FINANCIAL REPORT SIX MONTHS ENDED DECEMBER 31, 2009 FYE 06/30/10

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1 CEDARS-SINAI HEALTH SYSTEM FINANCIAL REPORT SIX MONTHS ENDED DECEMBER 31, FYE 06/30/10 STATISTICS: Average occupied beds for the month of December were 726 or 45 (5.8%) less than the budgeted amount of 771 and 3.5% less than last year s 752 average occupied beds. Year-to-date average occupied beds totaled 731 or 4.3% less than the budgeted average occupied beds of 764. Average length of stay (patient days / admissions) for the month of December was 5.4 days which is 0.2 (3.6%) less than the budgeted amount of 5.6 average length of stay and 1.8% less than last year s 5.5 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 December were 4,167 or 126 (2.9%) less than the budgeted amount of 4,293 and 0.9% less than last year s 4,206 admissions. Year-to-date admissions totaled 25,104 or 11 admissions less than the budgeted admissions of 25,115. Patient days for the month of December were 22,494 or 1,402 (5.9%) less than the budgeted amount of 23,896 and approximately 3.5% less than last year s 23,301 patient days. Year-to-date patient days total 134,514 which is 4.3% less than the budgeted patient days of 140,606. 1

2 STATEMENT OF OPERATIONS: Net patient revenue for the six months ended December 31, was $947 million which was $8 million less than the budgeted total of $955 million and exceeded the $865 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 $121 million. This was attributed to a 4.3% decrease in patient days from the 140,606 budgeted patient days to 134,514 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 six months of fiscal 2010 outpatient services represented 28.5% of gross revenue which represents a 290 basis point increase over the 25.6% budgeted. Other operating revenue for the six months ended December 31, was $102 million compared to a budgeted total of $106 million and $104 million for the same period in the prior year. The $4 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 six months ended December 31, were $982 million compared to a budgeted total of $1,012 million and $909 million last year. Included in expenses are salaries and related expenses totaling $538 million year to date, compared to a budgeted total of $553 million and exceed the $479 million realized last year. Labor costs, including agency personnel costs, were budgeted at $3.01 million per day, $2.92 million was the actual amount incurred per day during the first four months of the year. Supplies and other expenses for the six months ended December 31, were $327 million which were less than the budgeted total of $339 million and exceeded the $331 million recognized last year. The net $12 million under budget is due to a $9 million favorable variance related to supplies costs, a $2 million savings in professional fees and a $2 million increase in other expenses. Other building and equipment costs for the six months ended December 31, were $47 million compared to the budgeted total of $48 million and the $43 million realized last year. Based on these results, operating income totaled $67 million for the six months ended December 31, compared to a budget of $49 million and $60 million last year. 2

3 BALANCE SHEET: Cash and unrestricted investments (including marketable securities and board designated assets) decreased by $46 million to $672 million at December 31, from $718 million at June 30,. The Medical Center s operating activities provided $105 million in cash and unrestricted investments while investing activities used $656 million and financing activities provided $506 million. The remaining decrease 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. Net patient receivables increased $3 million to $406 million at December 31, from $403 million at June 30,. This increase is primarily attributed to a rate increase that were implemented effective July 1,, which resulted in net patient revenue that averaged $158 million per month during fiscal 2010 compared to the average of $146 million recognized during fiscal. The increase was partially mitigated due to substantial collection months in July and August when we had average collections of $165 million per month and to record collection of $182 million in December. At December 31,, the Medical Center s days in accounts receivable were 78.9 days which represents an increase from the 77.1 days reported at June 30,. Prepaid expenses and other current assets totaled $38 million at December 31, compared to $42 million at June 30,. The $4 million decrease was attributed to a $4 million decrease in capital accumulation funds, a $2 million decrease in grants receivable and a $2 million decrease in prepaid information systems service contracts. These incre3ases were offset by a $2 million increase in prepaid insurance. Net property, plant and equipment increased by $67 million at December 31, to $1,070 million from $1,003 million at June 30,. This is attributed to capital expenditures totaling $119 million (of which $31 million was the purchase of the cancer center s fixed assets) offset by depreciation of $51 million. Other long-term assets increased by $45 million from $34 million at June 30, to $79 million at December 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 $138 million at December 31, and $157 million at June 30,. The $19 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 $161 million at December 31, which was $1 million less than the $162 million at June 30,. The accrual was impacted by increases in vacation and sick leave payable and increases in amounts due to the employee benefit plans. This was partially offset by decreases in bonus accruals related to the payment of fiscal bonuses. Due to third-party payers increased by $12 million to $25 million at December 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 a $3 millionn settlement of the 2001 cost report year which occurred in fiscal The remaining increase in fiscal 2010 is attributed to the estimation of the current year settlement requirements. Long-term debt increased by $527 million to $1.2 billion at December 31, from $711 million at June 30,. This increase is attributed to the bond offering in October offset by an $8 million payment on the 2005 bonds in November. Long-term accrued workers compensation and malpractice insurance claims have decreased by $4 million to $46 million at December 31, from $50 million at June 30,. This change was driven by several large malpractice settlements in December offset by scheduled accruals. Net assets have increased by $109 million to $1.620 billion at December 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 six months ended December 31, totaled $105 million compared to the $136 million that had been budgeted to be used in operations. Attributing to the $31 million decrease includes an increase in accounts receivable ($18 million), a decrease in accrued payroll and related liabilities ($7 million), a decrease in accounts payable and other accrued liabilities ($32 million) and a decrease in accrued workers compensation and medical malpractice liabilities ($6 million). These decreases were partially offset by favorable operating results ($148million), an increase in due to third party payers ($13 million) and a decrease in inventories, prepaids and other current assets ($2 million). Cash and unrestricted investments flows used in investing activities for the six months ended December 31, totaled $656 million, which represents an unfavorable variance of $12 million more than the $644 million budgeted to be used in investing activities. These unfavorable 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 to use. Also funds were used to terminate the cancer center contract resulting in an increase in other assets. These uses of cash were offset by $37 million increase in investment income, primarily due to a turn around in the stock market and to a $23 million reduction in capital expenditures. Cash and unrestricted investments flows provided by financing activities for the six months ended December 31, were $506 million which is $36 million more than the $470 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 additional pension contributions to fully fund the defined benefit pension plan. The net results of the operating, investing and financing activities for the six months ended December 31, is to decrease the Medical Center s net cash and unrestricted investments by $45 million. Which was $7 million more than the $38 million budgeted decrease in cash and unrestricted investments. 5

