MEMORIAL SLOAN KETTERING CANCER CENTER

QUARTERLY DISCLOSURE REPORT

UNAUDITED COMBINED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED SEPTEMBER 30, 2019
 Table of Contents

Disclosures ......................................................................... 2
Management’s Discussion & Analysis .............................. 3
Combined Financial Statements ........................................ 4
Notes to Interim Combined Financial Statements ............. 8
Debt Compliance Analysis .............................................. 19
Key Patient Statistics and Other Data .............................. 20
Certificate of Compliance ................................................ 22

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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 ("MSK" 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, www.dacbond.com

THIS DOCUMENT IS DATED AS OF NOVEMBER 8, 2019

MSK has prepared and released this Quarterly Disclosure Report in order to provide certain
information regarding its financial and operating performance for September 30, 2019 and to meet
its continuing disclosure obligations under certain of its financing documents. Except as required
by law or by its contractual obligations, MSK undertakes no obligation to update this Quarterly
Disclosure Report after its date.

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 Memorial Sloan Kettering Cancer Center
Management’s Discussion and Analysis of Financial Performance
For the Nine Months Ended September 30, 2019 and 2018

For the nine months ended September 30, 2019, MSK generated operating income of $141.9
million compared to $125.8 million for the same period in 2018. MSK’s net assets without donor
restrictions increased $498.3 million in 2019 compared to $484.5 million in 2018.

Operating revenues increased by $443.1 million or 12.5% in 2019. Patient revenues increased by
14.8%. The growth in Patient Care Revenues reflects the growth of our regional ambulatory care
network and normal rate and volume increases. Grants and contracts revenue increased by 15.0%
which was led by increased supported research activity.
Operating expenses increased by $426.9 million or 12.5%. Operating expense growth has been
driven by our expanded regional ambulatory care network, increased staffing in advance of further
expansion planned for late 2019 and increasing cost of pharmaceuticals.

The Institution’s long-term investable portfolio of $4.0 billion has a year-to-date return of 10.5%,
which is exclusive of cash and short-term investment returns. The rate of return is reflective of a
portfolio that includes 14.2% domestic and 15.8% global equity, 9.3% fixed income and cash,
30.4% hedge funds, 7.2% real assets, and 23.1% private equity and venture capital.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Combined Balance Sheets

September 30 December 31,

2019 2018
(unaudited) (audited)
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 554,669 $ 677,079
Short-term investments – at fair value - 89,184
Accounts receivable, net 642,512 615,885
Pledges, trusts and estates receivable 102,322 170,148
Other current assets 142,709 121,078
Total current assets 1,442,212 1,673,374

Noncurrent assets:
Assets whose use is limited:
Construction, debt service and repair reserve funds 54,129 149,799
Captive insurance funds 51,465 59,572
Employee benefit funds 88,853 80,068
Total investments in marketable securities whose use is limited 194,447 289,439

Investments – at fair value 3,875,090 3,343,092

Investments internally designated for major capital projects 276,926 609,377
Property and equipment, net 4,422,498 4,284,338
Pledges, trusts and estates receivable 261,392 321,621
Right-of-use assets – operating leases, net 203,521 -
Other noncurrent assets 114,327 102,326
Total noncurrent assets 9,348,201 8,950,193
Total assets $ 10,790,413 $ 10,623,567

Liabilities and net assets

Current liabilities:
Accounts payable $ 417,569 $ 580,598
Accrued expenses 367,372 414,405
Current portion of operating lease liability 34,800 -
Current portion of long-term debt 78,805 52,771
Total current liabilities 898,546 1,047,774
Noncurrent liabilities:
Long-term debt, less current portion 1,972,150 2,348,600
Operating lease liability, net of current portion 169,440 -
Other noncurrent liabilities 853,123 799,780
Total liabilities 3,893,259 4,196,154
Net assets:
Without donor restrictions:
Undesignated 5,046,028 4,608,791
Board-designated 481,964 420,860
Total without donor restrictions 5,527,992 5,029,651
With donor restrictions 1,369,162 1,397,762
Total net assets 6,897,154 6,427,413
Total liabilities and net assets $ 10,790,413 $ 10,623,567

