filings.toolsItem 15. Exhibits and Financial Statement Schedules
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Item 15. Exhibits and Financial Statement Schedules
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(a) Documents filed as part of this report:
(1) Financial Statements:
See “Index to Financial Statements and Financial Statement Schedule.”
(2) Financial Statement Schedules:
See “Index to Financial Statements and Financial Statement Schedule.”
(3) Exhibits:
2.1 Agreement and Plan of Merger dated as of May 16, 2010, among Universal Health Services, Inc., Psychiatric Solutions, Inc. and Olympus Acquisition Corp., previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated May 18, 2010, is incorporated herein by reference.
2.2 Agreement and Plan of Merger dated as of June 3, 2012, by and among Universal Health Services, Inc., Lola Transaction Corporation, Ascend Health Corporation and Stockholders’ Representatives, previously filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated June 6, 2012, is incorporated herein by reference.
3.1 Registrant’s Restated Certificate of Incorporation, and Amendments thereto, previously filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, are incorporated herein by reference.
3.2 Bylaws of Registrant, as amended, previously filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1987, is incorporated herein by reference.
3.3 Amendment to the Registrant’s Restated Certificate of Incorporation previously filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated July 3, 2001 is incorporated herein by reference.
4.1 Form of Indenture dated January 20, 2000, between Universal Health Services, Inc. and J.P. Morgan Trust Company, National Association (as successor to Bank One Trust Company, N.A.), Trustee previously filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-3/A (File No. 333-85781), dated February 1, 2000, is incorporated herein by reference.
4.2 Supplemental Indenture between Universal Health Services, Inc. and J.P. Morgan Trust Company, National Association, dated as of June 20, 2006, previously filed as Exhibit 4.2 to Registrant’s Registration Statement on Form S-3 (File No. 333-135277) dated June 23, 2006, is incorporated herein by reference.
4.3 Form of Debt Security, previously filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-3 (File No. 333-135277) dated June 23, 2006, is incorporated herein by reference.
4.4 Form of 7.125% Notes due 2016, previously filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated June 30, 2006, is incorporated herein by reference.
4.5 Officer’s Certificate relating to the 7.125% Notes due 2016, previously filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated June 30, 2006, is incorporated herein by reference.
4.6 Form of Note, previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 30, 2008, is incorporated herein by reference.
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4.7 Officers’ Certificate, previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 30, 2008, is incorporated herein by reference.
4.8 Indenture, dated as of September 29, 2010, between UHS Escrow Corporation and Union Bank, N.A., as Trustee, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated October 5, 2010, is incorporated herein by reference.
4.9 Form of 7% Senior Note due 2018, contained in Indenture filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated October 5, 2010, is incorporated herein by reference.
4.10 Supplemental Indenture, dated as of November 15, 2010, to the Indenture, dated September 29, 2010, between UHS Escrow Corporation and Union Bank, N.A., as Trustee, relating to the $250,000,000 aggregate principal amount of the Escrow Issuer’s 7% Senior Notes due 2018, previously filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference.
4.11 Second Supplemental Indenture, dated as of November 15, 2010, to the Indenture, dated January 20, 2000, between Universal Health Services, Inc. and the Bank of New York Mellon Trust company, N.A., as Trustee, previously filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference.
10.1* Employment Agreement, dated as of December 27, 2007, by and between Universal Health Services, Inc. and Alan B. Miller, previously filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated December 27, 2007, is incorporated herein by reference.
10.2 Advisory Agreement, dated as of December 24, 1986, between Universal Health Realty Income Trust and UHS of Delaware, Inc., previously filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference.
10.3 Agreement, dated December 6, 2012, to renew Advisory Agreement, dated as of December 24, 1986, between Universal Health Realty Income Trust and UHS of Delaware, Inc.
10.4 Form of Leases, including Form of Master Lease Document for Leases, between certain subsidiaries of the Registrant and Universal Health Realty Income Trust, filed as Exhibit 10.3 to Amendment No. 3 of the Registration Statement on Form S-11 and Form S-2 of Registrant and Universal Health Realty Income Trust (Registration No. 33-7872), is incorporated herein by reference.
10.5 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leases and Contract of Acquisition, dated December 24, 1986, issued by Registrant in favor of Universal Health Realty Income Trust, previously filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference.
10.6* Universal Health Services, Inc. Executive Retirement Income Plan dated January 1, 1993, previously filed as Exhibit 10.7 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference.
10.7 Asset Purchase Agreement dated as of February 6, 1996, among Amarillo Hospital District, UHS of Amarillo, Inc. and Universal Health Services, Inc., previously filed as Exhibit 10.28 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference.
10.8 Agreement of Limited Partnership of District Hospital Partners, L.P. (a District of Columbia limited partnership) by and among UHS of D.C., Inc. and The George Washington University, previously filed as
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Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarters ended March 30, 1997, and June 30, 1997, is incorporated herein by reference.
10.9 Contribution Agreement between The George Washington University (a congressionally chartered institution in the District of Columbia) and District Hospital Partners, L.P. (a District of Columbia limited partnership), previously filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by reference.
10.10 Valley/Desert Contribution Agreement dated January 30, 1998, by and among Valley Hospital Medical Center, Inc. and NC-DSH, Inc. previously filed as Exhibit 10.30 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference.
10.11 Summerlin Contribution Agreement dated January 30, 1998, by and among Summerlin Hospital Medical Center, L.P. and NC-DSH, Inc., previously filed as Exhibit 10.31 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference.
10.12* Amended and Restated Universal Health Services, Inc. Supplemental Deferred Compensation Plan dated as of January 1, 2002, previously filed as Exhibit 10.29 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference.
10.13* Second Amended and Restated 2001 Employees’ Restricted Stock Purchase Plan, previously filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated May 22, 2008, is incorporated herein by reference.
10.14* Universal Health Services, Inc. Employee Stock Purchase Plan, previously filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-8 (File No. 333-122188), dated January 21, 2005 is incorporated herein by reference.
10.15* Universal Health Services, Inc. Second Amended and Restated 2005 Stock Incentive Plan, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 18, 2011, is incorporated herein by reference.
10.16* Form of Stock Option Agreement, previously filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K, dated June 8, 2005, is incorporated herein by reference.
10.17* Form of Stock Option Agreement for Non-Employee Directors, previously filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K, dated October 3, 2005, is incorporated herein by reference.
10.18 Amendment No. 1 to the Master Lease Document, between certain subsidiaries of Universal Health Services, Inc. and Universal Health Realty Income Trust, dated April 24, 2006, previously filed as Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.
10.19* Universal Health Services, Inc. 2010 Employees’ Restricted Stock Purchase Plan, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 20, 2010, is incorporated herein by reference.
10.20* Universal Health Services, Inc. 2010 Executive Incentive Plan, previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated May 20, 2010, is incorporated herein by reference.
10.21 Omnibus Amendment to Receivables Sale Agreements, dated as of October 27, 2010, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
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10.22 Amended and Restated Credit and Security Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
10.23 Assignment and Assumption Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
10.24 Credit Agreement, dated as of November 15, 2010, by and among Universal Health Services, Inc., JPMorgan Chase Bank, N.A. and the various financial institutions as are or may become parties thereto, as Lenders, SunTrust Bank, The Royal Bank of Scotland, Plc, Bank of Tokyo-Mitsubishi UFJ Trust Company and Credit Agricole Corporate and Investment Bank, as co-documentation agents, Deutsche Bank Securities Inc. and Bank of America N.A. as co-syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and as collateral agent for the secured parties, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference.
10.25 First Amendment, dated as of March 15, 2011, to the Credit Agreement, dated as of November 15, 2010, by and among Universal Health Services, Inc., JPMorgan Chase Bank, N.A. and the various financial institutions as are or may become parties thereto, as Lenders, certain banks as co-documentation agents, and as co-syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and as collateral agent for the secured parties, previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 15, 2011, is incorporated herein by reference.
10.26 Credit Agreement, dated as of November 15, 2010 and amended and restated as of September 21, 2012, by and among Universal Health Services, Inc. (the borrower), the several lenders from time to time parties thereto, Credit Agricole Corporate and Investment Bank, Mizuho Corporate Bank LTD., Royal Bank of Canada and The Royal Bank of Scotland PLC (as co-documentation agents), Bank of Tokoyo-Mitsubishi UFJ Trust Company, Bank of America N.A. and Suntrust Bank (as co-syndication agents), and JPMorgan Chase Bank, N.A. (as administrative agent), previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference.
10.27 Second Amendment, dated as of September 21, 2012, to the Credit Agreement, dated as of November 15, 2010 (as amended from time to time), among Universal Health Services, Inc., a Delaware corporation, the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and the other agents party thereto, previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference.
10.28* Form of Supplemental Life Insurance Plan and Agreement Part A: Alan B. Miller 1998 Dual Life Insurance Trust (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), and Anthony Pantaleoni as Trustee), previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.29* Form of Supplemental Life Insurance Plan and Agreement Part B: Alan B. Miller 2002 Trust (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), and Anthony Pantaleoni as Trustee), previously filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.30* Universal Health Services, Inc. Termination, Assignment and Release Agreement (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), Anthony Pantaleoni as Trustee of the Alan B. Miller 1998 Dual Life Insurance Trust, and Alan B. Miller, Executive), previously filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
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10.31* Universal Health Services, Inc. Termination, Assignment and Release Agreement (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), Anthony Pantaleoni as Trustee of the Alan B. Miller 2002 Trust, and Alan B. Miller, Executive), previously filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
11 Statement regarding computation of per share earnings is set forth in Note 1 of the Notes to the Consolidated Financial Statements.
21 Subsidiaries of Registrant.
23.1 Consent of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP.
31.1 Certification from the Company’s Chief Executive Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934.
31.2 Certification from the Company’s Chief Financial Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934.
32.1 Certification from the Company’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification from the Company’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
| * | Management contract or compensatory plan or arrangement. |
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| ** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
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Exhibits, other than those incorporated by reference, have been included in copies of this Annual Report filed with the Securities and Exchange Commission. Stockholders of the Company will be provided with copies of those exhibits upon written request to the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
| By: | /S/ ALAN B. MILLER | |
| Alan B. Miller Chairman of the Board and Chief Executive Officer |
February 28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signatures | Title | Date | ||
| /S/ ALAN B. MILLER Alan B. Miller | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | February 28, 2013 | ||
| /S/ MARC D. MILLER Marc D. Miller | Director and President | February 28, 2013 | ||
| /S/ LEATRICE DUCAT Leatrice Ducat | Director | February 28, 2013 | ||
| /S/ JOHN H. HERRELL John H. Herrell | Director | February 28, 2013 | ||
| /S/ ROBERT H. HOTZ Robert H. Hotz | Director | February 28, 2013 | ||
| /S/ ANTHONY PANTALEONI Anthony Pantaleoni | Director | February 28, 2013 | ||
| /S/ LAWRENCE S. GIBBS Lawrence S. Gibbs | Director | February 28, 2013 | ||
| /S/ STEVE FILTON Steve Filton | Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) | February 28, 2013 |
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UNIVERSAL HEALTH SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Universal Health Services, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Universal Health Services, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, financial statement schedule, and for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in item 9A as Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Ascend Health Corporation and its subsidiaries from its assessment of internal control over financial reporting as of December 31, 2012 because it was acquired by the Company in a purchase business combination during 2012. We have also excluded Ascend Health Corporation from our audit of internal control over financial reporting. Ascend Health Corporation and its subsidiaries are wholly owned subsidiaries whose total assets and total revenues represent 6% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 28, 2013
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Net revenues before provision for doubtful accounts | $ | 7,688,071 | $ | 7,356,798 | $ | 5,429,233 | ||||||
| Less: Provision for doubtful accounts | 726,671 | 596,576 | 529,086 | |||||||||
| Net revenues | 6,961,400 | 6,760,222 | 4,900,147 | |||||||||
| Operating charges: | ||||||||||||
| Salaries, wages and benefits | 3,440,917 | 3,326,378 | 2,363,383 | |||||||||
| Other operating expenses | 1,376,122 | 1,353,693 | 968,612 | |||||||||
| Supplies expense | 799,621 | 805,489 | 716,925 | |||||||||
| Depreciation and amortization | 302,426 | 287,211 | 216,930 | |||||||||
| Lease and rental expense | 94,885 | 90,323 | 75,363 | |||||||||
| Transaction costs | 5,716 | 0 | 53,220 | |||||||||
| Electronic health records incentive income | (30,038 | ) | 0 | 0 | ||||||||
| Costs related to extinguishment of debt | 29,170 | 0 | 0 | |||||||||
| 6,018,819 | 5,863,094 | 4,394,433 | ||||||||||
| Income from operations | 942,581 | 897,128 | 505,714 | |||||||||
| Interest expense, net | 178,918 | 200,792 | 77,617 | |||||||||
| Income before income taxes | 763,663 | 696,336 | 428,097 | |||||||||
| Provision for income taxes | 274,616 | 247,466 | 152,302 | |||||||||
| Net income | 489,047 | 448,870 | 275,795 | |||||||||
| Less: Net income attributable to noncontrolling interests | 45,601 | 50,703 | 45,612 | |||||||||
| Net income attributable to UHS | $ | 443,446 | $ | 398,167 | $ | 230,183 | ||||||
| Basic earnings per share attributable to UHS | $ | 4.57 | $ | 4.09 | $ | 2.37 | ||||||
| Diluted earnings per share attributable to UHS | $ | 4.53 | $ | 4.04 | $ | 2.34 | ||||||
| Weighted average number of common shares—basic | 96,821 | 97,199 | 96,786 | |||||||||
| Add: Other share equivalents | 890 | 1,338 | 1,187 | |||||||||
| Weighted average number of common shares and equivalents—diluted | 97,711 | 98,537 | 97,973 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net income | $ | 489,047 | $ | 448,870 | $ | 275,795 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Unrealized derivative gains (losses) on cash flow hedges | 6,677 | (37,477 | ) | 1,396 | ||||||||
| Amortization of terminated hedge | (336 | ) | (336 | ) | (336 | ) | ||||||
| Minimum Pension Liability | 4,986 | (12,397 | ) | 743 | ||||||||
| Other comprehensive income (loss) before tax | 11,327 | (50,210 | ) | 1,803 | ||||||||
| Income tax (benefit) expense related to items of other comprehensive income | 4,306 | (19,174 | ) | 689 | ||||||||
| Total other comprehensive income (loss), net of tax | 7,021 | (31,036 | ) | 1,114 | ||||||||
| Comprehensive income | 496,068 | 417,834 | 276,909 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 45,601 | 50,703 | 45,612 | |||||||||
| Comprehensive income attributable to UHS | $ | 450,467 | $ | 367,131 | $ | 231,297 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| (Dollar amounts in thousands) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 23,471 | $ | 41,229 | ||||
| Accounts receivable, net | 1,067,197 | 969,802 | ||||||
| Supplies | 99,000 | 96,775 | ||||||
| Deferred income taxes | 104,461 | 108,324 | ||||||
| Other current assets | 87,936 | 99,859 | ||||||
| Assets of facilities held for sale | 25,431 | 48,916 | ||||||
| Total current assets | 1,407,496 | 1,364,905 | ||||||
| Property and Equipment | ||||||||
| Land | 387,248 | 377,984 | ||||||
| Buildings and improvements | 3,366,146 | 3,244,117 | ||||||
| Equipment | 1,344,643 | 1,256,165 | ||||||
| Property under capital lease | 27,836 | 37,037 | ||||||
| 5,125,873 | 4,915,303 | |||||||
| Accumulated depreciation | (1,986,110 | ) | (1,818,180 | ) | ||||
| 3,139,763 | 3,097,123 | |||||||
| Construction-in-progress | 242,472 | 190,857 | ||||||
| 3,382,235 | 3,287,980 | |||||||
| Other assets: | ||||||||
| Goodwill | 3,036,765 | 2,627,602 | ||||||
| Deferred charges | 75,888 | 111,780 | ||||||
| Other | 298,459 | 272,978 | ||||||
| 3,411,112 | 3,012,360 | |||||||
| $ | 8,200,843 | $ | 7,665,245 | |||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | 2,589 | $ | 2,479 | ||||
| Accounts payable | 247,033 | 228,043 | ||||||
| Liabilities of facilities held for sale | 850 | 2,329 | ||||||
| Accrued liabilities | ||||||||
| Compensation and related benefits | 259,646 | 233,583 | ||||||
| Interest | 10,774 | 10,622 | ||||||
| Taxes other than income | 49,829 | 45,359 | ||||||
| Other | 322,275 | 314,518 | ||||||
| Current federal and state income taxes | 1,062 | 0 | ||||||
| Total current liabilities | 894,058 | 836,933 | ||||||
| Other noncurrent liabilities | 395,355 | 401,908 | ||||||
| Long-term debt | 3,727,431 | 3,651,428 | ||||||
| Deferred income taxes | 183,747 | 209,592 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Redeemable noncontrolling interest | 234,303 | 218,266 | ||||||
| Equity: | ||||||||
| Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares: issued and outstanding 6,625,708 shares in 2012 and 6,625,708 shares in 2011 | 66 | 66 | ||||||
| Class B Common Stock, limited voting, $.01 par value; authorized 150,000,000 shares: issued and outstanding 90,269,397 shares in 2012 and 89,286,305 shares in 2011 | 903 | 893 | ||||||
| Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares: issued and outstanding 664,000 shares in 2012 and 664,000 shares in 2011 | 7 | 7 | ||||||
| Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000 shares: issued and outstanding 31,948 shares in 2012 and 33,164 shares in 2011 | 0 | 0 | ||||||
| Cumulative dividends | (205,910 | ) | (147,515 | ) | ||||
| Retained earnings | 2,962,433 | 2,494,076 | ||||||
| Accumulated other comprehensive loss | (44,154 | ) | (51,175 | ) | ||||
| Universal Health Services, Inc. common stockholders’ equity | 2,713,345 | 2,296,352 | ||||||
| Noncontrolling interest | 52,604 | 50,766 | ||||||
| Total Equity | 2,765,949 | 2,347,118 | ||||||
| $ | 8,200,843 | $ | 7,665,245 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2012, 2011 and 2010
(in thousands, except per share data)
| Redeemable Interest | Class A Common | Class B Common | Class C Common | Class D Common | Capital in Excess of Par Value | Cumulative Dividends | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | UHS Common Stockholders’ Equity | Noncontrolling Interest | Total | |||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2010 | $ | 197,152 | $ | 67 | $ | 896 | $ | 7 | $ | 0 | $ | 0 | ($ | 108,627 | ) | $ | 1,879,981 | ($ | 21,253 | ) | $ | 1,751,071 | $ | 41,323 | $ | 1,792,394 | ||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | — | 4 | — | — | — | — | 10,890 | — | 10,894 | — | 10,894 | ||||||||||||||||||||||||||||||||||||||
| Repurchased | — | — | (3 | ) | — | — | — | — | (11,525 | ) | — | (11,528 | ) | — | (11,528 | ) | ||||||||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | — | 3,139 | — | 3,139 | — | 3,139 | ||||||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | — | (19,422 | ) | — | — | (19,422 | ) | — | (19,422 | ) | |||||||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | — | 13,321 | — | 13,321 | — | 13,321 | ||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (23,777 | ) | — | — | — | — | — | — | — | — | — | (8,662 | ) | (8,662 | ) | |||||||||||||||||||||||||||||||||||
| Capital contributions from noncontrolling interests | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Purchase of minority ownership interests in majority owned businesses | — | — | — | — | — | — | — | — | — | — | 600 | 600 | ||||||||||||||||||||||||||||||||||||||
| Other | 4,512 | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 33,874 | — | — | — | — | — | — | 230,183 | — | 230,183 | 11,738 | 241,921 | ||||||||||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | |||||||||||||||||||||||||||||||||||
| Unrealized derivative losses on cash flow hedges (net of income tax effect of $528) | — | — | — | — | — | — | — | — | 868 | 868 | — | 868 | ||||||||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $281) | — | — | — | — | — | — | — | — | 462 | 462 | — | 462 | ||||||||||||||||||||||||||||||||||||||
| Subtotal—comprehensive income | 33,874 | — | — | — | — | — | — | 230,183 | 1,114 | 231,297 | 11,738 | 243,035 | ||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2011 | 211,761 | 67 | 897 | 7 | 0 | 0 | (128,049 | ) | 2,125,989 | (20,139 | ) | 1,978,772 | 44,999 | 2,023,771 |
