3.7%) more than the budgeted amount of 5.4 average length of stay and was 5.1% less than last year s 5.9 average length of stay. Year-to-date average length of stay totaled 5.4 days which is 3.6% less than the budgeted average length of stay of 5.6 days. Admissions for the month of March were 4,487 or 101 (2.3%) more than the budgeted amount of 4,386 and 6.1% more than last year s 4,230 admissions. Year-to-date admissions totaled 37,854 or 0.9% more than the budgeted admissions of 37,501. Patient days for the month of March were 25,042 or 1,370 (5.8%) more than the budgeted amount of 23,672 and approximately 1.1% more than last year s 24,772 patient days. Year-to-date patient days total 205,778 which is 2.0% less than the budgeted patient days of 210,001. 1

2 STATEMENT OF OPERATIONS: Net patient revenue for the nine months ended March 31, was $1,400 million which was $44 million less than the budgeted total of $1,444 million and exceeded the $1,307 million realized last year. The net patient revenue decrease from the budgeted amount was seen in gross revenues which were lower than budgeted gross revenue by $100 million. This was attributed to a 2.0% decrease in patient days from the 210,001 budgeted patient days to 205,778 actual patient days. Also impacting the decrease is a change in payor mix as the economy has driven an increase in the amount of self-pay and Medi- Cal business. These decreases were partially offset by an increase in outpatient services which realize an average reimbursement rate of 25% while inpatient services average approximately a 20% reimbursement rate. For the first eight months of fiscal outpatient services represented 28.3% of gross revenue which represents a 260 basis point increase over the 25.7% budgeted. Other operating revenue for the nine months ended March 31, was $156 million compared to a budgeted total of $157 million and $158 million for the same period in the prior year. The $1 million decrease from budget is partially attributed to a across the board lower consulting activities due to the decline in patient days. Expenses for the nine months ended March 31, were $1,456 million compared to a budgeted total of $1,521 million and $1,367 million last year. Included in expenses are salaries and related expenses totaling $795 million year to date, compared to a budgeted total of $834 million and exceed the $719 million realized last year. Labor costs, including agency personnel costs, were budgeted at $3.04 million per day, $2.90 million per day was the actual amount incurred during the first nine months of the year. Supplies and other expenses for the nine months ended March 31, were $481 million which were less than the budgeted total of $501 million and less than the $500 million recognized last year. The net $20 million under budget is due to a $16 million favorable variance related to supplies costs, a $2 million savings in legal fees, a $2 million decrease in temporary help and a $2 million decrease in purchased services offset by a $1 million increase in other expenses. Other building and equipment costs for the nine months ended March 31, were $69 million compared to the budgeted total of $73 million and the $65 million realized last year. Based on these results, operating income totaled $100 million for the nine months ended March 31, compared to a budget of $80 million and $98 million last year. 2

3 BALANCE SHEET: Cash and unrestricted investments (including marketable securities and board designated assets) increased by $210 million to $928 million at March 31, from $718 million at June 30, The Medical Center s operating activities provided $200 million in cash and unrestricted investments while investing activities used $490 million and financing activities provided $505 million. The remaining increase is primarily due to research and restricted activities. The amounts raised by financing activities was primarily attributed to a $535 million bond offering, the funds of which were then used in investing activities as increases in assets limited as to use. Since the bond offering approximately $200 million has been released from assets limited to use, much of which was used to repay amounts previously funded from operations. Net patient receivables decreased $4 million to $399 million at March 31, from $403 million at June 30, This decrease is primarily attributed to a rate increase that were implemented effective July 1, 2009, which resulted in net patient revenue that averaged $155 million per month during fiscal compared to the average of $146 million recognized during fiscal The increase was partially mitigated due to substantial collection months in July, August and October when we had average collections of $164 million per month and to record collections of $182 million in December. At March 31,, the Medical Center s days in accounts receivable were 79.4 days which represents an increase from the 77.1 days reported at June 30, Prepaid expenses and other current assets totaled $30 million at March 31, compared to $42 million at June 30, The $12 million decrease was attributed to a $4 million decrease in amounts due from the cancer center, a $6 million decrease in capital accumulation funds and a $2 million decrease in prepaid information systems service contracts. These increases were offset by a $1 million increase in prepaid insurance. Net property, plant and equipment increased by $94 million at March 31, to $1,097 million from $1,003 million at June 30, This is attributed to capital expenditures totaling $172 million (of which $31 million was the purchase of the cancer center s fixed assets) offset by depreciation of $77 million. Other long-term assets increased by $41 million from $34 million at June 30, 2009 to $75 million at March 31,. This increase is attributed to acquired goodwill related to the termination of the cancer center contract and to deferred financing cost related to the $535 million bond offering. 3

