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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
(-) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............to..........
Commission file number 0-10454
UNIVERSAL HEALTH SERVICES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2077891
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (610) 768-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding, as
of April 30, 1994.
Class A 1,139,123
Class B 13,027,917
Class C 114,482
Class D 23,440
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Page One of Eleven Pages
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UNIVERSAL HEALTH SERVICES, INC.
I N D E X
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<S> <C>
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . PAGE NO.
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Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . Three
Condensed Consolidated Balance Sheets - March 31, 1994
and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . Four
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . Five
Notes to Condensed Consolidated Financial Statements . . . . . . . Six & Seven
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . Eight & Nine
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . Ten
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eleven
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Page Two of Eleven Pages
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PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000's omitted except per share amounts)
(unaudited)
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<CAPTION>
THREE MONTHS
ENDED MARCH 31,
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1994 1993
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Net revenues $194,432 $195,305
Operating charges:
Operating expenses 157,405 162,073
Depreciation and amortization 9,920 9,131
Lease and rental expense 8,491 8,346
Interest expense 1,822 2,635
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177,638 182,185
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Income before income taxes 16,794 13,120
Provision for income taxes 6,507 4,509
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NET INCOME $10,287 $ 8,611
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Earnings per common
and common equivalent share: $ 0.72 $ 0.60
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Weighted average number of
common shares and equivalents: 14,761 14,888
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Three of Eleven Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
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(Unaudited)
<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 2,799 $ 569
Accounts receivable, net 84,551 78,605
Supplies 12,939 12,617
Deferred income taxes 10,059 7,733
Other current assets 3,675 2,475
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Total current assets 114,023 101,999
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Property and equipment 547,974 533,941
Less: accumulated depreciation (240,058) (231,509)
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307,916 302,432
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OTHER ASSETS:
Excess of cost over fair value of net
assets acquired 37,026 38,089
Deferred charges 1,600 1,697
Other 15,937 16,205
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54,563 55,991
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$ 476,502 $ 460,422
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,820 $ 4,313
Accounts payable and accrued liabilities 74,387 79,639
Federal and state taxes 8,331 2,547
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Total current liabilities 87,538 86,499
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Deferred income taxes 3,863 3,863
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Other noncurrent liabilities 70,956 70,491
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Long-term debt, net of current maturities 78,844 75,081
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COMMON STOCKHOLDERS' EQUITY:
Class A Common Stock, 1,139,123 shares
outstanding in 1994, 1,139,123 in 1993 11 11
Class B Common Stock, 12,208,499 shares
outstanding in 1994, 12,171,454 in 1993 123 122
Class C Common Stock, 114,482 shares
outstanding in 1994, 114,482 in 1993 1 1
Class D Common Stock, 24,260 shares
outstanding in 1994, 26,223 in 1993 0 0
Capital in excess of par, net of deferred
compensation of $369,000 in 1994
and $291,000 in 1993 81,403 80,878
Retained Earnings 153,763 143,476
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235,301 224,488
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$ 476,502 $ 460,422
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</TABLE>
See accompanying notes to consolidated financial statements.
Page Four of Eleven Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(000's unaudited)
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,287 $8,611
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization 9,920 9,131
Provision for self-insurance reserves 3,354 4,425
Reserve for loss on disposition of businesses 0 2,929
Changes in assets & liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable (5,946) (6,599)
Accrued interest (1,601) (965)
Accrued and deferred income taxes 3,458 3,274
Other working capital accounts (3,840) (3,476)
Other assets and deferred charges (171) (2,072)
Other 171 413
Payments made in settlement of self-insurance claims (4,343) (1,963)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 11,289 13,708
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (11,871) (10,792)
Acquisition of property previously leased 0 (3,218)
Disposition of assets 250 1,750
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NET CASH USED IN INVESTING ACTIVITIES (11,621) (12,260)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings 2,284 0
Reduction of long-term debt 0 (7,416)
Issuance of common stock 278 17
Repurchase of common shares 0 (586)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,562 (7,985)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,230 (6,537)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 569 6,686
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CASH AND CASH EQUIVALENTS, END OF PERIOD $2,799 $149
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $3,423 $3,600
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Income taxes paid, net of refunds $3,049 $1,235
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</TABLE>
See accompanying notes to consolidated financial statements.