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
For the Years Ended December 31, 2012, 2011 and 2010
(in thousands, except per share data)
| Redeemable Interest | Class A Common | Class B Common | Class C Common | Class D Common | Capital in Excess of Par Value | Cumulative Dividends | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | UHS Common Stockholders’ Equity | Noncontrolling Interest | Total | |||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | (1 | ) | 12 | — | — | — | — | 12,622 | — | 12,633 | — | 12,633 | |||||||||||||||||||||||||||||||||||||
| Repurchased | — | — | (16 | ) | — | — | — | — | (60,466 | ) | — | (60,482 | ) | — | (60,482 | ) | ||||||||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | — | 1,957 | — | 1,957 | — | 1,957 | ||||||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | — | (19,466 | ) | — | — | (19,466 | ) | — | (19,466 | ) | |||||||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | — | 15,807 | — | 15,807 | — | 15,807 | ||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (31,016 | ) | — | — | — | — | — | — | — | — | — | (7,416 | ) | (7,416 | ) | |||||||||||||||||||||||||||||||||||
| Purchase of minority ownership interests in majority owned businesses | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 37,521 | — | — | — | — | — | — | 398,167 | — | 398,167 | 13,183 | 411,350 | ||||||||||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | |||||||||||||||||||||||||||||||||||
| Unrealized derivative losses on cash flow hedges (net of income tax effect of $14,363) | — | — | — | — | — | — | — | — | (23,114 | ) | (23,114 | ) | — | (23,114 | ) | |||||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $4,691) | — | — | — | — | — | — | — | — | (7,706 | ) | (7,706 | ) | — | (7,706 | ) | |||||||||||||||||||||||||||||||||||
| Subtotal—comprehensive income | 37,521 | — | — | — | — | — | — | 398,167 | (31,036 | ) | 367,131 | 13,183 | 380,314 | |||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2012 | 218,266 | 66 | 893 | 7 | 0 | 0 | (147,515 | ) | 2,494,076 | (51,175 | ) | 2,296,352 | 50,766 | 2,347,118 |
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
For the Years Ended December 31, 2012, 2011 and 2010
(in thousands, except per share data)
| Redeemable Interest | Class A Common | Class B Common | Class C Common | Class D Common | Capital in Excess of Par Value | Cumulative Dividends | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | UHS Common Stockholders’ Equity | Noncontrolling Interest | Total | |||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | — | 14 | — | — | — | — | 21,670 | — | 21,684 | — | 21,684 | ||||||||||||||||||||||||||||||||||||||
| Repurchased | — | — | (4 | ) | — | — | — | — | (19,150 | ) | — | (19,154 | ) | — | (19,154 | ) | ||||||||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | — | 2,308 | — | 2,308 | — | 2,308 | ||||||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | — | (58,395 | ) | — | — | (58,395 | ) | — | (58,395 | ) | |||||||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | — | 20,083 | — | 20,083 | — | 20,083 | ||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (18,961 | ) | — | — | — | — | — | — | — | — | — | (7,933 | ) | (7,933 | ) | |||||||||||||||||||||||||||||||||||
| Sale of minority ownership interests in majority owned businesses | — | — | — | — | — | — | — | — | — | — | (832 | ) | (832 | ) | ||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 34,998 | — | — | — | — | — | — | 443,446 | — | 443,446 | 10,603 | 454,049 | ||||||||||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | |||||||||||||||||||||||||||||||||||
| Unrealized derivative losses on cash flow hedges (net of income tax effect of $2,528) | — | — | — | — | — | — | — | — | 4,149 | 4,149 | — | 4,149 | ||||||||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $1,898) | — | — | — | — | — | — | — | — | 3,088 | 3,088 | — | 3,088 | ||||||||||||||||||||||||||||||||||||||
| Subtotal—comprehensive income | 34,998 | — | — | — | — | — | — | 443,446 | 7,021 | 450,467 | 10,603 | 461,070 | ||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2012 | $ | 234,303 | $ | 66 | $ | 903 | $ | 7 | $ | 0 | $ | 0 | ($ | 205,910 | ) | $ | 2,962,433 | ($ | 44,154 | ) | $ | 2,713,345 | $ | 52,604 | $ | 2,765,949 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| (Amounts in thousands) | ||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net income | $ | 489,047 | $ | 448,870 | $ | 275,795 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation & amortization | 308,690 | 295,861 | 223,997 | |||||||||
| Gains on sales of assets and businesses, net of losses | (27,085 | ) | (452 | ) | (1,993 | ) | ||||||
| Stock based compensation expense | 22,518 | 18,225 | 16,799 | |||||||||
| Costs related to extinguishment of debt | 29,170 | 0 | 0 | |||||||||
| Changes in assets & liabilities, net of effects from acquisitions and dispositions: | ||||||||||||
| Accounts receivable | (71,068 | ) | (134,838 | ) | 22,726 | |||||||
| Accrued interest | 152 | (3,577 | ) | 8,408 | ||||||||
| Accrued and deferred income taxes | 10,374 | 85,792 | 132 | |||||||||
| Other working capital accounts | 28,554 | (28,382 | ) | (26,437 | ) | |||||||
| Other assets and deferred charges | 30,976 | 37,160 | 11,539 | |||||||||
| Other | 6,367 | (1,387 | ) | 812 | ||||||||
| Accrued insurance expense, net of commercial premiums paid | 62,660 | 83,612 | 19,739 | |||||||||
| Payments made in settlement of self-insurance claims | (75,084 | ) | (82,633 | ) | (50,173 | ) | ||||||
| Net cash provided by operating activities | 815,271 | 718,251 | 501,344 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Property and equipment additions, net of disposals | (363,192 | ) | (285,682 | ) | (239,274 | ) | ||||||
| Acquisition of property and businesses | (527,847 | ) | (29,466 | ) | (1,958,298 | ) | ||||||
| Proceeds received from sales of assets and businesses | 149,311 | 67,592 | 21,460 | |||||||||
| Costs incurred for purchase and implementation of electronic health records application | (54,362 | ) | (38,249 | ) | (17,971 | ) | ||||||
| Return of deposit on terminated purchase agreement | 6,500 | 0 | 0 | |||||||||
| Net cash used in investing activities | (789,590 | ) | (285,805 | ) | (2,194,083 | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Reduction of long-term debt | (849,647 | ) | (381,517 | ) | (1,392,086 | ) | ||||||
| Additional borrowings | 913,500 | 98,100 | 3,266,146 | |||||||||
| Financing costs | (8,283 | ) | (23,608 | ) | (101,815 | ) | ||||||
| Repurchase of common shares | (19,154 | ) | (60,482 | ) | (11,528 | ) | ||||||
| Dividends paid | (58,395 | ) | (19,466 | ) | (19,422 | ) | ||||||
| Issuance of common stock | 5,435 | 4,779 | 3,594 | |||||||||
| Profit distributions to noncontrolling interests | (26,895 | ) | (38,497 | ) | (32,456 | ) | ||||||
| Proceeds from sale of noncontrolling interests in majority owned business | 0 | 0 | 600 | |||||||||
| Net cash (used in) provided by financing activities | (43,439 | ) | (420,691 | ) | 1,713,033 | |||||||
| (Decrease) increase in cash and cash equivalents | (17,758 | ) | 11,755 | 20,294 | ||||||||
| Cash and cash equivalents, beginning of period | 41,229 | 29,474 | 9,180 | |||||||||
| Cash and cash equivalents, end of period | $ | 23,471 | $ | 41,229 | $ | 29,474 | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||
| Interest paid | $ | 157,415 | $ | 176,328 | $ | 76,900 | ||||||
| Income taxes paid, net of refunds | $ | 264,824 | $ | 163,029 | $ | 152,088 | ||||||
| Supplemental Disclosures of Noncash Investing and Financing Activities: | ||||||||||||
| See Notes 2, 4 and 7 |
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Services provided by our hospitals, all of which are operated by subsidiaries of ours include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We, through our subsidiaries, provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.
The more significant accounting policies follow:
A) Principles of Consolidation: The consolidated financial statements include the accounts of our majority-owned subsidiaries and partnerships controlled by us or our subsidiaries as the managing general partner. All significant intercompany accounts and transactions have been eliminated.
B) Revenue Recognition: We record revenues and related receivables for health care services at the time the services are provided. Medicare and Medicaid revenues represented 39% of our net patient revenues during 2012, 41% during 2011 and 42% during 2010. Revenues from managed care entities, including health maintenance organizations and managed Medicare and Medicaid programs accounted for 49% of our net patient revenues during 2012, 47% during 2011 and 51% during 2010.
We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others for services rendered. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances under managed care plans are based upon the payment terms specified in the related contractual agreements. We closely monitor our historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payors may be different from the amounts we estimate and record.
We estimate our Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. The laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation and as a result, there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term. Certain types of payments by the Medicare program and state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare Allowable Bad Debts and Inpatient Psychiatric Services) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements. Such amounts are included in accounts receivable, net, on our Consolidated Balance Sheets. The funding of both federal Medicare and state Medicaid programs are subject to legislative and regulatory changes. As such, we cannot provide any assurance that future legislation and regulations, if enacted, will not have a material impact on our future Medicare and Medicaid reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2012, 2011 or 2010.
We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. See additional disclosure below in Charity Care and Uninsured Discounts for our estimated uncompensated care provided and estimated cost of providing uncompensated care.
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C) Provision for Doubtful Accounts: Collection of receivables from third-party payers and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient’s responsibility, primarily co-payments and deductibles. We estimate our provisions for doubtful accounts based on general factors such as payer mix, the agings of the receivables and historical collection experience. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. At our acute care hospitals, third party liability accounts are pursued until all payment and adjustments are posted to the patient account. For those accounts with a patient balance after third party liability is finalized or accounts for uninsured patients, the patient receives statements and collection letters. Patients that express an inability to pay are reviewed for potential sources of financial assistance including our charity care policy. If the patient is deemed unwilling to pay, the account is written-off as bad debt and transferred to an outside collection agency for additional collection effort.
Uninsured patients that do not qualify as charity patients are extended an uninsured discount of a minimum of 30% of total charges. Our hospitals establish a partial reserve for self-pay accounts in the allowance for doubtful accounts for both unbilled balances and those that have been billed and are under 90 days old. All self-pay accounts are fully reserved at 90 days from the date of discharge. Third party liability accounts are fully reserved in the allowance for doubtful accounts when the balance ages past 180 days from the date of discharge. Potential charity accounts are fully reserved when it is determined the patient may be unable to pay.
As of December 31, 2012, our accounts receivable includes $70 million due from Illinois ($54 million as of December 31, 2011), the collection of which has been delayed due to budgetary and funding pressures experienced by the state. Although as of December 31, 2012 approximately $51 million of the receivables due from Illinois have been outstanding in excess of 60 days ($41 million as of December 31, 2011), and a large portion will likely remain outstanding for the foreseeable future, we expect to eventually collect all amounts due to us and therefore no related reserves have been established in our consolidated financial statements. However, we can provide no assurance that we will eventually collect all amounts due to us from Illinois. Failure to ultimately collect all outstanding amounts due from Illinois would have an adverse impact on our future consolidated results of operations and cash flows.
On a consolidated basis, we monitor our total self-pay receivables to ensure that the total allowance for doubtful accounts provides adequate coverage based on historical collection experience. Our accounts receivable are recorded net of allowance for doubtful accounts of $311 million and $253 million at December 31, 2012 and 2011, respectively.
D) Concentration of Revenues: Our five majority owned acute care hospitals in the Las Vegas, Nevada market contributed, on a combined basis, 14% in 2012, 15% in 2011 and 20% in 2010, of our consolidated net revenues. On a combined basis, our facilities in the McAllen/Edinburg, Texas market (consisting of three acute care facilities, a children’s hospital and a behavioral health facility) contributed 4% in 2012, 5% in 2011 and 6% in 2010, of our consolidated net revenues.
E) Charity Care and Uninsured Discounts: A significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from an increase in the number of patients who are employed but do not have health insurance or who have policies with relatively high deductibles. Patients treated at our hospitals for non-elective services, who have gross income less than 400% of the federal poverty guidelines, are deemed eligible for charity care. The federal poverty guidelines are established by the federal government and are based on income and family size. Because we do not pursue collection of amounts that qualify as charity care, they are not reported in our net revenues or in our accounts receivable, net. We also provide discounts to uninsured patients (included in “uninsured discounts” amounts below) who do not qualify for Medicaid or charity care. Because we do not pursue collection of amounts classified as uninsured discounts, they are not reported in our net revenues or in our accounts receivable, net. In
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implementing the discount policy, we first attempt to qualify uninsured patients for governmental programs, charity care or any other discount program. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
Uncompensated care:
The following table shows the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the years ended December 31, 2012, 2011 and 2010:
| (dollar amounts in thousands) | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Charity care | $ | 778,268 | 74 | % | $ | 804,301 | 84 | % | $ | 664,212 | 82 | % | ||||||||||||
| Uninsured discounts | 267,304 | 26 | % | 151,447 | 16 | % | 142,467 | 18 | % | |||||||||||||||
| Total uncompensated care | $ | 1,045,572 | 100 | % | $ | 955,748 | 100 | % | $ | 806,679 | 100 | % | ||||||||||||
The estimated cost of providing uncompensated care:
The estimated cost of providing uncompensated care, as reflected below, were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities. An increase in the level of uninsured patients to our facilities and the resulting adverse trends in the provision for doubtful accounts and uncompensated care provided could have a material unfavorable impact on our future operating results.
| (amounts in thousands) | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Estimated cost of providing charity care | $ | 131,890 | $ | 145,350 | $ | 129,820 | ||||||
| Estimated cost of providing uninsured discounts related care | 45,299 | 27,363 | 27,845 | |||||||||
| Estimated cost of providing uncompensated care | $ | 177,189 | $ | 172,713 | $ | 157,665 | ||||||
F) Accounting for Medicare and Medicaid Electronic Health Records Incentive Payments: In July 2010, the Department of Health and Human Services published final regulations implementing the health information technology provisions of the American Recovery and Reinvestment Act. The regulation defines the “meaningful use” of Electronic Health Records (“EHR”) and established the requirements for the Medicare and Medicaid EHR payment incentive programs. The implementation period for these new Medicare and Medicaid incentive payments started in federal fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state Medicaid programs. We recognize income related to Medicare and Medicaid incentive payments using a gain contingency model that is based upon when our eligible hospitals have demonstrated “meaningful use” of certified EHR technology for the applicable period and the cost report information for the full cost report year that will determine the final calculation of the incentive payment is available.
Medicare EHR incentive payments: Federal regulations require that Medicare EHR incentive payments be computed based on the Medicare cost report that begins in the federal fiscal period in which a hospital meets the applicable “meaningful use” requirements. Since the annual Medicare cost report periods for each of our acute care hospitals ends on December 31st, we will recognize Medicare EHR incentive income for each hospital during the fourth quarter of the year in which the facility meets the “meaningful use” criteria and during the fourth quarter of each applicable subsequent year.
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Medicaid EHR incentive payments: Medicaid EHR incentive payments are determined based upon prior period cost report information available at the time our hospitals meet the “meaningful use” criteria. Therefore, the majority of the Medicaid EHR incentive income recognition occurs in the period in which the applicable hospitals are deemed to have met initial “meaningful use” criteria. Upon meeting subsequent fiscal year “meaningful use” criteria, our hospitals may become entitled to additional Medicaid EHR incentive payments which will be recognized as incentive income in future periods. Medicaid EHR incentive payments received prior to our hospitals meeting the “meaningful use” criteria are included in other current liabilities (as deferred EHR incentive income) in our consolidated balance sheet.
G) Cash and Cash Equivalents: We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.
H) Property and Equipment: Property and equipment are stated at cost. Expenditures for renewals and improvements are charged to the property accounts. Replacements, maintenance and repairs which do not improve or extend the life of the respective asset are expensed as incurred. We remove the cost and the related accumulated depreciation from the accounts for assets sold or retired and the resulting gains or losses are included in the results of operations. Construction-in-progress includes both construction projects and equipment not yet placed into service.
We capitalize interest expense on major construction projects while in progress. We capitalized interest on major construction projects and the development and implementation of electronic health records applications amounting to $5.7 million during 2012, $400,000 during 2011 and $7.6 million during 2010.
Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements (twenty to forty years) and equipment (three to fifteen years). Depreciation expense (excluding discontinued operations) was $270.5 million during 2012, $262.1 million during 2011 and $197.3 million during 2010.
I) Long-Lived Assets: We review our long-lived assets, including amortizable intangible assets, for impairment whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flow. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount rates.
J) Goodwill: Goodwill is reviewed for impairment at the reporting unit level on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. We have designated September 1st as our annual impairment assessment date and performed an impairment assessment as of September 1, 2012 which indicated no impairment of goodwill. There were also no goodwill impairments during 2011 or 2010. Future changes in the estimates used to conduct the impairment review, including profitability and market value projections, could indicate impairment in future periods potentially resulting in a write-off of a portion or all of our goodwill.
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Changes in the carrying amount of goodwill for the two years ended December 31, 2012 were as follows (in thousands):
| Acute Care Services | Behavioral Health Services | Total Consolidated | ||||||||||
| Balance, January 1, 2011 | $ | 389,484 | $ | 2,200,430 | $ | 2,589,914 | ||||||
| Adjustments to goodwill (a) | — | 37,688 | 37,688 | |||||||||
| Balance, January 1, 2012 | 389,484 | 2,238,118 | 2,627,602 | |||||||||
| Goodwill acquired during the period | 11,110 | 434,551 | 445,661 | |||||||||
| Goodwill divested during the period | (17,450 | ) | (1,902 | ) | (19,352 | ) | ||||||
| Adjustments to goodwill (b) | (448 | ) | (16,698 | ) | (17,146 | ) | ||||||
| Balance, December 31, 2012 | $ | 382,696 | $ | 2,654,069 | $ | 3,036,765 | ||||||
| (a) | Consists of adjustments to prior year purchase price allocations. |
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| (b) | The reduction to the Behavioral Health Services’ goodwill consists primarily of a reclassification to “assets of facilities held for sale” and represents the goodwill attributable to Peak Behavioral Health Services which we agreed to divest pursuant to our agreement with the Federal Trade Commission in connection with our acquisition of Ascend Health Corporation in October, 2012. Adjustments to prior year purchase price allocations for Acute Care and Behavioral Health Services are also included. |
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K) Other Assets: Other assets consist primarily of amounts related to: (i) intangible assets acquired in connection with our acquisition of Psychiatric Solutions, Inc. (“PSI”) in November, 2010 and Ascend Health Corporation in October, 2012, consisting of Medicare licenses, certificates of need and contracts to manage the operations of behavioral health services owned by third-parties (PSI only); (ii) prepaid fees for various software and other applications used by our hospitals; (iii) costs incurred in connection with the purchase and implementation of an electronic health records application for each of our acute care facilities; (iv) deposits; (v) investments in various businesses, including Universal Health Realty Income Trust; (vi) the invested assets related to a deferred compensation plan that is held by an independent trustee in a rabbi-trust and that has a related payable included in other noncurrent liabilities; (vii) the estimated future payments related to physician-related contractual commitments, as discussed below, and; (viii) other miscellaneous assets. As of December 31, 2012 and 2011, other intangible assets, net of accumulated amortization, were approximately $99 million and $97 million, respectively.
