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:
3.1 Registrant’s Restated Certificate of Incorporation, and Amendments thereto, previously filed as Exhibit 3.1 to the Company’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 the Company’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 the Company’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 the Company’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 the Company’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 the Company’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 the Company’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 the Company’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.
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 August 7, 2014, among Universal Health Services, Inc., its subsidiaries specified therein, MUFG Union Bank, N.A., as Trustee, JPMorgan Chase Bank, N.A., as Collateral Agent (including forms of the 3.750% Senior Secured Notes due 2019 and the 4.750% Senior Secured Notes due 2022), previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference.
4.9 Second Supplement 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 Company’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference.
4.10 Third Supplemental Indenture, dated as of August 7, 2014, to Indenture, dated as of 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 10.3 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference.
10.1* Employment Agreement, dated as of July 24, 2013, by and between Universal Health Services, Inc. and Alan B. Miller, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 26, 2013, 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 the Company’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference.
10.3 Agreement, dated December 4, 2015, 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 Company 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 the Company in favor of Universal Health Realty Income Trust, previously filed as Exhibit 10.5 to the Company’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 the Company’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 the Company’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 Exhibit 10.1 to the Company’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 the Company’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 the Company’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 the Company’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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference.
10.13* Universal Health Services, Inc. Employee Stock Purchase Plan, previously filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-122188), dated January 21, 2005 is incorporated herein by reference.
10.14* Universal Health Services, Inc. Third Amended and Restated 2005 Stock Incentive Plan, previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2015, is incorporated herein by reference.
10.15* Form of Stock Option Agreement, previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, dated June 8, 2005, is incorporated herein by reference.
10.16* Form of Stock Option Agreement for Non-Employee Directors, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated October 3, 2005, is incorporated herein by reference.
10.17 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference.
10.18* Amended and Restated Universal Health Services, Inc. 2010 Employees’ Restricted Stock Purchase Plan, previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2015, is incorporated herein by reference
10.19* Universal Health Services, Inc. 2010 Executive Incentive Plan, previously filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2015, is incorporated herein by reference.
10.20 Omnibus Amendment to Receivables Sale Agreements, dated as of October 27, 2010, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
10.21 Amended and Restated Credit and Security Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
10.22 Second Amendment to Amended and Restated Credit and Security Agreement, dated as of October 25, 2013, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 30, 2013, is incorporated herein by reference.
10.23 Third Amendment to Amended and Restated Credit and Security Agreement, dated as of August 1, 2014, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 4, 2014, is incorporated herein by reference.
10.24 Fourth Amendment to Amended and Restated Credit and Security Agreement, dated as of December 22, 2015, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 22, 2015, is incorporated herein by reference
Assignment and Assumption Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference.
10.25 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 Company’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference.
10.26 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 Company’s Current Report on Form 8-K dated March 15, 2011, is incorporated herein by reference.
10.27 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 Company’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference.
10.28 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 Company’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference.
10.29 Third Amendment, dated as of May 16, 2013, 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 10.1 to the Company’s Current Report on Form 8-K dated May 17, 2013, is incorporated herein by reference.
10.30 Fourth Amendment, dated as of August 7, 2014, to the Credit Agreement, dated as of November 15, 2010, as previously amended from time to time, by and among Universal Health Services, Inc., 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 10.1 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference.
10.31 Credit Agreement, dated as of November 15, 2010 and amended and restated as of August 7, 2014, by and among Universal Health Services, Inc., 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 Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference.
10.32* 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 Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.33* 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 Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.34* 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 Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.35* 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 Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference.
10.36 Collateral Agreement, dated as of August 7, 2014, among Universal Health Services, Inc., the subsidiary guarantors party thereto, MUFG Union Bank, N.A., as 2014 Trustee, The Bank of New York Mellon Trust Company, N.A., as 2006 Trustee, and JPMorgan Chase Bank, N.A., as collateral agent, previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated August 12, 2014, 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. |
|---|
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.
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 S ERVICES, INC. | ||
| By: | /s/ ALAN B. MILLER | |
| Alan B. Miller Chairman of the Board and Chief Executive Officer |
February 25, 2016
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 25, 2016 | |||||||||
| /s/ MARC D. MILLER Marc D. Miller | Director and President | February 25, 2016 | |||||||||
| /s/ LAWRENCE S. GIBBS Lawrence S. Gibbs | Director | February 25, 2016 | |||||||||
| /s/ JOHN H. HERRELL John H. Herrell | Director | February 25, 2016 | |||||||||
| /s/ ROBERT H. HOTZ Robert H. Hotz | Director | February 25, 2016 | |||||||||
| /s/ EILEEN C. MCDONNELL Eileen C. McDonnell | Director | February 25, 2016 | |||||||||
| /s/ ANTHONY PANTALEONI Anthony Pantaleoni | Director | February 25, 2016 | |||||||||
| /s/ STEVE FILTON Steve Filton | Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) | February 25, 2016 |
UNIVERSAL HEALTH SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, based on criteria established in Internal Control—Integrated Framework (2013) 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 Foundations Recovery Network, LLC and Alpha Hospitals Holdings Limited from its assessment of internal control over financial reporting as of December 31, 2015 because the entities were acquired by the Company in purchase business combinations during 2015. We have also excluded Foundations Recovery Network, LLC and Alpha Hospitals Holdings Limited from our audit of internal control over financial reporting. Foundations Recovery Network, LLC and Alpha Hospitals Holdings Limited are wholly-owned subsidiaries whose total assets and total net revenues represent 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2015.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2016
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Net revenues before provision for doubtful accounts | $ | 9,784,724 | $ | 8,904,071 | $ | 8,495,089 | ||||||
| Less: Provision for doubtful accounts | 741,273 | 698,983 | 1,127,216 | |||||||||
| Net revenues | 9,043,451 | 8,205,088 | 7,367,873 | |||||||||
| Operating charges: | ||||||||||||
| Salaries, wages and benefits | 4,212,387 | 3,845,461 | 3,604,620 | |||||||||
| Other operating expenses | 2,119,805 | 1,922,743 | 1,552,795 | |||||||||
| Supplies expense | 974,088 | 895,693 | 821,089 | |||||||||
| Depreciation and amortization | 398,618 | 375,624 | 337,172 | |||||||||
| Lease and rental expense | 94,973 | 93,993 | 97,758 | |||||||||
| Electronic health records incentive income | (15,815 | ) | (27,902 | ) | (61,024 | ) | ||||||
| Costs related to extinguishment of debt | 0 | 36,171 | 0 | |||||||||
| 7,784,056 | 7,141,783 | 6,352,410 | ||||||||||
| Income from operations | 1,259,395 | 1,063,305 | 1,015,463 | |||||||||
| Interest expense, net | 113,494 | 133,638 | 146,131 | |||||||||
| Income before income taxes | 1,145,901 | 929,667 | 869,332 | |||||||||
| Provision for income taxes | 395,203 | 324,671 | 315,309 | |||||||||
| Net income | 750,698 | 604,996 | 554,023 | |||||||||
| Less: Net income attributable to noncontrolling interests | 70,170 | 59,653 | 43,290 | |||||||||
| Net income attributable to UHS | $ | 680,528 | $ | 545,343 | $ | 510,733 | ||||||
| Basic earnings per share attributable to UHS | $ | 6.89 | $ | 5.52 | $ | 5.21 | ||||||
| Diluted earnings per share attributable to UHS | $ | 6.76 | $ | 5.42 | $ | 5.14 | ||||||
| Weighted average number of common shares—basic | 98,797 | 98,826 | 98,033 | |||||||||
| Add: Other share equivalents | 1,897 | 1,718 | 1,328 | |||||||||
| Weighted average number of common shares and equivalents—diluted | 100,694 | 100,544 | 99,361 |
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Net income | $ | 750,698 | $ | 604,996 | $ | 554,023 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Unrealized derivative gains (losses) on cash flow hedges | 4,970 | 17,668 | 16,963 | |||||||||
| Amortization of terminated hedge | (336 | ) | (336 | ) | (336 | ) | ||||||
| Minimum pension liability | 2,177 | (14,270 | ) | 14,657 | ||||||||
| Foreign currency translation adjustment | (1,728 | ) | (2,431 | ) | 0 | |||||||
| Other comprehensive income (loss) before tax | 5,083 | 631 | 31,284 | |||||||||
| Income tax (benefit) expense related to items of other comprehensive income | 2,980 | 1,053 | 11,940 | |||||||||
| Total other comprehensive income (loss), net of tax | 2,103 | (422 | ) | 19,344 | ||||||||
| Comprehensive income | 752,801 | 604,574 | 573,367 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 70,170 | 59,653 | 43,290 | |||||||||
| Comprehensive income attributable to UHS | $ | 682,631 | $ | 544,921 | $ | 530,077 |
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||||
| (Dollar amounts in thousands) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 61,228 | $ | 32,069 | ||||
| Accounts receivable, net | 1,302,429 | 1,282,735 | ||||||
| Supplies | 116,037 | 108,115 | ||||||
| Deferred income taxes | 135,120 | 114,565 | ||||||
| Other current assets | 103,490 | 77,654 | ||||||
| Total current assets | 1,718,304 | 1,615,138 | ||||||
| Property and Equipment | ||||||||
| Land | 451,717 | 435,632 | ||||||
| Buildings and improvements | 4,181,576 | 3,948,501 | ||||||
| Equipment | 1,659,485 | 1,648,718 | ||||||
| Property under capital lease | 45,665 | 40,782 | ||||||
| 6,338,443 | 6,073,633 | |||||||
| Accumulated depreciation | (2,694,591 | ) | (2,532,341 | ) | ||||
| 3,643,852 | 3,541,292 | |||||||
| Construction-in-progress | 192,126 | 138,397 | ||||||
| 3,835,978 | 3,679,689 | |||||||
| Other assets: | ||||||||
| Goodwill | 3,596,114 | 3,291,213 | ||||||
| Deferred charges | 35,357 | 40,319 | ||||||
| Other | 448,360 | 348,084 | ||||||
| 4,079,831 | 3,679,616 | |||||||
| $ | 9,634,113 | $ | 8,974,443 | |||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | 62,722 | $ | 68,319 | ||||
| Accounts payable | 366,238 | 336,447 | ||||||
| Accrued liabilities | ||||||||
| Compensation and related benefits | 245,117 | 323,425 | ||||||
| Interest | 13,284 | 13,977 | ||||||
| Taxes other than income | 60,255 | 112,119 | ||||||
| Other | 348,803 | 327,094 | ||||||
| Current federal and state income taxes | 3,987 | 1,446 | ||||||
| Total current liabilities | 1,100,406 | 1,182,827 | ||||||
| Other noncurrent liabilities | 278,834 | 268,555 | ||||||
| Long-term debt | 3,387,303 | 3,210,215 | ||||||
| Deferred income taxes | 315,900 | 282,214 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Redeemable noncontrolling interest | 242,509 | 239,552 | ||||||
| Equity: | ||||||||
| Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares: issued and outstanding 6,595,308 shares in 2015 and 6,595,708 shares in 2014 | 66 | 66 | ||||||
| Class B Common Stock, limited voting, $.01 par value; authorized 150,000,000 shares: issued and outstanding 91,013,487 shares in 2015 and 91,427,258 shares in 2014 | 910 | 914 | ||||||
| Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares: issued and outstanding 663,940 shares in 2015 and 664,000 shares in 2014 | 7 | 7 | ||||||
| Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000 shares: issued and outstanding 23,742 shares in 2015 and 29,121 shares in 2014 | 0 | 0 | ||||||
| Cumulative dividends | (294,728 | ) | (255,196 | ) | ||||
| Retained earnings | 4,566,521 | 4,015,387 | ||||||
| Accumulated other comprehensive loss | (23,129 | ) | (25,232 | ) | ||||
| Universal Health Services, Inc. common stockholders’ equity | 4,249,647 | 3,735,946 | ||||||
| Noncontrolling interest | 59,514 | 55,134 | ||||||
| Total Equity | 4,309,161 | 3,791,080 | ||||||
| $ | 9,634,113 | $ | 8,974,443 |
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2015, 2014 and 2013
(in thousands)
| Accumulated | UHS | |||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Redeemable | Other | Common | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling | Class A | Class B | Class C | Class D | Cumulative | Retained | Comprehensive | Stockholders' | Noncontrolling | |||||||||||||||||||||||||||||||||||
| Interest | Common | Common | Common | Common | Dividends | Earnings | Income (Loss) | Equity | Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2013 | $ | 234,303 | $ | 66 | $ | 903 | $ | 7 | $ | 0 | $ | (205,910 | ) | $ | 2,962,433 | $ | (44,154 | ) | $ | 2,713,345 | $ | 52,604 | $ | 2,765,949 | ||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | — | 11 | — | — | — | 26,869 | — | 26,880 | — | 26,880 | |||||||||||||||||||||||||||||||||
| Repurchased | — | — | (4 | ) | — | — | — | (27,197 | ) | — | (27,201 | ) | — | (27,201 | ) | |||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | 664 | — | 664 | — | 664 | |||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | (19,621 | ) | — | — | (19,621 | ) | — | (19,621 | ) | ||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | 25,835 | — | 25,835 | — | 25,835 | |||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (48,290 | ) | — | — | — | — | — | — | — | — | (13,039 | ) | (13,039 | ) | ||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | (511 | ) | (511 | ) | |||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 32,094 | — | — | — | — | — | 510,733 | — | 510,733 | 11,196 | 521,929 | |||||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | ||||||||||||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges (net of income tax effect of $6,390) | — | — | — | — | — | — | — | 10,573 | 10,573 | — | 10,573 | |||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $5,670) | — | — | — | — | — | — | — | 8,987 | 8,987 | — | 8,987 | |||||||||||||||||||||||||||||||||
| Subtotal - comprehensive income | 32,094 | — | — | — | — | — | 510,733 | 19,344 | 530,077 | 11,196 | 541,273 | |||||||||||||||||||||||||||||||||
| Balance, December 31, 2013 | $ | 218,107 | $ | 66 | $ | 910 | $ | 7 | $ | 0 | $ | (225,531 | ) | $ | 3,499,337 | $ | (24,810 | ) | $ | 3,249,979 | $ | 50,250 | $ | 3,300,229 |
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
(in thousands)
| Accumulated | UHS | |||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Redeemable | Other | Common | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling | Class A | Class B | Class C | Class D | Cumulative | Retained | Comprehensive | Stockholders' | Noncontrolling | |||||||||||||||||||||||||||||||||||
| Interest | Common | Common | Common | Common | Dividends | Earnings | Income (Loss) | Equity | Interest | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | — | 14 | — | — | — | 41,787 | — | 41,801 | — | 41,801 | |||||||||||||||||||||||||||||||||
| Repurchased | — | — | (10 | ) | — | — | — | (100,739 | ) | — | (100,749 | ) | — | (100,749 | ) | |||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | 491 | — | 491 | — | 491 | |||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | (29,665 | ) | — | — | (29,665 | ) | — | (29,665 | ) | ||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | 29,168 | — | 29,168 | — | 29,168 | |||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (26,016 | ) | — | — | — | — | — | — | — | — | (7,666 | ) | (7,666 | ) | ||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | 358 | 358 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 47,461 | — | — | — | — | — | 545,343 | — | 545,343 | 12,192 | 557,535 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | (2,431 | ) | (2,431 | ) | — | (2,431 | ) | ||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | ||||||||||||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges (net of income tax effect of $6,529) | — | — | — | — | — | — | — | 11,139 | 11,139 | — | 11,139 | |||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $5,356) | — | — | — | — | — | — | — | (8,914 | ) | (8,914 | ) | — | (8,914 | ) | ||||||||||||||||||||||||||||||
| Subtotal - comprehensive income | 47,461 | — | — | — | — | — | 545,343 | (422 | ) | 544,921 | 12,192 | 557,113 | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2014 | $ | 239,552 | $ | 66 | $ | 914 | $ | 7 | $ | 0 | $ | (255,196 | ) | $ | 4,015,387 | $ | (25,232 | ) | $ | 3,735,946 | $ | 55,134 | $ | 3,791,080 |
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
(in thousands)
| Accumulated | UHS | |||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Redeemable | Other | Common | ||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling | Class A | Class B | Class C | Class D | Cumulative | Retained | Comprehensive | Stockholders' | Noncontrolling | |||||||||||||||||||||||||||||||||||
| Interest | Common | Common | Common | Common | Dividends | Earnings | Income (Loss) | Equity | Interest | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Issued/(converted) including tax benefits from exercise of stock options | — | — | 14 | — | — | — | 56,473 | — | 56,487 | — | 56,487 | |||||||||||||||||||||||||||||||||
| Repurchased | — | — | (18 | ) | — | — | — | (224,242 | ) | — | (224,260 | ) | — | (224,260 | ) | |||||||||||||||||||||||||||||
| Restricted share-based compensation expense | — | — | — | — | — | — | 393 | — | 393 | — | 393 | |||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | — | — | (39,532 | ) | — | — | (39,532 | ) | — | (39,532 | ) | ||||||||||||||||||||||||||||||
| Stock option expense | — | — | — | — | — | — | 37,982 | — | 37,982 | — | 37,982 | |||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | (51,106 | ) | — | — | — | — | — | — | — | — | (11,114 | ) | (11,114 | ) | ||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | (613 | ) | (613 | ) | |||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 54,063 | — | — | — | — | — | 680,528 | — | 680,528 | 16,107 | 696,635 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | (1,728 | ) | (1,728 | ) | — | (1,728 | ) | ||||||||||||||||||||||||||||||
| Amortization of terminated hedge (net of income tax effect of $120) | — | — | — | — | — | — | — | (216 | ) | (216 | ) | — | (216 | ) | ||||||||||||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges (net of income tax effect of $2,283) | — | — | — | — | — | — | — | 2,687 | 2,687 | — | 2,687 | |||||||||||||||||||||||||||||||||
| Minimum pension liability (net of income tax effect of $817) | — | — | — | — | — | — | — | 1,360 | 1,360 | — | 1,360 | |||||||||||||||||||||||||||||||||
| Subtotal - comprehensive income | 54,063 | — | — | — | — | — | 680,528 | 2,103 | 682,631 | 16,107 | 698,738 | |||||||||||||||||||||||||||||||||
| Balance, December 31, 2015 | $ | 242,509 | $ | 66 | $ | 910 | $ | 7 | $ | 0 | $ | (294,728 | ) | $ | 4,566,521 | $ | (23,129 | ) | $ | 4,249,647 | $ | 59,514 | $ | 4,309,161 |
The accompanying notes are an integral part of these consolidated financial statements.