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Combined Statements of Activities without Donor Restrictions

Period Ended September 30,

2019 2018
(In Thousands)
Undesignated operating revenues
Hospital care and services $ 3,320,465 $ 2,892,836
Grants and contracts 271,664 236,328
Contributions 114,860 109,576
Net assets released from restrictions 66,367 75,141
Royalty and other income 95,287 114,597
Investment returns allocated to operations 115,866 112,951
Total operating revenues 3,984,509 3,541,429

Operating expenses
Compensation and fringe benefits 2,107,746 1,878,891
Purchased supplies and services 1,466,500 1,278,075
Depreciation and amortization 239,878 221,527
Interest 28,482 37,185
Total operating expenses 3,842,606 3,415,678
Income from operations 141,903 125,751

Nonoperating income and expenses, net

Net assets released from restrictions for capital purposes 75,000 10,000
Investment returns, net of expenses, allocation to operations
and amounts recorded in net assets with donor restrictions 244,581 52,924
Other nonoperating income and expenses, net (21,059) (19,880)
Total nonoperating income and expenses, net 298,522 43,044
Change in postretirement benefit obligation to be recognized in
future periods (3,188) 104,077
Increase in undesignated net assets 437,237 272,872

Board-designated
Board-designated philanthropy 4,511 83,801
Board-designated investment return 18,094 45,532
Board-designated other additions 38,499 82,295
Increase in Board-designated net assets 61,104 211,628
Increase in net assets without donor restrictions $ 498,341 $ 484,500

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Combined Statements of Changes in Net Assets

Period Ended September 30, 2019 and Year Ended December 31, 2018

With Donor Restrictions

Total Without Total With
Donor Purpose Donor Total Net
Restrictions Time Restricted Restricted Endowments Restrictions Assets
(In Thousands)

Net assets at January 1, 2018 $ 4,630,974 $ 771,880 $ 27,000 $ 675,249 $ 1,474,129 $ 6,105,103
Increase in net assets without donor restrictions 398,677 – – – – 398,677
Contributions, pledges, and bequests – 73,053 2,243 25,687 100,983 100,983
Investment return on endowments – (31,020) – 1,371 (29,649) (29,649)
Transfers of net assets – (4,249) 4,249 – – –
Net assets released from restrictions – (147,701) – – (147,701) (147,701)
Net assets at December 31, 2018 5,029,651 661,963 33,492 702,307 1,397,762 6,427,413
Increase in net assets without donor restrictions 498,341 – – – – 498,341
Contributions, pledges, and bequests – 61,145 67 8,580 69,792 69,792
Investment return on endowments – 42,975 – 42,975 42,975
Net assets released from restrictions – (141,209) (158) – (141,367) (141,367)
Transfers of net assets – (3,751) (249) 4,000 – –
Net assets at September 30, 2019 $ 5,527,992 $ 621,123 $ 33,152 $ 714,887 $ 1,369,162 $ 6,897,154

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Combined Statements of Cash Flows

Period Ended September 30

2019 2018
(In Thousands)
Operating activities
Change in net assets $ 469,741 $ 537,380
Adjustments to reconcile change in net assets to net cash provided
by operating activities:
Depreciation and amortization 239,878 221,527
Equity in earnings of investments, net (9,525) (3,017)
Unrealized net gains (228,340) (109,888)
Realized net gains (167,426) (97,391)
Amortization of bond premium and issuance costs (16,990) (4,920)
Donor restricted contributions, pledges and bequests transferred to
investing activities (69,792) (110,629)
Change in postretirement benefit obligation to be recognized in
future periods 3,188 (104,077)
Changes in assets:
Accounts receivable, net (26,627) (87,437)
Pledges, trusts and estates receivable 128,055 2,256
Other current assets (21,631) (13,489)
Other noncurrent assets (205,997) (23)
Changes in liabilities:
Accounts payable and accrued expenses (90,268) 48,822
Other noncurrent liabilities 219,347 24,101
Net cash provided by operating activities 223,613 303,215