L) Physician Guarantees and Commitments: As of December 31, 2012 and 2011, our accrued liabilities-other, and our other assets included $3 million and $7 million, respectively, of estimated future payments related to physician-related contractual commitments. Pursuant to contractual guarantees outstanding as of December 31, 2012 that are applicable to future years, we have $3 million of potential future financial obligations, substantially all of which are potential obligations during 2013.
M) Self-Insured Risks: We provide for self-insured risks, primarily general and professional liability claims and workers’ compensation claims. Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimate of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. All relevant information, including our own historical experience is used in estimating the expected amount of claims. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Our estimated self-insured reserves are reviewed and changed, if necessary, at each reporting date and changes are recognized currently as additional expense or as a reduction of expense. See Note 8 for discussion of adjustments to our prior year reserves for claims related to our self-insured general and professional liability and workers’ compensation liability.
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In addition, we also maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs include expenses for claims incurred and paid in addition to an accrual for the estimated expenses incurred in connection with claims incurred but not yet reported.
N) Income Taxes: Deferred tax assets and liabilities are recognized for the amount of taxes payable or deductible in future years as a result of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. We believe that future income will enable us to realize our deferred tax assets net of recorded valuation allowances relating to state net operating loss carry-forwards.
We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. Our tax returns have been examined by the Internal Revenue Service (“IRS”) through the year ended December 31, 2006. We believe that adequate accruals have been provided for federal, foreign and state taxes.
See Note 6 for additional disclosure regarding income taxes.
O) Other Noncurrent Liabilities: Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, liability incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife and interest rate swap liabilities.
P) Redeemable Noncontrolling Interests and Noncontrolling Interest: Outside owners hold noncontrolling, minority ownership interests of: (i) approximately 28% in our five acute care facilities located in Las Vegas, Nevada; (ii) 20% in an acute care facility located in Washington, D.C.; (iii) approximately 11% in an acute care facility located in Laredo, Texas, and; (iv) 20% in a behavioral health care facility located in Philadelphia, Pennsylvania, the majority ownership interest of which was acquired by us as result of our acquisition of PSI in November, 2010. The redeemable noncontrolling interest balances of $234 million and $218 million as of December 31, 2012 and 2011, respectively, and the noncontrolling interest balances of $53 million and $51 million as of December 31, 2012 and 2011, respectively, consist primarily of the third-party ownership interests in these hospitals.
In connection with the five acute care facilities located in Las Vegas, Nevada, the minority ownership interests of which are reflected as redeemable noncontrolling interests on our Consolidated Balance Sheet, the outside owners have certain “put rights”, that are currently exercisable, that if exercised, require us to purchase the minority member’s interests at fair market value. The put rights are exercisable upon the occurrence of: (i) certain specified financial conditions falling below established thresholds; (ii) breach of the management contract by the managing member (a subsidiary of ours), or; (iii) if the minority member’s ownership percentage is reduced to less than certain thresholds. In connection with the behavioral health care facility located in Philadelphia, Pennsylvania, the minority ownership interest of which is also reflected as redeemable noncontrolling interests on our Consolidated Balance Sheet, the outside owner has a “put option” to put its entire ownership interest to us at any time. If exercised, the put option requires us to purchase the minority member’s interest at fair market value. As of December 31, 2012, we believe the fair market value of the minority ownership interests in these facilities, pursuant to the terms of the put options, approximates the book value of the redeemable noncontrolling interests.
Q) Comprehensive Income and Accumulated Other Comprehensive Income: Comprehensive income or loss is comprised of net income, changes in unrealized gains or losses on derivative financial instruments and a pension liability.
The accumulated other comprehensive income (“AOCI”) component of stockholders’ equity includes: net unrealized gains and losses on effective cash flow hedges; and the net minimum pension liability of a non-contributory defined benefit pension plan which covers employees at one of our subsidiaries. See Note 10, “Pension Plan” for additional disclosure regarding the defined benefit pension plan.
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The amounts recognized in AOCI for the two years ended December 31, 2012 were as follows (in thousands):
| Net Unrealized Gains (Losses) on Effective Cash Flow Hedges | Minimum Pension Liability | Total AOCI | ||||||||||
| Balance, January 1, 2011, net of income tax | $ | (5,130 | ) | $ | (15,009 | ) | $ | (20,139 | ) | |||
| 2011 activity: | ||||||||||||
| Pre-tax amount | (37,813 | ) | (12,397 | ) | (50,210 | ) | ||||||
| Income tax effect | 14,483 | 4,691 | 19,174 | |||||||||
| Change, net of income tax | (23,330 | ) | (7,706 | ) | (31,036 | ) | ||||||
| Balance, January 1, 2012, net of income tax | (28,460 | ) | (22,715 | ) | (51,175 | ) | ||||||
| 2012 activity: | ||||||||||||
| Pre-tax amount | 6,341 | 4,986 | 11,327 | |||||||||
| Income tax effect | (2,408 | ) | (1,898 | ) | (4,306 | ) | ||||||
| Change, net of income tax | 3,933 | 3,088 | 7,021 | |||||||||
| Balance, December 31, 2012, net of income tax | $ | (24,527 | ) | $ | (19,627 | ) | $ | (44,154 | ) | |||
R**) Accounting for Derivative Financial Investments and Hedging Activities:** We manage our ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.
We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.
Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within stockholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. Changes in the fair value of our cash flow hedges are classified as operating on our cash flow statement.
We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Fair value hedges are accounted for by recording the changes in the fair value of both the derivative instrument and the hedged item in the income statement.
For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.
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S) Stock-Based Compensation: At December 31, 2012, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.
The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities. The applicable FASB guidance requires that cash flows resulting from tax deductions in excess of compensation cost recognized be classified as financing cash flows. During 2012, 2011 and 2010, there were no net excess tax benefits generated.
T) Earnings per Share: Basic earnings per share are based on the weighted average number of common shares outstanding during the year. Diluted 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.
The following table sets forth the computation of basic and diluted earnings per share, for the periods indicated:
| Twelve Months Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Basic and diluted: | ||||||||||||
| Net Income | $ | 489,047 | $ | 448,870 | $ | 275,795 | ||||||
| Less: Net income attributable to noncontrolling interest | (45,601 | ) | (50,703 | ) | (45,612 | ) | ||||||
| Less: Net income attributable to unvested restricted share grants | (497 | ) | (521 | ) | (918 | ) | ||||||
| Net income attributable to UHS—basic and diluted | $ | 442,949 | $ | 397,646 | $ | 229,265 | ||||||
| Basic earnings per share attributable to UHS: | ||||||||||||
| Weighted average number of common shares—basic | 96,821 | 97,199 | 96,786 | |||||||||
| Total basic earnings per share | $ | 4.57 | $ | 4.09 | $ | 2.37 | ||||||
| Diluted earnings per share attributable to UHS: | ||||||||||||
| Weighted average number of common shares | 96,821 | 97,199 | 96,786 | |||||||||
| Net effect of dilutive stock options and grants based on the treasury stock method | 890 | 1,338 | 1,187 | |||||||||
| Weighted average number of common shares and equivalents—diluted | 97,711 | 98,537 | 97,973 | |||||||||
| Total diluted earnings per share | $ | 4.53 | $ | 4.04 | $ | 2.34 | ||||||
The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all years presented above, excludes certain outstanding stock options applicable to each year since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled 2.0 million during 2012, 1.4 million during 2011and 1,000 during 2010.
U) Fair Value of Financial Instruments: The fair values of our registered debt and investments are based on quoted market prices. The fair values of other long-term debt, including capital lease obligations, are estimated by discounting cash flows using period-end interest rates and market conditions for instruments with similar maturities and credit quality. The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, and short-term borrowings approximates their fair values due to the short-term nature of these instruments. Accordingly, these items have been excluded from the fair value disclosures included elsewhere in these notes to consolidated financial statements.
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V) Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
W) Mergers and Acquisitions: The acquisition method of accounting for business combinations requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values with limited exceptions. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The fair value of intangible assets, including Medicare Licenses, Certificates of Need, and certain contracts, is based on significant judgments made by our management, and accordingly, for significant items we typically obtain assistance from third party valuation specialists.
X) Accounting Standards:
Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities: During the first quarter of 2012, we adopted the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) No. 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which required certain health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). As a result, the provision for doubtful accounts for our acute care and behavioral health care facilities is reflected as a deduction from net revenues in the accompanying consolidated statements of income for 2012, 2011 and 2010. The adoption of this standard had no impact on our financial position or overall results of operations.
Presentation of Comprehensive Income: In June 2011, the FASB amended its guidance governing the presentation of comprehensive income. The amended guidance eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Under the new guidance, an entity can elect to present items of net income and other comprehensive income in one continuous statement referred to as the statement of comprehensive income or in two separate, but consecutive, statements. While the options for presenting other comprehensive income change under the guidance, other portions of the current guidance will not change. For public entities, these changes are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this standard did not have an impact on our consolidated financial position or results of operations.
2) ACQUISITIONS AND DIVESTITURES
Year ended December 31, 2012:
2012 Acquisitions of Assets and Businesses:
During 2012, we spent $528 million to acquire the following assets and businesses:
| • | spent $503 million to acquire 9 behavioral health care facilities from Ascend Health Corporation (“Ascend”) in October, 2012, and; |
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| • | spent $25 million in connection with the acquisition of physician practices and various real property. |
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The aggregate net purchase price of the facilities was allocated to assets and liabilities based on their estimated fair values as follows:
| Amount (000s) | ||||
| Working capital, net | $ | 21,000 | ||
| Property, plant & equipment | 60,000 | |||
| Goodwill | 446,000 | |||
| Other assets | 9,000 | |||
| Income tax assets, net of deferred tax liabilities | (1,000 | ) | ||
| Other liabilities | (7,000 | ) | ||
| Cash paid in 2012 for acquisitions | $ | 528,000 | ||
Goodwill of the facilities acquired is computed, pursuant to the residual method, by deducting the fair value of the acquired assets and liabilities from the total purchase price. The factors that contribute to the recognition of goodwill, which may also influence the purchase price, include the following for each of the acquired facilities: (i) the historical cash flows and income levels; (ii) the reputations in their respective markets; (iii) the nature of the respective operations, and; (iv) the future cash flows and income growth projections.
Assuming the acquisition of Ascend occurred on January 1, 2011, our 2011 pro forma net revenues would have been approximately $6.90 billion and our pro forma net income attributable to UHS and pro forma net income attributable to UHS per diluted share would have been $401 million and $4.06 per diluted share, respectively. The 2011 pro forma net income attributable to UHS and pro forma net income attributable to UHS per diluted share include the after-tax impact of the transaction costs incurred by us in connection with the acquisition of Ascend amounting to $5 million or $.06 per diluted share.
Our 2012 pro forma net revenues would have been approximately $7.11 billion and our pro forma net income attributable to UHS and pro forma net income attributable to UHS per diluted share would have been $464 million and $4.74 per diluted share, respectively.
During the period of October 10, 2012 through December 31, 2012, the facilities acquired from Ascend generated $42 million of net revenues which are included in our consolidated net revenues for the year ended December 31, 2012. The aggregate effect of the earnings generated by these facilities since the date of acquisition, less the cost on the borrowings utilized to finance the acquisition, and less the above-mentioned transaction costs, was not material to our 2012 net income attributable to UHS and net income attributable to UHS per diluted share.
2012 Divestiture of Assets and Businesses:
During 2012, we received $149 million from the divestiture of assets and businesses, including the following:
| • | received $93 million for the sale of Auburn Regional Medical Center (“Auburn”), a 159-bed acute care hospital located in Auburn, Washington (sold in October); |
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| • | received $50 million for the sale of the Hospital San Juan Capestrano, a 108-bed acute care hospital located in Rio Piedras, Puerto Rico (sold in January pursuant to our below-mentioned agreement with the FTC in connection with our acquisition of PSI in November, 2010), and; |
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| • | received an aggregate of $6 million for the sale of the real property of two non-operating behavioral health facilities and our majority ownership interest in an outpatient surgery center located in Puerto Rico. |
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In connection with the receipt of antitrust clearance from the Federal Trade Commission (“FTC”) in connection with our acquisition of Ascend Health Corporation in October of 2012, we agreed to certain
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conditions, including the divestiture, within approximately six months, of Peak Behavioral Health Services (“Peak”), a 104-bed behavioral health care facility located in Santa Teresa, New Mexico. The revenues of Peak were approximately $18 million and $14 million during 2012 and 2011, respectively.
In connection with the receipt of antitrust clearance from the FTC in connection with our acquisition of PSI in November, 2010, we agreed to divest three former PSI facilities as well as one of our legacy behavioral health facilities in Puerto Rico. Pursuant to the terms of our agreement with the FTC, we divested:
| • | in July, 2011, the MeadowWood Behavioral Health System, a 58-bed facility located in New Castle, Delaware; |
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| • | in December, 2011, the Montevista Hospital (101-bed) and Red Rock Hospital (21-bed), both of which are located in Las Vegas, Nevada, and; |
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| • | in January, 2012, the Hospital San Juan Capestrano, a 108-bed facility located in Rio Piedras, Puerto Rico. |
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The operating results for Auburn, Peak and the three former PSI facilities located in Delaware and Nevada are reflected as discontinued operations during our period of ownership during each of the years presented herein. Since the aggregate income from discontinued operations before income tax expense for these facilities is not material to our consolidated financial statements, it is included as a reduction to other operating expenses. As reflected on the table below, the aggregate pre-tax gain on the divestiture of Auburn, was approximately $26 million. The aggregate pre-tax net gain on the divestiture of San Juan Capestrano in January, 2012 did not have a material impact on our consolidated results of operations during 2012. Assets and liabilities for Peak are reflected as “held for sale” on our Consolidated Balance Sheet as of December 31, 2012, and the assets and liabilities for the Hospital San Juan Capestrano were reflected as “held for sale” on our Consolidated Balance Sheet as of December 31, 2011.
The following table shows the results of operations for Auburn and Peak and the former PSI facilities located in Delaware and Nevada, on a combined basis, which were reflected as discontinued operations during our period of ownership for each of the years presented herein (amounts in thousands):
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net revenues | $ | 95,226 | $ | 159,218 | $ | 126,218 | ||||||
| Income from discontinued operations | (3,472 | ) | 10,422 | 12,109 | ||||||||
| Gain on divestiture | 26,419 | 442 | 0 | |||||||||
| Income from discontinued operations, before income tax expense | 22,947 | 10,864 | 12,109 | |||||||||
| Income tax expense | (8,688 | ) | (4,113 | ) | (4,483 | ) | ||||||
| Income from discontinued operations, net of income tax expense | $ | 14,259 | $ | 6,751 | $ | 7,626 | ||||||
Year ended December 31, 2011:
2011 Acquisitions of Assets and Businesses:
During 2011, we spent $29 million on the acquisition of businesses and real property, including the following:
| • | the acquisition of administrative office buildings located in Pennsylvania, Tennessee and a multi-tenant office building located in Washington D.C.; |
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| • | a deposit in made connection with execution of a purchase agreement for an acute care hospital in Texas which has since been terminated and the deposit returned to us in 2012, and; |
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| • | the acquisition of a cardiology practice in Texas |
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The aggregate net cash expenditure related to the properties and/or businesses was allocated to assets and liabilities based on their estimated fair values as follows:
| Amount (000s) | ||||
| Property, plant & equipment | $ | 35,000 | ||
| Other assets/deposits | 11,000 | |||
| Debt | (17,000 | ) | ||
| Cash paid in 2011 for acquisitions and deposits | $ | 29,000 | ||
2011 Divestitures of Assets and Businesses:
During 2011, we received $68 million from the divestiture of assets and businesses, including the following:
| • | the above-mentioned sale of three behavioral healthcare facilities (one located in Delaware and two located in Nevada) pursuant to our agreement with the FTC in connection with our acquisition of PSI; |
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| • | sale of our majority ownership interest in a radiation oncology center located in Nevada, and; |
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| • | the real property of a closed acute care hospital |
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The aggregate pre-tax net gain on the divestitures of the above-mentioned facilities located in Delaware and Nevada did not have a material impact on our 2011 consolidated results of operations.
Year ended December 31, 2010:
2010 Acquisitions of Assets and Businesses:
During 2010, we spent $1.96 billion and assumed $1.08 billion of debt on the acquisition of businesses and real property, including the following:
| • | the acquisition of PSI on November 15, 2010 for a total purchase price of $3.04 billion consisting of $1.96 billion in cash plus the assumption of approximately $1.08 billion of PSI’s debt, the majority of which has since been refinanced, and; |
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| • | the acquisition of substantially all of the assets of an outpatient surgery center located in Florida in which we previously held a 20% minority ownership interest. The purchase price consideration in connection with this transaction, which occurred during the first quarter, consisted of acquisition of the net assets less the assumption of the outstanding liabilities and third-party debt. |
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The aggregate net purchase price of the facilities was allocated to assets and liabilities based on their estimated fair values as follows:
| Amount (000s) | ||||
| Working capital, net | $ | 60,000 | ||
| Assets held for sale | 67,000 | |||
| Property, plant & equipment | 932,000 | |||
| Goodwill | 1,921,000 | |||
| Other assets | 132,000 | |||
| Income tax assets, net of deferred tax liabilities | (14,000 | ) | ||
| Debt | (1,082,000 | ) | ||
| Liabilities held for sale | (1,000 | ) | ||
| Redeemable noncontrolling interests | (5,000 | ) | ||
| Other liabilities | (52,000 | ) | ||
| Cash paid in 2010 for acquisitions | $ | 1,958,000 | ||
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Goodwill of the facilities acquired is computed, pursuant to the residual method, by deducting the fair value of the acquired assets and liabilities from the total purchase price. The factors that contribute to the recognition of goodwill, which may also influence the purchase price, include the following for each of the acquired facilities: (i) the historical cash flows and income levels; (ii) the reputations in their respective markets; (iii) the nature of the respective operations, and; (iv) the future cash flows and income growth projections.
Assuming the acquisition of PSI occurred on January 1, 2009, our 2010 pro forma net revenues would have been approximately $7.30 billion and our pro forma net income attributable to UHS and pro forma net income attributable to UHS per diluted share would have been $342 million and $3.47 per diluted share, respectively.
During the period of November 16, 2010 through December 31, 2010, the facilities acquired from PSI generated $227 million of net revenues which are included in our consolidated net revenues for the year ended December 31, 2010. The aggregate effect of the earnings generated by these facilities since the date of acquisition, less the cost on the borrowings utilized to finance the acquisition, was not material to our 2010 net income attributable to UHS and net income attributable to UHS per diluted share.
Year ended December 31, 2010:
2010 Divestitures of Assets and Businesses:
During 2010, we received $21 million from the divestiture of assets and businesses, including the following:
| • | the sale of our minority ownership interest in a healthcare technology company; |
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| • | the sale of a portion of our ownership interest in an outpatient surgery center located in Texas, and; |
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| • | the sale of the real property of Methodist Hospital located in Louisiana that was severely damaged and closed in 2005 as a result of Hurricane Katrina. |
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The pre-tax gain, net of losses, resulting from the above-mentioned transactions did not have a material impact on our 2010 financial statements.
3) FINANCIAL INSTRUMENTS
Fair Value Hedges:
During 2012, 2011 and 2010, we had no fair value hedges outstanding.
Cash Flow Hedges:
We manage our ratio of fixed and floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.
Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the
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hedged transaction affects earnings. We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.
For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.
The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on estimates obtained from the counterparties. We assess the effectiveness of our hedge instruments on a quarterly basis. We performed periodic assessments of the cash flow hedge instruments during 2012 and 2011 and determined the hedges to be highly effective. We also determined that any portion of the hedges deemed to be ineffective was de minimis and therefore there was no material effect on our consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose us to credit risk in the event of nonperformance. However, at December 31, 2012, each swap agreement entered into by us was in a net liability position which would require us to make the net settlement payments to the counterparties. We do not anticipate nonperformance by our counterparties. We do not hold or issue derivative financial instruments for trading purposes.