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| (Amounts in thousands) | ||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net income | $ | 750,698 | $ | 604,996 | $ | 554,023 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation & amortization | 398,618 | 375,624 | 337,356 | |||||||||
| Gains on sales of assets and businesses, net of losses | (3,615 | ) | (7,837 | ) | (3,114 | ) | ||||||
| Stock-based compensation expense | 39,971 | 31,092 | 27,783 | |||||||||
| Costs related to extinguishment of debt | 0 | 19,730 | 0 | |||||||||
| Changes in assets & liabilities, net of effects from acquisitions and dispositions: | ||||||||||||
| Accounts receivable | (45,814 | ) | (105,708 | ) | (49,708 | ) | ||||||
| Accrued interest | (693 | ) | 4,400 | (1,197 | ) | |||||||
| Accrued and deferred income taxes | (34,394 | ) | 33,920 | 34,861 | ||||||||
| Other working capital accounts | (125,556 | ) | 73,912 | 26,234 | ||||||||
| Other assets and deferred charges | 6,631 | 13,667 | 8,984 | |||||||||
| Other | 23,295 | 2,449 | 23,485 | |||||||||
| Accrued insurance expense, net of commercial premiums paid | 90,895 | 59,276 | (3,821 | ) | ||||||||
| Payments made in settlement of self-insurance claims | (79,138 | ) | (69,645 | ) | (70,645 | ) | ||||||
| Net cash provided by operating activities | 1,020,898 | 1,035,876 | 884,241 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Property and equipment additions, net of disposals | (379,321 | ) | (391,150 | ) | (358,493 | ) | ||||||
| Acquisition of property and businesses | (533,655 | ) | (431,386 | ) | (12,636 | ) | ||||||
| Proceeds received from sales of assets and businesses | 3,391 | 15,178 | 37,482 | |||||||||
| Costs incurred for purchase and implementation of electronic health records application | 0 | (13,488 | ) | (49,811 | ) | |||||||
| Increase in insurance subsidiary investments | (3,300 | ) | (12,000 | ) | 0 | |||||||
| Net cash used in investing activities | (912,885 | ) | (832,846 | ) | (383,458 | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Reduction of long-term debt | (68,166 | ) | (879,129 | ) | (440,224 | ) | ||||||
| Additional borrowings | 234,400 | 830,000 | 15,761 | |||||||||
| Financing costs | (515 | ) | (14,976 | ) | (231 | ) | ||||||
| Repurchase of common shares | (209,782 | ) | (100,749 | ) | (27,201 | ) | ||||||
| Dividends paid | (39,532 | ) | (29,665 | ) | (19,621 | ) | ||||||
| Issuance of common stock | 8,441 | 6,863 | 5,708 | |||||||||
| Excess income tax benefits related to stock based compensation | 47,364 | 33,912 | 20,121 | |||||||||
| Profit distributions to noncontrolling interests | (62,220 | ) | (33,680 | ) | (61,329 | ) | ||||||
| Proceeds received from sale/leaseback of real property | 12,765 | 0 | 0 | |||||||||
| Net cash used in financing activities | (77,245 | ) | (187,424 | ) | (507,016 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,609 | ) | (775 | ) | 0 | |||||||
| Increase (decrease) in cash and cash equivalents | 29,159 | 14,831 | (6,233 | ) | ||||||||
| Cash and cash equivalents, beginning of period | 32,069 | 17,238 | 23,471 | |||||||||
| Cash and cash equivalents, end of period | $ | 61,228 | $ | 32,069 | $ | 17,238 | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||
| Interest paid, including early redemption premium and original issue discount write-off in 2014 | $ | 107,054 | $ | 130,279 | $ | 131,259 | ||||||
| Income taxes paid, net of refunds | $ | 380,658 | $ | 258,612 | $ | 259,896 | ||||||
| Noncash purchases of property and equipment | $ | 49,086 | $ | 35,469 | $ | 36,212 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 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 35% of our net patient revenues during 2015, 38% during 2014 and 39% during 2013. Revenues from managed care entities, including health maintenance organizations and managed Medicare and Medicaid programs accounted for 52% of our net patient revenues during 2015, 50% during 2014 and 49% during 2013.
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 vast majority of the net revenues generated at our behavioral health facilities located in the United Kingdom are derived from government based payors. The funding of both federal Medicare and state Medicaid programs, and the government based payor programs in the United Kingdom, 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 government based reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2015, 2014 and 2013. 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, Uninsured Discounts and Provision for Doubtful Accounts for our estimated uncompensated care provided and estimated cost of providing uncompensated care.
C) Charity Care, Uninsured Discounts and 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. 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. 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.
Historically, a significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from 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.
A portion of the accounts receivable at our acute care facilities are comprised of Medicaid accounts that are pending approval from third-party payers but we also have smaller amounts due from other miscellaneous payers such as county indigent programs in certain states. Our patient registration process includes an interview of the patient or the patient’s responsible party at the time of registration. At that time, an insurance eligibility determination is made and an insurance plan code is assigned. There are various pre-established insurance profiles in our patient accounting system which determine the expected insurance reimbursement for each patient based on the insurance plan code assigned and the services rendered. Certain patients may be classified as Medicaid pending at registration based upon a screening evaluation if we are unable to definitively determine if they are currently Medicaid eligible. When a patient is registered as Medicaid eligible or Medicaid pending, our patient accounting system records net revenues for services provided to that patient based upon the established Medicaid reimbursement rates, subject to the ultimate disposition of the patient’s Medicaid eligibility. When the patient’s ultimate eligibility is determined, reclassifications may occur which impacts the reported amounts in future periods for the provision for doubtful accounts and other accounts such as Medicaid pending. Although the patient’s ultimate eligibility determination may result in amounts being reclassified among these accounts from period to period, these reclassifications did not have a material impact on our results of operations in 2015, 2014 or 2013 since our facilities make estimates at each financial reporting period to reserve for amounts that are deemed to be uncollectible.
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 net accounts receivable. In 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. Effective January 1, 2014, in response to market conditions and other considerations, we modified our uninsured discount policy and increased the discount to 60% of gross charges from 30% previously. Since we expect to collect only a small portion of amounts due from our uninsured patients, the increase in the uninsured discount as of January 1, 2014 had no material impact on our 2015 and 2014 net revenues, net income attributable to UHS or net accounts receivable, as compared to 2013. However, this change resulted in an increase in uninsured discounts and a decrease in the provision for doubtful accounts.
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 $399 million and $325 million at December 31, 2015 and 2014, respectively.
Uncompensated care (charity care and uninsured discounts):
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, 2015, 2014 and 2013:
| (dollar amounts in thousands) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Charity care | $ | 506,571 | 42 | % | $ | 515,435 | 45 | % | $ | 593,474 | 59 | % | ||||||||||||
| Uninsured discounts | 696,463 | 58 | % | 620,587 | 55 | % | 405,296 | 41 | % | |||||||||||||||
| Total uncompensated care | $ | 1,203,034 | 100 | % | $ | 1,136,022 | 100 | % | $ | 998,770 | 100 | % |
The provision for doubtful accounts at our acute care hospitals was approximately $631 million during 2015, $590 million during 2014 and $1.02 billion during 2013. The decrease in the provision for doubtful accounts during 2014, as compared to 2013, was primarily due to the increase in the uninsured discount (effective January 1, 2014, as discussed above in Charity Care, Uninsured discounts and Provision for Doubtful Accounts), and reclassifications among provision for doubtful accounts and other accounts such as Medicaid pending based upon our patients’ ultimate eligibility determination, as discussed above.
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) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Estimated cost of providing charity care | $ | 77,557 | $ | 78,475 | $ | 95,675 | ||||||
| Estimated cost of providing uninsured discounts related care | 106,630 | 94,484 | 65,338 | |||||||||
| Estimated cost of providing uncompensated care | $ | 184,187 | $ | 172,959 | $ | 161,013 |
Our accounts receivable as of December 31, 2015 and 2014 include amounts due from Illinois of approximately $28 million and $44 million, respectively. Collection of the outstanding receivables continues to be delayed due to state budgetary and funding pressures. Approximately $12 million as of December 31, 2015 and $23 million as of December 31, 2014, of the receivables due from Illinois were outstanding in excess of 60 days, as of each respective date. In addition, our accounts receivable as of December 31, 2015 and 2014 includes approximately $80 million and $102 million due from Texas in connection with Medicaid supplemental payment programs. The $80 million due from Texas as of December 31, 2015 consists of $47 million related to uncompensated care program revenues, $9 million related to disproportionate share hospital program revenues and $24 million related to Delivery Service Reform Incentive Payment program (“DSRIP”) revenues. The above-mentioned Texas DSRIP receivables outstanding as of December 31, 2015 were collected in January, 2016. Although the accounts receivable due from Illinois and Texas could remain outstanding for the foreseeable future, since we expect to eventually collect all amounts due to us, 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 and/or Texas. Failure to ultimately collect all outstanding amounts due from these states would have an adverse impact on our future consolidated results of operations and cash flows.
D) Concentration of Revenues: Our five majority owned acute care hospitals in the Las Vegas, Nevada market contributed, on a combined basis, 13% in 2015, and 14% in both 2014 and 2013 of our consolidated net revenues.
E) 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 31 st , 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.
Medicaid EHR incentive payments: Medicaid EHR incentive payments are determined based upon prior period cost report information available at the time our hospitals met the “meaningful use” criteria. Therefore, the majority of the Medicaid EHR incentive income recognition occurred in the period in which the applicable hospitals were 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 were included in other current liabilities (as deferred EHR incentive income) in our consolidated balance sheet.
F) Cash and Cash Equivalents: We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.
G) 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 $304,000 during 2015, $0 during 2014 and $4.9 million during 2013.
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 $337.5 million during 2015, $314.5 million during 2014 and $285.6 million during 2013.
H) Long-Lived Assets: We review our long-lived assets, including 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.
I) Goodwill and Intangible Assets: Goodwill and indefinite-lived intangible assets are 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. During the quarter ended September 30, 2015, we changed our annual goodwill and indefinite-lived intangibles testing date from September 1st to October 1st. Management believes that this voluntary change in accounting method is preferable as it aligns the annual impairment testing date with our annual budgeting process. In connection with this change, we first performed an impairment test as of September 1, 2015, which indicated no impairment of goodwill or indefinite-lived intangible assets. We performed an additional impairment test as of October 1, 2015 which also indicated no impairment of goodwill or indefinite-lived intangible assets. There were also no impairments during 2014 or 2013. The 2015 change in annual testing date does not delay, accelerate or avoid an impairment charge. 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 or indefinite-lived intangible assets.
Changes in the carrying amount of goodwill for the two years ended December 31, 2015 were as follows (in thousands):
| Acute Care Services | Behavioral Health Services | Total Consolidated | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2014 | $ | 383,011 | $ | 2,666,005 | $ | 3,049,016 | ||||||
| Goodwill acquired during the period | 4,088 | 246,124 | 250,212 | |||||||||
| Adjustments to goodwill (a) | 0 | (8,015 | ) | (8,015 | ) | |||||||
| Balance, December 31, 2014 | 387,099 | 2,904,114 | 3,291,213 | |||||||||
| Goodwill acquired during the period | 2,480 | 316,427 | 318,907 | |||||||||
| Goodwill divested during the period | 0 | (1,497 | ) | (1,497 | ) | |||||||
| Adjustments to goodwill (a) | (72 | ) | (12,437 | ) | (12,509 | ) | ||||||
| Balance, December 31, 2015 | $ | 389,507 | $ | 3,206,607 | $ | 3,596,114 |
| (a) | The decrease in the Behavioral Health Services’ goodwill consists primarily of foreign currency translation adjustments. |
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J) Other Assets: Other assets consist primarily of amounts related to: (i) intangible assets acquired in connection with our acquisitions of Foundations Recovery Network, LLC during 2015, Ascend Health Corporation during 2012 and Psychiatric Solutions, Inc. during 2010; (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) required capital reserves related to our commercial insurer; (v) deposits; (vi) investments in various businesses, including Universal Health Realty Income Trust and Premier, Inc.; (vii) 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; (viii) the estimated future payments related to physician-related contractual commitments, as discussed below, and; (ix) other miscellaneous assets. As of December 31, 2015, net intangible assets were $219 million and consisted of the following: Tradename ($124 million), Medicare licenses ($57 million), Certificates of need ($12 million), and contract relationships and other ($25 million, net of $25 million of accumulated amortization). As of December 31, 2014, net intangible assets were $98 million and consistent of the following: Medicare licenses
($57 million), Certificates of need ($12 million), and contract relationships ($29 million, net of $19 million of accumulated amortization).
K) Physician Guarantees and Commitments: As of December 31, 2015 and 2014, our accrued liabilities-other, and our other assets included $1 million and $2 million, respectively, of estimated future payments related to physician-related contractual commitments. The $1 million of potential future financial obligations outstanding as of December 31, 2015 are potential 2016 obligations.