Page Five of Eleven Pages
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UNIVERSAL HEALTH SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments which, in the opinion of
the Company, are necessary to fairly present results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the accompanying disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements, accounting
policies and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares
outstanding during the year adjusted to give effect to common stock
equivalents. Earnings per share have been adjusted for the three months ended
March 31, 1994 and 1993 to reflect the assumed conversion of the Company's
convertible debentures.
Subsequent to March 31, 1994, the Company called for the redemption of the
$29.9 million, 7 1/2% convertible bonds, of which $10.6 million were redeemed
at par for cash and $19.3 million were converted to 820,103 newly issued shares
of the Company's Class B Common Stock. The bond redemption reduced the
Company's fully diluted number of shares outstanding by 451,233.
(3) 1994 AND 1993 UNUSUAL ITEMS
Included in net revenues for the three months ended March 31, 1994 is $3.0
million of additional revenues received from special Medicaid reimbursement
programs. Additionally, included in operating expenses for the three months
ended March 31, 1994 is approximately $2.5 million of expenses related to the
disposition of businesses.
Included in net revenues for the three months ended March 31, 1993 is $4.6
million of additional revenues received from special Medicaid reimbursement
programs. Additionally, included in operating expenses for the three months
ended March 31, 1993 is approximately $4.1 million of expenses related to the
disposition of ancillary businesses.
(4) OTHER LIABILITIES
Other noncurrent liabilities include the long-term portion of the Company's
professional and general liability and workers' compensation reserves.
(5) COMMITMENT AND CONTINGENCIES
Under certain agreements, the Company has committed or guaranteed an aggregate
of $24,000,000 related principally to the Company's self- insurance programs
and as support for various debt instruments and loan guarantees.
Page Six of Eleven Pages
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(6) SUBSEQUENT EVENT
Subsequent to March 31, 1994, the Company acquired and entered into contractual
arrangements to acquire majority interests in four radiation therapy centers
located in Kentucky and Indiana for $5.9 million in cash. Two of these centers
are currently operating and the remaining two are scheduled to commence
operations in the second and third quarter of 1994.
Page Seven of Eleven Pages
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues for the three months ended March 31, 1994 increased 7% over the
comparable 1993 period at hospitals owned during both years after excluding the
effects of additional revenues received from special Medicaid reimbursement
programs. Despite the continued shift in the delivery of healthcare services
to outpatient care, the Company's acute care hospitals owned during both
periods experienced a 9% increase in net revenues resulting from a 10% increase
in admissions and a 9% increase in patient days during the first quarter of
1994 as compared to the 1993 period due to the expansion of service lines at
many of its hospitals. Outpatient activity at the Company's acute care
hospitals also increased in the 1994 quarter as compared to the 1993 period as
gross outpatient revenues at the Company's acute care facilities now comprise
23% of the Company's gross acute care division outpatient revenues as compared
to 22% in the 1993 quarter. The increase is primarily the result of advances
in medical technologies, which allow more services to be provided on an
outpatient basis, and increased pressure from Medicare, Medicaid, health
maintenance organizations (HMOs), preferred provider organizations (PPOs) and
insurers to reduce hospital stays and provide services, when possible, on a
less expensive outpatient basis.
To take advantage of the trend toward increased outpatient services, the
Company has continued to invest in the acquisition and development of
ambulatory treatment centers. The Company currently operates twelve ambulatory
treatment centers, which have contributed to the increase in the Company's
outpatient revenue. The Company expects the growth in outpatient services to
continue, although the rate of growth may be moderated in the future.