6 AVERAGE OCCUPIED BEDS YEAR ENDED JUNE 30, Budget Variance 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)% Y-T-D (4.3)%

7 ADMISSIONS YEAR ENDED JUNE 30, Budget Variance 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 4,267 4,166 4,145 12,578 4,315 3,929 4,293 12, % 0.7% 0.7% 1.8% (2.7)% 0.2% (2.9)% (1.9)% 4,225 4,123 4,074 12,422 4,220 3,844 4,206 12,270 Y-T-D 25,104 25, % 24,692 7

8 PATIENT DAYS YEAR ENDED JUNE 30, Budget Variance 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 23,332 23,440 23,121 69,893 23,945 22,872 23,896 70, % (3.7)% (5.7)% (2.3)% (6.3)% (7.0)% (5.9)% (6.4)% 23,064 23,087 22,693 68,844 23,255 22,411 23,301 68,967 Y-T-D 134, ,606 (4.3)% 137,811-8

9 STATEMENT OF REVENUE & EXPENSES SIX MONTHS ENDED DECEMBER 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 $ 914 1,874 1,111 3,899 2, , $ 67 $ 1,003 1,988 1,029 4,020 3, ,061 1,012 $ 49 $ 817 1, ,544 2, $ 60 $ 749 1, ,199 2, $ 47 9

10 STATEMENT OF EXPENSES SIX MONTHS ENDED DECEMBER 31, (In millions) Budget Expenses: Labor & Benefits (Includes Agency) $ 538 $ 553 $ 479 $ 429 Supplies and Other Expenses Depreciation Other Building & Equipment Costs Interest Total Expenses $ 982 $ 1,012 $ 909 $

11 Balance Sheets (In millions) Assets December 31, December 31, 2008 June 30, Current assets: Cash and equivalents $ 187 $ 143 $ 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 1,148 1,108 1,193 Funds held in trust Investments Pledges receivable Net property, plant and equipment 1, ,003 Other assets Total assets $ 3,256 $ 2,519 $ 2,647 11

12 Balance Sheets (In millions) Liablilities and Net Assets December 31, December 31, 2008 June 30, Current liabilities: Accounts payable and accrued liabilities $ 138 $ 125 $ 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, ,093 Temporarily restricted Permanently restricted Total net assets 1,620 1,433 1,511 Total liabilities and net assets $ 3,256 $ 2,519 $ 2,647 12

13 STATEMENT OF OPERATING CASH AND INVESTMENT FLOWS (Excluding Restricted Funds) SIX MONTHS ENDED DECEMBER 31, (In millions) Budget Variance Operating activities: Operating income $ 67 $ 49 $ 18 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 (3) 15 (18) Other receivables Due to third-party payers Inventories, prepaids and other current assets - (2) 2 Accounts payable and other accrued liabilities (18) 14 (32) Accrued payroll and related liabilities (1) 6 (7) Accrued worker's compensation and malpractice (4) 2 (6) insurance liabilities Net cash & unrestricted investments provided by operating activities (31) Expenditures for property and equipment (119) (142) 23 Increase in assets limited to use (541) (500) (41) Investment income Decrease (increase) in other assets (40) (8) (32) Transfers to Cedars-Sinai Medical Care Foundation (7) (8) 1 Net cash & unrestricted investments used in investing activities (656) (644) (12) Financial activities: Proceeds from issuance of long-term debt Bond issuance costs (5) (17) 12 Principal payments on long-term debt (14) (14) - Increase (decrease) in other liabilities (16) 1 (17) Net cash & unrestricted investments provided by financing activitie Increase (decrease) in cash & unrestricted investments $ (45) $ (38) $ (7) 13