L) Self-Insured/Other Insurance 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.
In addition, we also: (i) own commercial health insurers headquartered in Nevada and Puerto Rico, and; (ii) maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs/operations 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. Given our significant insurance-related exposure, 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.
M) 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— Income Taxes, for additional disclosure.
N) 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, and a liability incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife.
O) Redeemable Noncontrolling Interests and Noncontrolling Interest: Outside owners hold noncontrolling, minority ownership interests of: (i) approximately 28% in six acute care facilities (including a facility currently under construction) 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 redeemable noncontrolling interest balances of $243 million as of December 31, 2015 and $240 million as of December 31, 2014, and the noncontrolling interest balances of $60 million as of December 31, 2015 and $55 million as of December 31, 2014, consist primarily of the third-party ownership interests in these hospitals.
In connection with five acute care facilities (and an additional facility currently under construction) 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, if exercisable, and 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 a behavioral health care facility located in Philadelphia, Pennsylvania and acquired by us as part of the PSI acquisition, 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.
P) Accumulated Other Comprehensive Income: The accumulated other comprehensive income (“AOCI”) component of stockholders’ equity includes: net unrealized gains and losses on effective cash flow hedges, foreign currency translation adjustments
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.
The amounts recognized in AOCI for the two years ended December 31, 2015 were as follows (in thousands):
| Net Unrealized Gains (Losses) on Effective Cash Flow Hedges | Foreign Currency Translation Adjustment | Minimum Pension Liability | Total AOCI | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, January 1, 2014, net of income tax | $ | (14,170 | ) | $ | 0 | $ | (10,640 | ) | $ | (24,810 | ) | |||||
| 2014 activity: | ||||||||||||||||
| Pretax amount | 17,332 | (2,431 | ) | (14,270 | ) | 631 | ||||||||||
| Income tax effect | (6,409 | ) | 0 | 5,356 | (1,053 | ) | ||||||||||
| Change, net of income tax | 10,923 | (2,431 | ) | (8,914 | ) | (422 | ) | |||||||||
| Balance, January 1, 2015, net of income tax | (3,247 | ) | (2,431 | ) | (19,554 | ) | (25,232 | ) | ||||||||
| 2015 activity: | ||||||||||||||||
| Pretax amount | 4,634 | (1,728 | ) | 2,177 | 5,083 | |||||||||||
| Income tax effect | (2,163 | ) | 0 | (817 | ) | (2,980 | ) | |||||||||
| Change, net of income tax | 2,471 | (1,728 | ) | 1,360 | 2,103 | |||||||||||
| Balance, December 31, 2015, net of income tax | $ | (776 | ) | $ | (4,159 | ) | $ | (18,194 | ) | $ | (23,129 | ) |
Q) Accounting for Derivative Financial Investments and Hedging Activities and Foreign Currency Forward Exchange Contracts: 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.
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.
We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within accumulated other comprehensive income and remains there until either the sale or liquidation of the subsidiary. The cash flows from these contracts are reported as operating activities in the Consolidated Statements of Cash Flows. For the years ended December 31, 2015 and 2014, we recorded net favorable cash inflows of $22.9 million and $15.6 million, respectively, associated with these forward exchange contracts.
R) Stock-Based Compensation: At December 31, 2015, 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.
S) 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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Basic and diluted: | ||||||||||||
| Net Income | $ | 750,698 | $ | 604,996 | $ | 554,023 | ||||||
| Less: Net income attributable to noncontrolling interest | (70,170 | ) | (59,653 | ) | (43,290 | ) | ||||||
| Less: Net income attributable to unvested restricted share grants | (281 | ) | (236 | ) | (294 | ) | ||||||
| Net income attributable to UHS—basic and diluted | $ | 680,247 | $ | 545,107 | $ | 510,439 | ||||||
| Basic earnings per share attributable to UHS: | ||||||||||||
| Weighted average number of common shares—basic | 98,797 | 98,826 | 98,033 | |||||||||
| Total basic earnings per share | $ | 6.89 | $ | 5.52 | $ | 5.21 | ||||||
| Diluted earnings per share attributable to UHS: | ||||||||||||
| Weighted average number of common shares | 98,797 | 98,826 | 98,033 | |||||||||
| Net effect of dilutive stock options and grants based on the treasury stock method | 1,897 | 1,718 | 1,328 | |||||||||
| Weighted average number of common shares and equivalents—diluted | 100,694 | 100,544 | 99,361 | |||||||||
| Total diluted earnings per share | $ | 6.76 | $ | 5.42 | $ | 5.14 |
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 765,000 during 2015, 2,250 during 2014, and 4,000 during 2013.
T) 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.
U) 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.
V) 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, Tradenames 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.
W) GPO Agreement/Minority Ownership Interest: During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier, Inc. (“Premier), a healthcare performance improvement alliance, and acquired a minority interest in the GPO for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO, which were recorded as deferred income and included in liabilities on our consolidated balance sheet as of December 31, 2015 and 2014. The deferred income is being recognized, on a pro rata basis, as a reduction to our supplies expense over the expected life of the GPO agreement. Also in connection with this GPO agreement, we received shares of restricted stock in Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. We are recognizing the fair value of this restricted stock, as a reduction to our supplies expense, in our consolidated statements of income on a pro rata basis over the vesting period.
X) Provider Taxes: We incur health-care related taxes (“Provider Taxes”) imposed by states in the form of a licensing fee, assessment or other mandatory payment which are related to: (i) healthcare items or services; (ii) the provision of, or the authority to provide, the health care items or services, or; (iii) the payment for the health care items or services. Such Provider Taxes are subject to various federal regulations that limit the scope and amount of the taxes that can be levied by states in order to secure federal matching funds as part of their respective state Medicaid programs. We derive a related Medicaid reimbursement benefit from assessed Provider Taxes in the form of Medicaid claims based payment increases and/or lump sum Medicaid supplemental payments. Under these programs, including the impact of Uncompensated Care and Upper Payment Limit programs, and the Texas Delivery System Reform Incentive program, we earned revenues (before Provider Taxes) of approximately $307 million during 2015, $295 million during 2014, and $213 million during 2013. These revenues were offset by Provider Taxes of approximately $137 million during 2015, $140 million during 2014, and $84 million during 2013, which are recorded in other operating expenses on the Consolidated Statements of Income as included herein. Prior to 2015, these Provider Taxes were recorded as a reduction to our net revenues. Accordingly, the Consolidated Statements of Income for 2014 and 2013 have been revised to reflect the current year presentation, resulting in an increase in net revenue and an increase in other operating expenses of $140 million during 2014 and $84 million during 2013. The aggregate net benefit from these programs was $170 million during 2015, $155 million during 2014, and $130 million during 2013. The aggregate net benefit pursuant to these programs is earned from multiple states and therefore no particular state’s portion is individually material to our consolidated financial statements. In addition, under various disproportionate share hospital payment programs and the Nevada state plan amendment program, we earned revenues of $46 million in 2015, $59 million in 2014, and $54 million in 2013.
Y) Recent Accounting Standards:
In November, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which eliminates the guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. The amendments require that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The amendments are effective for public business entities for annual fiscal years beginning after December 15, 2016. We do not expect the adoption of these amendments to have a material impact on our condensed consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” which changes the reporting requirement for retrospective adjustments to provisional amounts in the measurement period. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The revised guidance is effective for annual fiscal periods beginning after December 15, 2015. We do not expect the adoption of this revised guidance to have a material impact on our condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosures. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016; however, in July 2015, the FASB approved a one-year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. We are currently in the process of evaluating the impact of adoption of this ASU on our consolidated financial statements.
In August 2014, FASB issued ASU No. 2014-15, “Preparation of Financial Statements—Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (ASU 2014-15). Continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, “Presentation of Financial Statements—Liquidation Basis of Accounting”. Even
when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the new criteria in ASU 2014-15 should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We will evaluate the going concern considerations in this ASU.
In April and August 2015, the FASB issued ASU No. 2015-03 and ASU No. 2015-15, “Interest- Imputation of Interest,” respectively, to simplify the presentation of debt issuance costs. The standard requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the debt liability. The FASB clarified that debt issuance costs related to line-of-credit arrangements can be presented as an asset and amortized over the term of the arrangement. The guidance is effective for annual fiscal periods beginning after December 15, 2015. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.
Z) Foreign Currency Translation: Assets and liabilities of our U.K. subsidiaries are denominated in pound sterling and translated into U.S. dollars at: (i) the rates of exchange at the balance sheet date, and; (ii) average rates of exchange prevailing during the year for revenues and expenses. The currency translation adjustments are reported as a component of accumulated other comprehensive income.
- ACQUISITIONS AND DIVESTITURES
Year ended December 31, 2015:
2015 Acquisitions of Assets and Businesses:
During 2015 we spent $534 million to:
| · | acquire a 46-bed behavioral health care facility located in the U.K. (acquired during the first quarter); |
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| · | acquire Alpha Hospitals Holdings Limited consisting of four behavioral health care hospitals with 305 beds located in the U.K. (acquired during the third quarter); |
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| · | acquire Foundations Recovery Network, LLC consisting of 4 inpatient facilities (322 beds) as well as 8 outpatient centers (during the fourth quarter), and; |
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| · | various other businesses, a management contract and real property assets. |
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The aggregate net purchase price of the facilities was allocated to assets and liabilities based on their preliminary estimated fair values as follows:
| Amount (000s) | ||||
|---|---|---|---|---|
| Working capital, net | $ | (7,000 | ) | |
| Property & equipment | 116,000 | |||
| Goodwill | 319,000 | |||
| Other assets | 128,000 | |||
| Income tax assets, net of deferred tax liabilities | (22,000 | ) | ||
| Cash paid in 2015 for acquisitions | $ | 534,000 |
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. The vast majority of the goodwill resulting from these transactions is not deductible for federal income tax purposes (see Note 6. Income Taxes).
Other assets includes an indefinite lived tradename for $124 million recorded in connection with the Foundations acquisition.
Included in our consolidated net revenues for the year ended December 31, 2015 was an aggregate of approximately $30 million representing the net revenues generated at the newly acquired facilities from their respective dates of acquisition through December
31, 2015. The aggregate effect of the earnings generated by these facilities since the dates of acquisition, less the cost on the borrowings utilized to finance the acquisition, was not material to our 2015 net income attributable to UHS and net income attributable to UHS per diluted share.
Assuming the acquisitions occurred on January 1, 2015, our 2015 unaudited pro forma net revenues would have been approximately $9.17 billion and our unaudited pro forma net income attributable to UHS would have been approximately $690 million, or $6.85 per diluted share. Assuming the above-mentioned acquisitions occurred on January 1, 2014, our 2014 unaudited pro forma net revenues would have been approximately $8.35 billion and our unaudited pro forma net income attributable to UHS would have been approximately $545 million and $5.42 per diluted share.
2015 Divestiture of Assets and Businesses:
During 2015 we received $3 million in connection with the divestiture of a small operator of behavioral health care services.
Year ended December 31, 2014:
2014 Acquisitions of Assets and Businesses:
During 2014 we spent $431 million to:
| · | acquire the stock of Cygnet Health Care Limited (“Cygnet”) which consists of 17 facilities located throughout the United Kingdom including 15 inpatient behavioral health hospitals and 2 nursing homes with a total of 723 beds (during the third quarter); |
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| · | acquire and fund the required capital reserves related to Prominence Health Plan, a commercial health insurer headquartered in Reno, Nevada (during the second quarter); |
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| · | acquire the Psychiatric Institute of Washington, a 124-bed behavioral health care facility and outpatient treatment center located in Washington, D.C. (during the second quarter); |
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| · | acquire the operations of Palo Verde Behavioral Health, a 48-bed behavioral health facility in Tucson, Arizona (during the first quarter); |
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| · | acquire the real property of The Bridgeway, a 103-bed behavioral health care facility located in North Little Rock, Arkansas, that was previously leased from Universal Health Realty Income Trust (during the fourth quarter); |
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| · | acquire the previously leased real property of Cygnet Hospital-Harrow, a 44-bed behavioral health care facility located in the U.K., the operations of which were acquired as part of our acquisition of Cygnet (during the fourth quarter), and; |
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| · | acquire physician practices. |
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The aggregate net purchase price of the facilities was allocated to assets and liabilities based on their preliminary estimated fair values as follows:
| Amount (000s) | ||||
|---|---|---|---|---|
| Working capital, net | $ | (41,000 | ) | |
| Property & equipment | 174,000 | |||
| Goodwill | 250,000 | |||
| Other assets | 59,000 | |||
| Income tax assets, net of deferred tax liabilities | 4,000 | |||
| Debt | (16,000 | ) | ||
| Other | 1,000 | |||
| Cash paid in 2014 for acquisitions | $ | 431,000 |
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. The vast majority of the goodwill resulting from these transactions is not deductible for federal income tax purposes (see Note 6. Income Taxes).
Included in our consolidated net revenues for the year ended December 31, 2014 was an aggregate of approximately $175 million representing the net revenues generated at the Cygnet facilities, the commercial health insurer located in Reno, Nevada and the 124-bed behavioral health care facility and outpatient treatment center located in Washington, D.C., from their respective dates of acquisition through December 31, 2014. The aggregate effect of the earnings generated by these facilities since the dates of acquisition, less the cost on the borrowings utilized to finance the acquisition, was not material to our 2014 net income attributable to UHS and net income attributable to UHS per diluted share.
Assuming the acquisitions occurred on January 1, 2014, our 2014 unaudited pro forma net revenues would have been approximately $8.28 billion and our unaudited pro forma net income attributable to UHS would have been approximately $558 million, or $5.55 per diluted share. Assuming the above-mentioned acquisitions occurred on January 1, 2013, our 2013 unaudited pro forma net revenues would have been approximately $7.62 billion and our unaudited pro forma net income attributable to UHS would have been approximately $522 million and $5.25 per diluted share.
2014 Divestiture of Assets and Businesses:
During 2014 we received $15 million in connection with the divestiture of a non-operating investment (during the first quarter) and the real property of a closed behavioral health facility (during the second quarter).
Year ended December 31, 2013:
2013 Acquisitions of Assets and Businesses:
During 2013, we spent an aggregate of $13 million for the purchase of real property located in Pennsylvania, Nevada and Arizona. The aggregate net purchase price of these properties was allocated to property and equipment on our consolidated balance sheet.
2013 Divestiture of Assets and Businesses:
During 2013, we received an aggregate of $37 million in connection with the divestiture of Peak Behavioral Health Services (sold during the second quarter of 2013) and certain other assets and real property including three previously closed behavioral health care facilities. As discussed below in Discontinued Operations, we agreed to sell Peak Behavioral Health Services as part of our agreement with the Federal Trade Commission in connection with our acquisition of Ascend Health Corporation (“Ascend”) in October of 2012. The aggregate pre-tax gain on these divestitures was approximately $3 million and in included in our 2013 consolidated results of operations.
Discontinued Operations
There were no material divestitures during 2015 or 2014.
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 conditions, including the divestiture of Peak Behavioral Health Services (“Peak”), a 104-bed behavioral health care facility located in Santa Teresa, New Mexico. The divestiture of Peak was completed during the second quarter of 2013 for total cash proceeds of approximately $24 million resulting in a pre-tax gain of approximately $3 million which is included in our 2013 consolidated financial statements.