Investing activities
Net acquisitions of property and equipment (462,784) (463,289)
Decrease in investments, net 380,395 395,220
Donor restricted contributions, pledges and bequests
transferred from operating activities 69,792 110,629
Net cash (used in) provided by investing activities (12,597) 42,560

Financing activities
Repayment of debt (333,426) (371,739)
Net cash used in financing activities (333,426) (371,739)

Net change in cash, cash equivalents, and restricted cash (122,410) (25,964)
Cash, cash equivalents, and restricted cash at beginning of year 677,079 900,411
Cash, cash equivalents, and restricted cash at end of year $ 554,669 $ 874,447

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements

For the Period Ended September 30, 2019

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 (the “Hospital”),
Sloan Kettering Institute for Cancer Research, S.K.I. Realty, Inc., MSK Insurance US, Inc., MSK
Proton, Inc., Prostate Cancer Clinical Trials Consortium, LLC, Ralph Lauren Center for Cancer
Care and Prevention, 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
2018 audited combined financial statements of the Institution. The Institution presumes that users
of this unaudited interim combined 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, 2018 and
2017 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 unaudited interim combined 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 of the results have been included in the accompanying unaudited interim
combined financial statements.

Patient volumes and net operating revenue and results are subject to 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, fluctuations in financial markets, unusual or infrequent items and other seasonal
fluctuations. These same considerations apply to year-to-year comparisons.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note B – Use of Estimates

The preparation of the combined 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 combined 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 - Hospital Care and Services Revenue

Hospital Care and Services Revenue and Accounts Receivable

Hospital care and services revenue is reported at the amount that reflects the consideration to which
the Hospital expects to be entitled in exchange for providing patient care. These amounts are due
from patients, third-party payors (including health insurers and government programs), and others
and includes variable consideration (reductions to revenue) in determining a transaction price.

The Hospital uses a portfolio approach to account for categories of patient contracts as a collective
group, rather than recognizing revenue on an individual contract basis. The portfolios consist of
major payor classes for inpatient revenue and major payor classes and types of services provided
for outpatient revenue. Based on historical collection trends and other analyses, the Hospital
believes that revenue recognized by utilizing the portfolio approach approximates the revenue that
would have been recognized if an individual contract approach were used.

The Hospital’s initial estimate of the transaction price for services provided to patients subject to
revenue recognition is determined by reducing the total standard charges related to the patient
services provided by various elements of variable consideration, including contractual allowances,
discounts, implicit price concessions, and other reductions to the Hospital’s standard charges. The
Hospital determines the transaction price associated with services provided to patients who have
third-party payor coverage on the basis of contractual or formula-driven rates for the services
rendered (see description of third-party payor payment programs below). The estimates for
contractual allowances and discounts are based on contractual agreements, the Hospital’s discount
policies and historical experience. For uninsured and under-insured patients who do not qualify
for charity care, the Hospital determines the transaction price associated with services on the basis
of charges reduced by implicit price concessions. Implicit price concessions included in the
estimate of the transaction price are based on the Hospital’s historical collection experience for

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note C – Hospital Care and Services Revenue (continued)

applicable patient portfolios. Patients who meet the Hospital’s criteria for charity care are provided
care without charge; such amounts are not reported as revenue.