During the first quarter of 2011, we entered into an interest rate cap on a total notional amount of $275 million whereby we paid a premium of $30,000 in exchange for the counterparty agreeing to pay the difference between 2.25% and three-month LIBOR if the three-month LIBOR rate rises above 2.25% during the term of the cap, which expired in December, 2011. The three-month LIBOR never reached 2.25% during the term of the cap. Therefore, no payment was made to us. We also entered into a forward starting interest rate cap on a total notional amount of $450 million from December, 2011 to December, 2012 reducing to $400 million from December, 2012 to December, 2013 whereby we paid a premium of $740,000 in exchange for the counterparty agreeing to pay the difference between 7.00% and three-month LIBOR if the three-month LIBOR rate rises above 7.00% during the term of the cap. If the three-month LIBOR does not reach 7.00% during the term of the cap, no payment is made to us.
We also entered into six additional forward starting interest rate swaps in the first quarter of 2011 whereby we pay a fixed rate on a total notional amount of $425 million and receive three-month LIBOR. Three of these swaps with a total notional amount of $225 million became effective in March, 2011 and will mature in May, 2015. The average fixed rate payable on these swaps is 1.91%. The three remaining interest rate swaps with total notional amounts of $100 million, $25 million and $75 million became effective in December, 2011 and have fixed rates of 2.50%, 1.96% and 1.32%, and maturity dates in December, 2014, December, 2013 and December, 2012, respectively.
During the fourth quarter of 2010, we entered into three interest rate caps on a total notional amount of $1 billion whereby we paid a premium of $240,000 in exchange for the counterparties agreeing to pay the difference between 2.25% and three-month LIBOR if the three-month LIBOR rate rises above 2.25% during the term of the caps. All of these caps expired in December, 2011. The three-month LIBOR rate never rose above 2.25% during the term of the caps. Therefore, no payments were made to us. We also entered into four forward starting interest rate swaps in the fourth quarter of 2010 whereby we pay a fixed rate on a total notional amount of $600 million and receive three-month LIBOR. Each of the four swaps became effective in December, 2011 and will mature in May, 2015. The average fixed rate payable on these swaps is 2.38%.
During the fourth quarter of 2007, we entered into two interest rate swaps whereby we pay a fixed rate on a total notional principal amount of $150 million and receive three-month LIBOR. Each of the two interest rate
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swaps had an initial notional principal amount of $75 million. The notional amount of the first interest rate swap reduced to $50 million in October, 2010. The fixed rate payable was 4.76% and it matured in October, 2012. The fixed rate payable on the second interest rate swap was 4.87% and it matured in October, 2011.
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based primarily on quotes from banks. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. The fair value of our interest rate swaps was a liability of $41 million at December 31, 2012, substantially all of which is included in other noncurrent liabilities on the accompanying balance sheet. At December 31, 2011, the fair value of our interest rate swaps was a liability of $48 million, of which $4 million is included in other current liabilities and $44 million is included in other noncurrent liabilities on the accompanying balance sheet.
4) LONG-TERM DEBT
A summary of long-term debt follows:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| (amounts in thousands) | ||||||||
| Long-term debt: | ||||||||
| Notes payable and Mortgages payable (including obligations under capitalized leases of $8,267 in 2012 and 9,982 in 2011) and term loans with varying maturities through 2038; weighted average interest at 5.9% in 2012 and 6.1% in 2011 (see Note 7 regarding capitalized leases) | $ | 47,216 | $ | 51,841 | ||||
| Revolving credit and on-demand credit facility | 163,500 | 249,600 | ||||||
| Term Loan A, net of unamortized discount of $4,612 in 2012 and $6,103 in 2011 | 983,438 | 1,017,647 | ||||||
| Term Loan B, net of unamortized discount of $8,724 in 2012 and $19,500 in 2011 | 737,176 | 1,439,500 | ||||||
| Term Loan A2 | 894,375 | — | ||||||
| Revenue bonds, interest at floating rates of 0.2% at December 31, 2012 and 2011, with varying maturities through 2015 | 5,300 | 5,300 | ||||||
| Accounts receivable securitization program | 249,000 | 240,000 | ||||||
| 7.125% Senior Secured Notes due 2016, including unamortized net premium of $15 in 2012 and $19 in 2011 | 400,015 | 400,019 | ||||||
| 7.00% Senior Unsecured Notes due 2018 | 250,000 | 250,000 | ||||||
| 3,730,020 | 3,653,907 | |||||||
| Less-Amounts due within one year | (2,589 | ) | (2,479 | ) | ||||
| $ | 3,727,431 | $ | 3,651,428 | |||||
On September 21, 2012, we entered into a second amendment (“Second Amendment”) to our credit agreement, dated as of November 15, 2010, as amended on March 15, 2011, with several banks and other financial institutions (“Credit Agreement”). The Second Amendment, provides for a new $900 million Term Loan-A (“Term Loan A2”) at the same interest rates as our existing Term Loan A and a final maturity date of August 15, 2016. The Second Amendment also provides for the extension of the maturity date on approximately $777 million of our existing $800 million revolving credit facility, and $943 million of our existing Term Loan-A facility, by nine months to mature on August 15, 2016. Approximately $23 million of our revolving credit facility commitment and $45 million of our existing Term Loan-A was not extended and is scheduled to mature on November 15, 2015. The Second Amendment also provides for increased flexibility for refinancing and certain other modifications but substantially all other terms of the Credit Agreement, dated as of November 15, 2010 and as previously amended in March, 2011, including interest rates, remain unchanged.
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On September 21, 2012, we used $700 million of the proceeds from the new Term Loan-A2 facility to extinguish a portion of our higher priced, Term Loan-B facility. Current pricing under the new Term Loan-A2 facility is 1% lower than the Term Loan-B facility and does not include a LIBOR Floor whereas the Term Loan-B facility has a 1% LIBOR Floor. During the third quarter of 2012, in connection with the extinguishment of a portion of our Term Loan-B facility, we recorded a pre-tax charge of $29 million to write-off the related portion of the Term Loan-B deferred financing costs.
The Credit Agreement, as amended on September 21, 2012, is a senior secured facility which provides for an initial aggregate commitment amount of $3.43 billion, comprised of an $800 million revolving credit facility, a $988 million Term Loan-A facility, a $746 million Term Loan-B facility and a $900 million Term Loan-A2 facility. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is secured by substantially all of the assets of the Company and our material subsidiaries and guaranteed by our material subsidiaries.
Borrowings under the Credit Agreement bear interest at either (1) the ABR rate which is defined as the rate per annum equal to, at our election: the greatest of (a) the lender’s prime rate, (b) the weighted average of the federal funds rate, plus 0.5% and (c) one month Eurodollar rate plus 1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.50% to 1.25% for revolving credit, Term Loan-A and Term Loan- A2 borrowings and 1.75% to 2.00% for Term Loan B borrowings or (2) the one, two, three or six month Eurodollar rate (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.50% to 2.25% for revolving credit, Term Loan-A and Term Loan- A2 borrowings and ranging from 2.75% to 3.00% for Term Loan-B borrowings. The current applicable margins are 0.75% for ABR-based loans, 1.75% for Eurodollar-based loans under the revolving credit, Term Loan-A and Term Loan-A2 facilities and 2.75% under the Term Loan-B facility. The minimum Eurodollar rate for the Term Loan-B facility is 1.00% (“LIBOR Floor”).
As of December 31, 2012, we had $574 million of available borrowing capacity pursuant to the terms of our $800 million revolving credit facility, net of $164 million of outstanding borrowings (including borrowings outstanding pursuant to a short-term, on-demand credit facility) and $62 million of outstanding letters of credit. As of December 31, 2012, we had $14 million of outstanding borrowings under a short-term, on-demand credit facility. Outstanding borrowings pursuant to this facility are classified as long-term on our Consolidated Balance Sheet since we have the intent and ability to refinance through available borrowings under the terms of our Credit Agreement.
Quarterly installment payments (“Installment Payments”) are due on the Term Loan-A and Term Loan-A2 facilities which are equal to approximately $72 million in 2013, $72 million in 2014, $77 million in 2015 and $46 million in 2016. No Installment Payments are due on the Term Loan-B facility. During 2012, we made scheduled principal payments of $13 million on the Term Loan B facility and $42 million on the Term Loan-A and Term Loan A2 facilities. In 2011, we made scheduled principal payments of $16 million on the Term Loan-B facility and $26 million on the Term Loan-A facility. The Installment Payments due in 2013 on the Term Loan-A and Term Loan-A2 facilities are classified as long-term on our Consolidated Balance Sheet since we expect to have the borrowing capacity and would intend to refinance through available borrowings under the terms of our Credit Agreement.
Our accounts receivable securitization program (“Securitization”) with a group of conduit lenders and liquidity banks was amended in October, 2010. We increased the size of the Securitization from $200 million to $240 million (the “Commitments”), and extended the maturity date to October 25, 2013. In May, 2012, we further increased the size of the securitization by $35 million to $275 million. Substantially all of the patient-related accounts receivable of our acute care hospitals (“Receivables”) serve as collateral for the outstanding borrowings. The interest rate on the borrowings is based on the commercial paper rate plus a spread of 0.475% and there is a facility fee of 0.375% required on 102% on the Commitments. We have accounted for this Securitization as borrowings. We maintain effective control over the Receivables since, pursuant to the terms of
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the Securitization; the Receivables are sold from certain of our subsidiaries to special purpose entities that are wholly-owned by us. The Receivables, however, are owned by the special purpose entities, can be used only to satisfy the debts of the wholly-owned special purpose entities, and thus are not available to us except through our ownership interest in the special purpose entities. The wholly-owned special purpose entities use the Receivables to collateralize the loans obtained from the group of third-party conduit lenders and liquidity banks. The group of third-party conduit lenders and liquidity banks do not have recourse to us beyond the assets of the wholly-owned special purpose entities that securitize the loans. At December 31, 2012, we had $249 million of outstanding borrowings and $26 million of additional capacity pursuant to the terms of our accounts receivable securitization program. In the event we do not either enter into a new financing agreement, or an agreement to extend the scheduled maturity date of the Securitization, we expect to have the borrowing capacity and would intend to refinance the Securitization upon its scheduled maturity utilizing borrowings under our Credit Agreement. Therefore, outstanding borrowings as of December 31, 2012 under the Securitization are classified as long-term on our Consolidated Balance Sheet.
Our $250 million, 7.00% senior unsecured notes (the “Unsecured Notes”) are scheduled to mature on October 1, 2018. The Unsecured Notes were issued on September 29, 2010 and registered in April, 2011. Interest on the Unsecured Note is payable semiannually in arrears on April 1st and October 1st of each year. The Unsecured Notes can be redeemed in whole at anytime subject to a make-whole call at treasury rate plus 50 basis points prior to October 1, 2014. They are also redeemable in whole or in part at a price of: (i) 103.5% on or after October 1, 2014; (ii) 101.75% on or after October 1, 2015, and; (iii) 100% on or after October 1, 2016. These Unsecured Notes are guaranteed by a group of subsidiaries (each of which is a 100% directly owned subsidiary of Universal Health Services, Inc.) which fully and unconditionally guarantee the Unsecured Notes on a joint and several basis, subject to certain customary automatic release provisions.
On June 30, 2006, we issued $250 million of senior notes which have a 7.125% coupon rate and mature on June 30, 2016 (the “7.125% Notes”). Interest on the 7.125% Notes is payable semiannually in arrears on June 30th and December 30th of each year. In June, 2008, we issued an additional $150 million of 7.125% Notes which formed a single series with the original 7.125% Notes issued in June, 2006. Other than their date of issuance and initial price to the public, the terms of the 7.125% Notes issued in June, 2008 are identical to and trade interchangeably with, the 7.125% Notes which were originally issued in June, 2006.
During 2001, we issued $200 million of senior notes which have a 6.75% coupon rate and which matured and were paid in full on November 15, 2011 (the “6.75% Notes”).
In connection with the entering into of the Credit Agreement on November 15, 2010, and in accordance with the Indenture dated January 20, 2000 governing the rights of our existing notes, we entered into a supplemental indenture pursuant to which our 7.125% Notes (due in 2016) and our 6.75% Notes (which matured and were paid in full in November, 2011) were equally and ratably secured with the lenders under the Credit Agreement with respect to the collateral for so long as the lenders under the Credit Agreement are so secured.
The average amounts outstanding during 2012, 2011 and 2010 under the current and prior Credit Agreements, demand notes and accounts receivable securitization programs were $2.9 billion, $2.9 billion and $610 million, respectively, with corresponding interest rates of 2.9%, 3.4% and 3.4% including commitment and facility fees. The maximum amounts outstanding at any month-end were $3.06 billion in 2012, $3.03 billion in 2011 and $3.11 billion in 2010. The effective interest rate on our current and prior Credit Agreements, accounts receivable securitization programs, and demand notes, which includes the respective interest expense, commitment and facility fees, designated interest rate swaps expense and amortization of deferred financing costs and original issue discounts, was 4.5% in 2012, 4.6% in 2011 and 5.0% in 2010.
Our Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement contains covenants that include a limitation on sales of assets, mergers, change of ownership,
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liens and indebtedness, transactions with affiliates and dividends; and requires compliance with financial covenants including maximum leverage and minimum interest coverage ratios. We are in compliance with all required covenants as of December 31, 2012.
The carrying values of our debt at December 31, 2012 and 2011 are reflected above. The fair values of our debt at December 31, 2012 and 2011 were $3.8 billion and $3.7 billion, respectively. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.
Aggregate maturities follow:
| (000s) | ||||
| 2013 | $ | 2,589 | ||
| 2014 | 2,012 | |||
| 2015 | 68,588 | |||
| 2016 | 3,382,793 | |||
| 2017 | 1,262 | |||
| Later | 272,776 | |||
| Total | $ | 3,730,020 | ||
Amounts outstanding under our on-demand credit facility and Securitization program, as well as the scheduled Installment Payments due on our Term Loan-A and Term Loan-A2 facilities, as discussed above, are included in the Credit Agreement maturities which are due in 2016.
5) COMMON STOCK
Dividends
Cash dividends of $.60 per share ($58.3 million in the aggregate), including a $.40 per share special cash dividend ($38.9 million) were declared and paid during 2012. Cash dividends of $.20 per share ($19 million in the aggregate) were declared and paid during each of 2011 and 2010. All classes of our common stock have similar economic rights.
Stock Repurchase Programs
In various prior years, our Board of Directors has approved stock repurchase programs authorizing us to purchase shares of our outstanding Class B Common Stock on the open market at prevailing market prices or in negotiated transactions off the market. There is no expiration date for our stock repurchase programs. The most recent approval occurred during 2007 at which time our Board of Directors authorized the purchase of up to 10 million shares, a portion of which (as reflected below) remains available for purchase as of December 31,
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- The following schedule provides information related to our stock repurchase programs for each of the three years ended December 31, 2012:
| Total number of shares purchased as part of publicly announced programs | Total price paid for shares purchased as part of publicly announced programs (in thousands) | Total number of shares purchased related to stock-based compensation plans (a.) | Total price paid for shares purchased related to stock-based compensation plans (in thousands) | Aggregate number of shares purchased | Aggregate price paid for shares purchased (in thousands) | Maximum number of shares that may yet be purchased under the publicly announced program | ||||||||||||||||||||||
| Balance as of January 1, 2010 | 2,152,339 | |||||||||||||||||||||||||||
| 2010…… | — | — | 301,933 | $ | 11,528 | 301,933 | $ | 11,528 | 2,152,339 | |||||||||||||||||||
| 2011…… | 1,384,637 | $ | 50,576 | 217,649 | $ | 9,906 | 1,602,286 | $ | 60,482 | 767,702 | ||||||||||||||||||
| 2012…… | — | — | 433,312 | $ | 19,154 | 433,312 | $ | 19,154 | 767,702 | |||||||||||||||||||
| Total for three year period ended December 31, 2012 | 1,384,637 | $ | 50,576 | 952,894 | $ | 40,588 | 2,337,531 | $ | 91,164 | |||||||||||||||||||
| (a.) | During 2012, there were 432,562 shares repurchased at an average price of $44.28 per share related to income tax withholding obligations in connection with stock-based compensation programs, and 750 shares repurchased at an average of $.01 per share related to restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan. During 2011, there were 217,649 shares repurchased at an average price of $45.51 per share related to income tax withholding obligations in connection with stock-based compensation programs. During 2010, there were 293,933 shares repurchased at an average price of $39.22 per share related to income tax withholding obligations in connection with stock-based compensation programs and 8,000 shares repurchased at an average price of $.01 per share related to restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan. |
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Stock-based Compensation Plans
At December 31, 2012, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.
The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities. The applicable FASB guidance requires that cash flows resulting from tax deductions in excess of compensation cost recognized be classified as financing cash flows. During 2012, 2011 and 2010, there were no net excess tax benefits generated.
Compensation costs related to outstanding stock options were recognized as follows: (i) a pre-tax charge of $20.1 million ($12.5 million after-tax) or $.13 per diluted share during 2012; (ii) a pre-tax charge of $15.8 million ($9.8 million after-tax) or $.10 per diluted share during 2011, and; (ii) a pre-tax charge of $13.3 million ($8.3 million after-tax) or $.08 per diluted share during 2010. In addition, during the years ended 2012, 2011 and 2010, compensation costs of $2.3 million ($1.4 million after-tax), $2.0 million ($1.2 million after-tax) and $3.1 million ($2.0 million after-tax) respectively, were recognized related to restricted stock.
We adopted the 2005 Stock Incentive Plan, as amended in 2008 and 2010, (the “Stock Incentive Plan”) which replaced our Amended and Restated 1992 Stock Option Plan which expired in July of 2005. An aggregate
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of twenty-three million shares of Class B Common Stock has been reserved under the Stock Incentive Plan. There were 2,760,050, 2,561,250 and 69,500 stock options, net of cancellations, granted during 2012, 2011 and 2010, respectively. The per option weighted-average grant-date fair value of options granted during 2012, 2011 and 2010, was $10.73, $11.62 and $7.84, respectively. Stock options to purchase Class B Common Stock have been granted to our officers, key employees and directors under our above referenced stock option plans. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. Options are exercisable ratably over a four-year period beginning one year after the date of the grant. All outstanding options expire five years after the date of the grant.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions derived from averaging the number of options granted during the most recent five-year period that were granted or have vestings after January 1, 2006. The 2010 weighted-average assumptions were based upon seventeen option grants, the 2011 and 2012 weighted-average assumptions were each based upon eighteen option grants.
| Year Ended December 31, | 2012 | 2011 | 2010 | |||||||||
| Volatility | 33 | % | 29 | % | 27 | % | ||||||
| Interest rate | 1 | % | 2 | % | 3 | % | ||||||
| Expected life (years) | 3.5 | 3.5 | 3.6 | |||||||||
| Forfeiture rate | 10 | % | 9 | % | 10 | % | ||||||
| Dividend yield | 0.6 | % | 0.7 | % | 0.7 | % |
The risk-free rate is based on the U.S. Treasury zero coupon four year yield in effect at the time of grant. The expected life of the stock options granted was estimated using the historical behavior of employees. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life. Expected dividend yield is based on our actual dividend yield at the time of grant.