The following table shows the results of operations for Peak, which was reflected as discontinued operations during our period of ownership during 2013 (amounts in thousands). Since the aggregate income from discontinued operations before income tax expense is not material to our consolidated financial statements, it is included as a reduction to other operating expenses.
| 2013 | |||||
|---|---|---|---|---|---|
| Net revenues | $ | 7,813 | |||
| Income (loss) from discontinued operations, before income Taxes | 932 | ||||
| Gain on divestiture | 3,080 | ||||
| Income from discontinued operations, before income tax Expense | 4,012 | ||||
| Income tax expense | (1,506 | ) | |||
| Income from discontinued operations, net of income taxes | $ | 2,506 |
- FINANCIAL INSTRUMENTS
Fair Value Hedges:
During 2015, 2014 and 2013, 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 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 2015 and 2014 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. We do not anticipate nonperformance by our counterparties. We do not hold or issue derivative financial instruments for trading purposes.
Seven interest rate swaps on a total notional amount of $825 million matured in May, 2015. Four of these swaps, with a total notional amount of $600 million, became effective in December, 2011 and provided that we receive three-month LIBOR while the average fixed rate payable was 2.38%. The remaining three swaps, with a total notional amount of $225 million, became effective in March, 2011 and provided that we receive three-month LIBOR while the average fixed rate payable was 1.91%.
During 2015, we entered into nine forward starting interest rate swaps whereby we pay a fixed rate on a total notional amount of $1.0 billion and receive one-month LIBOR. The average fixed rate payable on these swaps, which are scheduled to mature on April 15, 2019, is 1.31%. These interest rates swaps consist of:
·Four forward starting interest rate swaps, entered into during the second quarter of 2015, whereby we pay a fixed rate on a total notional amount of $500 million and receive one-month LIBOR. Each of the four swaps became effective on July 15, 2015 and are scheduled to mature on April 15, 2019. The average fixed rate payable on these swaps is 1.40%;
·Four forward starting interest rate swaps, entered into during the third quarter of 2015, whereby we pay a fixed rate on a total notional amount of $400 million and receive one-month LIBOR. One swap on a notional amount of $100 million became effective on July 15, 2015, two swaps on a total notional amount of $200 million became effective on September 15, 2015 and another swap on a notional amount of $100 million became effective on December 15, 2015. All of these swaps are scheduled to mature on April 15, 2019. The average fixed rate payable on these four swaps is 1.23%, and;
·One interest rate swap, entered into during the fourth quarter of 2015, whereby we pay a fixed rate on a total notional amount of $100 million and receive one-month LIBOR. The swap became effective on December 15, 2015 and is scheduled to mature on April 15, 2019. The fixed rate payable on this swap is 1.21%.
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from our counterparties. 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. At December 31, 2015, the fair value of our interest rate swaps was a net liability of $1 million comprised of a $5 million asset which is included in other assets offset by a $6 million liability which is included in other current liabilities on the accompanying balance sheet. At December 31, 2014, the fair value of our interest rate swaps was a liability of $6 million, all of which is included in other current liabilities.
- LONG-TERM DEBT
A summary of long-term debt follows:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||||
| (amounts in thousands) | ||||||||
| Long-term debt: | ||||||||
| Notes payable and Mortgages payable (including obligations under capitalized leases of $24,900 in 2015 and $21,600 in 2014) and term loans with varying maturities through 2027; weighted average interest rates of 6.8% in 2015 and 6.4% in 2014 (see Note 7 regarding capitalized leases) | $ | 27,513 | $ | 41,257 | ||||
| Revolving credit and on-demand credit facility | 304,900 | 140,500 | ||||||
| Term Loan A, net of unamortized discount of $1,593 in 2015 and $2,035 in 2014 | 1,717,940 | 1,761,872 | ||||||
| Revenue bonds, interest at floating rates of 0.05% at December 31, 2014 | — | 5,300 | ||||||
| Accounts receivable securitization program | 400,000 | 330,000 | ||||||
| 3.75% Senior Secured Notes due 2019, net of unamortized discount of $155 in 2015 and $198 in 2014 | 299,845 | 299,802 | ||||||
| 4.75% Senior Secured Notes due 2022, net of unamortized discount of $177 in 2015 and $204 in 2014 | 299,823 | 299,796 | ||||||
| 7.125% Senior Secured Notes due 2016, including unamortized net premium of $4 in 2015 and $7 in 2014 | 400,004 | 400,007 | ||||||
| Total debt | 3,450,025 | 3,278,534 | ||||||
| Less-Amounts due within one year | (62,722 | ) | (68,319 | ) | ||||
| Long-term debt | $ | 3,387,303 | $ | 3,210,215 |
During the third quarter of 2014, we completed the following financing transactions:
| · | On August 7, 2014, we entered into a Fourth Amendment (the “Fourth Amendment”) to our credit agreement dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012 and May 16, 2013, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders (“Credit Agreement”). The Credit Agreement, as amended, which is scheduled to mature in August, 2019, consists of: (i) an $800 million revolving credit facility ($300 million of borrowings outstanding as of December 31, 2015), and; (ii) a $1.775 billion term loan A facility ($1.720 billion of borrowings outstanding as of December 31, 2015) which combined our previously outstanding term loan A and term loan A2 facilities which were scheduled to mature in 2016; |
|---|
| · | Repaid $550 million of outstanding borrowings pursuant to our previously outstanding term loan B facility which was scheduled to mature in 2016; |
|---|
| · | Increased the borrowing capacity on our existing accounts receivable securitization program (“Securitization”) to $360 million from $275 million, effective August 1, 2014. In December, 2015, the Securitization was amended to increase the borrowing capacity to $400 million and extend the scheduled maturity date to December 21, 2018; |
|---|
| · | Issued $300 million aggregate principal amount of 3.750% senior secured notes due in 2019 (see below for additional disclosure); |
|---|
| · | Issued $300 million aggregate principal amount of 4.750% senior secured notes due in 2022 (see below for additional disclosure); |
|---|
| · | Redeemed our previously outstanding $250 million, 7.00% senior unsecured notes due in 2018 on July 31, 2014 for an aggregate price equal to 104.56% of the principal amount. |
|---|
In connection with these transactions, our 2014 results of operations included a $36 million pre-tax charge incurred for the costs related to the extinguishment of debt. This charge consisted of the write-off of deferred charges ($20 million) and original issue discount on the extinguished debt ($5 million) as well as the make-whole premium paid ($11 million) on the early redemption of the $250 million, 7.00% senior unsecured notes.
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 LIBOR 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 and term loan-A borrowings, or (2) the one, two, three or six month LIBOR 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 and term loan-A borrowings. As of December 31, 2015, the applicable margins were 0.50% for ABR-based loans and 1.50% for LIBOR-based loans under the revolving credit and term loan-A facilities.
As of December 31, 2015, we had $300 million of borrowings outstanding pursuant to the terms of our $800 million revolving credit facility and we had $461 million of available borrowing capacity, net of $5 million of outstanding borrowings pursuant to a short-term, on-demand credit facility and $34 million of outstanding letters of credit. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is secured by certain assets of the Company (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, certain real estate assets and assets held in joint-ventures with third-parties) and our material subsidiaries and guaranteed by our material subsidiaries.
Pursuant to the terms of the Credit Agreement, term loan-A quarterly installment payments of approximately: (i) $11 million commenced during the fourth quarter of 2014 and are scheduled to continue through September, 2016, and; (ii) $22 million are scheduled from the fourth quarter of 2016 through June, 2019.
As discussed above, in December, 2015, our Securitization with a group of conduit lenders and liquidity banks was amended to increase the borrowing capacity to $400 million from $360 million and extend the scheduled maturity date to December 21, 2018. Substantially all of the patient-related accounts receivable of our acute care hospitals (“Receivables”) serve as collateral for the outstanding borrowings. We have accounted for this Securitization as borrowings. We maintain effective control over the Receivables since, pursuant to the terms of 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, 2015, we had $400 million of outstanding borrowings and no additional capacity pursuant to the terms of our accounts receivable securitization program.
On August 7, 2014, we issued $300 million aggregate principal amount of 3.750% Senior Secured Notes due 2019 (the “2019 Notes”) and $300 million aggregate principal amount of 4.750% Senior Secured Notes due 2022 (the “2022 Notes”, and together with the 2019 Notes, the “New Senior Secured Notes”). The New Senior Secured Notes were offered only to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The New Senior Secured Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Interest is payable on the New Senior Secured Notes on February 1 and August 1 of each year to the holders of record at the close of business on the January 15 and July 15 immediately preceding the related interest payment dates, commencing on February 1, 2015 until the maturity date of August 1, 2019 for the 2019 Notes and August 1, 2022 for the 2022 Notes.
On June 30, 2006, we issued $250 million of senior secured 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. Since we have the ability and intent to refinance the 7.125% Notes on or before the scheduled maturity date (June 30, 2016) either through the issuance of new long-term notes, a new long-term debt facility, or utilizing funds borrowed pursuant to our revolving credit facility, the 7.125% Notes are classified as long-term on our Consolidated Balance Sheet as of December 31, 2015.
On July 31, 2014, we redeemed the $250 million, 7.00% senior unsecured notes (the “Unsecured Notes”), which were scheduled to mature on October 1, 2018, at a redemption price equal to 104.56% of the principal amount of the Unsecured Notes resulting in a make-whole premium payment of approximately $11 million. The Unsecured Notes were issued on September 29, 2010 and
registered in April, 2011. Interest on the Unsecured Note was payable semiannually in arrears on April 1st and October 1st of each year.
In connection with entering into the previous 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) 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 each of years 2015, 2014 and 2013 under the current and prior Credit Agreements, demand notes and accounts receivable securitization programs was $2.1 billion, $2.4 billion and $2.9 billion, respectively, with corresponding interest rates of 1.7%, 1.8% and 2.2%, respectively, including commitment and facility fees. The maximum amounts outstanding at any month-end were $2.3 billion in 2015, $2.7 billion in 2014 and $3.0 billion in 2013. 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 2.4% in 2015, 3.1% in 2014 and 3.6% in 2013.
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, liens and indebtedness, transactions with affiliates, dividends and stock repurchases; 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, 2015.
At December 31, 2015, the carrying value and fair value of our debt were each approximately $3.5 billion. At December 31, 2014, the carrying value and fair value of our debt were each approximately $3.3 billion. 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.
The aggregate scheduled maturities of our total debt outstanding as of December 31, 2015 are as follows:
| (000s) | ||||
|---|---|---|---|---|
| 2016 | $ | 62,722 | ||
| 2017 | 91,254 | |||
| 2018 | 491,514 | |||
| 2019 | 2,486,965 | |||
| 2020 | 1,650 | |||
| Later | 315,920 | |||
| Total | $ | 3,450,025 |
- COMMON STOCK
Dividends
Cash dividends of $0.40 per share ($39.5 million in the aggregate) were declared and paid during 2015, $0.30 per share ($29.7 million in the aggregate) were declared and paid during 2014, and $.20 per share ($19.6 million in the aggregate) were declared and paid during 2013. All classes of our common stock have similar economic rights.
Stock Repurchase Programs
In July, 2014, our Board of Directors authorized a stock repurchase program whereby, from time to time as conditions allow, we may spend up to $400 million to purchase shares of our Class B Common Stock on the open market at prevailing market prices or in negotiated private transactions. There is no expiration date for our stock repurchase programs.
The following schedule provides information related to our stock repurchase program for each of the three years ended December 31, 2015. During 2015, 1,326,207 shares ($166.2 million) were repurchased pursuant to the terms of our stock repurchase program and 493,296 shares ($58.0 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants. During 2014, 548,192 shares ($58.0 million in the aggregate) were repurchased pursuant to the terms of our stock repurchase program and 480,972 shares ($42.7 million in the aggregate) were repurchased in connection with income tax withholding obligations resulting from the exercise of stock options
and the vesting of restricted stock grants. No shares were repurchased during 2013 pursuant to publicly announced stock repurchase programs and 427,170 shares ($27.2 million in the aggregate) were repurchased in connection with income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants.
| Additional dollars authorized for repurchase (in thousands) | Total number of shares purchased | Total number of shares cancelled | Average price paid per share for forfeited restricted shares | Total number of shares purchased as part of publicly announced programs | Average price pad per share for shares purchased as part of publicly announced program | Aggregate purchase price paid (in thousands) | Aggregate purchase price paid for shares purchased as part of publicly announced program | Maximum number of shares that may yet be purchased under the program | Maximum number of dollars that may yet be purchased under the program (in thousands) | |||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2013 | 767,704 | N/A | ||||||||||||||||||||||||||||||||||||
| 2013 | — | 427,170 | — | N/A | — | N/A | $ | 27,201 | N/A | 767,704 | N/A | |||||||||||||||||||||||||||
| 2014 | 400,000 | 1,029,164 | 767,704 | N/A | 548,192 | $ | 105.71 | $ | 100,749 | $ | 57,950 | N/A | $ | 342,050 | ||||||||||||||||||||||||
| 2015 | $ | — | 1,819,503 | — | N/A | 1,326,207 | $ | 125.34 | $ | 224,260 | $ | 166,222 | N/A | $ | 175,828 | |||||||||||||||||||||||
| Total for three year period ended December 31, 2015 | $ | 400,000 | 3,275,837 | 767,704 | N/A | 1,874,399 | $ | 119.60 | $ | 352,210 | $ | 224,172 |
Stock-based Compensation Plans
At December 31, 2015, 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.
Pre-tax compensation costs of $38.0 million during 2015, $29.2 million during 2014 and $25.8 million during 2013 were recognized related to outstanding stock options. In addition, pre-tax compensation costs of $2.0 million during 2015, $1.9 million during 2014 and $2.0 million during 2013 were recognized related to amortization of restricted stock and discounts provided in connection with shares purchased pursuant to our 2005 Employee Stock Purchase Plan. As of December 31, 2015, there was approximately $67.7 million of unrecognized compensation cost related to unvested stock options and restricted stock which is expected to be recognized over the remaining average vesting period of 2.7 years.
The expense associated with stock-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, stock-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $40.0 million in 2015, $31.1 million in 2014 and $27.8 million in 2013. In accordance with ASC 718, excess income tax benefits related to stock-based compensation are classified as cash inflows from financing activities on the Consolidated Statement of Cash Flows. During 2015, 2014 and 2013 we generated $47.4 million, $33.9 million and $20.1 million, respectively, of excess income tax benefits related to stock based compensation which are reflected as cash inflows from financing activities in our Consolidated Statements of Cash Flows, as included herein.