Generally, the Hospital bills patients and third-party payors several days after the services are
performed and/or the patient is discharged. Hospital care and services revenue is recognized as
performance obligations are satisfied. Performance obligations are determined based on the nature
of the services provided by the Hospital. Hospital care and services revenue for performance
obligations satisfied over time is recognized based on actual charges incurred in relation to total
charges. The Hospital believes that this method provides a reasonable depiction of the transfer of
services over the term of the performance obligation based on the services needed to satisfy the
obligation. Generally, performance obligations satisfied over time relate to patients receiving
inpatient acute care services or patients receiving services in the Hospital’s outpatient and
ambulatory care centers. The Hospital measures the performance obligation from admission into
the hospital or the commencement of an outpatient service to the point when it is no longer required
to provide services to that patient, which is generally at the time of discharge or the completion of
the outpatient visit.

As substantially all of its performance obligations relate to contracts with a duration of less than
one year, the Hospital has elected to apply the optional exemption provided in ASU 2014-09 and,
therefore, is not required to disclose the aggregate amount of the transaction price allocated to
performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting
period. The unsatisfied or partially unsatisfied performance obligations referred to above are
primarily related to inpatient acute care services at the end of the reporting period for patients who
remain admitted at that time (in-house patients). The performance obligations for in-house patients
are generally completed when the patients are discharged, which for the majority of the Hospital’s
in-house patients occurs within days or weeks after the end of the reporting period.

Subsequent changes to the estimate of the transaction price (determined on a portfolio basis when
applicable) are generally recorded as adjustments to patient service revenue in the period of the
change (see third-party payment programs below). Portfolio collection estimates are updated
monthly based on collection trends. Subsequent changes that are determined to be the result of an
adverse change in the patient’s ability to pay (determined on a portfolio basis when applicable) are
recorded as bad debt expense. Bad debt expense for the periods ended September 30, 2019 and
2018 was not significant.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note C – Hospital Care and Services Revenue (continued)

The Hospital has determined that the nature, amount, timing and uncertainty of revenue and cash
flows are affected by the following factors: payors, lines of business and timing of when revenue
is recognized. Tables providing details of these factors are presented below.

The percent of hospital care and services revenue for the periods ended September 30, 2019 and
2018, by payor, is as follows:

2019 2018

Medicare 27% 25%

Medicaid 2 3
Contracted managed care 67 65
Non-contracted managed care and self-pay 4 7
100% 100%

Deductibles, copayments and coinsurance under third-party payment programs which are the
patient’s responsibility are included within the non-contracted managed care and self-pay category
above. The Hospital provides pharmaceuticals and related support services to patients through a
retail and specialty pharmacy. Revenue is recognized at the point in time of the transaction.

Hospital care and services revenue for the periods ended September 30, 2019 and 2018 by line of
business is as follows (in thousands):

2019 2018

Hospital $ 2,695,680 $ 2,339,147

Physician services 508,904 463,377
Retail and specialty pharmacy 115,881 90,312
$ 3,320,465 $ 2,892,836

The Hospital has elected the practical expedient allowed under ASU 2014-09 and does not adjust
the expected amount of consideration from patients and third-party payors for the effects of a
significant financing component due to the Hospital’s expectation that the period between the time
the service is provided to a patient and the time that the patient or a third-party payor pays for that

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note C – Hospital Care and Services Revenue (continued)

service will be one year or less. However, the Hospital does, in certain instances, enter into
payment agreements with patients that allow payments in excess of one year. For those cases, the
financing component is not deemed to be significant to the contract.

Third-Party Payment Programs

Settlements with third-party payors for cost report filings and retroactive adjustments due to
ongoing and future audits, reviews or investigations are considered variable consideration and are
included in the determination of the estimated transaction price for providing patient care. These
settlements are estimated based on the terms of the payment agreement with the payor,
correspondence from the payor and the Hospital’s historical settlement activity (for example, cost
report final settlements or repayments related to recovery audits), including an assessment to
ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the retroactive adjustment is subsequently
resolved. Such estimates are determined through either a probability-weighted estimate or an
estimate of the most likely amount, depending on the circumstances related to a given estimated
settlement item. Estimated settlements are adjusted in future periods as adjustments become known
(that is, new information becomes available), or as years are settled or are no longer subject to
such audits, reviews, and investigations.

