Business Context and Reporting Period
Company: Universal Health Services, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: The Company operates acute care hospitals and behavioral health care facilities. As of September 30, 2000, the Company operated 7,997 licensed beds across its segments. The reporting period includes significant acquisition activity, specifically the purchase of 12 behavioral health businesses and two acute care facilities in the third quarter of 2000.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 9/30/00 | 9 Months Ended 9/30/00 | 3 Months Ended 9/30/99 | 9 Months Ended 9/30/99 |
|---|---|---|---|---|
| Net Revenues | $561,790 | $1,627,622 | $489,828 | $1,522,990 |
| Net Income | $22,335 | $74,273 | $10,794 | $63,846 |
| EBITDAR | $86,295 | $267,672 | $61,519 | $244,619 |
| Operating Margin | 15.4% | 16.4% | 12.6% | 16.1% |
| Diluted EPS | $0.72 | $2.39 | $0.34 | $1.97 |
| Cash from Operations (9mo) | $153,918 | $156,903 | ||
| Total Debt (Long-term + Current) | $533,669 | $422,709 | ||
| Cash & Equivalents | $5,975 | $6,181 |
Note: EBITDAR is defined as Earnings before interest, income taxes, depreciation, amortization, lease & rental, and minority interest expense.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 15% ($72 million) for the quarter and 7% ($105 million) for the nine-month period compared to 1999. Growth was driven by organic increases at existing facilities and $27 million in revenue from facilities acquired in Q3 2000.
- Profitability: Net income for the quarter more than doubled to $22.3 million from $10.8 million. EBITDAR increased 40% for the quarter and 9% for the nine-month period.
- Acquisitions: The Company spent $139 million in Q3 2000 to acquire 12 behavioral health businesses (1,400 beds) and two acute care facilities. Total investing cash outflows for the nine months were $217 million.
- Debt Levels: Long-term debt increased significantly to $533 million (net of current maturities) from $419 million at year-end 1999, reflecting borrowings used to finance acquisitions and stock repurchases.
- Segment Performance: Acute care services accounted for 83% of Q3 revenues. Behavioral health services revenues increased primarily due to the Q3 acquisitions.
Guidance, Outlook, Risks, and Contingencies
- Regulatory Risks (Medicare/Medicaid): The Company faces reimbursement pressures from the Balanced Budget Act of 1997 (BBA-97). Medicaid disproportionate share reimbursements in Texas and South Carolina were reduced by approximately $11 million annually starting in Q3 1999. The Company has appealed the Texas reduction; an unfavorable ruling could materially adversely affect future results.
- Legal Contingencies: Litigation exists regarding a specialized women's center in Las Vegas. A temporary injunction prevented closure in January 2000. The Company recorded a $5.3 million charge in late 1999 to reduce the facility's carrying value and may incur additional charges if the facility cannot be sold or closed.
- Commitments: The Company has committed or guaranteed approximately $57 million related to self-insurance programs and debt support, including a $40 million surety bond.
- Future Acquisitions: Subsequent to the quarter-end, the Company executed agreements to acquire a 96-bed facility in California and two behavioral health facilities in Boston, expected to close in December 2000.
- Accounting Changes: The Company must adopt SFAS No. 133 (Derivatives) effective January 1, 2001, which could increase earnings volatility. The impact has not yet been quantified.
- Liquidity: The Company maintains $357 million of unused capacity under a $400 million revolving credit agreement and $10 million under a commercial paper program.
Investor Verification Checklist
- Acquisition Integration: Verify the financial performance and integration status of the 12 behavioral health facilities and 2 acute care hospitals acquired in Q3 2000.
- Medicaid Reimbursement Appeal: Monitor the outcome of the Company's appeal regarding Texas Medicaid disproportionate share reductions, as a loss could reduce annual revenue by $3-$4 million.
- Women's Center Litigation: Track the resolution of the Las Vegas women's center litigation and potential for additional impairment charges beyond the initial $5.3 million.
- Debt Servicing: Review the impact of increased interest expense (up 8% in Q3) resulting from new borrowings and floating rate debt exposure.
- Stock Repurchases: Confirm the status of the ongoing stock repurchase program, which utilized $36 million in the first nine months of 2000.