In 2005, we adopted the 2005 Stock Incentive Plan which was amended in 2008, 2010 and 2015 (the “Stock Incentive Plan”). An aggregate of 29.5 million shares of Class B Common Stock has been reserved under the Stock Incentive Plan. During 2015, 2014 and 2013, stock options, net of cancellations, of approximately 2.9 million, 2.8 million and 2.6 million, respectively, were granted. The per option weighted-average grant-date fair value of options granted during 2015, 2014 and 2013 was $21.37, $17.23 and $13.33, respectively. Stock options to purchase Class B Common Stock have been granted to our officers, key employees and members of our Board of Directors. 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. As of December 31, 2015, approximately 6.9 million shares of Class B Common Stock remain available for issuance pursuant to the Stock Incentive Plan.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were derived from averaging the number of options granted during the most recent five-year period. The weighted-average assumptions reflected below were based upon twenty-five option grants for the five-year period ending December 31, 2015, twenty-one option grants for the five-year period ending December 31, 2014 and eighteen option grants for the five-year period ended December 31, 2013.
| Year Ended December 31, | 2015 | 2014 | 2013 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Volatility | 33 | % | 35 | % | 36 | % | ||||||
| Interest rate | 1 | % | 1 | % | 1 | % | ||||||
| Expected life (years) | 3.4 | 3.4 | 3.6 | |||||||||
| Forfeiture rate | 10 | % | 10 | % | 11 | % | ||||||
| Dividend yield | 0.4 | % | 0.4 | % | 0.5 | % |
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 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, 2013 | 7,436,238 | $ | 36.31 | $54.79-$16.22 | ||||||
| Granted | 2,889,750 | $ | 53.51 | $79.79-$53.38 | ||||||
| Exercised | (2,288,666 | ) | $ | 32.27 | $54.79-$16.22 | |||||
| Cancelled | (416,364 | ) | $ | 43.93 | $53.38-$16.22 | |||||
| Balance, January 1, 2014 | 7,620,958 | $ | 43.63 | $79.79-$30.32 | ||||||
| Granted | 2,845,500 | $ | 78.65 | $102.21-$78.17 | ||||||
| Exercised | (2,277,469 | ) | $ | 38.50 | $73.65-$30.32 | |||||
| Cancelled | (291,538 | ) | $ | 55.63 | $78.17-$36.95 | |||||
| Balance, January 1, 2015 | 7,897,451 | $ | 57.29 | $102.21-$36.95 | ||||||
| Granted | 3,039,350 | $ | 117.70 | $142.43-$108.29 | ||||||
| Exercised | (2,256,454) | $ | 48.97 | $102.21-$36.95 | ||||||
| Cancelled | (280,164) | $ | 83.63 | $134.70-$36.95 | ||||||
| Balance, December 31, 2015 | 8,400,183 | $ | 80.50 | $142.43-$36.95 | ||||||
| Outstanding options vested and exercisable as of December 31, 2015 | 1,671,216 | $ | 52.19 | $102.21-$36.95 |
The following table provides information about unvested options for the year December 31, 2015:
| Shares | Weighted Average Grant Date Fair Value | |||||||
|---|---|---|---|---|---|---|---|---|
| Unvested options as of January 1, 2015 | 6,485,029 | $ | 14.36 | |||||
| Granted | 3,039,350 | $ | 21.37 | |||||
| Vested | (2,515,248 | ) | $ | 13.38 | ||||
| Cancelled | (280,164 | ) | $ | 17.36 | ||||
| Unvested options as of December 31, 2015 | 6,728,967 | $ | 17.77 |
The following table provides information regarding all options outstanding at December 31, 2015:
| Options Outstanding | Options Exercisable | |||||||
|---|---|---|---|---|---|---|---|---|
| Number of options outstanding | 8,400,183 | 1,671,216 | ||||||
| Weighted average exercise price | $ | 80.50 | $ | 52.19 | ||||
| Aggregate intrinsic value as of December 31, 2015 | $ | 328,564,543 | $ | 112,466,544 | ||||
| Weighted average remaining contractual life | 3.0 | 1.9 |
The total in-the-money value of all stock options exercised during the years ended December 31, 2015, 2014 and 2013 were $154.1 million, $112.5 million and $70.9 million, respectively.
The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 2015 were as follows:
| Exercise Price | Options Outstanding | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | Exercisable Options | Weighted Average Exercise Price Per Share | Expected to Vest Options (a) | Weighted Average Exercise Price Per Share | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Shares | Shares | ||||||||||||||||||||||||||
| $36.95 – $46.97 | 1,298,145 | $ | 37.13 | 1.0 | 717,517 | $ | 37.25 | 574,626 | $ | 36.97 | ||||||||||||||||||
| $53.38 – $73.65 | 1,805,950 | 53.49 | 2.0 | 571,450 | 53.45 | 1,098,889 | 53.50 | |||||||||||||||||||||
| $78.17 – $96.98 | 2,321,238 | 78.31 | 3.2 | 380,249 | 78.25 | 1,295,612 | 78.34 | |||||||||||||||||||||
| $102.21 – $142.43 | 2,974,850 | 117.54 | 4.2 | 2,000 | 102.21 | 1,980,776 | 117.52 | |||||||||||||||||||||
| Total | 8,400,183 | $ | 80.50 | 3.0 | 1,671,216 | $ | 52.19 | 4,949,903 | $ | 88.86 |
| (a) | Assumes a weighted average forfeiture rate of 9.95%. |
|---|
In addition to the Stock Incentive Plan, we have the following stock incentive and purchase plans: (i) the 2010 Employees’ Restricted Stock Purchase Plan, as amended in 2015, (“2010 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 17,789, 26,189 and 10,000 and shares of restricted stock granted pursuant to the 2010 Plan during 2015, 2014 and 2013, respectively, with various ratable vesting periods ranging up to five years from the date of grant. There were 68,213, 75,303 and 90,587 and shares issued pursuant to the Employee Stock Purchase Plan during 2015, 2014 and 2013, respectively.
We have reserved 2.8 million shares of Class B Common Stock for issuance under these various plans (excluding terminated plans and including a reserve reduction during 2015) and have issued approximately 1.3 million shares, net of cancellations, pursuant to the terms of these plans (excluding terminated plans) as of December 31, 2015. As of December 31, 2015, approximately 1.5 million shares of Class B Common Stock remain available for issuance pursuant to these various plans.
At December 31, 2015, 24,056,061 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.
- INCOME TAXES
Components of income tax expense/(benefit) are as follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Current | ||||||||||||
| Federal | $ | 363,734 | $ | 248,172 | $ | 256,545 | ||||||
| Foreign | 3,151 | 4,167 | 1,655 | |||||||||
| State | 38,987 | 23,224 | 28,490 | |||||||||
| 405,872 | 275,563 | 286,690 | ||||||||||
| Deferred | ||||||||||||
| Federal | (15,912 | ) | 41,583 | 25,341 | ||||||||
| Foreign | 5,545 | — | — | |||||||||
| State | (302 | ) | 7,525 | 3,278 | ||||||||
| (10,669 | ) | 49,108 | 28,619 | |||||||||
| Total | $ | 395,203 | $ | 324,671 | $ | 315,309 |
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, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||||
| Deferred income tax assets: | ||||||||
| Self-insurance reserves | $ | 88,401 | $ | 84,915 | ||||
| Compensation accruals | 66,399 | 55,788 | ||||||
| State and foreign net operating loss carryforwards and other state and foreign deferred tax assets | 62,541 | 60,521 | ||||||
| Other currently non-deductible accrued liabilities | 17,213 | 16,739 | ||||||
| Net pension liability—OCI only | 10,929 | 11,746 | ||||||
| Doubtful accounts and other reserves | 29,616 | 18,428 | ||||||
| Other combined items—OCI only | 457 | 2,615 | ||||||
| 275,556 | 250,752 | |||||||
| Less: Valuation Allowance | (52,567 | ) | (52,764 | ) | ||||
| Net deferred income tax assets: | 222,989 | 197,988 | ||||||
| Deferred income tax liabilities: | ||||||||
| Depreciable and amortizable assets | (400,809 | ) | (362,674 | ) | ||||
| Other deferred tax liabilities | (2,960 | ) | (2,963 | ) | ||||
| Net deferred income tax liabilities | $ | (180,780 | ) | $ | (167,649 | ) |
Increases in deferred tax assets relating to foreign net operating loss carryforwards reflect the impact of deferred taxes recorded in conjunction with the acquisition of 5 additional behavioral health care facilities located in the U.K. during 2015. Increases in deferred tax liabilities relating to depreciable and separately identifiable intangible assets primarily reflect the impact of deferred taxes recorded in conjunction with the acquisition of Foundations Recovery Network, LLC (“Foundations”).
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, 2015, 2014 and 2013 (dollar amounts in thousands):
| 2015 | 2014 | 2013 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Provision for income taxes | $ | 395,203 | $ | 324,671 | $ | 315,309 | ||||||
| Income before income taxes | 1,145,901 | 929,667 | 869,332 | |||||||||
| Effective tax rate | 34.5 | % | 34.9 | % | 36.3 | % |
Impacting the effective tax rates during 2015, 2014 and 2013 were favorable discrete tax items of approximately $1 million recorded during each year to adjust the estimated liabilities for uncertain tax positions.
The foreign provision for income taxes is based on foreign pre-tax earnings of $41 million in 2015, $15 million in 2014 and $6 million in 2013. Our consolidated financial statements provide for any related tax liability on undistributed earnings that we do not intend to be indefinitely reinvested outside the U.S. Certain of our undistributed international earnings intended to be indefinitely reinvested in operations outside the U.S. have a statutory rate of 20.25%. As of December 31, 2015, U.S. income taxes have not been provided on a cumulative total of $53 million of such earnings. The amount of unrecognizable deferred tax liability related to these temporary differences is estimated to be approximately $8 million.
A reconciliation between the federal statutory rate and the effective tax rate is as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State taxes, net of federal income tax benefit | 2.3 | % | 2.3 | % | 2.5 | % | ||||||
| Divestiture gain | 0.0 | % | 0.0 | % | 0.3 | % | ||||||
| Other items | -0.6 | % | 0.0 | % | 0.4 | % | ||||||
| Impact of income attributable to noncontrolling interests | -2.2 | % | -2.4 | % | -1.9 | % | ||||||
| Effective tax rate | 34.5 | % | 34.9 | % | 36.3 | % |
Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal, foreign, and state income taxes amounting to approximately $42 million and $17 million as of December 31, 2015 and 2014, respectively.
The net deferred tax assets and liabilities are comprised as follows (amounts in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||||
| Current deferred taxes | ||||||||
| Assets | $ | 135,120 | $ | 115,870 | ||||
| Liabilities | — | (1,305 | ) | |||||
| Total deferred taxes-current | 135,120 | 114,565 | ||||||
| Noncurrent deferred taxes | ||||||||
| Assets | 92,383 | 85,792 | ||||||
| Liabilities | (408,283 | ) | (368,006 | ) | ||||
| Total deferred taxes-noncurrent | (315,900 | ) | (282,214 | ) | ||||
| Total deferred tax liabilities | $ | (180,780 | ) | $ | (167,649 | ) |
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, 2015, state net operating loss carryforwards (expiring in years 2016 through 2035), and credit carryforwards available to offset future taxable income approximated $1.08 billion representing approximately $53 million in deferred state tax benefit (net of the federal benefit). At December 31, 2015, there were foreign net operating loss carryforwards of approximately $20 million expiring through 2023 representing approximately $5 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 $51 million and $50 million have been reflected as of December 31, 2015 and 2014, respectively. During 2015, the valuation allowance on these state tax benefits increased by $1 million due to additional net operating losses incurred. In addition, valuation allowances of approximately $2 million and $3 million have been reflected as of December 31, 2015 and 2014 related to foreign net operating losses. There were no significant increases in valuation allowances as a result of the acquisition of Foundations.
We adopted the provisions of Accounting for Uncertainty in Income Taxes effective January 1, 2007. During 2015 and 2014, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased less than $1 million due to tax positions taken in the current and prior years. During 2015, 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, 2015 and 2014, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $1 million and $2 million, respectively.
We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2015 and 2014, we have accrued interest and penalties of less than $1 million as of each date. The U.S. federal statute of limitations remains open for the 2012 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, 2015, 2014 and 2013 is as follows (amounts in thousands).
| As of December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | ||||||||||
| Balance at January 1, | $ | 2,402 | $ | 3,369 | $ | 6,824 | ||||||
| Additions based on tax positions related to the current year | 50 | 50 | 50 | |||||||||
| Additions for tax positions of prior years | 111 | 195 | 283 | |||||||||
| Reductions for tax positions of prior years | (524 | ) | (1,212 | ) | (1,260 | ) | ||||||
| Settlements | (57 | ) | — | (2,528 | ) | |||||||
| Balance at December 31, | $ | 1,982 | $ | 2,402 | $ | 3,369 |
- LEASE COMMITMENTS
Three of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with terms expiring in 2016 (see Note 9 for additional disclosure). We also lease the real property of certain facilities (see Item 2. Properties for additional disclosure).
A summary of property under capital lease follows (amounts in thousands):
| As of December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||||
| Land, buildings and equipment | $ | 45,665 | $ | 40,782 | ||||
| Less: accumulated amortization | (27,169 | ) | (27,556 | ) | ||||
| $ | 18,496 | $ | 13,226 |
Future minimum rental payments under lease commitments with a term of more than one year as of December 31, 2015, are as follows (amounts in thousands):
| Year | Capital Leases | Operating Leases | ||||||
|---|---|---|---|---|---|---|---|---|
| (000s) | ||||||||
| 2016 | $ | 3,849 | $ | 64,049 | ||||
| 2017 | 3,929 | 42,989 | ||||||
| 2018 | 4,061 | 35,447 | ||||||
| 2019 | 3,996 | 29,721 | ||||||
| 2020 | 3,339 | 21,487 | ||||||
| Later years | 22,055 | 137,692 | ||||||
| Total minimum rental | $ | 41,229 | $ | 331,385 | ||||
| Less: Amount representing interest | (16,316 | ) | ||||||
| Present value of minimum rental commitments | 24,913 | |||||||
| Less: Current portion of capital lease obligations | (1,557 | ) | ||||||
| Long-term portion of capital lease obligations | $ | 23,356 |
During 2015 and 2014, we assumed capital lease obligations of approximately $7 million and $16 million, respectively, in connection with the leases on certain real estate assets. We incurred no capital lease obligations during 2013. In the ordinary course of business, our facilities routinely lease equipment pursuant to new lease arrangements that will likely result in future lease and rental expense in excess of amounts indicated above.
- COMMITMENTS AND CONTINGENCIES
Professional and General Liability, Workers’ Compensation Liability and Property Insurance
Professional and General Liability and Workers Compensation Liability:
Effective November, 2010, excluding certain subsidiaries acquired since 2010 as discussed below, the vast majority of our subsidiaries are self-insured for professional and general liability exposure up to $10 million and $3 million per occurrence, respectively. Our 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 $250 million per occurrence and in the aggregate for claims incurred in 2015 and 2014 and up to $200 million per occurrence and in the aggregate for claims incurred from 2011 through 2013. 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.
Since our acquisition of Psychiatric Solutions, Inc. (“PSI”) in November, 2010, the former PSI subsidiaries are self-insured for professional and general liability exposure up to $3 million per occurrence. The nine behavioral health facilities acquired from Ascend Health Corporation (“Ascend”) in October, 2012 have general and professional liability policies through commercial insurance carriers which provide for up to $12 million of aggregate coverage, subject to a $100,000 per occurrence deductible. The 21 behavioral health care facilities located in the U.K. have policies through a commercial insurance carrier located in the U. K. that provides for £10 million of professional liability coverage and £25 million of general liability coverage. The facilities acquired from PSI, Ascend and the facilities located in the U.K., like our other facilities, are also provided excess coverage through commercial insurance carriers for coverage in excess of the underlying commercial policy limitations, as mentioned above.
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, 2015, the total accrual for our professional and general liability claims was $204 million, of which $48 million is included in current liabilities. As of December 31, 2014, the total accrual for our professional and general liability claims was $193 million, of which $51 million is included in current liabilities.