Non-Medicare Reimbursement

In New York State, hospitals and all non-Medicare payors, except Medicaid, workers’
compensation and no-fault insurance programs, negotiate hospitals’ payment rates. If negotiated
rates are not established, payors are billed at hospitals’ established charges. Medicaid pays
hospital rates promulgated by the New York State Department of Health. Payments to the
Hospital for Medicaid inpatient services are based on a prospective payment system, with
retroactive adjustments. Outpatient services are paid based on a statewide prospective system.
Medicaid rate methodologies are subject to approval at the Federal level by the Centers for
Medicare & Medicaid Services (CMS), which may routinely request information about such
methodologies prior to approval. Revenue related to specific rate components that have not been
approved by CMS are not recognized until the Hospital is reasonably assured that such amounts
are realizable. Adjustments to the current and prior years’ payment rates for those payors will
continue to be made in future years.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note C – Hospital Care and Services Revenue (continued)

Medicare Reimbursement

The Hospital is exempt from the national prospective payment system used to reimburse
hospitals for inpatient services provided to Medicare beneficiaries and instead is paid using a
cost-based methodology. These payments are subject to a limit that is based on costs from the
mid 2000s for rate years beginning on or subsequent to January 1, 2007, which are then updated
based on annual trend factors calculated by CMS. Prior to January 1, 2007, the limit was based
on costs from the early 1990s. The Hospital is paid for outpatient services under the national
prospective payment system and other methodologies of the Medicare program for certain other
services. The outpatient payments are subject to a floor that ensures the Hospital receives a
percentage of its Medicare defined allowable outpatient costs equal to all non-exempt hospitals
reimbursed under the national prospective payment system. Federal regulations provide for
certain adjustments to current and prior years’ payment rates, based on hospital-specific data.

The Hospital has established estimates, based on information presently available, of amounts due
to or from Medicare and non-Medicare payors for adjustments to current and prior years’ payment
rates. The current Medicaid, Medicare and other third-party payor programs are based upon
extremely complex laws and regulations that are subject to interpretation. Medicare cost reports,
which serve as the basis for final settlement with the Medicare program, have been audited by the
Medicare fiscal intermediary and settled through the year ended December 31, 2013. Other years
remain open for audit and subsequent settlement, as are numerous issues related to the New York
State Medicaid program for prior years. As a result, there is at least a reasonable possibility that
recorded estimates will change by a material amount when open years are settled, audits are
completed and additional information is obtained. Changes in these estimates could also affect the
amounts reported as the unpaid cost of government sponsored health care. Additionally,
noncompliance with such laws and regulations could result in fines, penalties and exclusion from
such programs. The Hospital is not aware of any allegations of noncompliance that could have a
material adverse effect on the combined financial statements and believes that it is in compliance
with all applicable laws and regulations.

There are various Federal and State proposals that could, among other things, reduce payment rates
or modify payment methods. The ultimate outcome of these proposals and other market changes,
including the potential effects of health care reform by the Federal or State government, cannot
presently be determined. Future changes in Medicare and Medicaid programs could have an
impact, positive or negative, on the Hospital. Additionally, Medicare payment rates for various

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note C – Hospital Care and Services Revenue (continued)

years have been appealed by the Hospital. If the appeals are successful, additional income
applicable to those years might be realized.

Significant concentrations of accounts receivable at September 30, 2019 include 29% from
government-related programs, 23% from Empire Health Choice and 15% from UnitedHealthcare
(28%, 19% and 15%, respectively, at December 31, 2018).