Net revenues at the Company's psychiatric hospitals decreased approximately 9%
for the three months ended March 31, 1994 as compared to the comparable 1993
period due to an 8% decrease in patient days. Although admissions at the
Company's psychiatric facilities increased 7% in the 1994 first quarter as
compared to the 1993 quarter, the average length of stay at these facilities
decreased 14% due to increased emphasis on outpatient treatment programs. The
shift to outpatient care was reflected in higher revenues from outpatient
services, which now comprise 13% of gross revenues in the psychiatric division
during the 1994 first quarter as compared to 12% in the prior year period. The
trend in outpatient treatment for psychiatric patients is expected to continue
as a result of advances in patient care and continued cost containment
pressures from payors.
The Company received $3.0 million and $4.6 million during the first quarter of
1994 and 1993, respectively, from the special Medicaid reimbursement programs
mentioned above. These programs are scheduled to terminate in August 1994 and
the Company cannot predict whether these programs will continue beyond the
scheduled termination date.
An increased proportion of the Company's revenue is derived from fixed payment
services, including Medicare and Medicaid which accounted for 41% and 40% of
the Company's net patient revenues for the three months ended March 31, 1994
and 1993, respectively, excluding the additional revenues received from special
Medicaid reimbursement programs. The Company expects Medicare and Medicaid
revenues to continue to increase due to the general aging of the population and
expansion of state Medicaid programs. In addition to the Medicare and Medicaid
programs, other payors continue to actively negotiate the amounts they will pay
for services performed. In general, the Company expects the percentage of its
business from managed care programs, including HMOs and PPOs, to continue to
grow. The consequent growth in managed care networks and the resulting impact
of these networks on the operating results of the Company's facilities vary
among the markets in which the Company operates.
Excluding the additional revenues received from special Medicaid reimbursement
programs mentioned above, operating expenses as a percentage of net revenue
decreased to 82% for the three months ended March 31, 1994 as compared to 85%
in the prior year quarter. This decrease is partially due to the
Page Eight of Eleven Pages
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sale of two low margin hospitals during 1993. Although the rate of inflation
has not had a significant impact on the results of operations, pressure on
operating margins is expected to continue because, while Medicare fixed payment
rates are indexed for inflation annually, the increases have historically
lagged behind actual inflation.
In addition to the trends described above that continue to have an impact on
operating results, there are a number of other, more general factors affecting
the Company's business. The Company and the healthcare industry as a whole
face increased uncertainty with respect to the level of payor payments because
of national and state efforts to reform healthcare. These efforts include
proposals at all levels of government to contain healthcare costs while making
quality, affordable health services available to more Americans. The Company
is unable to predict which proposals will be adopted or the resulting
implications for providers at this time. However, the Company believes that
the delivery of primary care, emergency care, obstetrical and psychiatric
services will be an integral component of any strategy for controlling
healthcare costs and it also believes it is well positioned to provide these
services.
Interest expense decreased 31% for the three months ended March 31, 1994 as
compared to the 1993 first quarter due to lower average outstanding borrowings.
The effective tax rate was 38.7% during the first quarter of 1994 as compared
to 34.4% during the comparable 1993 quarter. The increase in the effective
rate during the 1994 period as compared to the 1993 period was due primarily to
the 1993 period including a reduction in the state tax provision.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1994, net cash provided by operating
activities was $11.3 million as compared to $13.7 million in the 1993 first
quarter. The decrease was due primarily to a $1.6 million decrease in the
special Medicaid reimbursement during the 1994 first quarter as compared to the
1993 comparable period. Cash flows generated from operations and financing
activities were used primarily to finance capital expenditures. At March 31,
1994, the Company had approximately $94.9 million of unused borrowing capacity
under its commercial paper program and revolving credit facility.
Page Nine of Eleven Pages
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PART II. OTHER INFORMATION
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K
11. Statement re computation of per share earnings is set forth on Page six in
Note 2 of the Notes to Condensed Consolidated Financial Statements.
All other items of this Report are inapplicable.
Page Ten of Eleven Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Universal Health Services, Inc.
(Registrant)
Date: May 11, 1994 /s/ Kirk E. Gorman
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Kirk E. Gorman, Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer).
Page Eleven of Eleven Pages