4 BALANCE SHEET (CONTINUED) Accounts payable and accrued liabilities totaled $130 million at March 31, and $157 million at June 30, The $27 million decrease is attributed to the payment of management fees due to the cancer center. These fees are paid as preexisting patient accounts receivable are collected. The decrease is partially offset by the accrual of interest payable on outstanding bonds. Accrued payroll and related expenses totaled $185 million at March 31, which was $23 million more than the $162 million at June 30, The accrual was impacted by increases in vacation and sick leave payable, increases in amounts due to the employee benefit plans and to increases in various employee taxes payable attributed to when the last pay roll was processed for the month. This was partially offset by decreases in bonus accruals related to the payment of fiscal 2009 bonuses. Due to third-party payers increased by $12 million to $24 million at March 31, from $12 million at June 30, The account balance in due to third-party payers is comprised of amounts payable to or due from the government under the Medicare program for various cost report years. These cost reports are settled several years after services have been provided. The change in the net amount payable is generally attributed to the various settlements related to open cost reports, including $8 million in settlements related to the 2001 and 2004 cost report years which occurred in fiscal. The remaining increase in fiscal is attributed to the estimation of the current year settlement requirements. Long-term debt increased by $527 million to $1.2 billion at March 31, from $711 million at June 30, This increase is attributed to the bond offering in October 2009 offset by an $8 million payment on the 2005 bonds in November Long-term accrued workers compensation and malpractice insurance claims have increased by $4 million to $54 million at March 31, from $50 million at June 30, This change was driven by an increase in scheduled accruals to offset several large malpractice settlements in December Net assets have increased by $151 million to $1.662 billion at March 31, from $1.511 billion at June 30, This change is attributed to operating results and to increases in permanently restricted net assets partially offset by research and restricted activities. 4

5 STATEMENT OF CASH AND UNRESTRICTED INVESTMENTS FLOWS (EXCLUDING RESTRICTED FUNDS): Cash and unrestricted investments flows provided by operations for the nine months ended March 31, totaled $200 million compared to the $228 million that had been budgeted to be provided by operations. Attributing to the $28 million decrease includes an increase in accounts receivable ($10 million) and a decrease in accounts payable and accrued liabilities ($65 million). These decreases were partially offset by favorable operating results ($20 million), an increase in due to third party payers ($11 million), a decrease in inventories, prepaids and other current assets ($9 million) and an increase in accrued payroll and related liabilities ($6 million). Cash and unrestricted investments flows used in investing activities for the nine months ended March 31, totaled $490 million, which represents a favorable variance of $233 million less than the $723 million budgeted to be used in investing activities. These favorable results were partially attributed to an increase in the amount borrowed from a budgeted $500 million bond issue to an actual bond issue of $535 million, at a premium. These funds were used to increase investments recorded as assets limited as to use, approximately $200 million has been released from assets limited to use, much of which was used to repay amounts previously funded from operations. Also funds were used to terminate the cancer center contract resulting in an increase in other assets. These uses of cash were offset by $43 million increase in investment income, primarily due to a turn around in the stock market and to a $49 million reduction in capital expenditures. Cash and unrestricted investments flows provided by financing activities for the nine months ended March 31, were $505 million which is $34 million more than the $471 million budgeted to be provided by financing activities. This increase in cash was attributed to an increase in the bond offering to $535 million from the budgeted $500 million, a decrease in the bond issuance cost of $12 million attributed to realizing a premium on the bond sale instead of the expected discount. These sources of cash were partially offset by additional pension contributions to fully fund the defined benefit pension plan. The net results of the operating, investing and financing activities for the nine months ended March 31, is to increase the Medical Center s net cash and unrestricted investments by $215 million. Which was $239 million less than the $24 million budgeted decrease in cash and unrestricted investments. 5

6 AVERAGE OCCUPIED BEDS YEAR ENDED JUNE 30, Budget Variance 2009 July August September Quarter 1 October November December Quarter 2 January February March Quarter 3 April May June Quarter % (3.7)% (5.7)% (2.4)% (6.2)% (7.0)% (5.8)% (6.4)% (2.3)% 4.8% 5.8% 2.7% Y-T-D (2.0)% 762 6

7 ADMISSIONS YEAR ENDED JUNE 30, Budget Variance 2009 July August September Quarter 1 October November December Quarter 2 January February March Quarter 3 April May June Quarter 4 4,428 4,197 4,176 12,801 4,199 3,937 4,167 12,303 4,226 4,037 4,487 12,750 4,267 4,166 4,145 12,578 4,315 3,929 4,293 12,537 4,128 3,872 4,386 12, % 0.7% 0.7% 1.8% (2.7)% 0.2% (2.9)% (1.9)% 2.4% 4.3% 2.3% 2.9% 4,225 4,123 4,074 12,422 4,220 3,844 4,206 12,270 4,072 3,802 4,230 12,104 Y-T-D 37,854 37, % 36,796 7