Note D - Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. (ASU) 2016-02, Leases, which requires lessees to report a most leases on
their statements of financial position, but recognize expenses on their income statements in a
manner similar to the prior accounting. The guidance also eliminates current real estate-specific
provisions. Lessors in operating leases continue to recognize the underlying asset and recognize
lease income on either a straight-line basis or another systematic and rational basis. The provisions
of ASU 2016-02 became effective for the Institution for annual periods beginning after
December 15, 2018. The Institution adopted ASU 2016-02 effective January 1, 2019 in its
unaudited combined financial statements as of and for the nine-month period ended September 30,
2019. The Institution adopted ASU 2016-02 following the modified retrospective method of
application. As such, the prior period combined financial statement amounts and disclosures have
not been adjusted to reflect the provisions of the new standard. There was no cumulative-effect
adjustment to the prior period combined net assets as a result of the adoption. The Institution has
made the transition-specific election to apply the package of practical expedients which allows for
the carryforward of historical assessments of (1) whether contracts are or contain leases, (2) lease
classification and (3) initial direct costs. Additionally, for operating leases entered into prior to
January 1, 2019, the Institution has elected to utilize the operating leases’ initial lease term as of
the date of adoption to determine the discount rate used to initially measure the liability. Certain
other accounting policy elections and quantitative and qualitative information pertaining to the
Institution’s adoption of ASU 2016-02 are described in Note F.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note E – Long-Term Debt

In September 2019, the Institution legally defeased approximately $213.2 million of the DASNY
2012 Series 1 tax-exempt bonds (the “2012 Series 1 Bonds”) and $74.0 million of the DASNY
Series 2012 tax-exempt bonds (the “Series 2012 Bonds”). Amounts sufficient to meet future
principal and interest requirements of the 2012 Series 1 Bonds and the Series 2012 Bonds have
been irrevocably deposited into an escrow account. Both defeasance transactions combined
resulted in an extinguishment loss of approximately $4.2 million which will be included in non-
operating income and expenses, net.

Long-term debt consists of the following:

September 30, December 31,

2019 2018
(In Thousands)

DASNY Series 1998, tax-exempt bonds maturing through 2023 at

various fixed interest rates ranging from 5.50% to 5.75% $ 100,700 $ 122,900
DASNY Series 2010, tax-exempt bonds maturing through 2023 at a
fixed interest rate of 2.18% 32,000 38,000
Series 2011A taxable bonds maturing in 2042 at a fixed interest rate
of 5.00% 400,000 400,000
DASNY Series 2012, tax-exempt bonds maturing through 2041 at
various fixed interest rates ranging from 3.00% to 5.00% 4,355 80,380
DASNY 2012 Series 1, tax-exempt bonds maturing through 2034 at
various fixed interest rates ranging from 4.00% to 5.00% 49,045 262,265
Series 2012A taxable bonds maturing in 2052 at a fixed interest rate
of 4.125% 400,000 400,000
Series 2015A taxable bonds maturing in 2055 at a fixed interest rate
of 4.20% 550,000 550,000
DASNY Series 2016-1 tax-exempt bonds repaid through 2028 at a
fixed interest rate of 1.97% 99,678 102,389
NJEDA Series 2016-2 tax-exempt bonds maturing through 2026 at a
fixed rate interest rate of 1.43% 101,500 112,375
DASNY Series 2017-1, tax-exempt bonds maturing through 2047 at a
various fixed interest rates ranging from 4.00% to 5.00% 288,025 290,420
Unamortized bond premiums, discounts and issuance costs 25,652 42,642
2,050,955 2,401,371
Less current portion 78,805 52,771
$ 1,972,150 $ 2,348,600

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note F - Leases

As described in Note D, the Institution adopted ASU 2016-02 effective January 1, 2019. The
Institution leases certain property and equipment under finance and operating leases. Leases are
classified as either finance or operating leases based on the underlying terms of the agreement and
certain criteria, such as the term of the lease relative to the useful life of the asset and the total
lease payments to be made as compared to the fair value of the asset, amongst other criteria.
Finance leases result in an accounting treatment similar to an acquisition of the asset.