The table below summarizes our stock option activity during each of the last three years:
| Outstanding Options | Number of Shares | Average Option Price | Range (High-Low) | |||||||||
| Balance, January 1, 2010 | 8,802,450 | $ | 25.03 | $ | 31.70 -$16.22 | |||||||
| Granted | 94,000 | $ | 30.40 | $ | 32.28 -$30.32 | |||||||
| Exercised | (2,000,250 | ) | $ | 24.87 | $ | 31.70 -$16.22 | ||||||
| Cancelled | (301,250 | ) | $ | 24.91 | $ | 31.18 -$16.22 | ||||||
| Balance, January 1, 2011 | 6,594,950 | $ | 25.16 | $ | 32.28 -$16.22 | |||||||
| Granted | 2,894,500 | $ | 43.66 | $ | 54.79 -$38.12 | |||||||
| Exercised | (1,563,255 | ) | $ | 26.38 | $ | 32.28 -$16.22 | ||||||
| Cancelled | (367,250 | ) | $ | 32.60 | $ | 46.97 -$16.22 | ||||||
| Balance, January 1, 2012 | 7,558,945 | $ | 31.63 | $ | 54.79 -$16.22 | |||||||
| Granted | 2,966,850 | $ | 37.01 | $ | 44.83 -$36.95 | |||||||
| Exercised | (2,608,007 | ) | $ | 23.22 | $ | 46.97 -$16.22 | ||||||
| Cancelled | (481,550 | ) | $ | 38.00 | $ | 46.97 -$16.22 | ||||||
| Balance, December 31, 2012 | 7,436,238 | $ | 36.31 | $ | 54.79 -$16.22 | |||||||
| Outstanding options vested and exercisable as of December 31, 2012 | 2,185,312 | $ | 30.40 | $ | 54.79 -$16.22 | |||||||
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The following table provides information about unvested options for the year December 31, 2012:
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Unvested options as of January 1, 2012 | 4,579,000 | $ | 9.50 | |||||
| Granted | 2,966,850 | $ | 10.73 | |||||
| Vested | (1,845,249 | ) | $ | 7.75 | ||||
| Cancelled | (449,675 | ) | $ | 10.32 | ||||
| Unvested options as of December 31, 2012 | 5,250,926 | $ | 10.74 | |||||
The following table provides information about all outstanding options, and exercisable options, at December 31, 2012:
| Options Outstanding | Options Exercisable | |||||||
| Number | 7,436,238 | 2,185,312 | ||||||
| Weighted average exercise price | $ | 36.31 | $ | 30.40 | ||||
| Aggregate intrinsic value as of December 31, 2012 | $ | 89,595,385 | $ | 39,256,370 | ||||
| Weighted average remaining contractual life | 3.0 | 2.0 |
The total in-the-money value of all stock options exercised during the years ended December 31, 2012, 2011 and 2010 were $54.4 million, $28.9 million and $26.8 million, respectively.
The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 2012 were as follows:
| Options Outstanding | Exercisable Options | Expected to Vest Options(a) | ||||||||||||||||||||||||||
| Exercise Price | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | Shares | Weighted Average Exercise Price Per Share | Shares | Weighted Average Exercise Price Per Share | |||||||||||||||||||||
| $16.22 – $16.22 | 586,000 | $ | 16.22 | .9 | 586,000 | $ | 16.22 | N/A | N/A | |||||||||||||||||||
| $30.32 – $31.18 | 1,616,000 | 31.16 | 2.0 | 1,032,750 | 31.17 | 525,275 | 31.14 | |||||||||||||||||||||
| $36.95 – $43.46 | 2,797,050 | 37.03 | 2.9 | 11,250 | 39.09 | 2,508,891 | 37.02 | |||||||||||||||||||||
| $43.67 – $54.79 | 2,437,188 | 43.75 | 3.1 | 555,312 | 43.75 | 1,694,818 | 43.75 | |||||||||||||||||||||
| Total | 7,436,238 | $ | 36.31 | 3.0 | 2,185,312 | $ | 30.40 | 4,728,984 | $ | 38.78 | ||||||||||||||||||
| (a) | Assumes a weighted average forfeiture rate of 9.94%. |
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In addition to the Stock Incentive Plan, we have the following stock incentive and purchase plans: (i) the 2010 Employees’ Restricted Stock Purchase Plan (“2010 Plan”), which replaced the Second Amended and Restated 2001 Employees’ Restricted Stock Purchase Plan (“2001 Plan”), which allows eligible participants to purchase shares of Class B Common Stock at par value, subject to certain restrictions, and; (ii) a 2005 Employee Stock Purchase Plan which allows eligible employees to purchase shares of Class B Common Stock at a ten percent discount. There were 117,901, 98,366 and 94,955 shares issued pursuant to the Employee Stock Purchase Plan during 2012, 2011 and 2010, respectively. Compensation expense recorded in connection with this plan was $533,000, $461,000 and $339,000 during 2012, 2011 and 2010, respectively.
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We have reserved 6.0 million shares of Class B Common Stock for issuance under these various plans (excluding terminated plans) and have issued approximately 900,000 shares, net of cancellations, pursuant to the terms of these plans (excluding terminated plans) as of December 31, 2012.
During 2012, pursuant to the 2010 Plan, the Compensation Committee (“Committee”) approved the issuance of 54,127 restricted shares of our Class B Common Stock at a weighted average price of $36.95 per share ($2.0 million in the aggregate) to our CEO and Chairman of the Board. These shares are scheduled to vest as follows: 50% on the first anniversary date of the grant, and 25% on each of the second and third anniversary dates of the grant, assuming our CEO remains employed by us. In the event that our CEO’s employment is terminated for reasons other than death, disability or retirement, any unvested shares will be forfeited, unless otherwise specified in a separation agreement between us and our CEO. We recorded compensation expense of approximately $1 million during 2012 in connection with this grant. The remaining expense associated with these awards (estimated at approximately $1 million as of December 31, 2012) will be recorded over the remaining vesting periods of the awards, assuming the recipient remain employed by us.
During 2011, pursuant to the 2010 Plan, the Committee approved the issuance of 21,500 restricted shares of our Class B Common Stock at a weighted average price of $53.21 per share ($1.1 million in the aggregate) to various employees. 750 of these shares became vested during 2012 and 750 of these shares were cancelled during 2012. The remaining 20,000 shares are scheduled to vest ratably on the second and third anniversaries of the grant date. We recorded compensation expense of $370,000 during 2012 and $198,000 during 2011 in connection with these grants. The remaining expense associated with these awards (estimated at $537,000 as of December 31, 2012) will be recorded over the remaining vesting periods of the awards, assuming the recipients remain employed by us.
The 2001 Plan, as described above, expired in March, 2010. Under this plan, we had 2.4 million shares of Class B Common Stock reserved for issuance and have issued approximately 1.2 million shares, net of cancellations, pursuant to the terms of this plan as of December 31, 2010, of which 62,044 became fully vested during 2012, 78,133 became fully vested during 2011 and 313,770 became fully vested during 2010.
During the first quarter of 2010, pursuant to the 2001 Plan and prior to its expiration, the Committee approved the issuance of 49,472 restricted shares of our Class B Common Stock at $30.32 per share ($1.5 million in the aggregate) to our CEO and Chairman of the Board. These shares, which were issued pursuant to a provision in our CEO’s employment agreement, are scheduled to vest ratably on the first, second, third and fourth anniversary dates of the grant, assuming our CEO remains employed by us. In the event that our CEO’s employment is terminated by reason of disability, death, without proper cause or due to breach of the CEO’s employment agreement by us, the vesting of these awards will occur immediately. 12,368 of these shares became fully vested in each of 2012 and 2011. In connection with this grant, we recorded compensation expense of $375,000 in each of 2012 and 2011 and $355,000 during 2010, and the remaining expense associated with this award (estimated at $395,000 as of December 31, 2012) will be recorded over the remaining vesting periods of the award.
During the first quarter of 2009, pursuant to the 2001 Plan, the Committee approved the issuance of 109,850 restricted shares of our Class B Common Stock at $20.26 per share ($2.2 million in the aggregate) to our CEO. These shares are scheduled to vest ratably on the first, second, third and fourth anniversary dates of the grant and are subject to the same conditions and terms as mentioned above in connection with the grant of restricted shares during the first quarter of 2010. 27,462 of these shares became fully vested in each of 2012 and 2011 and 27,463 of these shares became fully vested in 2010. In connection with this grant, we recorded compensation expense of $556,000 during each of 2012, 2011 and 2010 and $482,000 during 2009. The remaining expense associated with this award (estimated at $74,000 as of December 31, 2012) will be recorded over the remaining vesting periods of the award.
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During the first quarter of 2008, pursuant to the 2001 Plan, the Committee approved the issuance of 62,190 restricted shares of our Class B Common Stock at $24.12 per share ($1.5 million in the aggregate) to our CEO. These shares are scheduled to vest ratably on the first, second, third and fourth anniversary dates of the grant and are subject to the same conditions and terms as mentioned above in connection with the grant of restricted shares during the first quarter of 2010. 15,548 and 15,546 of these shares became fully vesting during 2012 and 2011, respectively, and 15,548 of these shares became fully vested in each of 2010 and 2009. In connection with this grant, we recorded compensation expense of $15,000 during 2012 and $375,000 during each of 2011 and 2010. This award was fully vested at December 31, 2012.
During the fourth quarter of 2007, pursuant to the 2001 Plan, the Committee approved the issuance of 61,362 restricted shares of our Class B Common Stock at $24.45 per share ($1.5 million in the aggregate) to our CEO. These shares were scheduled to vest ratably on the first, second, third and fourth anniversary dates of the grant and were subject to the same conditions and terms as mentioned above in connection with the grant of restricted shares during the first quarter of 2010. 15,341 of these shares became fully vested in each of 2011 and 2010 and 15,340 of these shares became fully vested in each of 2009 and 2008. In connection with this grant, we recorded compensation expense of $333,000 during 2011 and $375,000 during 2010. This award was fully vested at December 31, 2011.
Additionally, during 2007, pursuant to the 2001 Plan, the Committee approved the issuance of 22,250 restricted shares of our Class B Common stock at a weighted average of $29.62 per share ($659,000 in the aggregate) to various employees. These shares have various vesting schedules. We recorded compensation expense of $42,000 during 2012, $120,000 during 2011 and $135,000 during 2010, in connection with these grants. These awards were fully vested at December 31, 2012.
During the fourth quarter of 2006, pursuant to the 2001 Plan, the Committee approved the issuance of 247,000 restricted shares (net of cancellations) of our Class B Common Stock at $25.71 per share ($6.4 million in the aggregate) to various officers and employees. These shares became fully vested in November, 2010. In connection with this grant, we recorded compensation expense of $1.3 million during 2010. These awards were fully vested at December 31, 2010.
At December 31, 2012, 28,083,325 shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock and for issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock.
In connection with the long-term incentive plans described above, we recorded compensation expense of $2.8 million in 2012, $2.4 million in 2011 and $3.5 million in 2010. Including the compensation expense recognized related to outstanding stock options of $20.1 million in 2012, $15.8 million in 2011 and $13.3 million in 2010, we recorded a total stock compensation expense of $22.9 million in 2012, $18.2 million in 2011 and $16.8 million in 2010.
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6) INCOME TAXES
Components of income tax expense/(benefit) are as follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Current | ||||||||||||
| Federal | $ | 254,021 | $ | 165,409 | $ | 105,077 | ||||||
| Foreign | 9,084 | 300 | 2,555 | |||||||||
| State | 39,076 | 22,901 | 16,547 | |||||||||
| 302,181 | 188,610 | 124,179 | ||||||||||
| Deferred | ||||||||||||
| Federal and foreign | (21,408 | ) | 53,056 | 26,419 | ||||||||
| State | (6,157 | ) | 5,800 | 1,704 | ||||||||
| (27,565 | ) | 58,856 | 28,123 | |||||||||
| Total | $ | 274,616 | $ | 247,466 | $ | 152,302 | ||||||
Deferred taxes are required to be classified based on the financial statement classification of the related assets and liabilities which give rise to temporary differences. Deferred taxes result from temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The components of deferred taxes are as follows (amounts in thousands):
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Deferred income tax assets: | ||||||||
| Self-insurance reserves | $ | 112,587 | $ | 115,201 | ||||
| Compensation accruals | 47,571 | 49,717 | ||||||
| State and foreign net operating loss carryforwards and other state and foreign deferred tax assets | 54,874 | 52,506 | ||||||
| Other currently non-deductible accrued liabilities | 29,934 | 19,699 | ||||||
| Net pension liability—OCI only | 12,061 | 13,959 | ||||||
| Doubtful accounts and other reserves | 17,562 | 17,345 | ||||||
| Other combined items—OCI only | 15,282 | 17,684 | ||||||
| 289,871 | 286,111 | |||||||
| Less: Valuation Allowance | (44,511 | ) | (42,143 | ) | ||||
| Net deferred income tax assets: | 245,360 | 243,968 | ||||||
| Deferred income tax liabilities: | ||||||||
| Depreciable and amortizable assets | (322,317 | ) | (342,655 | ) | ||||
| Other deferred tax liabilities | (2,329 | ) | (2,581 | ) | ||||
| Net deferred income tax liabilities | $ | (79,286 | ) | $ | (101,268 | ) | ||
There was no material impact of deferred taxes recorded in conjunction with the acquisition of Ascend Health Corporation.
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The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for each of the years ended December 31, 2012, 2011 and 2010 (dollar amounts in thousands):
| 2012 | 2011 | 2010 | ||||||||||
| Provision for income taxes | $ | 274,616 | $ | 247,466 | $ | 152,302 | ||||||
| Income before income taxes | 763,663 | 696,336 | 428,097 | |||||||||
| Effective tax rate | 36.0 | % | 35.5 | % | 35.6 | % | ||||||
Impacting the effective tax rates during 2012 was approximately $1 million favorable discrete tax item recorded to adjust the estimated liabilities for uncertain tax positions. Impacting the effective tax rates during 2011 was approximately $1 million favorable discrete tax item recorded to adjust the estimated liabilities for uncertain tax positions. Impacting the effective tax rates during 2010 were the following items: (i) $5 million unfavorable discrete tax item recorded to adjust the non-deductible portion of certain transaction costs incurred during 2010 in connection with our acquisition of PSI; (ii) a $4 million unfavorable discrete tax item recorded to adjust for the non-deductible, $9 million charge incurred from split-dollar life insurance agreements entered into during 2010 on the lives of our chief executive officer and his wife, partially offset by; (iii) a $4 million favorable discrete tax item recorded during 2010 to adjust the estimated non-deductible portion of the previously disclosed South Texas Health System settlement with the government based upon the final agreement.
A reconciliation between the federal statutory rate and the effective tax rate is as follows:
| Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State taxes, net of federal income tax benefit | 3.0 | 2.9 | 3.1 | |||||||||
| Nondeductible transaction costs | 0.2 | — | 1.3 | |||||||||
| Other items | 0.1 | 0.4 | 0.4 | |||||||||
| Impact of income attributable to noncontrolling interests | (2.3 | ) | (2.8 | ) | (4.2 | ) | ||||||
| Effective tax rate | 36.0 | % | 35.5 | % | 35.6 | % | ||||||
Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal, foreign, and state income taxes amounting to approximately $7 million and $25 million as of December 31, 2012 and 2011, respectively.
The net deferred tax assets and liabilities are comprised as follows (amounts in thousands):
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Current deferred taxes | ||||||||
| Assets | $ | 105,639 | $ | 109,297 | ||||
| Liabilities | (1,178 | ) | (973 | ) | ||||
| Total deferred taxes-current | 104,461 | 108,324 | ||||||
| Noncurrent deferred taxes | ||||||||
| Assets | 142,065 | 135,189 | ||||||
| Liabilities | (325,812 | ) | (344,781 | ) | ||||
| Total deferred taxes-noncurrent | (183,747 | ) | (209,592 | ) | ||||
| Total deferred tax liabilities | $ | (79,286 | ) | $ | (101,268 | ) | ||
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The assets and liabilities classified as current relate primarily to the allowance for uncollectible patient accounts, compensation-related accruals and the current portion of the temporary differences related to self- insurance reserves. At December 31, 2012, state net operating loss carryforwards (expiring in years 2013 through 2032), and credit carryforwards available to offset future taxable income approximated $959 million, representing approximately $48 million in deferred state tax benefit (net of the federal benefit). At December 31, 2012, related to the acquisition of PSI, there were federal net operating losses of approximately $1 million expiring in 2022 representing approximately $0.4 million in deferred federal tax benefits and foreign net operating loss carryforwards of approximately $9 million expiring through 2021 representing approximately $3 million in deferred foreign tax benefit.
A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $41 million and $39 million have been reflected as of December 31, 2012 and 2011, respectively. During 2012, the valuation allowance on these state tax benefits increased by approximately $2 million due to additional net operating losses incurred. In addition, valuation allowances of approximately $3 million have been reflected as of December 31, 2012 and 2011 related to foreign net operating losses. There were no significant increases in valuation allowances as a result of the acquisition of Ascend Health Corporation.
We adopted the provisions of Accounting for Uncertainty in Income Taxes effective January 1, 2007. During 2012 and 2011, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased in the amount of approximately $1 million due to tax positions taken in the current and prior years. There was no significant increase in 2012 attributable to tax positions taken by Ascend Health Corporation on pre-acquisition tax return years. Also during 2012, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were reduced due to the lapse of the statute of limitations resulting in a net income tax benefit of approximately $1 million. The balance at each of December 31, 2012 and 2011, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $4 million and $5 million respectively.
We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2012 and 2011, we have approximately $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for the 2009 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months however it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.
The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 is as follows (amounts in thousands).
| As of December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Balance at January 1, | $ | 7,403 | $ | 7,923 | $ | 5,754 | ||||||
| Additions based on tax positions related to the current year | 200 | 750 | 1,219 | |||||||||
| Additions for tax positions of prior years | 386 | 419 | 2,076 | |||||||||
| Reductions for tax positions of prior years | (1,165 | ) | (1,628 | ) | (907 | ) | ||||||
| Settlements | — | (61 | ) | (219 | ) | |||||||
| Balance at December 31, | $ | 6,824 | $ | 7,403 | $ | 7,923 | ||||||
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7) LEASE COMMITMENTS
Four of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with terms expiring in 2014 and 2016 (see Note 9 for additional disclosure). We also lease the real property of certain facilities acquired by us in connection with the acquisition of PSI in November, 2010 and the acquisition of Ascend in October, 2012 (see Item 2. Properties for additional disclosure).
A summary of property under capital lease follows (amounts in thousands):
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Land, buildings and equipment | $ | 27,836 | $ | 37,037 | ||||
| Less: accumulated amortization | (26,540 | ) | (35,264 | ) | ||||
| $ | 1,296 | $ | 1,773 | |||||
Future minimum rental payments under lease commitments with a term of more than one year as of December 31, 2012, are as follows (amounts in thousands):
| Year | Capital Leases | Operating Leases | ||||||
| (000s) | ||||||||
| 2013 | $ | 2,162 | $ | 58,638 | ||||
| 2014 | 1,369 | 50,973 | ||||||
| 2015 | 1,158 | 43,496 | ||||||
| 2016 | 1,068 | 36,952 | ||||||
| 2017 | 1,077 | 21,906 | ||||||
| Later years | 5,117 | 102,722 | ||||||
| Total minimum rental | $ | 11,951 | $ | 314,687 | ||||
| Less: Amount representing interest | (3,684 | ) | ||||||
| Present value of minimum rental commitments | 8,267 | |||||||
| Less: Current portion of capital lease obligations | (1,585 | ) | ||||||
| Long-term portion of capital lease obligations | $ | 6,682 | ||||||
We incurred no additional capital lease obligations during 2012.
8) COMMITMENTS AND CONTINGENCIES
Professional and General Liability, Workers’ Compensation Liability and Property Insurance
Professional and General Liability and Workers Compensation Liability:
Effective January 1, 2008, most of our subsidiaries became self-insured for professional and general liability exposure up to $10 million per occurrence. Prior to our acquisition of Psychiatric Solutions, Inc. (“PSI”) in November, 2010, our subsidiaries purchased several excess policies through commercial insurance carriers which provide for coverage in excess of $10 million up to $200 million per occurrence and in the aggregate. However, we are liable for 10% of the claims paid pursuant to the commercially insured coverage in excess of $10 million up to $60 million per occurrence and in the aggregate.
Prior to our acquisition in November, 2010, the PSI subsidiaries were commercially insured for professional and general liability insurance claims in excess of a $3 million self-insured retention to a limit of $75 million. PSI utilized its captive insurance company and that captive insurance company remains in place after our
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acquisition of PSI to manage the self-insured retention for all former PSI subsidiaries for claims incurred prior to January 1, 2011. The captive insurance company also continues to insure all professional and general liability claims, regardless of date incurred, for the former PSI subsidiaries located in Florida and Puerto Rico.