8 PATIENT DAYS YEAR ENDED JUNE 30, Budget Variance 2009 July August September Quarter 1 October November December Quarter 2 January February March Quarter 3 April May June Quarter 4 23,924 22,567 21,813 68,304 22,443 21,273 22,494 66,210 23,620 22,602 25,042 71,264 23,332 23,440 23,121 69,893 23,945 22,872 23,896 70,713 24,172 21,551 23,672 69, % (3.7)% (5.7)% (2.3)% (6.3)% (7.0)% (5.9)% (6.4)% (2.3)% 4.9% 5.8% 2.7% 23,064 23,087 22,693 68,844 23,255 22,411 23,301 68,967 24,027 22,120 24,772 70,919 Y-T-D 205, ,001 (2.0)% 208,730 8

9 STATEMENT OF REVENUE & EXPENSES NINE MONTHS ENDED MARCH 31, (In millions) Budget Patient Revenue -Inpatient - Routine Care -Inpatient - Ancillary Services -Outpatient Total Patient Revenue Deductions Net Patient Revenue Other Operating Revenue Total Revenue Expenses Income from Operations $ 1,410 2,839 1,675 5,924 4,524 1, ,556 1,456 $ 100 $ 1,499 2,976 1,549 6,024 4,580 1, ,601 1,521 $ 80 $ 1,246 2,712 1,436 5,394 4,087 1, ,465 1,367 $ 98 $ 1,122 2,426 1,251 4,799 3,625 1, ,322 1,233 $ 89 9

10 STATEMENT OF EXPENSES NINE MONTHS ENDED MARCH 31, (In millions) Budget Expenses: Labor & Benefits (Includes Agency) $ 795 $ 834 $ 719 $ 648 Supplies and Other Expenses Depreciation Other Building & Equipment Costs Interest Total Expenses $ 1,456 $ 1,521 $ 1,367 $ 1,233 10

11 Balance Sheets (In millions) Assets March 31, March 31, 2009 June 30, 2009 Current assets: Cash and equivalents $ 403 $ 160 $ 123 Marketable securities Board designated assets Board designated, academic support Current portion of assets limited as to use Patient accounts receivable, net Other receivables Inventories Prepaid expenses and other current assets Total current assets 1,390 1,143 1,193 Assets limited as to use Investments Pledges receivable Net property, plant and equipment 1, ,003 Other assets Total assets $ 3,319 $ 2,580 $ 2,647 11

12 Balance Sheets (In millions) Liablilities and Net Assets March 31, March 31, 2009 June 30, 2009 Current liabilities: Accounts payable and accrued liabilities $ 130 $ 133 $ 157 Accrued payroll and related liabilities Due to third party payers Current maturities of long-term debt Total current liabilities Long-term debt 1, Accrued workers compensation and malpractice insurance claims, less current portion Other long-term liabilities Net assets: Unrestricted 1,236 1,017 1,093 Temporarily restricted Permanently restricted Total net assets 1,662 1,459 1,511 Total liabilities and net assets $ 3,319 $ 2,580 $ 2,647 12

13 13 STATEMENT OF OPERATING CASH AND INVESTMENT FLOWS (Excluding Restricted Funds) NINE MONTHS ENDED MARCH 31, (In millions) Budget Variance Operating activities: Operating income $ 100 $ 80 $ 20 Adjustments to reconcile increase in net assets to net cash provided by (used in) operating activities: Depreciation (1) Changes in operating assets and liabilities: Patient accounts receivable 4 14 (10) Other receivalbes Due to third-party payers Inventories, prepaids and other current assets 7 (2) 9 Accounts payable and other accrued liabilities (27) 38 (65) Accrued payroll and related liabilities Accrued worker's compensation and malpractice insurance liabilities Net cash & unrestricted investments provided by operating activities (28) Expenditures for property and equipment (172) (221) 49 Increase in assets limited to use (334) (500) 166 Investment income Decrease (increase) in other assets (36) (12) (24) Transfers to Cedars-Sinai Medical Care Foundation (14) (13) (1) Net cash & unrestricted investments used in investing activities (490) (723) 233 Financial activities: Proceeds from issuance of long-term debt Bond issuance costs (5) (17) 12 Principal payments on long-term debt (13) (14) 1 Increase (decrease) in other liabilities (18) 2 (20) Net cash & unrestricted investments provided by financing activities Increase (decrease) in cash & unrestricted investments $ 215 $ (24) $ 239