Below is a schedule showing the changes in our general and professional liability and workers’ compensation reserves during the three years ended December 31, 2015 (amount in thousands):
| General and | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Professional | Workers’ | |||||||||||
| Liability | Compensation | Total | ||||||||||
| Balance at January 1, 2013 | $ | 278,599 | $ | 65,954 | $ | 344,553 | ||||||
| Plus: Accrued insurance expense, net of commercial premiums paid (a) | (35,182 | ) | 31,361 | (3,821 | ) | |||||||
| Less: Payments made in settlement of self-insured claims | (37,127 | ) | (33,517 | ) | (70,644 | ) | ||||||
| Balance at January 1, 2014 | 206,290 | 63,798 | 270,088 | |||||||||
| Plus: Accrued insurance expense, net of commercial premiums paid (a) | 22,601 | 36,675 | 59,276 | |||||||||
| Less: Payments made in settlement of self-insured claims | (35,987 | ) | (33,659 | ) | (69,646 | ) | ||||||
| Balance at January 1, 2015 | 192,904 | 66,814 | 259,718 | |||||||||
| Plus: Accrued insurance expense, net of commercial premiums paid | 58,460 | 32,435 | 90,895 | |||||||||
| Less: Payments made in settlement of self-insured claims | (47,391 | ) | (31,746 | ) | (79,137 | ) | ||||||
| Balance at December 31, 2015 | $ | 203,973 | $ | 67,503 | $ | 271,476 |
| (a) | General and professional liability amounts are net of adjustments recorded during 2014 and 2013, as discussed below. |
|---|
The adjustments recorded during 2015 to our prior year reserves for professional and general liability claims did not have a material impact on our 2015 consolidated results of operations. We recorded reductions to our professional and general liability self-insurance reserves (relating to prior years) amounting to $20 million during 2014, and $81 million during 2013. The favorable change recorded during 2014 resulted from favorable changes in our estimated future claims payments pursuant to a reserve analysis. The favorable change in our estimated future claims payments recorded during 2013, relating to years prior to 2013, were due primarily to: (i) an increased weighting given to company-specific metrics (to 100% from 75%), and decreased general industry metrics (to 0% from 25%), 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.
As of December 31, 2015, the total accrual for our workers’ compensation liability claims was $68 million, of which $34 million is included in current liabilities. As of December 31, 2014, the total accrual for our workers’ compensation liability claims was $67 million, of which $32 million is included in current liabilities. The adjustments recorded during the last three years to our prior year reserves for workers’ compensation claims did not have a material impact on our consolidated results of operations for the years ended December 31, 2015, 2014 or 2013.
Although we are unable to predict whether or not our future financial statements will include adjustments to our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of the these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.
Property Insurance:
We have commercial property insurance policies for our properties covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit per occurrence, subject to a deductible ranging from $50,000 to $250,000 per occurrence. 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, subject to a $25,000 deductible. Non-critical flood losses have either a $250,000 or $500,000 deductible, based upon the location of the facility. Since certain of our facilities have been designated by our insurer as flood prone, we have elected to purchase policies from The National Flood Insurance Program to cover a substantial portion of the applicable deductible. Property insurance for the facilities acquired from Cygnet are provided on an all risk basis up to a £180 million limit that includes coverage for real and personal property as well as business interruption losses.
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 various government investigations, regulatory matters and litigation, as outlined below.
Office of Inspector General (“OIG”) and Government Investigations:
In February, 2013, the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) served a subpoena requesting various documents from January, 2008 to the date of the subpoena directed at Universal Health Services, Inc. (“UHS”) concerning it and UHS of Delaware, Inc., and certain UHS owned behavioral health 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 DOJ of its intent to proceed with an investigation following requests for documents for the period of January, 2007 to the date of the subpoenas 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 date of the subpoena, and; (iii) The Meadows Psychiatric Center received a subpoena from the OIG in February, 2013 requesting certain documents from 2008 to the date of the subpoena. Unrelated to these matters, the Keys of Carolina was closed and the real property was sold in January, 2013. We were advised that a qui tam action had been filed against Roxbury Treatment Center but the government declined to intervene and the case was dismissed.
In April, 2013, the OIG served facility specific subpoenas on Wekiva Springs Center and River Point Behavioral Health requesting various documents from January, 2005 to the date of the subpoenas. In July, 2013, another subpoena was issued to Wekiva Springs Center and River Point Behavioral Health requesting additional records. In October, 2013, we were advised by the DOJ’s Criminal Frauds Section that they received a referral from the DOJ Civil Division and opened an investigation of River Point Behavioral Health and Wekiva Springs Center. Subsequent subpoenas have since been issued to River Point Behavioral Health and Wekiva Springs Center requesting additional documentation. In April, 2014, the Centers for Medicare and Medicaid Services (“CMS”) instituted a Medicare payment suspension at River Point Behavioral Health in accordance with federal regulations regarding suspension of payments during certain investigations. The Florida Agency for Health Care Administration subsequently issued a Medicaid payment suspension for the facility. River Point Behavioral Health submitted a rebuttal statement disputing the basis of the suspension and requesting revocation of the suspension. Notwithstanding, CMS continued the payment suspension. River Point Behavioral Health provided additional information to CMS in an effort to obtain relief from the payment suspension but the suspension remains in effect. In August, 2015, we received notification from CMS that, effective September, 2015, the payment suspension will be continued for another 180 days. We cannot predict if and/or when the facility’s suspended payments will resume. Although the operating results of River Point Behavioral Health did not have a material impact on our consolidated results of operations during the years ended December 31, 2015 or 2014, the payment suspension has had a material adverse effect on the facility’s results of operations and financial condition.
In June, 2013, the OIG served a subpoena on Coastal Harbor Health System in Savannah, Georgia requesting documents from January, 2009 to the date of the subpoena.
In February, 2014, we were notified that the investigation conducted by the Criminal Frauds Section had been expanded to include the National Deaf Academy. In March, 2014, a Civil Investigative Demand (“CID”) was served on the National Deaf Academy requesting documents and information from the facility from January 1, 2008 through the date of the CID. We have been advised by the government that the National Deaf Academy has been added to the facilities which are the subject of the coordinated investigation referenced above.
In March, 2014, CIDs were served on Hartgrove Hospital, Rock River Academy and Streamwood Behavioral Health requesting documents and information from those facilities from January, 2008 through the date of the CID.
In September, 2014, the DOJ Civil Division advised us that they were expanding their investigation to include four additional facilities and were requesting production of documents from these facilities. These facilities are Arbour-HRI Hospital, Behavioral Hospital of Bellaire, St. Simons by the Sea, and Turning Point Care Center.
In December, 2014, the DOJ Civil Division requested that Salt Lake Behavioral Health produce documents responsive to the original subpoenas issued in February, 2013.
In March, 2015, the OIG issued subpoenas to Central Florida Behavioral Hospital and University Behavioral Center requesting certain documents from January, 2008 to the date of the subpoena.
In late March, 2015, we were notified that the investigation conducted by the Criminal Frauds Section had been expanded to include UHS as a corporate entity arising out of the coordinated investigation of the facilities described above and, in particular, Hartgrove Hospital.
In December, 2015, we were notified by the DOJ Civil Division that the civil investigation also includes Arbour Hospital, Arbour-Fuller Hospital, Pembroke Hospital and Westwood Lodge located in Massachusetts. To date, these facilities have not received any requests for documentation or other information.
The DOJ has advised us that the civil aspect of the coordinated investigation referenced above is a False Claim Act investigation focused on billings submitted to government payers in relation to services provided at those facilities. At present, we are uncertain as to potential liability and/or financial exposure of the Company and/or named facilities, if any, in connection with these matters.
In December, 2015, we were advised that the DOJ opened an investigation involving the El Paso Behavioral Health System in El Paso, Texas. The DOJ is investigating potential Stark law violations relating to arrangements between the facility and physician(s) at the facility. These agreements were entered into before we acquired the facility as a part of our acquisition of Ascend Health Corporation in October, 2012. To our knowledge, this matter is not a part of the omnibus investigation referenced above. At present, we are uncertain as to potential liability and/or financial exposure, if any, which may be associated with this matter.
In January, 2016, we were notified that the Department of Justice opened an investigation of the South Texas Health System of a potential False Claim Act case regarding compensation paid to cardiologists pursuant to employment agreements entered into in 2005. At present, we are uncertain as to potential liability and/or financial exposure, if any, which may be associated with this matter.
Regulatory Matters:
On July 23, 2015, Timberlawn Mental Health System (“Timberlawn”) received notification from CMS of its intent to terminate Timberlawn’s Medicare provider agreement effective August 7, 2015. This notification resulted from surveys conducted which alleged that Timberlawn was out of compliance with conditions of participation required for participation in the Medicare/Medicaid program. We filed a request for expedited administrative appeal with the U.S. Department of Health and Human Services, Departmental Appeals Board, Civil Remedies Division, seeking review and reversal of the termination action. In conjunction with the administrative appeal, we filed litigation in the U.S District Court for the Northern District of Texas seeking a temporary restraining order and preliminary injunction to have the termination stayed pending the conclusion of the administrative appeal. The trial court denied Timberlawn’s request for a temporary restraining order and dismissed the case. Timberlawn’s provider agreement was terminated effective August 14, 2015. In September, 2015 Timberlawn reached an agreement with CMS relative to its reapplication to the Medicare/Medicaid program. In exchange, Timberlawn agreed to dismiss its administrative appeal as well as not to pursue an appeal of the decision of the trial court. During this time, Timberlawn has remained open. In December, 2015, Timberlawn received notice from the Texas Department of State Health Services of its intent to revoke Timberlawn’s license and impose an administrative penalty. We have appealed and are contesting the proposed revocation and fine. In January, 2016, Timberlawn submitted its application for re-enrollment into the Medicare/Medicaid program. Although the operating results of Timberlawn did not have a material impact on our consolidated results of operations or financial condition for the years ended December 31, 2015 or 2014, the termination of Timberlawn’s provider agreement has had a material adverse effect on the facility’s results of operations and financial condition.
During the second quarter of 2015, Texoma Medical Center (“Texoma”), which includes TMC Behavioral Health Center, entered into a Systems Improvement Agreement (“SIA”) with CMS. The SIA abated a termination action from CMS following surveys which identified alleged failures to comply with conditions of participation primarily involving Texoma’s behavioral health operations. The terms of the SIA required Texoma to engage independent consultants/experts approved by CMS to analyze and
develop implementation plans at Texoma to meet Medicare conditions of participation. At the conclusion of the SIA, CMS will conduct a full certification survey to determine if Texoma is in substantial compliance with the Medicare conditions of participation. The term of agreement is set to conclude October 2, 2016 unless the terms of the agreement are fulfilled earlier. During the term of the SIA, Texoma remains eligible to receive reimbursements from Medicare and Medicaid for services rendered to Medicare and Medicaid beneficiaries.
Other Matters:
In late September, 2015, many hospitals in Pennsylvania, including seven of our behavioral health care hospitals located in the state, received letters from the Pennsylvania Department of Public Welfare (“DPW”) demanding repayment of allegedly excess Medicaid Disproportionate Share Hospital payments (“DSH”) for the federal fiscal year 2011 (“FFY2011”) amounting to approximately $4 million in the aggregate. We have filed administrative appeals for all of our facilities contesting the recoupment efforts since we believe DPW’s calculation methodology is inaccurate and conflicts with applicable federal and state laws and regulations. DPW has agreed to postpone the recoupment of the state’s share of the DSH payments until all hospital appeals are resolved. DPW also extended the deadline to recoup the federal share (2011 federal share is 55%) until April 30, 2016. However, if DPW is ultimately successful in its demand related to FFY2011, it could take similar action with regards to FFY2012 through FFY2014. Due to a change in the Pennsylvania Medicaid State Plan and implementation of a CMS-approved Medicaid Section 1115 Waiver, we do not believe the methodology applied by DPW to FFY2011 is applicable to reimbursements received for Medicaid services provided after January 1, 2015 by our behavioral health care facilities located in Pennsylvania. We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to DPW’s repayment demands. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments.
Matters Relating to Psychiatric Solutions, Inc. (“PSI”):
The following matters pertain to PSI or former PSI facilities (owned by subsidiaries of PSI) 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.
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 were 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 also been delivered to the DOJ. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. 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. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. 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.
General:
We operate in a highly regulated and litigious industry which subjects us to various claims and lawsuits in the ordinary course of business as well as regulatory proceedings and government investigations. These claims or suits include claims for damages for personal injuries, medical malpractice, commercial/contractual disputes, wrongful restriction of, or interference with, physicians’ staff privileges, and employment related claims, In addition, health care companies are subject to investigations and/or actions by various state and federal governmental agencies or those bringing claims on their behalf. Government action has increased with respect to investigations and/or allegations against healthcare providers concerning possible violations of fraud and abuse and false claims statutes as well as compliance with clinical and operational regulations. Currently, and from time to time, we and some of our facilities are subjected to inquiries in the form of subpoenas, Civil Investigative Demands, audits and other document requests from various federal and state agencies. These inquiries can lead to notices and/or actions including repayment obligations from state and federal government agencies associated with potential non-compliance with laws and regulations. Further, the federal False Claim Act allows private individuals to bring lawsuits (qui tam actions) against healthcare providers that submit claims for payments to the government. Various states have also adopted similar statutes. When such a claim is filed, the government will investigate the matter and decide if they are going to intervene in the pending case. These qui tam lawsuits are placed under seal by the court to comply with the False Claims Act’s requirements. If the government chooses not to intervene, the private individual(s) can proceed independently on behalf of the government. Health care providers that are found to violate the False Claims Act may be subject to substantial monetary fines/penalties as well as face potential exclusion from participating in government health care programs or be required to comply with Corporate Integrity Agreements as a condition of a settlement of a False Claim Act matter. In September 2014, the
Criminal Division of the DOJ, announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The DOJ has also announced an intention to pursue civil and criminal actions against individuals within a company as well as the corporate entity or entities. In addition, health care facilities are subject to monitoring by state and federal surveyors to ensure compliance with program Conditions of Participation. In the event a facility is found to be out of compliance with a Condition of Participation and unable to remedy the alleged deficiency(s), the facility faces termination from the Medicare and Medicaid programs or compliance with a System Improvement Agreement to remedy deficiencies and ensure compliance.
The laws and regulations governing the healthcare industry are complex covering, among other things, government healthcare participation requirements, licensure, certification and accreditation, privacy of patient information, reimbursement for patient services as well as fraud and abuse compliance. These laws and regulations are constantly evolving and expanding. Further, the Affordable Care Act has added additional obligations on healthcare providers to report and refund overpayments by government healthcare programs and authorizes the suspension of Medicare and Medicaid payments “pending an investigation of a credible allegation of fraud.” We monitor our business and have developed an ethics and compliance program with respect to these complex laws, rules and regulations. Although we believe our policies, procedures and practices comply with government regulations, there is no assurance that we will not be faced with the sanctions referenced above which include fines, penalties and/or substantial damages, repayment obligations, payment suspensions, licensure revocation, and expulsion from government healthcare programs. Even if we were to ultimately prevail in any action brought against us or our facilities or in responding to any inquiry, such action or inquiry could have a material adverse effect on us.
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, 2015 as follows: (i) other combined estimated future purchase obligations of $171 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($70 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 ($100 million) and estimated minimum liabilities for physician commitments expected to be paid in the future ($1 million); (ii) estimated construction commitment of $110 million made to a third-party for construction of a new acute care hospital located in Henderson, Nevada; (iii) combined estimated future payments of $242 million related to our non-contributory, defined benefit pension plan ($224 million consisting of estimated payments through 2089) and other retirement plan liabilities ($18 million), and; (iv) accrued and unpaid estimated claims expense incurred in connection with our commercial health insurers and self-insured employee benefit plans ($68 million).
- RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND OTHER RELATED PARTY TRANSACTIONS
Relationship with Universal Health Realty Income Trust:
At December 31, 2015, we held approximately 5.9% 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, which is scheduled to expire on December 31st of each year, pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. In December, 2015, the advisory agreement was renewed by the Trust for 2016 pursuant to the same terms in place during each of the last three years. During 2015, 2014 and 2013, the advisory fee was computed at 0.70% of the Trust’s average invested real estate assets. 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 $2.8 million during 2015, $2.5 million during 2014 and $2.4 million during 2013.
Our pre-tax share of income from the Trust was $1.4. million during 2015, $3.2 million during 2014 and $842,000 during 2013, 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 was approximately$500,000 in 2015, and $2.3 million in 2014, related to our share gains on various transactions recorded by the Trust.
The carrying value of our investment in the Trust was $8.7 million and $9.3 million at December 31, 2015 and 2014, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $39.4 million at December 31, 2015 and $37.9 million at December 31, 2014, based on the closing price of the Trust’s stock on the respective dates.