Since our acquisition of PSI on November 15, 2010, the former PSI subsidiaries are self-insured for professional and general liability exposure up to $3 million per occurrence and our legacy subsidiaries (which are not former PSI subsidiaries) are self-insured for professional and general liability exposure up to $10 million per occurrence. Effective November, 2010, our subsidiaries (including the former PSI subsidiaries) were provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence self-insured retention (either $3 million or $10 million) up to $200 million per occurrence and in the aggregate. We remain liable for 10% of the claims paid pursuant to the commercially insured coverage in excess of $10 million up to $60 million per occurrence and in the aggregate. The 9 behavioral health facilities acquired from Ascend Health Corporation in October, 2012 have general and professional liability policies through commercial insurance carriers which provide for up to $20 million of aggregate coverage, subject to a $10,000 per occurrence deductible. These facilities, like our other facilities, are also provided excess coverage through commercial insurance carriers for coverage in excess of the underlying commercial policy limitations up to $200 million per occurrence and in the aggregate.
Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.
As of December 31, 2012, the total accrual for our professional and general liability claims, including the estimated claims related to the facilities acquired from PSI, was $279 million, of which $48 million is included in current liabilities. As of December 31, 2011, the total accrual for our professional and general liability claims, including the estimated claims related to the facilities acquired from PSI, was $292 million, of which $60 million is included in current liabilities.
We recorded reductions to our professional and general liability self-insurance reserves (relating to prior years) amounting to $27 million during 2012, $11 million during 2011 and $49 million during 2010. The favorable change recorded during 2012 resulted from favorable changes in our estimated future claims payments pursuant to a reserve analysis. The favorable change recorded during 2011 consisted primarily of third-party recoveries and reserve reductions in connection with PHICO–related claims which we became liable for upon PHICO’s (a former commercial insurance carrier) liquidation in 2002. The favorable changes in our estimated future claims payments recorded during 2010 were due to: (i) an increased weighting given to company-specific metrics (to 75% from 50%), and decreased general industry metrics (to 25% from 50%), related to projected incidents per exposure, historical claims experience and loss development factors; (ii) historical data which measured the realized favorable impact of medical malpractice tort reform experienced in several states in which we operate, and; (iii) a decrease in claims related to certain higher risk specialties (such as obstetrical) due to a continuation of the company-wide patient safety initiative undertaken during the last several years. As the number of our facilities and our patient volumes have increased, thereby providing for a statistically significant data group, and taking into consideration our long-history of company-specific risk management programs and claims experience, our reserve analyses have included a greater emphasis on our historical professional and general liability experience which has developed favorably as compared to general industry trends.
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As of December 31, 2012, the total accrual for our workers’ compensation liability claims was $66 million, of which $35 million is included in current liabilities. As of December 31, 2011, the total accrual for our workers’ compensation liability claims was $65 million, of which $34 million is included in current liabilities.
There were no material adjustments to our prior year reserves for workers’ compensation claims recorded during 2012 or 2011. Based upon the results of workers’ compensation reserves analyses, during 2010, we recorded a reduction to our prior year reserves for workers’ compensation claims amounting to $4 million.
Property Insurance:
We have commercial property insurance policies covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit per occurrence, subject to a $250,000 deductible for the majority of our properties (the properties acquired from Psychiatric Solutions, Inc. are subject to a $50,000 deductible). Losses resulting from named windstorms are subject to deductibles between 3% and 5% of the declared total insurable value of the property. In addition, we have commercial property insurance policies covering catastrophic losses resulting from earthquake and flood damage, each subject to aggregated loss limits (as opposed to per occurrence losses). Our earthquake limit is $250 million, subject to a deductible of $250,000, except for facilities located within documented fault zones. Earthquake losses that affect facilities located in fault zones within the United States are subject to a $100 million limit and will have applied deductibles ranging from 1% to 5% of the declared total insurable value of the property. The earthquake limit in Puerto Rico is $25 million. Flood losses have either a $250,000 or $500,000 deductible, based upon the location of the facility. The 9 behavioral health facilities acquired from Ascend Health Corporation in October, 2012 have commercial property insurance policies which provide for full replacement cost coverage, subject to a $10,000 deductible.
Legal Proceedings
We are subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded by our hospitals and are party to litigation, as outlined below.
Two Rivers Psychiatric Hospital:
In April, 2011, the Centers for Medicare and Medicaid Services (“CMS”) issued notice of its decision terminating Two Rivers Psychiatric Hospital (“Two Rivers”) in Kansas City, Missouri from participation in the Medicare and Medicaid program. The termination notice was issued as a result of surveys conducted which allegedly found Two Rivers to be out of compliance with the conditions of participation required for participation in the Medicare program and for Two Rivers’ alleged failure to alleviate an “immediate jeopardy” situation. Two Rivers filed an administrative appeal with the U.S. Department of Health and Human Services, Departmental Appeal Board, Civil Remedies Division, seeking review and reversal of that decision. In addition, Two Rivers filed a complaint in the U.S. District Court for the Western District of Missouri seeking a temporary restraining order and preliminary injunction against CMS rescinding the termination action. Later in April, 2011, the District Court issued a temporary restraining order abating the termination action pending a preliminary injunction hearing or an agreement with CMS. In May, 2011, Two Rivers and CMS entered into a settlement agreement which resulted in the rescission of the termination notice and actions by CMS. Pursuant to the terms of the agreement, Two Rivers was required to submit an acceptable plan of correction relative to the immediate jeopardy citation and engage independent experts in various disciplines to analyze and develop implementation plans for Two Rivers to meet the applicable Medicare conditions of participation. Both of these actions have occurred. Pursuant to the agreement, CMS conducted an initial survey of Two Rivers in April 2012 to determine if the Medicare conditions of participation, which formed the basis of the termination action in April 2011, had been met. In late April, 2012, CMS advised Two Rivers that it has successfully passed this initial survey. Pursuant to the terms of the agreement, a second survey will be conducted in early 2013 to further confirm that Two Rivers is in compliance with all Medicare/Medicaid Conditions of Participation. During the term of this agreement, Two Rivers remains eligible to receive reimbursements for services rendered to Medicare and
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Medicaid beneficiaries. Two Rivers remains fully committed to providing high-quality healthcare to their patients and the community it serves. We therefore intend to work expeditiously and collaboratively with CMS in an effort to resolve these matters. We can provide no assurance that Two Rivers will not ultimately lose its Medicare certification. The operating results of Two Rivers did not have a material impact on our consolidated results of operations or financial condition for the years ended December 31, 2012 or 2011.
Office of Inspector General (“OIG”) and Other Government Investigations
In September, 2010, we, along with many other companies in the healthcare industry, received a letter from the United States Department of Justice (“DOJ”) advising of a False Claim Act investigation being conducted in connection with the implantation of implantable cardioverter defibrillators (“ICDs”) from 2003 to the present at several of our acute care facilities. The DOJ alleges that ICDs were implanted and billed by our facilities in contravention of a National Claims Determination regarding these devices. We have established a reserve in connection with this matter which did not have a material impact on our consolidated financial statements.
In July, 2012, one of our subsidiaries, Peachford Behavioral Health System of Atlanta located in Atlanta, Georgia, received a subpoena from the OIG for the Department of Health and Human Services requesting various documents from 2004 to the present. We are in the process of securing and collecting the requested documents for production. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.
In February, 2013, the OIG served a subpoena requesting various documents from January 2008 to the present directed at Universal Health Services, Inc. (“UHS”) concerning it and UHS of Delaware, Inc., and several UHS owned facilities including: Keys of Carolina, Old Vineyard Behavioral Health, The Meadows Psychiatric Center, Streamwood Behavioral Health, Hartgrove Hospital, Rock River Academy and Residential Treatment Center, Roxbury Treatment Center, Harbor Point Behavioral Health Center, f/k/a, The Pines Residential Treatment Center, including the Crawford, Brighton and Kempsville campuses, Wekiva Springs Center and River Point Behavioral Health. Prior to receiving this subpoena: (i) the Keys of Carolina and Old Vineyard received notification during the second half of 2012 from the United States Department of Justice of its intent to proceed with an investigation following requests for documents from January, 2007 to the present from the North Carolina state Attorney General’s Office; (ii) Harbor Point Behavioral Health Center received a subpoena in December, 2012 from the Attorney General of the Commonwealth of Virginia requesting various documents from July 2006 to the present, and; (iii) The Meadows Psychiatric Center received a subpoena from the OIG in February, 2013 requesting certain documents from 2008 to the present. At present, we are uncertain as to the focus, scope or extent of the investigations, liability of the facilities and/or potential financial exposure, if any, in connection with these matters. Unrelated to these matters, the Keys of Carolina was closed and the real property was sold in January, 2013.
Matters Relating to PSI:
The following matters pertain to PSI or former PSI facilities (owned by subsidiaries of Psychiatric Solutions, Inc.) which were in existence prior to the acquisition of PSI and for which we have assumed the defense as a result of our acquisition which was completed in November, 2010:
Garden City Employees’ Retirement System v. PSI:
This is a purported shareholder class action lawsuit filed in the United States District Court for the Middle District of Tennessee against PSI and the former directors in 2009 alleging violations of federal securities laws. We intend to defend the case vigorously. Should we be deemed liable in this matter, we believe we would be entitled to commercial insurance recoveries for amounts paid by us, subject to certain limitations and deductibles. Included in our consolidated balance sheets as of December 31, 2012 and 2011, is an estimated reserve (current liability) and corresponding commercial insurance recovery (current asset) which did not have a material impact
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on our financial statements. Although we believe the commercial insurance recoveries are adequate to satisfy potential liability and related legal fees in connection with this matter, we can provide no assurance that the ultimate liability will not exceed the commercial insurance recoveries which would make us liable for the excess.
Department of Justice Investigation of Friends Hospital:
In October, 2010, Friends Hospital in Philadelphia, Pennsylvania, received a subpoena from the DOJ requesting certain documents from the facility. The requested documents have been collected and provided to the DOJ for review and examination. Another subpoena was issued to the facility in July 2011 requesting additional documents, which have been collected and delivered to the DOJ. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.
Department of Justice Investigation of Riveredge Hospital:
In 2008, Riveredge Hospital in Chicago, Illinois received a subpoena from the DOJ requesting certain information from the facility. Additional requests for documents were also received from the DOJ in 2009 and 2010. The requested documents have been provided to the DOJ. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.
Virginia Department of Medical Assistance Services Recoupment Claims:
The Virginia Department of Medical Assistance Services (“DMAS”) has conducted audits at seven former PSI Residential Treatment Centers operated in the Commonwealth of Virginia to confirm compliance with provider rules under the state’s Medicaid Provider Services Manual (“Manual”). As a result of those audits, DMAS claims the facilities failed to comply with the requirements of the Manual and has requested repayment of Medicaid payments to those facilities. PSI had previously filed appeals to repayment demands at each facility which are currently pending. We have recently reached a preliminary settlement of this matter which requires finalization of a definitive agreement and approval of Virginia state officials. The aggregate refund of Medicaid payments made to those facilities, as requested by DMAS, and the settlement amount is not material to our consolidated financial position or results of operations.
General:
The healthcare industry is subject to numerous laws and regulations which include, among other things, matters such as government healthcare participation requirements, various licensure, certifications, and accreditations, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government action has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare providers. Currently, and from time to time, some of our facilities are subjected to inquiries and/or actions and receive notices of potential non-compliance of laws and regulations from various federal and state agencies. Providers that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to potential licensure, certification, and/or accreditation revocation, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. Because the law in this area is complex and constantly evolving, governmental investigation or litigation may result in interpretations that are inconsistent with industry practices, including ours. Although we believe our policies, procedures and practices comply with governmental regulations, there is no assurance that we will not be faced with sanctions, fines or penalties in connection with such inquiries or actions, including with respect to the investigations and other matters discussed herein. Even if we were to ultimately prevail, such inquiries and/or actions could have a material adverse effect on us.
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The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including, but not limited to: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties, or; (vii) there is a wide range of potential outcomes. It is possible that the outcome of these matters could have a material adverse impact on our future results of operations, financial position, cash flows and, potentially, our reputation.
In addition, various suits and claims arising against us in the ordinary course of business are pending. In the opinion of management, the outcome of such claims and litigation will not materially affect our consolidated financial position or results of operations.
In addition to our long-term debt obligations as discussed in Note 4-Long-Term Debt and our operating lease obligations as discussed in Note 7-Lease Commitments, we have various other contractual commitments outstanding as of December 31, 2012 as follows: (i) other combined estimated future purchase obligations of $290 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($106 million), expected future costs to be paid to a third-party vendor in connection with the purchase, implementation and on-going operation of an electronic health records application for each of our acute care facilities ($181 million) and estimated minimum liabilities for physician commitments expected to be paid in the future ($3 million), and; (ii) combined estimated future payments of $225 million related to our non-contributory, defined benefit pension plan ($208 million consisting of estimated payments through 2087) and other retirement plan liabilities ($17 million).
As of December 31, 2012 we were party to certain off balance sheet arrangements consisting of standby letters of credit and surety bonds. Our outstanding letters of credit and surety bonds as of December 31, 2012 totaled $80 million consisting of: (i) $66 million related to our self-insurance programs, and; (ii) $14 million of other debt and public utility guarantees.
9) RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND RELATED PARTY TRANSACTIONS
Relationship with Universal Health Realty Income Trust:
At December 31, 2012, we held approximately 6.2% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $2.1 million during 2012, $2.0 million during 2011 and $1.8 million during 2010.
Our pre-tax share of income from the Trust was $1.2 million during 2012, $4.6 million during 2011 and $1.0 million during 2010, and is included in net revenues in the accompanying consolidated statements of income for each year. Included in our share of the Trust’s income for 2011 was approximately $3.7 million related to our share of the following: (i) an aggregate gain realized by the Trust during 2011 in connection with the sale of medical office buildings by various limited liability companies (“LLCs”) in which the Trust formerly held noncontrolling, majority ownership interests; (ii) an aggregate gain recorded by the Trust during 2011 in
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connection with its purchases of third-party minority ownership interests in various LLCs in which the Trust formerly held noncontrolling majority ownership interests (the Trust now owns 100% of each of these entities), partially offset by; (iii) a provision for asset impairment recorded by the Trust during 2011 in connection with a medical office building located in Atlanta, Georgia.
The carrying value of our investment in the Trust was $9.3 million and $9.9 million at December 31, 2012 and 2011, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $39.9 million at December 31, 2012 and $30.7 million at December 31, 2011, based on the closing price of the Trust’s stock on the respective dates.
Total rent expense under the operating leases on the four hospital facilities with the Trust (as discussed below) was $16.3 million during each of 2012 and 2011 and $16.2 million during 2010. In addition, certain of our subsidiaries are tenants in several medical office buildings owned by limited liability companies in which the Trust holds either 100% of the ownership interest or various noncontrolling, majority ownership interests.
The Trust commenced operations in 1986 by purchasing certain properties from us and immediately leasing the properties back to our respective subsidiaries. Most of the leases were entered into at the time the Trust commenced operations and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. Each lease also provided for additional or bonus rental, as discussed below. The base rents are paid monthly and the bonus rents are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with our subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another.
Pursuant to the terms of the leases with the Trust, we have the option to renew the leases at the lease terms described above by providing notice to the Trust at least 90 days prior to the termination of the then current term. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer. We also have the right to purchase the respective leased facilities at the end of the lease terms or any renewal terms at their appraised fair market value as well as purchase any or all of the four leased hospital properties at their appraised fair market value upon one month’s notice should a change of control of the Trust occur.
The table below details the renewal options and terms for each of our four hospital facilities leased from the Trust, giving effect to the above-mentioned renewals:
| Hospital Name | Type of Facility | Annual Minimum Rent | End of Lease Term | Renewal Term (years) | ||||||||||
| McAllen Medical Center | Acute Care | $ | 5,485,000 | December, 2016 | 15 | (a) | ||||||||
| Wellington Regional Medical Center | Acute Care | $ | 3,030,000 | December, 2016 | 15 | (b) | ||||||||
| Southwest Healthcare System, Inland Valley Campus | Acute Care | $ | 2,648,000 | December, 2016 | 15 | (b) | ||||||||
| The Bridgeway | Behavioral Health | $ | 930,000 | December, 2014 | 10 | (c) |
| (a) | We have three 5-year renewal options at existing lease rates (through 2031). |
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| (b) | We have one 5-year renewal options at existing lease rates (through 2021) and two 5-year renewal options at fair market value lease rates (2022 through 2031). |
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| (c) | We have two 5-year renewal options at fair market value lease rates (2015 through 2024). |
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Split-dollar Life Insurance Agreements:
In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of our chief executive officer and his wife. As a result of these
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agreements, based on actuarial tables and other assumptions, during the life expectancies of the insureds, we would pay approximately $25 million in premiums and certain trusts, owned by our chief executive officer, would pay approximately $8 million in premiums. Based on the projected premiums mentioned above, and assuming the policies remain in effect until the death of the insureds, we will be entitled to receive death benefit proceeds of no less than $33 million representing the $25 million of aggregate premiums paid by us as well as the $8 million of aggregate premiums paid by the trusts. During each of 2012 and 2011, we paid approximately $1.4 million in premium payments and during the fourth quarter of 2010, we paid approximately $6 million in premium payments. These agreements did not have a material effect on our consolidated financial statements or results of operations during 2012 and 2011. Included in our financial statements during 2010, was a pre-tax and after-tax expense of $9 million recorded during the fourth quarter of 2010 representing the present value of our projected premium funding commitment over the terms of the policies.
Other Related Party Transactions:
A member of our Board of Directors and member of the Executive Committee is Of Counsel to the law firm used by us as our principal outside counsel. This Board member is also the trustee of certain trusts for the benefit of our CEO and his family. This law firm also provides personal legal services to our CEO.
10) PENSION PLAN
We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $27.3 million, $21.7 million and $20.8 million in 2012, 2011 and 2010, respectively. The non-contributory plan is a defined benefit pension plan which covers employees of one of our subsidiaries. The benefits are based on years of service and the employee’s highest compensation for any five years of employment. Our funding policy is to contribute annually at least the minimum amount that should be funded in accordance with the provisions of ERISA.
The following table shows the reconciliation of the defined benefit pension plan as of December 31, 2012 and 2011:
| 2012 | 2011 | |||||||
| (000s) | ||||||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | $ | 87,940 | $ | 73,402 | ||||
| Actual return (loss) on plan assets | 13,824 | 5,689 | ||||||
| Employer contributions | 7,786 | 14,065 | ||||||
| Benefits paid | (4,946 | ) | (4,541 | ) | ||||
| Administrative expenses | (530 | ) | (675 | ) | ||||
| Fair value of plan assets at end of year | $ | 104,074 | $ | 87,940 | ||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 108,446 | $ | 93,513 | ||||
| Service cost | 1,144 | 1,162 | ||||||
| Interest cost | 4,659 | 5,047 | ||||||
| Benefits paid | (4,946 | ) | (4,541 | ) | ||||
| Actuarial (gain) loss | 5,226 | 13,265 | ||||||
| Benefit obligation at end of year | $ | 114,529 | $ | 108,446 | ||||
| Amounts recognized in the Consolidated Balance Sheet: | ||||||||
| Other noncurrent liabilities | 10,455 | 20,506 | ||||||
| Total liability at end of year | $ | 10,455 | $ | 20,506 | ||||
| Additional year end information for Pension Plan | ||||||||
| Projected benefit obligation | $ | 114,529 | $ | 108,446 | ||||
| Accumulated benefit obligation | 112,675 | 106,609 | ||||||
| Fair value of plan assets | 104,074 | 87,940 |
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| 2012 | 2011 | 2010 | ||||||||||
| (000s) | ||||||||||||
| Components of net periodic cost (benefit) | ||||||||||||
| Service cost | $ | 1,144 | $ | 1,162 | $ | 1,140 | ||||||
| Interest cost | 4,659 | 5,047 | 4,958 | |||||||||
| Expected return on plan assets | (7,301 | ) | (6,566 | ) | (5,151 | ) | ||||||
| Recognized actuarial loss | 4,219 | 2,427 | 2,538 | |||||||||
| Net periodic cost | $ | 2,721 | $ | 2,070 | $ | 3,485 | ||||||
| 2012 | 2011 | |||||||
| Measurement Dates | ||||||||
| Benefit obligations | 12/31/2012 | 12/31/2011 | ||||||
| Fair value of plan assets | 12/31/2012 | 12/31/2011 |
| 2012 | 2011 | |||||||
| Weighted average assumptions as of December 31 | ||||||||
| Discount rate | 4.05 | % | 4.40 | % | ||||
| Rate of compensation increase | 4.00 | % | 4.00 | % |
| 2012 | 2011 | 2010 | ||||||||||
| Weighted-average assumptions for net periodic benefit cost calculations | ||||||||||||
| Discount rate | 4.40 | % | 5.54 | % | 5.96 | % | ||||||
| Expected long-term rate at return on plan assets | 8.00 | % | 8.00 | % | 8.00 | % | ||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % |
The accumulated benefit obligation was $112,675 and $106,609 as of December 31, 2012 and 2011, respectively. The accumulated benefit obligation exceeded the fair value of plan assets as of December 31, 2012 and 2011. In 2012 and 2011, the accrued pension cost is included in non-current liabilities in the accompanying Consolidated Balance Sheet. We estimate that there will be $3,305 of net loss that will be amortized from accumulated other comprehensive income over the next fiscal year.