For leases with initial terms greater than a year (or initially, greater than one year remaining under
the lease at the date of adoption of ASU 2016-02), the Institution records the related right-of-use
assets and liabilities at the present value of the lease payments to be paid over the life of the related
lease. The Institution’s leases may include variable lease payments and renewal options. Variable
lease payments are excluded from the amounts used to determine the right-of-use assets and
liabilities unless the variable lease payments depend on an index or rate or are in substance fixed
payments. Lease payments related to periods subject to renewal options are also excluded from the
amounts used to determine the right-of-use assets and liabilities unless the Institution is reasonably
certain to exercise the option to extend the lease. The present value of lease payments is calculated
by utilizing the discount rate stated in the lease, when readily determinable. For leases for which
this rate is not readily available, the Institution has elected to use a risk-free discount rate
determined using a period comparable with that of the lease term. The Institution has made an
accounting policy election not to separate lease components from nonlease components in
contracts when determining its lease payments for its asset classes. As such, the Institution
accounts for the applicable nonlease components together with the related lease components when
determining the right-of-use assets and liabilities.

The Institution has made an accounting policy election not to record leases with an initial term of
less than a year as right-of-use assets and liabilities.

As of September 30, 2019, the Institution has not recorded any finance leases.

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 Memorial Sloan Kettering Cancer Center
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Notes to Interim Combined Financial Statements (continued)

Note F – Leases (continued)

The following schedule summarizes information related to the lease assets and liabilities as of and
for the nine month period ended September 30, 2019 (in thousands):

Lease cost for the nine month period ended September 30, 2019:
Operating lease cost $30,547

Right-of-use assets and liabilities as of September 30, 2019:

Right-of-use assets – operating leases 203,521
Lease liability – operating leases 204,240

Other information:
Cash paid for amounts included in the measurement of lease
liabilities (nine month period ended September 30, 2019):
Operating cash flows from operating leases (29,829)

Right-of-use assets obtained in exchange for new operating

lease liabilities (nine month period ended September 30,
2019)
Weighted-average remaining lease term – operating leases 7.96 years
Weighted-average discount rate – operating leases 2.60%

For operating leases, right-of-use assets are recorded in right of use assets – operating leases, net
and lease liabilities are recorded in current portion of operating lease liability and operating lease
liability, net of current portion in the accompanying combined balance sheet.

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 Memorial Sloan Kettering Cancer Center
and Affiliated Corporations

Notes to Interim Combined Financial Statements (continued)

Note F – Leases (continued)

The following table reconciles the undiscounted lease payments to the lease liabilities recorded on
the accompanying combined statement of financial position at September 30, 2019 (in thousands):

Operating leases

2019 $ 9,921
2020 40,173
2021 36,814
2022 33,911
2023 25,848
Thereafter 80,869
Total lease payments 227,536
Less imputed interest 23,296
Total lease obligation 204,240
Less current portion 34,800
Long-term portion $ 169,440

Note G – Subsequent Events

On November 1, 2019, the Institution issued $284.5 million of 2019 Series 1 tax-exempt bonds
(the “2019 Bonds”) through DASNY. The 2019 Bonds mature between 2029 and 2039 at fixed
interest rates ranging from 2.00% to 5.00%. The proceeds will be used to pay costs for ambulatory
care expansion, equipment and to pay for costs of issuance of the 2019 Bonds. The new debt was
issued at a premium of approximately $57.7 million, which lowered the Institution’s effective
interest rates and the all-in yield. No other subsequent events have occurred that require disclosure
in or adjustment to the unaudited interim combined financial statements.