Total rent expense under the operating leases on the three hospital facilities with the Trust during 2015 was $15.6 million. Total rent expense under the operating leases on the four hospital facilities with the Trust during 2014 and 2013 (as discussed below) was $16.8 million and $16.4 million, respectively. In addition, certain of our subsidiaries are tenants in several medical office buildings owned by the Trust or by limited liability companies in which the Trust holds 100% of the ownership interest.
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.
During the first quarter of 2015, wholly-owned subsidiaries of ours sold to and leased back from the Trust, two newly constructed free-standing emergency departments (“FEDs”) located in Texas which were completed and opened during the first quarter of 2015. In conjunction with these transactions, ten-year lease agreements with six, five-year renewal options have been executed with the Trust. We have the option to purchase the properties upon the expiration of the fixed terms and each five-year renewal terms at the fair market value of the property. The aggregate construction cost/sales proceeds of these facilities was approximately $13 million, and the aggregate rent expense paid to the Trust at the commencement of the leases will approximate $900,000 annually.
In December, 2014, upon the expiration of the lease term, we elected to purchase from the Trust for $17.3 million, the real property of The Bridgeway, a 103-bed behavioral health care facility located in North Little Rock, Arkansas. Pursuant to the terms of the lease, we and the Trust were both required to obtain appraisals of the property to determine its fair market value/purchase price. The rent expense paid by us to the Trust, prior to our purchase of The Bridgeway’s real property in December, 2014, was approximately $1.1 million annually.
The table below details the renewal options and terms for each of our three hospital facilities leased from the Trust:
| 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) |
| (a) | We have three 5-year renewal options at existing lease rates (through 2031). |
|---|
| (b) | We have one 5-year renewal option at existing lease rates (through 2021) and two 5-year renewal options at fair market value lease rates (2022 through 2031). |
|---|
Pursuant to the terms of the three hospital 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. We also have the right to purchase the respective leased hospitals 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 three leased hospital properties at the appraised fair market value upon one month’s notice should a change of control of the Trust occur. 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.
Other Related Party Transactions:
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 (“CEO”) and his wife. As a result of these 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. In connection with these policies, we paid approximately $1.3 million in premium payments , during each of 2015, 2014 and 2013. These agreements did not have a material effect on our consolidated financial statements or results of operations during 2015, 2014 or 2013.
In August, 2015, Marc D. Miller, our President and member of our Board of Directors, was appointed to the Board of Directors of Premier, Inc. (“Premier”), a healthcare performance improvement alliance. During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier. In conjunction with the GPO agreement, we acquired a minority interest in Premier for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO. Also in connection with this GPO agreement, we received shares of restricted stock of Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. See Note 1 to the Consolidated Financial Statements-Business and Summary of Significant Accounting Policies, W) GPO Agreement/Minority Ownership Interest for additional disclosure related to this agreement.
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.
- PENSION PLAN
We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $40.7 million, $35.7 million and $29.9 million in 2015, 2014 and 2013, 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, 2015 and 2014:
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| (000s) | ||||||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | $ | 116,697 | $ | 106,469 | ||||
| Actual return (loss) on plan assets | (3,223 | ) | 16,470 | |||||
| Benefits paid | (6,086 | ) | (5,605 | ) | ||||
| Administrative expenses | (549 | ) | (637 | ) | ||||
| Fair value of plan assets at end of year | $ | 106,839 | $ | 116,697 | ||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 127,342 | $ | 103,558 | ||||
| Service cost | 1,051 | 966 | ||||||
| Interest cost | 4,912 | 4,986 | ||||||
| Benefits paid | (6,086 | ) | (5,605 | ) | ||||
| Actuarial (gain) loss | (9,039 | ) | 23,437 | |||||
| Benefit obligation at end of year | $ | 118,180 | $ | 127,342 | ||||
| Amounts recognized in the Consolidated Balance Sheet: | ||||||||
| Other non-current liabilities | 11,341 | 10,645 | ||||||
| Total amounts recognized at end of year | $ | 11,341 | $ | 10,645 |
| 2015 | 2014 | 2013 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (000s) | ||||||||||||
| Components of net periodic cost (benefit) | ||||||||||||
| Service cost | $ | 1,051 | $ | 966 | $ | 1,060 | ||||||
| Interest cost | 4,912 | 4,985 | 4,528 | |||||||||
| Expected return on plan assets | (6,254 | ) | (7,772 | ) | (7,601 | ) | ||||||
| Recognized actuarial loss | 3,164 | 1,107 | 3,305 | |||||||||
| Net periodic cost | $ | 2,873 | $ | (714 | ) | $ | 1,292 |
| 2015 | 2014 | |||
|---|---|---|---|---|
| Measurement Dates | ||||
| Benefit obligations | 12/31/2015 | 12/31/2014 | ||
| Fair value of plan assets | 12/31/2015 | 12/31/2014 |
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| Weighted average assumptions as of December 31 | ||||||||
| Discount rate | 4.34 | % | 3.95 | % | ||||
| Rate of compensation increase | 4.00 | % | 4.00 | % |
| 2015 | 2014 | 2013 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted-average assumptions for net periodic benefit cost calculations | ||||||||||||
| Discount rate | 3.95 | % | 4.95 | % | 4.05 | % | ||||||
| Expected long-term rate of return on plan assets | 5.50 | % | 7.50 | % | 7.50 | % | ||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % |
The accumulated benefit obligation was $117.7 million and $126.4 million as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the accumulated benefit obligation exceeded the fair value of plan assets by $10.9 million. As of December 31, 2014, the accumulated benefit obligation exceeded the fair value of plan assets by $9.7 million.
We estimate that there will be a $3.1 million net loss amortized from accumulated other comprehensive income during 2016.
The market values of our pension plan assets at December 31, 2015 and December 31, 2014 by asset category are as follows:
| December 31, 2015 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equities: | ||||||||||||||||
| U.S. Large Cap | $ | 8,520 | $ | — | $ | 8,520 | $ | — | ||||||||
| U.S. Mid Cap | 2,613 | — | 2,613 | — | ||||||||||||
| U.S. Small Cap | 2,649 | — | 2,649 | — | ||||||||||||
| International Developed | 6,406 | — | 6,406 | — | ||||||||||||
| Emerging Markets | 4,114 | — | 4,114 | — | ||||||||||||
| Fixed income: | ||||||||||||||||
| Core Fixed Income | 23,782 | — | 23,782 | — | ||||||||||||
| Long Duration Fixed Income | 55,931 | — | 55,931 | — | ||||||||||||
| Real Estate: | ||||||||||||||||
| REIT Fund | 2,212 | — | 2,212 | — | ||||||||||||
| Cash/Currency: | ||||||||||||||||
| Cash Equivalents | 612 | — | 612 | — | ||||||||||||
| Total market value | $ | 106,839 | $ | — | $ | 106,839 | $ | — |
| December 31, 2014 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equities: | ||||||||||||||||
| U.S. Large Cap | $ | 9,212 | $ | — | $ | 9,212 | $ | — | ||||||||
| U.S. Mid Cap | 2,852 | — | 2,852 | — | ||||||||||||
| U.S. Small Cap | 2,626 | — | 2,626 | — | ||||||||||||
| International Developed | 6,181 | — | 6,181 | — | ||||||||||||
| Emerging Markets | 4,139 | — | 4,139 | — | ||||||||||||
| Fixed income: | ||||||||||||||||
| Core Fixed Income | 27,062 | — | 27,062 | — | ||||||||||||
| Long Duration Fixed Income | 61,718 | — | 61,718 | — | ||||||||||||
| Real Estate: | ||||||||||||||||
| REIT Fund | 2,395 | — | 2,395 | — | ||||||||||||
| Cash/Currency: | ||||||||||||||||
| Cash Equivalents | 512 | — | 512 | — | ||||||||||||
| Total market value | $ | 116,697 | $ | — | $ | 116,697 | $ | — |
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, 2015 through 2025 for our defined pension plan. There will be benefit payments under this plan beyond 2025.
| Estimated Future Benefit Payments (000s) | ||||
|---|---|---|---|---|
| 2016 | $ | 6,086 | ||
| 2017 | 6,343 | |||
| 2018 | 6,563 | |||
| 2019 | 6,753 | |||
| 2020 | 6,900 | |||
| 2021-2025 | 35,657 | |||
| Total | $ | 68,302 |
| 2015 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|
| Plan Assets | ||||||||
| Asset Category | ||||||||
| Equity securities | 23 | % | 21 | % | ||||
| Fixed income securities | 75 | % | 76 | % | ||||
| Other | 2 | % | 3 | % | ||||
| 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:
| As of 12/31/2015 | Permitted Range | |||||
|---|---|---|---|---|---|---|
| Total Equity | 23 | % | 10-30% | |||
| Total Fixed Income | 75 | % | 70-90% | |||
| Other | 2 | % | 0-10% |
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.
- 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, 2015. 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.
| 2015 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 16,847,944 | $ | 7,456,397 | $ | — | $ | 24,304,341 | ||||||||
| Gross outpatient revenues | $ | 9,604,952 | $ | 839,884 | $ | 15,794 | $ | 10,460,630 | ||||||||
| Total net revenues | $ | 4,632,564 | $ | 4,400,335 | $ | 10,552 | $ | 9,043,451 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 519,630 | $ | 1,021,823 | $ | (395,552 | ) | $ | 1,145,901 | |||||||
| Allocation of corporate overhead | $ | (197,699 | ) | $ | (117,203 | ) | $ | 314,902 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 321,931 | $ | 904,620 | $ | (80,650 | ) | $ | 1,145,901 | |||||||
| Total assets | $ | 3,413,879 | $ | 5,867,088 | $ | 353,146 | $ | 9,634,113 |
| 2014 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 14,943,102 | $ | 6,689,753 | — | $ | 21,632,855 | |||||||||
| Gross outpatient revenues | $ | 8,147,031 | $ | 784,309 | $ | 34,238 | $ | 8,965,578 | ||||||||
| Total net revenues | $ | 4,178,103 | $ | 4,012,216 | $ | 14,769 | $ | 8,205,088 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 465,328 | $ | 944,068 | $ | (479,729 | ) | $ | 929,667 | |||||||
| Allocation of corporate overhead | $ | (178,781 | ) | $ | (98,811 | ) | $ | 277,592 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 286,547 | $ | 845,257 | $ | (202,137 | ) | $ | 929,667 | |||||||
| Total assets | $ | 3,362,870 | $ | 5,286,960 | $ | 324,613 | $ | 8,974,443 |
| 2013 | Acute Care Hospital Services | Behavioral Health Services | Other | Total Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollar amounts in thousands) | ||||||||||||||||
| Gross inpatient revenues | $ | 13,469,269 | $ | 6,294,046 | — | $ | 19,763,315 | |||||||||
| Gross outpatient revenues | $ | 6,828,307 | $ | 744,510 | $ | 40,460 | $ | 7,613,277 | ||||||||
| Total net revenues | $ | 3,602,874 | $ | 3,725,513 | $ | 39,486 | $ | 7,367,873 | ||||||||
| Income (loss) before allocation of corporate overhead and income taxes | $ | 342,191 | $ | 895,869 | $ | (368,728 | ) | $ | 869,332 | |||||||
| Allocation of corporate overhead | $ | (184,444 | ) | $ | (89,447 | ) | $ | 273,891 | $ | 0 | ||||||
| Income (loss) after allocation of corporate overhead and before income taxes | $ | 157,747 | $ | 806,422 | $ | (94,837 | ) | $ | 869,332 | |||||||
| Total assets | $ | 3,125,626 | $ | 4,966,182 | $ | 219,915 | $ | 8,311,723 |
- QUARTERLY RESULTS (unaudited)
The following tables summarize the quarterly financial data for the two years ended December 31, 2015 and 2014:
| 2015 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (amounts in thousands, except per share amounts) | ||||||||||||||||||||
| Net revenues | $ | 2,225,353 | $ | 2,275,204 | $ | 2,227,655 | $ | 2,315,239 | $ | 9,043,451 | ||||||||||
| Net income | $ | 194,323 | $ | 201,404 | $ | 163,654 | $ | 191,317 | $ | 750,698 | ||||||||||
| Less: Net income attributable to noncontrolling interests | $ | 20,024 | $ | 19,211 | $ | 13,367 | $ | 17,568 | $ | 70,170 | ||||||||||
| Net income attributable to UHS | $ | 174,299 | $ | 182,193 | $ | 150,287 | $ | 173,749 | $ | 680,528 | ||||||||||
| Earnings per share attributable to UHS-Basic: | ||||||||||||||||||||
| Total basic earnings per share | $ | 1.76 | $ | 1.84 | $ | 1.52 | $ | 1.76 | $ | 6.89 | ||||||||||
| Earnings per share attributable to UHS-Diluted: | ||||||||||||||||||||
| Total diluted earnings per share | $ | 1.73 | $ | 1.80 | $ | 1.48 | $ | 1.74 | $ | 6.76 |
The 2015 quarterly financial data presented above includes the following:
First Quarter:
| · | an unfavorable $8.3 million pre-tax impact ($5.3 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
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Second Quarter:
| · | an unfavorable $6.9 million pre-tax impact ($4.4 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications. |
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Third 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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Fourth Quarter:
| · | a favorable $4.9 million pre-tax impact ($3.1 million, or $.03 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
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| 2014 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (amounts in thousands, except per share amounts) | ||||||||||||||||||||
| Net revenues | $ | 1,938,314 | $ | 2,051,766 | $ | 2,038,717 | $ | 2,176,291 | $ | 8,205,088 | ||||||||||
| Net income | $ | 151,852 | $ | 166,614 | $ | 96,038 | $ | 190,492 | $ | 604,996 | ||||||||||
| Less: Net income attributable to noncontrolling interests | $ | 13,774 | $ | 14,943 | $ | 13,241 | $ | 17,695 | $ | 59,653 | ||||||||||
| Net income attributable to UHS | $ | 138,078 | $ | 151,671 | $ | 82,797 | $ | 172,797 | $ | 545,343 | ||||||||||
| Earnings per share attributable to UHS-Basic: | ||||||||||||||||||||
| Total basic earnings per share | $ | 1.40 | $ | 1.53 | $ | 0.84 | $ | 1.75 | $ | 5.52 | ||||||||||
| Earnings per share attributable to UHS-Diluted: | ||||||||||||||||||||
| Total diluted earnings per share | $ | 1.38 | $ | 1.51 | $ | 0.82 | $ | 1.71 | $ | 5.42 |
The 2014 quarterly financial data presented above includes the following:
First Quarter:
| · | an unfavorable $8.9 million pre-tax impact ($4.9 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
|---|
| · | a favorable $10.1 million pre-tax impact ($6.3 million, or $0.07 per diluted share, net of taxes) resulting from the gain realized on the sale of a non-operating investment. |
|---|
Second Quarter:
| · | an unfavorable $7.1 million pre-tax impact ($3.9 million, or $.04 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications. |
|---|
Third Quarter:
| · | an unfavorable $7.9 million pre-tax impact ($4.5 million, or $.04 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
|---|
| · | an unfavorable $36.2 million pre-tax impact ($22.7 million, or $0.23 per diluted share, net of taxes) recorded in connection with the costs related to extinguishment of debt resulting primarily from the early redemption of our previously outstanding $250 million, 7.00% senior unsecured notes that were scheduled to mature in 2018 and the repayment of $550 million of borrowings pursuant to the terms of our previously outstanding Term Loan B facility which was scheduled to mature in 2016; |
|---|
| · | an unfavorable $44.0 million pre-tax impact ($27.6 million, or $0.27 per diluted share, net of taxes) incurred in connection with the previously disclosed $65 million settlement of the Garden City matter. This matter was a shareholder class action lawsuit filed in 2009 against PSI and certain of its former officers alleging their violations of federal securities laws and we assumed the defense and liability of this matter as a result of our acquisition of PSI in 2010. This charge is net of approximately $17 million of commercial insurance recoveries that we were entitled to and a previously recorded estimated reserve; |
|---|
Fourth Quarter:
| · | a favorable $13.8 million pre-tax impact ($8.6 million, or $.08 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications; |
|---|
| · | A favorable $19.7 million pre-tax impact reduction ($11.7 million, or $.12 per diluted share, net of taxes) to our professional and general liability self-insurance reserves relating to years prior to 2014, as discussed in Self-Insured/Other Insurance Risks. |
|---|
- 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.