Our pension plans assets were $104,074 and $87,940 at December 31, 2012 and 2011, respectively. The market values of our pension plan assets at December 31, 2012 and December 31, 2011 by asset category are as follows:
| December 31, 2012 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Equities: | ||||||||||||||||
| U.S. Large Cap | $ | 22,800 | $ | — | $ | 22,800 | $ | — | ||||||||
| U.S. Mid Cap | 1,566 | — | 1,566 | — | ||||||||||||
| U.S. Small-Mid Cap | 7,738 | — | 7,738 | — | ||||||||||||
| U.S. Small Cap | 1,583 | — | 1,583 | — | ||||||||||||
| International Developed | 10,779 | — | 10,779 | — | ||||||||||||
| Emerging Markets | 3,912 | — | 3,912 | — | ||||||||||||
| Fixed income: | ||||||||||||||||
| Long Duration Fixed Income | 51,355 | — | 51,355 | — | ||||||||||||
| Real Estate: | ||||||||||||||||
| REIT Fund | 3,904 | — | 3,904 | — | ||||||||||||
| Cash/Currency: | ||||||||||||||||
| Cash Equivalents | 437 | — | 437 | — | ||||||||||||
| Total market value | $ | 104,074 | $ | — | $ | 104,074 | $ | — | ||||||||
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| December 31, 2011 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Equities: | ||||||||||||||||
| U.S. Large Cap | $ | 18,921 | $ | — | $ | 18,921 | $ | — | ||||||||
| U.S. Mid Cap | 1,281 | — | 1,281 | — | ||||||||||||
| U.S. Small-Mid Cap | 6,332 | — | 6,332 | — | ||||||||||||
| U.S. Small Cap | 1,282 | — | 1,282 | — | ||||||||||||
| International Developed | 8,692 | — | 8,692 | — | ||||||||||||
| Emerging Markets | 3,123 | — | 3,123 | — | ||||||||||||
| Fixed income: | ||||||||||||||||
| Long Duration Fixed Income | 44,587 | — | 44,587 | — | ||||||||||||
| Real Estate: | ||||||||||||||||
| REIT Fund | 3,269 | — | 3,269 | — | ||||||||||||
| Cash/Currency: | ||||||||||||||||
| Cash Equivalents | 453 | — | 453 | — | ||||||||||||
| Total market value | $ | 87,940 | $ | — | $ | 87,940 | $ | — | ||||||||
To develop the expected long-term rate of return on plan assets assumption, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.
The following table shows expected benefit payments for the years ended December 31, 2012 through 2022 for our defined pension plan. There will be benefit payments under this plan beyond 2022.
| Estimated Future Benefit Payments (000s) | ||||
| 2013 | $ | 5,451 | ||
| 2014 | 5,724 | |||
| 2015 | 5,692 | |||
| 2016 | 6,182 | |||
| 2017 | 6,379 | |||
| 2018-2022 | 34,251 | |||
| Total | $ | 63,679 | ||
| 2012 | 2011 | |||||||
| Plan Assets | ||||||||
| Asset Category | ||||||||
| Equity securities | 47 | % | 45 | % | ||||
| Fixed income securities | 49 | % | 50 | % | ||||
| Other | 4 | % | 5 | % | ||||
| Total | 100 | % | 100 | % | ||||
Investment Policy, Guidelines and Objectives have been established for the defined benefit pension plan. The investment policy is in keeping with the fiduciary requirements under existing federal laws and managed in accordance with the Prudent Investor Rule. Total portfolio risk is regularly evaluated and compared to that of the plan’s policy target allocation and judged on a relative basis over a market cycle. The following asset allocation policy and ranges have been established in accordance with the overall risk and return objectives of the portfolio:
| Policy | As of 12/31/12 | Permitted Range | ||||||||||
| Total Equity | 46 | % | 47 | % | 43-49 | % | ||||||
| Total Fixed Income | 50 | % | 49 | % | 45-55 | % | ||||||
| Other | 4 | % | 4 | % | 0-10 | % |
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In accordance with the investment policy, the portfolio will invest in high quality, large and small capitalization companies traded on national exchanges, and investment grade securities. The investment managers will not write or buy options for speculative purposes; securities may not be margined or sold short. The manager may employ futures or options for the purpose of hedging exposure, and will not purchase unregistered sectors, private placements, partnerships or commodities.
11) SEGMENT REPORTING
Our reportable operating segments consist of acute care hospital services and behavioral health care services. The “Other” segment column below includes centralized services including information services, purchasing, reimbursement, accounting, taxation, legal, advertising, design and construction and patient accounting as well as the operating results for our other operating entities including outpatient surgery and radiation centers. The chief operating decision making group for our acute care hospital services and behavioral health care services is comprised of our Chief Executive Officer, the President and the Presidents of each operating segment. The Presidents for each operating segment also manage the profitability of each respective segment’s various facilities. The operating segments are managed separately because each operating segment represents a business unit that offers different types of healthcare services or operates in different healthcare environments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in this Annual Report on Form 10-K for the year ended December 31, 2012. The corporate overhead allocations, as reflected below, are utilized for internal reporting purposes and are comprised of each period’s projected corporate-level operating expenses (excluding interest expense). The overhead expenses are captured and allocated directly to each segment, to the extent possible, with the non-directly allocated overhead expenses allocated based upon each segment’s respective percentage of total facility-based operating expenses.
| 2012 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 12,406,567 | $ | 5,764,370 | — | $ | 18,170,937 | |||||||||
| Gross outpatient revenues | $ | 6,134,615 | $ | 646,177 | $ | 48,183 | $ | 6,828,975 | ||||||||
| Total net revenues | $ | 3,461,416 | $ | 3,460,141 | $ | 39,843 | $ | 6,961,400 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 337,385 | $ | 838,603 | ($ | 412,325 | ) | $ | 763,663 | |||||||
| Allocation of corporate overhead | ($ | 162,056 | ) | ($ | 84,597 | ) | $ | 246,653 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 175,329 | $ | 754,006 | ($ | 165,672 | ) | $ | 763,663 | |||||||
| Total assets | $ | 2,984,169 | $ | 4,979,965 | $ | 236,709 | $ | 8,200,843 |
| 2011 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 11,770,248 | $ | 5,507,728 | — | $ | 17,277,976 | |||||||||
| Gross outpatient revenues | $ | 5,431,146 | $ | 606,876 | $ | 53,240 | $ | 6,091,262 | ||||||||
| Total net revenues | $ | 3,423,957 | $ | 3,308,862 | $ | 27,403 | $ | 6,760,222 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 352,931 | $ | 729,142 | ($ | 385,737 | ) | $ | 696,336 | |||||||
| Allocation of corporate overhead | ($ | 131,225 | ) | ($ | 62,710 | ) | $ | 193,935 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 221,706 | $ | 666,432 | ($ | 191,802 | ) | $ | 696,336 | |||||||
| Total assets | $ | 2,782,102 | $ | 4,373,379 | $ | 509,764 | $ | 7,665,245 |
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| 2010 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 10,623,407 | $ | 2,563,867 | — | $ | 13,187,274 | |||||||||
| Gross outpatient revenues | $ | 4,596,317 | $ | 350,192 | $ | 49,245 | $ | 4,995,754 | ||||||||
| Total net revenues | $ | 3,272,488 | $ | 1,597,022 | $ | 30,637 | $ | 4,900,147 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 352,334 | $ | 353,046 | ($ | 277,283 | ) | $ | 428,097 | |||||||
| Allocation of corporate overhead | ($ | 128,588 | ) | ($ | 43,362 | ) | $ | 171,950 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 223,746 | $ | 309,684 | ($ | 105,333 | ) | $ | 428,097 | |||||||
| Total assets | $ | 2,681,803 | $ | 4,360,262 | $ | 485,871 | $ | 7,527,936 |
12) QUARTERLY RESULTS (unaudited)
The following tables summarize the quarterly financial data for the two years ended December 31, 2012 and 2011:
| 2012 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
| (amounts in thousands, except per share amounts) | ||||||||||||||||||||
| Net revenues | $ | 1,793,036 | $ | 1,723,084 | $ | 1,680,353 | $ | 1,764,927 | $ | 6,961,400 | ||||||||||
| Net income | $ | 142,570 | $ | 117,444 | $ | 81,373 | $ | 147,660 | $ | 489,047 | ||||||||||
| Less: Net income attributable to noncontrolling interests | $ | 13,963 | $ | 9,883 | $ | 9,556 | $ | 12,199 | $ | 45,601 | ||||||||||
| Net income attributable to UHS | $ | 128,607 | $ | 107,561 | $ | 71,817 | $ | 135,461 | $ | 443,446 | ||||||||||
| Earnings per share attributable to UHS-Basic: | ||||||||||||||||||||
| Total basic earnings per share | $ | 1.33 | $ | 1.11 | $ | 0.74 | $ | 1.39 | $ | 4.57 | ||||||||||
| Earnings per share attributable to UHS-Diluted: | ||||||||||||||||||||
| Total diluted earnings per share | $ | 1.31 | $ | 1.10 | $ | 0.73 | $ | 1.39 | $ | 4.53 | ||||||||||
The 2012 quarterly financial data presented above includes the following:
First Quarter:
| • | a favorable $30.2 million pre-tax impact ($18.8 million, or $.19 per diluted share, net of taxes) resulting from an agreement entered into with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services (referred to collectively as “HHS”). This agreement, which was part of an industry-wide settlement with HHS related to litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years; |
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| • | a favorable $7.0 million pre-tax impact ($4.3 million, or $.04 per diluted share, net of taxes) representing the 2011 portion of the net Medicaid supplemental reimbursements we expect to receive pursuant to the Oklahoma Supplemental Hospital Offset Payment Program; |
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| • | an aggregate unfavorable $8.3 million pre-tax impact ($5.1 million, or $.05 per diluted share, net of taxes) resulting from: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 |
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| ($2.4 million unfavorable after-tax impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($2.7 million unfavorable after-tax impact). |
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Second Quarter:
| • | an unfavorable $8.0 million pre-tax impact ($5.0 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
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| • | a favorable $5.5 million pre-tax impact ($3.4 million, or $.03 per diluted share, net of taxes) representing net Medicaid reimbursements related to prior years. |
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Third Quarter:
-
a favorable $2.2 million pre-tax impact ($1.3 million, or $.01 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;
-
an unfavorable $29.2 million pre-tax impact ($18.1 million, or $0.19 per diluted share, net of taxes) resulting from the write-off of deferred financing costs related to the portion of our Term Loan B credit facility that was extinguished during the third quarter of 2012.
Fourth Quarter:
| • | a favorable $26.4 million pre-tax impact ($16.4 million, or $0.17 per diluted share, net of taxes) gain resulting from the sale of an acute care facility located in Auburn, Washington; |
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| • | a favorable $8.9 million pre-tax impact ($5.5 million, or $.06 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
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| • | a favorable $27.2 million pre-tax impact reduction ($15.5 million, or $.16 per diluted share, net of taxes) to our professional and general liability self-insurance reserves relating to years prior to 2012, as discussed in Self-Insured Risks. |
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| 2011 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
| (amounts in thousands, except per share amounts) | ||||||||||||||||||||
| Net revenues | $ | 1,723,296 | $ | 1,711,255 | $ | 1,662,675 | $ | 1,662,996 | $ | 6,760,222 | ||||||||||
| Net income | $ | 129,987 | $ | 116,034 | $ | 94,842 | $ | 108,007 | $ | 448,870 | ||||||||||
| Less: Net income attributable to noncontrolling interests | $ | 15,794 | $ | 12,385 | $ | 9,788 | $ | 12,736 | $ | 50,703 | ||||||||||
| Net income attributable to UHS | $ | 114,193 | $ | 103,649 | $ | 85,054 | $ | 95,271 | $ | 398,167 | ||||||||||
| Earnings per share attributable to UHS-Basic: | ||||||||||||||||||||
| Total basic earnings per share | $ | 1.17 | $ | 1.06 | $ | 0.87 | $ | 0.99 | $ | 4.09 | ||||||||||
| Earnings per share attributable to UHS-Diluted: | ||||||||||||||||||||
| Total diluted earnings per share | $ | 1.15 | $ | 1.04 | $ | 0.86 | $ | 0.98 | $ | 4.04 | ||||||||||
The 2011 quarterly financial data presented above includes the following:
Fourth Quarter:
| • | a favorable $10.4 million pre-tax reduction ($6.4 million, or $.07 per diluted share, net of taxes) to our professional and general liability self-insurance reserves relating to years prior to 2011, as discussed in Self-Insured Risks. |
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13) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Certain of our senior notes are guaranteed by a group of subsidiaries (the “Guarantors”). The Guarantors, each of which is a 100% directly owned subsidiary of Universal Health Services, Inc., fully and unconditionally guarantee the senior notes on a joint and several basis, subject to certain customary release provisions.
The following financial statements present condensed consolidating financial data for (i) Universal Health Services, Inc. (on a parent company only basis), (ii) the combined Guarantors, (iii) the combined non guarantor subsidiaries (all other subsidiaries), (iv) an elimination column for adjustments to arrive at the information for the parent company, Guarantors, and non guarantors on a consolidated basis, and (v) the parent company and our subsidiaries on a consolidated basis.
Investments in subsidiaries are accounted for by the parent company and the Guarantors using the equity method for this presentation. Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of subsidiaries, investments in subsidiaries, and intercompany balances and transactions between the parent, Guarantors, and non guarantors.
Certain revisions have been made to correct immaterial errors in the condensed consolidating balance sheet as of December 31, 2011 and the condensed consolidating statements of operations for the twelve months ended December 31, 2011 and 2010, which had the following impact: (i) on the condensed consolidating balance sheet certain noncurrent assets decreased by $53.8 million of the Non-guarantor subsidiaries, with corresponding offsetting adjustments to the same items in the Consolidating Adjustments column; (ii) on the condensed consolidating balance sheet certain noncurrent liabilities decreased by $53.8 million of the Guarantor subsidiaries, with corresponding offsetting adjustments to the same items in the Eliminations column; (iii) on the condensed consolidating statements of operations for the twelve months ended December 31, 2011 interest expense decreased by $87.2 million for the Guarantor Subsidiaries and interest expense increased by $87.2 million for the Non-guarantor Subsidiaries for the twelve months ended December 31, 2011; (iv) net income and net income attributable to UHS for the Guarantor subsidiaries increased by $53.8 million for the twelve months ended December 31, 2011, and net income and Net income attributable to UHS decreased for the Non-guarantor subsidiaries by $53.8 million; (iv) on the condensed consolidating statements of operations for the twelve months ended December 31, 2010, net revenues and other operating expenses increased by $0.3 million for the Parent with corresponding offsetting adjustment to the same items in the Consolidating Adjustments column.