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 MEMORIAL SLOAN KETTERING CANCER CENTER
DEBT COMPLIANCE ANALYSIS
$000

9/30/2019 12/31/2018
DEBT RATIO ANALYSIS

Debt Ratio
Cash & Equivalents 554,669 677,079
Short Term Investments 0 89,184
Assets Whose Use is Limited 194,447 289,439
Investments 4,152,016 3,952,469
Total Cash & Investments 4,901,132 5,008,171

Endowments 714,887 702,307

Less: Current Endowment Pledges 9,746 12,245
Less: Non-Current Endowment Pledges 21,522 15,586
Endowments net of Endowment Pledges 683,619 674,476

Unrestricted Cash & Investments 4,217,513 4,333,695

Long Term Debt 2,050,955 2,401,371

2.06 1.80
Minimum Debt Ratio Required 0.60 0.60
Pass Pass

Loss Allowed
Income (Loss) From Operations 141,903 219,060
Less: Investment Income Supporting Operations (115,866) (151,473)
Add: Board-Designated Income 61,104 227,053
Add: Net Assets Released from Restrictions -Capital 75,000 25,000
Add: 8% of Unrestricted Investments (3 yr avg) 335,529 346,738

Adjusted Operating Income (Loss) 497,670 666,378

Maximum Loss Allowed (50,000) (50,000)
Pass Pass

Calculation of 8% of Unrestricted Investments

Total Cash and Investments 4,901,132 5,008,171
Less: Endowments, net of Endowment Pledges 683,619 674,476
Less: Assets Whose Use is Limited 194,447 289,439
Unrestricted Investments 4,023,066 4,044,256

3 yr average 4,194,110 4,334,230

X 8% 335,529 346,738
335,529 346,738

LT Debt to Net Assets Without Donor Restrictions

Net Assets Without Donor Restrictions 5,527,992 5,029,651
Long-term debt 2,050,955 2,401,371
0.37 0.48
LT Debt to Net Assets Without Donor Restrictions
not to exceed 2.00 2.00
Pass Pass

LT Debt to Unrestricted Cash & Investments Ratio

Unrestricted cash and investments 4,217,513 4,333,695
Long-term debt 2,050,955 2,401,371
0.49 0.55

LT Debt to Unrestricted Cash Ratio not to exceed 2.00 2.00

Pass Pass

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 Memorial Sloan Kettering Cancer Center
Key Patient Statistics and Other Data

Period Ended Period Ended Year Ended

September 30, September 30, December 31,
2019 2018 2018

Licensed Beds 514 514 514

Beds in Service 498 498 498

Admissions 19,367 18,214 24,243

Discharges 19,314 18,041 24,143

Average Length of Stay 6.7 7.0 7.1

Occupancy Rate (1) 96.3% 95.4% 95.2%

Patient Days 129,920 128,845 171,798

Surgical Cases 23,212 20,712 27,919

Inpatient 8,122 7,520 10,016

Outpatient 15,090 13,192 17,903

Total Outpatient Visits: 623,720 576,742 776,546

Manhattan 421,165 405,932 541,146

Regional Network 202,555 170,810 235,400

Chemotherapy treatments 214,222 196,592 266,503

Manhattan 107,841 105,228 140,343
Regional Network 106,381 91,364 126,160

Radiology 397,033 366,263 493,595

Manhattan 235,870 238,224 317,140
Regional Network 161,163 128,039 176,455

Radiation Oncology 119,850 108,211 146,293

Manhattan 45,303 44,568 59,436
Regional Network 74,547 63,643 86,857

Full Time Equivalents 19,126 17,594 17,893

(1) Based on adjusted bed count

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 Memorial Sloan Kettering Cancer Center
Case Mix Index and Patient Revenue Distribution

Period Ended Period Ended Year Ended

September 30, September 30, December 31,
2019 2018 2018

Case Mix Index 2.06 2.05 2.07

Medicare Only CMI 2.02 1.99 2.03

Revenue Distribution

Medicare 26.7% 25.6% 27.1%

Medicaid 2.1% 2.6% 1.7%
Commercial, Self Pay & Managed Care 4.4% 6.6% 6.1%
non-contracted
Managed Care Contracted 66.8% 65.2% 65.1%
100% 100% 100%

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