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2012
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 0 | $ | 5,152,816 | $ | 2,562,781 | $ | (27,526 | ) | $ | 7,688,071 | |||||||||
| Less: Provision for doubtful accounts | 0 | 411,538 | 315,133 | 0 | 726,671 | |||||||||||||||
| Net Revenues | 0 | 4,741,278 | 2,247,648 | (27,526 | ) | 6,961,400 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 2,452,187 | 988,730 | 0 | 3,440,917 | |||||||||||||||
| Other operating expenses | 0 | 899,274 | 502,592 | (25,744 | ) | 1,376,122 | ||||||||||||||
| Supplies expense | 0 | 496,848 | 302,773 | 0 | 799,621 | |||||||||||||||
| Depreciation and amortization | 0 | 210,867 | 91,559 | 0 | 302,426 | |||||||||||||||
| Lease and rental expense | 0 | 59,596 | 37,071 | (1,782 | ) | 94,885 | ||||||||||||||
| Transaction costs | 0 | 5,716 | 0 | 0 | 5,716 | |||||||||||||||
| EHR incentive income | 0 | (14,284 | ) | (15,754 | ) | 0 | (30,038 | ) | ||||||||||||
| Costs related to extinguishment of debt | 29,170 | 0 | 0 | 0 | 29,170 | |||||||||||||||
| 29,170 | 4,110,204 | 1,906,971 | (27,526 | ) | 6,018,819 | |||||||||||||||
| Income (loss) from operations | (29,170 | ) | 631,074 | 340,677 | 0 | 942,581 | ||||||||||||||
| Interest expense | 172,467 | 3,749 | 2,702 | 0 | 178,918 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 93,363 | (93,363 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (567,906 | ) | (141,983 | ) | 0 | 709,889 | 0 | |||||||||||||
| Income before income taxes | 366,269 | 675,945 | 431,338 | (709,889 | ) | 763,663 | ||||||||||||||
| Provision (benefit) for income taxes | (77,177 | ) | 237,072 | 114,721 | 0 | 274,616 | ||||||||||||||
| Net income | 443,446 | 438,873 | 316,617 | (709,889 | ) | 489,047 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 45,601 | 0 | 45,601 | |||||||||||||||
| Net income attributable to UHS | $ | 443,446 | $ | 438,873 | $ | 271,016 | $ | (709,889 | ) | $ | 443,446 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2011
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 0 | $ | 4,917,358 | $ | 2,465,916 | $ | (26,476 | ) | $ | 7,356,798 | |||||||||
| Less: Provision for doubtful accounts | 0 | 340,121 | 256,455 | 0 | 596,576 | |||||||||||||||
| Net revenues | 0 | 4,577,237 | 2,209,461 | (26,476 | ) | 6,760,222 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 2,371,961 | 954,417 | 0 | 3,326,378 | |||||||||||||||
| Other operating expenses | 200 | 923,579 | 454,601 | (24,687 | ) | 1,353,693 | ||||||||||||||
| Supplies expense | 0 | 499,200 | 306,289 | 0 | 805,489 | |||||||||||||||
| Depreciation and amortization | 0 | 207,981 | 79,230 | 0 | 287,211 | |||||||||||||||
| Lease and rental expense | 0 | 60,768 | 31,344 | (1,789 | ) | 90,323 | ||||||||||||||
| 200 | 4,063,489 | 1,825,881 | (26,476 | ) | 5,863,094 | |||||||||||||||
| Income (loss) from operations | (200 | ) | 513,748 | 383,580 | 0 | 897,128 | ||||||||||||||
| Interest expense | 195,404 | 3,212 | 2,176 | 0 | 200,792 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 87,205 | (87,205 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (518,797 | ) | (157,009 | ) | 0 | 675,806 | 0 | |||||||||||||
| Income before income taxes | 323,193 | 580,340 | 468,609 | (675,806 | ) | 696,336 | ||||||||||||||
| Provision (benefit) for income taxes | (74,974 | ) | 198,091 | 124,349 | 0 | 247,466 | ||||||||||||||
| Net income | 398,167 | 382,249 | 344,260 | (675,806 | ) | 448,870 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 50,703 | 0 | 50,703 | |||||||||||||||
| Net income attributable to UHS | $ | 398,167 | $ | 382,249 | $ | 293,557 | $ | (675,806 | ) | $ | 398,167 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2010
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 903 | $ | 3,494,351 | $ | 1,981,571 | $ | (47,592 | ) | $ | 5,429,233 | |||||||||
| Less: Provision for doubtful accounts | 0 | 272,335 | 256,751 | 0 | 529,086 | |||||||||||||||
| Net revenues | 903 | 3,222,016 | 1,724,820 | (47,592 | ) | 4,900,147 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 1,611,394 | 751,989 | 0 | 2,363,383 | |||||||||||||||
| Other operating expenses | 0 | 633,838 | 381,218 | (46,444 | ) | 968,612 | ||||||||||||||
| Supplies expense | 0 | 422,877 | 294,048 | 0 | 716,925 | |||||||||||||||
| Depreciation and amortization | 0 | 147,645 | 69,285 | 0 | 216,930 | |||||||||||||||
| Lease and rental expense | 0 | 48,872 | 27,639 | (1,148 | ) | 75,363 | ||||||||||||||
| Transaction costs | 0 | 53,220 | 0 | 0 | 53,220 | |||||||||||||||
| 0 | 2,917,846 | 1,524,179 | (47,592 | ) | 4,394,433 | |||||||||||||||
| Income from operations | 903 | 304,170 | 200,641 | 0 | 505,714 | |||||||||||||||
| Interest expense, net | 70,283 | 6,729 | 605 | 0 | 77,617 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 60,876 | (60,876 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (271,944 | ) | (134,760 | ) | 0 | 406,704 | 0 | |||||||||||||
| Income before income taxes | 202,564 | 371,325 | 260,912 | (406,704 | ) | 428,097 | ||||||||||||||
| Provision (benefit) for income taxes | (27,619 | ) | 134,547 | 45,374 | 0 | 152,302 | ||||||||||||||
| Net income | 230,183 | 236,778 | 215,538 | (406,704 | ) | 275,795 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 45,612 | 0 | 45,612 | |||||||||||||||
| Net income attributable to UHS | $ | 230,183 | $ | 236,778 | $ | 169,926 | $ | (406,704 | ) | $ | 230,183 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2012
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 443,446 | $ | 438,873 | $ | 316,617 | $ | (709,889 | ) | $ | 489,047 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | 6,677 | 0 | 0 | 0 | 6,677 | |||||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum Pension Liability | 0 | 4,986 | 0 | 0 | 4,986 | |||||||||||||||
| Other comprehensive income before tax | 6,341 | 4,986 | 0 | 0 | 11,327 | |||||||||||||||
| Income tax expense related to items of other comprehensive income | 2,408 | 1,898 | 0 | 0 | 4,306 | |||||||||||||||
| Total other comprehensive income, net of tax | 3,933 | 3,088 | 0 | 0 | 7,021 | |||||||||||||||
| Comprehensive income | 447,379 | 441,961 | 316,617 | (709,889 | ) | 496,068 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 45,601 | 0 | 45,601 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 447,379 | $ | 441,961 | $ | 271,016 | $ | (709,889 | ) | $ | 450,467 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2011
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 398,167 | $ | 382,249 | $ | 344,260 | $ | (675,806 | ) | $ | 448,870 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | (37,477 | ) | 0 | 0 | 0 | (37,477 | ) | |||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum Pension Liability | 0 | (12,397 | ) | 0 | 0 | (12,397 | ) | |||||||||||||
| Other comprehensive income before tax | (37,813 | ) | (12,397 | ) | 0 | 0 | (50,210 | ) | ||||||||||||
| Income tax expense related to items of other comprehensive income | (14,483 | ) | (4,691 | ) | 0 | 0 | (19,174 | ) | ||||||||||||
| Total other comprehensive income, net of tax | (23,330 | ) | (7,706 | ) | 0 | 0 | (31,036 | ) | ||||||||||||
| Comprehensive income | 374,837 | 374,543 | 344,260 | (675,806 | ) | 417,834 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 50,703 | 0 | 50,703 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 374,837 | $ | 374,543 | $ | 293,557 | $ | (675,806 | ) | $ | 367,131 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2010
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 230,183 | $ | 236,778 | $ | 215,538 | $ | (406,704 | ) | $ | 275,795 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | 1,396 | 0 | 0 | 0 | 1,396 | |||||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum Pension Liability | 0 | 743 | 0 | 0 | 743 | |||||||||||||||
| Other comprehensive income before tax | 1,060 | 743 | 0 | 0 | 1,803 | |||||||||||||||
| Income tax expense related to items of other comprehensive income | 408 | 281 | 0 | 0 | 689 | |||||||||||||||
| Total other comprehensive income, net of tax | 652 | 462 | 0 | 0 | 1,114 | |||||||||||||||
| Comprehensive income | 230,835 | 237,240 | 215,538 | (406,704 | ) | 276,909 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 45,612 | 0 | 45,612 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 230,835 | $ | 237,240 | $ | 169,926 | $ | (406,704 | ) | $ | 231,297 | |||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2012
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 0 | $ | 11,949 | $ | 11,522 | $ | 0 | $ | 23,471 | ||||||||||
| Accounts receivable, net | 7,154 | 741,983 | 318,060 | 0 | 1,067,197 | |||||||||||||||
| Supplies | 0 | 61,100 | 37,900 | 0 | 99,000 | |||||||||||||||
| Deferred income taxes | 61,364 | 43,555 | 322 | (780 | ) | 104,461 | ||||||||||||||
| Other current assets | 2,188 | 75,117 | 10,631 | 0 | 87,936 | |||||||||||||||
| Current assets held for sale | 0 | 0 | 25,431 | 0 | 25,431 | |||||||||||||||
| Total current assets | 70,706 | 933,704 | 403,866 | (780 | ) | 1,407,496 | ||||||||||||||
| Investments in subsidiaries | 5,781,479 | 1,323,832 | 0 | (7,105,311 | ) | 0 | ||||||||||||||
| Intercompany receivable | 644,105 | 0 | 360,538 | (1,004,643 | ) | 0 | ||||||||||||||
| Intercompany note receivable | 0 | 0 | 1,007,453 | (1,007,453 | ) | 0 | ||||||||||||||
| Property and equipment | 0 | 3,867,471 | 1,500,874 | 0 | 5,368,345 | |||||||||||||||
| Less: accumulated depreciation | 0 | (1,288,975 | ) | (697,135 | ) | 0 | (1,986,110 | ) | ||||||||||||
| 0 | 2,578,496 | 803,739 | 0 | 3,382,235 | ||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Goodwill | 820 | 2,554,531 | 481,414 | 0 | 3,036,765 | |||||||||||||||
| Deferred charges | 67,831 | 5,839 | 2,218 | 0 | 75,888 | |||||||||||||||
| Other | 9,645 | 209,558 | 79,256 | 0 | 298,459 | |||||||||||||||
| $ | 6,574,586 | $ | 7,605,960 | $ | 3,138,484 | $ | (9,118,187 | ) | $ | 8,200,843 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Current maturities of long-term debt | $ | 0 | 990 | 1,599 | 0 | $ | 2,589 | |||||||||||||
| Accounts payable and accrued liabilities | 10,985 | 740,484 | 138,088 | 0 | 889,557 | |||||||||||||||
| Current liabilities held for sale | 0 | 0 | 850 | 0 | 850 | |||||||||||||||
| Federal and state taxes | 0 | 900 | 620 | (458 | ) | 1,062 | ||||||||||||||
| Total current liabilities | 10,985 | 742,374 | 141,157 | (458 | ) | 894,058 | ||||||||||||||
| Intercompany payable | 0 | 1,004,643 | 0 | (1,004,643 | ) | 0 | ||||||||||||||
| Other noncurrent liabilities | 46,048 | 243,478 | 105,829 | 0 | 395,355 | |||||||||||||||
| Long-term debt | 3,676,940 | 5,372 | 45,119 | 0 | 3,727,431 | |||||||||||||||
| Intercompany note payable | 0 | 1,007,453 | 0 | (1,007,453 | ) | 0 | ||||||||||||||
| Deferred income taxes | 127,268 | 56,801 | 0 | (322 | ) | 183,747 | ||||||||||||||
| Redeemable noncontrolling interests | 0 | 0 | 234,303 | 0 | 234,303 | |||||||||||||||
| UHS common stockholders’ equity | 2,713,345 | 4,545,839 | 2,559,472 | (7,105,311 | ) | 2,713,345 | ||||||||||||||
| Noncontrolling interest | 0 | 0 | 52,604 | 0 | 52,604 | |||||||||||||||
| Total equity | 2,713,345 | 4,545,839 | 2,612,076 | (7,105,311 | ) | 2,765,949 | ||||||||||||||
| $ | 6,574,586 | $ | 7,605,960 | $ | 3,138,484 | $ | (9,118,187 | ) | $ | 8,200,843 | ||||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2011
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 0 | $ | 33,221 | $ | 8,008 | $ | 0 | $ | 41,229 | ||||||||||
| Accounts receivable, net | 8,891 | 663,593 | 297,318 | 0 | 969,802 | |||||||||||||||
| Supplies | 0 | 59,467 | 37,308 | 0 | 96,775 | |||||||||||||||
| Deferred income taxes | 67,189 | 41,755 | 322 | (942 | ) | 108,324 | ||||||||||||||
| Other current assets | 33,057 | 56,864 | 9,938 | 0 | 99,859 | |||||||||||||||
| Current assets held for sale | 0 | 48,916 | 0 | 0 | 48,916 | |||||||||||||||
| Total current assets | 109,137 | 903,816 | 352,894 | (942 | ) | 1,364,905 | ||||||||||||||
| Investments in subsidiaries | 5,213,573 | 1,181,849 | 0 | (6,395,422 | ) | 0 | ||||||||||||||
| Intercompany receivable | 669,112 | 0 | 20,375 | (689,487 | ) | 0 | ||||||||||||||
| Intercompany note receivable | 0 | 0 | 1,148,839 | (1,148,839 | ) | 0 | ||||||||||||||
| Property and equipment | 0 | 3,650,025 | 1,456,135 | 0 | 5,106,160 | |||||||||||||||
| Less: accumulated depreciation | 0 | (1,184,283 | ) | (633,897 | ) | 0 | (1,818,180 | ) | ||||||||||||
| 0 | 2,465,742 | 822,238 | 0 | 3,287,980 | ||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Goodwill | 820 | 2,132,103 | 494,679 | 0 | 2,627,602 | |||||||||||||||
| Deferred charges | 103,434 | 5,972 | 2,374 | 0 | 111,780 | |||||||||||||||
| Other | 10,412 | 241,107 | 21,459 | 0 | 272,978 | |||||||||||||||
| $ | 6,106,488 | $ | 6,930,589 | $ | 2,862,858 | $ | (8,234,690 | ) | $ | 7,665,245 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Current maturities of long-term debt | $ | 0 | $ | 1,133 | $ | 1,346 | $ | 0 | $ | 2,479 | ||||||||||
| Accounts payable and accrued liabilities | 14,201 | 616,026 | 201,898 | 0 | 832,125 | |||||||||||||||
| Current liabilities held for sale | 0 | 2,329 | 0 | 0 | 2,329 | |||||||||||||||
| Federal and state taxes | 0 | 0 | 620 | (620 | ) | 0 | ||||||||||||||
| Total current liabilities | 14,201 | 619,488 | 203,864 | (620 | ) | 836,933 | ||||||||||||||
| Intercompany payable | 0 | 689,487 | 0 | (689,487 | ) | 0 | ||||||||||||||
| Other noncurrent liabilities | 49,840 | 249,033 | 103,035 | 0 | 401,908 | |||||||||||||||
| Long-term debt | 3,594,182 | 3,616 | 53,630 | 0 | 3,651,428 | |||||||||||||||
| Intercompany note payable | 0 | 1,148,839 | 0 | (1,148,839 | ) | 0 | ||||||||||||||
| Deferred income taxes | 151,913 | 58,001 | 0 | (322 | ) | 209,592 | ||||||||||||||
| Redeemable noncontrolling interests | 0 | 0 | 218,266 | 0 | 218,266 | |||||||||||||||
| UHS common stockholders’ equity | 2,296,352 | 4,162,125 | 2,233,297 | (6,395,422 | ) | 2,296,352 | ||||||||||||||
| Noncontrolling interest | 0 | 0 | 50,766 | 0 | 50,766 | |||||||||||||||
| Total equity | 2,296,352 | 4,162,125 | 2,284,063 | (6,395,422 | ) | 2,347,118 | ||||||||||||||
| $ | 6,106,488 | $ | 6,930,589 | $ | 2,862,858 | $ | (8,234,690 | ) | $ | 7,665,245 | ||||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2012
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (21,608 | ) | $ | 594,606 | $ | 242,273 | $ | 0 | $ | 815,271 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (312,190 | ) | (51,002 | ) | 0 | (363,192 | ) | ||||||||||||
| Acquisition of property and businesses | 0 | (513,596 | ) | (14,251 | ) | 0 | (527,847 | ) | ||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 142,667 | 6,644 | 0 | 149,311 | |||||||||||||||
| Costs incurred for purchase and development of electronic health records application | 0 | (54,362 | ) | 0 | 0 | (54,362 | ) | |||||||||||||
| Return of Deposit on terminated purchase agreement | 6,500 | 0 | 0 | 0 | 6,500 | |||||||||||||||
| Net cash provided by (used in) investing activities | 6,500 | (737,481 | ) | (58,609 | ) | 0 | (789,590 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (843,002 | ) | 0 | (8,258 | ) | 1,613 | (849,647 | ) | ||||||||||||
| Additional borrowings | 913,500 | 1,613 | 0 | (1,613 | ) | 913,500 | ||||||||||||||
| Financing costs | (8,283 | ) | 0 | 0 | 0 | (8,283 | ) | |||||||||||||
| Repurchase of common shares | (19,154 | ) | 0 | 0 | 0 | (19,154 | ) | |||||||||||||
| Dividends paid | (58,395 | ) | 0 | 0 | 0 | (58,395 | ) | |||||||||||||
| Issuance of common stock | 5,435 | 0 | 0 | 0 | 5,435 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (26,895 | ) | 0 | (26,895 | ) | |||||||||||||
| Changes in intercompany balances with affiliates, net | 25,007 | 119,990 | (144,997 | ) | 0 | 0 | ||||||||||||||
| Net cash provided by (used in) financing activities | 15,108 | 121,603 | (180,150 | ) | 0 | (43,439 | ) | |||||||||||||
| Increase (decrease) in cash and cash equivalents | 0 | (21,272 | ) | 3,514 | 0 | (17,758 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 33,221 | 8,008 | 0 | 41,229 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 11,949 | $ | 11,522 | $ | 0 | $ | 23,471 | ||||||||||
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2011
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (4,990 | ) | $ | 518,462 | $ | 204,779 | $ | 0 | $ | 718,251 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (226,848 | ) | (58,834 | ) | 0 | (285,682 | ) | ||||||||||||
| Acquisition of property and businesses | 0 | 0 | (29,466 | ) | 0 | (29,466 | ) | |||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 0 | 67,592 | 0 | 67,592 | |||||||||||||||
| Costs incurred for purchase and development of electronic health records application | 0 | (38,249 | ) | 0 | 0 | (38,249 | ) | |||||||||||||
| Net cash used in investing activities | 0 | (265,097 | ) | (20,708 | ) | 0 | (285,805 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (382,060 | ) | (1,442 | ) | 0 | 1,985 | (381,517 | ) | ||||||||||||
| Additional borrowings | 98,100 | 0 | 1,985 | (1,985 | ) | 98,100 | ||||||||||||||
| Financing costs | (23,608 | ) | 0 | 0 | 0 | (23,608 | ) | |||||||||||||
| Repurchase of common shares | (60,482 | ) | 0 | 0 | 0 | (60,482 | ) | |||||||||||||
| Dividends paid | (19,466 | ) | 0 | 0 | 0 | (19,466 | ) | |||||||||||||
| Issuance of common stock | 4,779 | 0 | 0 | 0 | 4,779 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (38,497 | ) | 0 | (38,497 | ) | |||||||||||||
| Changes in intercompany balances with affiliates, net | 387,727 | (240,087 | ) | (147,640 | ) | 0 | 0 | |||||||||||||
| Net cash provided by (used in) financing activities | 4,990 | (241,529 | ) | (184,152 | ) | 0 | (420,691 | ) | ||||||||||||
| Increase (decrease) in cash and cash equivalents | 0 | 11,836 | (81 | ) | 0 | 11,755 | ||||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 21,385 | 8,089 | 0 | 29,474 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 33,221 | $ | 8,008 | $ | 0 | $ | 41,229 | ||||||||||
Table of Contents
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2010
(amounts in thousands)
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (139,226 | ) | $ | 342,633 | $ | 297,937 | $ | 0 | $ | 501,344 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (186,967 | ) | (52,307 | ) | 0 | (239,274 | ) | ||||||||||||
| Acquisition of property and businesses | 0 | (1,958,904 | ) | 606 | 0 | (1,958,298 | ) | |||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 21,460 | 0 | 0 | 21,460 | |||||||||||||||
| Costs incurred for purchase and development of electronic health records application | 0 | (17,971 | ) | 0 | 0 | (17,971 | ) | |||||||||||||
| Net cash used in investing activities | 0 | (2,142,382 | ) | (51,701 | ) | 0 | (2,194,083 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (1,388,679 | ) | (753 | ) | (2,654 | ) | 0 | (1,392,086 | ) | |||||||||||
| Additional borrowings | 3,266,146 | 0 | 0 | 0 | 3,266,146 | |||||||||||||||
| Financing costs | (101,815 | ) | 0 | 0 | 0 | (101,815 | ) | |||||||||||||
| Repurchase of common shares | (11,528 | ) | 0 | 0 | 0 | (11,528 | ) | |||||||||||||
| Dividends paid | (19,422 | ) | 0 | 0 | 0 | (19,422 | ) | |||||||||||||
| Issuance of common stock | 3,594 | 0 | 0 | 0 | 3,594 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (32,456 | ) | 0 | (32,456 | ) | |||||||||||||
| Proceeds from sale of noncontrolling interest in majority owned business | 0 | 0 | 600 | 0 | 600 | |||||||||||||||
| Changes in intercompany balances with affiliates, net | (1,609,070 | ) | 1,816,520 | (207,450 | ) | 0 | 0 | |||||||||||||
| Net cash provided by (used in) by financing activities | 139,226 | 1,815,767 | (241,960 | ) | 0 | 1,713,033 | ||||||||||||||
| Increase (decrease) in cash and cash equivalents | 0 | 16,018 | 4,276 | 0 | 20,294 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 5,367 | 3,813 | 0 | 9,180 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 21,385 | $ | 8,089 | $ | 0 | $ | 29,474 | ||||||||||
Table of Contents
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
| Description | Balance at beginning of period | Charges to costs and expenses | Acquisitions of business | Write-off of uncollectible accounts | Balance at end of period | |||||||||||||||
| Allowance for doubtful accounts receivable: | ||||||||||||||||||||
| Year ended December 31, 2012 | $ | 253,405 | $ | 726,671 | $ | 5,632 | $ | (674,321 | ) | $ | 311,387 | |||||||||
| Year ended December 31, 2011 | $ | 248,622 | $ | 613,619 | $ | — | $ | (608,836 | ) | $ | 253,405 | |||||||||
| Year ended December 31, 2010 | $ | 168,876 | $ | 546,909 | $ | 56,596 | $ | (523,759 | ) | $ | 248,622 | |||||||||
Included in the charges to costs and expenses are $17,043 in 2011 and $17,823 in 2010, related to facilities that were divested or recorded as held for sale during 2012.
Previous: Item 14. Principal Accountant Fees and Services.