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2015 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 0 | $ | 6,798,664 | $ | 3,018,364 | $ | (32,304 | ) | $ | 9,784,724 | |||||||||
| Less: Provision for doubtful accounts | 0 | 481,294 | 259,979 | 0 | 741,273 | |||||||||||||||
| Net revenues | 0 | 6,317,370 | 2,758,385 | (32,304 | ) | 9,043,451 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 3,014,296 | 1,198,091 | 0 | 4,212,387 | |||||||||||||||
| Other operating expenses | 0 | 1,459,607 | 690,341 | (30,143 | ) | 2,119,805 | ||||||||||||||
| Supplies expense | 0 | 583,644 | 390,444 | 0 | 974,088 | |||||||||||||||
| Depreciation and amortization | 0 | 280,985 | 117,633 | 0 | 398,618 | |||||||||||||||
| Lease and rental expense | 0 | 58,394 | 38,740 | (2,161 | ) | 94,973 | ||||||||||||||
| Electronic health records incentive income | 0 | (12,232 | ) | (3,583 | ) | 0 | (15,815 | ) | ||||||||||||
| 0 | 5,384,694 | 2,431,666 | (32,304 | ) | 7,784,056 | |||||||||||||||
| Income from operations | 0 | 932,676 | 326,719 | 0 | 1,259,395 | |||||||||||||||
| Interest expense | 107,665 | 4,695 | 1,134 | 0 | 113,494 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 86,494 | (86,494 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (746,984 | ) | (215,119 | ) | 0 | 962,103 | 0 | |||||||||||||
| Income before income taxes | 639,319 | 1,056,606 | 412,079 | (962,103 | ) | 1,145,901 | ||||||||||||||
| Provision for income taxes | (41,209 | ) | 354,611 | 81,801 | 0 | 395,203 | ||||||||||||||
| Net income | 680,528 | 701,995 | 330,278 | (962,103 | ) | 750,698 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 70,170 | 0 | 70,170 | |||||||||||||||
| Net income attributable to UHS | $ | 680,528 | $ | 701,995 | $ | 260,108 | $ | (962,103 | ) | $ | 680,528 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 0 | $ | 6,225,997 | $ | 2,707,294 | $ | (29,220 | ) | $ | 8,904,071 | |||||||||
| Less: Provision for doubtful accounts | 0 | 471,181 | 227,802 | 0 | 698,983 | |||||||||||||||
| Net revenues | 0 | 5,754,816 | 2,479,492 | (29,220 | ) | 8,205,088 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 2,757,738 | 1,087,723 | 0 | 3,845,461 | |||||||||||||||
| Other operating expenses | 0 | 1,342,745 | 607,098 | (27,100 | ) | 1,922,743 | ||||||||||||||
| Supplies expense | 0 | 546,578 | 349,115 | 0 | 895,693 | |||||||||||||||
| Depreciation and amortization | 0 | 269,490 | 106,134 | 0 | 375,624 | |||||||||||||||
| Lease and rental expense | 0 | 58,619 | 37,494 | (2,120 | ) | 93,993 | ||||||||||||||
| Electronic health records incentive income | 0 | (19,480 | ) | (8,422 | ) | 0 | (27,902 | ) | ||||||||||||
| Costs related to extinguishment of debt | 36,171 | 0 | 0 | 0 | 36,171 | |||||||||||||||
| 36,171 | 4,955,690 | 2,179,142 | (29,220 | ) | 7,141,783 | |||||||||||||||
| Income from operations | (36,171 | ) | 799,126 | 300,350 | 0 | 1,063,305 | ||||||||||||||
| Interest expense | 127,528 | 4,516 | 1,594 | 0 | 133,638 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 88,246 | (88,246 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (646,386 | ) | (184,385 | ) | 0 | 830,771 | 0 | |||||||||||||
| Income before income taxes | 482,687 | 890,749 | 387,002 | (830,771 | ) | 929,667 | ||||||||||||||
| Provision for income taxes | (62,656 | ) | 305,320 | 82,007 | 0 | 324,671 | ||||||||||||||
| Net income | 545,343 | 585,429 | 304,995 | (830,771 | ) | 604,996 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 59,653 | 0 | 59,653 | |||||||||||||||
| Net income attributable to UHS | $ | 545,343 | $ | 585,429 | $ | 245,342 | $ | (830,771 | ) | $ | 545,343 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2013 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net revenues before provision for doubtful accounts | $ | 0 | $ | 5,734,385 | $ | 2,789,348 | $ | (28,644 | ) | $ | 8,495,089 | |||||||||
| Less: Provision for doubtful accounts | 0 | 657,106 | 470,110 | 0 | 1,127,216 | |||||||||||||||
| Net revenues | 0 | 5,077,279 | 2,319,238 | (28,644 | ) | 7,367,873 | ||||||||||||||
| Operating charges: | ||||||||||||||||||||
| Salaries, wages and benefits | 0 | 2,573,205 | 1,031,415 | 0 | 3,604,620 | |||||||||||||||
| Other operating expenses | 0 | 1,047,856 | 531,747 | (26,808 | ) | 1,552,795 | ||||||||||||||
| Supplies expense | 0 | 510,078 | 311,011 | 0 | 821,089 | |||||||||||||||
| Depreciation and amortization | 0 | 236,958 | 100,214 | 0 | 337,172 | |||||||||||||||
| Lease and rental expense | 0 | 62,518 | 37,076 | (1,836 | ) | 97,758 | ||||||||||||||
| Electronic health records incentive income | 0 | (43,027 | ) | (17,997 | ) | 0 | (61,024 | ) | ||||||||||||
| 0 | 4,387,588 | 1,993,466 | (28,644 | ) | 6,352,410 | |||||||||||||||
| Income from operations | 0 | 689,691 | 325,772 | 0 | 1,015,463 | |||||||||||||||
| Interest expense | 139,793 | 3,365 | 2,973 | 0 | 146,131 | |||||||||||||||
| Interest (income) expense, affiliate | 0 | 84,640 | (84,640 | ) | 0 | 0 | ||||||||||||||
| Equity in net income of consolidated affiliates | (597,020 | ) | (141,004 | ) | 0 | 738,024 | 0 | |||||||||||||
| Income before income taxes | 457,227 | 742,690 | 407,439 | (738,024 | ) | 869,332 | ||||||||||||||
| Provision for income taxes | (53,506 | ) | 262,346 | 106,469 | 0 | 315,309 | ||||||||||||||
| Net income | 510,733 | 480,344 | 300,970 | (738,024 | ) | 554,023 | ||||||||||||||
| Less: Income attributable to noncontrolling interests | 0 | 0 | 43,290 | 0 | 43,290 | |||||||||||||||
| Net income attributable to UHS | $ | 510,733 | $ | 480,344 | $ | 257,680 | $ | (738,024 | ) | $ | 510,733 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2015 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 680,528 | $ | 701,995 | $ | 330,278 | $ | (962,103 | ) | $ | 750,698 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | 4,970 | 0 | 0 | 0 | 4,970 | |||||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum pension liability | 2,177 | 2,177 | 0 | (2,177 | ) | 2,177 | ||||||||||||||
| Foreign currency translation adjustment | (1,728 | ) | (1,728 | ) | 0 | 1,728 | (1,728 | ) | ||||||||||||
| Other comprehensive income before tax | 5,083 | 449 | 0 | (449 | ) | 5,083 | ||||||||||||||
| Income tax expense related to items of other comprehensive income | 2,980 | 817 | 0 | (817 | ) | 2,980 | ||||||||||||||
| Total other comprehensive income, net of tax | 2,103 | (368 | ) | 0 | 368 | 2,103 | ||||||||||||||
| Comprehensive income | 682,631 | 701,627 | 330,278 | (961,735 | ) | 752,801 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 70,170 | 0 | 70,170 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 682,631 | $ | 701,627 | $ | 260,108 | $ | (961,735 | ) | $ | 682,631 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 545,343 | $ | 585,429 | $ | 304,995 | $ | (830,771 | ) | $ | 604,996 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | 17,668 | 0 | 0 | 0 | 17,668 | |||||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum pension liability | (14,270 | ) | (14,270 | ) | 0 | 14,270 | (14,270 | ) | ||||||||||||
| Foreign currency translation adjustment | (2,431 | ) | (2,431 | ) | 0 | 2,431 | (2,431 | ) | ||||||||||||
| Other comprehensive income before tax | 631 | (16,701 | ) | 0 | 16,701 | 631 | ||||||||||||||
| Income tax expense related to items of other comprehensive income | 1,053 | (5,356 | ) | 0 | 5,356 | 1,053 | ||||||||||||||
| Total other comprehensive income, net of tax | (422 | ) | (11,345 | ) | 0 | 11,345 | (422 | ) | ||||||||||||
| Comprehensive income | 544,921 | 574,084 | 304,995 | (819,426 | ) | 604,574 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 59,653 | 0 | 59,653 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 544,921 | $ | 574,084 | $ | 245,342 | $ | (819,426 | ) | $ | 544,921 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2013 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net income | $ | 510,733 | $ | 480,344 | $ | 300,970 | $ | (738,024 | ) | $ | 554,023 | |||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Unrealized derivative gains on cash flow hedges | 16,963 | 0 | 0 | 0 | 16,963 | |||||||||||||||
| Amortization of terminated hedge | (336 | ) | 0 | 0 | 0 | (336 | ) | |||||||||||||
| Minimum pension liability | 14,657 | 14,657 | 0 | (14,657 | ) | 14,657 | ||||||||||||||
| Other comprehensive income before tax | 31,284 | 14,657 | 0 | (14,657 | ) | 31,284 | ||||||||||||||
| Income tax expense related to items of other comprehensive income | 11,940 | 5,670 | 0 | (5,670 | ) | 11,940 | ||||||||||||||
| Total other comprehensive income, net of tax | 19,344 | 8,987 | 0 | (8,987 | ) | 19,344 | ||||||||||||||
| Comprehensive income | 530,077 | 489,331 | 300,970 | (747,011 | ) | 573,367 | ||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 0 | 0 | 43,290 | 0 | 43,290 | |||||||||||||||
| Comprehensive income attributable to UHS | $ | 530,077 | $ | 489,331 | $ | 257,680 | $ | (747,011 | ) | $ | 530,077 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||||||||
| AS OF DECEMBER 31, 2015 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 0 | $ | 47,192 | $ | 14,036 | $ | 0 | $ | 61,228 | ||||||||||
| Accounts receivable, net | 0 | 918,699 | 383,730 | 0 | 1,302,429 | |||||||||||||||
| Supplies | 0 | 72,499 | 43,538 | 0 | 116,037 | |||||||||||||||
| Deferred income taxes | 132,975 | 2,145 | 0 | 0 | 135,120 | |||||||||||||||
| Other current assets | 0 | 89,973 | 13,517 | 0 | 103,490 | |||||||||||||||
| Total current assets | 132,975 | 1,130,508 | 454,821 | 0 | 1,718,304 | |||||||||||||||
| Investments in subsidiaries | 7,760,156 | 1,876,415 | 0 | (9,636,571 | ) | 0 | ||||||||||||||
| Intercompany receivable | 80,764 | 0 | 747,709 | (828,473 | ) | 0 | ||||||||||||||
| Intercompany note receivable | 0 | 0 | 1,242,937 | (1,242,937 | ) | 0 | ||||||||||||||
| Property and equipment | 0 | 4,722,050 | 1,808,519 | 0 | 6,530,569 | |||||||||||||||
| Less: accumulated depreciation | 0 | (1,845,746 | ) | (848,845 | ) | 0 | (2,694,591 | ) | ||||||||||||
| 0 | 2,876,304 | 959,674 | 0 | 3,835,978 | ||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Goodwill | 0 | 3,070,061 | 526,053 | 0 | 3,596,114 | |||||||||||||||
| Deferred charges | 25,877 | 5,530 | 3,950 | 0 | 35,357 | |||||||||||||||
| Other | 14,251 | 394,998 | 39,111 | 0 | 448,360 | |||||||||||||||
| $ | 8,014,023 | $ | 9,353,816 | $ | 3,974,255 | $ | (11,707,981 | ) | $ | 9,634,113 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Current maturities of long-term debt | $ | 60,368 | $ | 1,223 | $ | 1,131 | $ | 0 | $ | 62,722 | ||||||||||
| Accounts payable and accrued liabilities | 19,996 | 744,137 | 269,564 | 0 | 1,033,697 | |||||||||||||||
| Federal and state taxes | 3,987 | 0 | 0 | 0 | 3,987 | |||||||||||||||
| Total current liabilities | 84,351 | 745,360 | 270,695 | 0 | 1,100,406 | |||||||||||||||
| Intercompany payable | 0 | 828,473 | 0 | (828,473 | ) | 0 | ||||||||||||||
| Intercompany note payable | 0 | 1,242,937 | 0 | (1,242,937 | ) | 0 | ||||||||||||||
| Other noncurrent liabilities | 1,982 | 206,287 | 70,565 | 0 | 278,834 | |||||||||||||||
| Long-term debt | 3,362,143 | 16,790 | 8,370 | 0 | 3,387,303 | |||||||||||||||
| Deferred income taxes | 315,900 | 0 | 0 | 0 | 315,900 | |||||||||||||||
| Redeemable noncontrolling interests | 0 | 0 | 242,509 | 0 | 242,509 | |||||||||||||||
| Equity: | ||||||||||||||||||||
| UHS common stockholders’ equity | 4,249,647 | 6,313,969 | 3,322,602 | (9,636,571 | ) | 4,249,647 | ||||||||||||||
| Noncontrolling interest | 0 | 0 | 59,514 | 0 | 59,514 | |||||||||||||||
| Total equity | 4,249,647 | 6,313,969 | 3,382,116 | (9,636,571 | ) | 4,309,161 | ||||||||||||||
| $ | 8,014,023 | $ | 9,353,816 | $ | 3,974,255 | $ | (11,707,981 | ) | $ | 9,634,113 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING BALANCE SHEET | ||||||||||||||||||||
| AS OF DECEMBER 31, 2014 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 0 | $ | 21,784 | $ | 10,285 | $ | 0 | $ | 32,069 | ||||||||||
| Accounts receivable, net | 0 | 933,971 | 348,764 | 0 | 1,282,735 | |||||||||||||||
| Supplies | 0 | 67,847 | 40,268 | 0 | 108,115 | |||||||||||||||
| Deferred income taxes | 113,822 | 743 | 0 | 0 | 114,565 | |||||||||||||||
| Other current assets | 0 | 62,431 | 15,223 | 0 | 77,654 | |||||||||||||||
| Total current assets | 113,822 | 1,086,776 | 414,540 | 0 | 1,615,138 | |||||||||||||||
| Investments in subsidiaries | 7,013,540 | 1,661,296 | 0 | (8,674,836 | ) | 0 | ||||||||||||||
| Intercompany receivable | 103,808 | 0 | 408,682 | (512,490 | ) | 0 | ||||||||||||||
| Intercompany note receivable | 0 | 0 | 1,222,637 | (1,222,637 | ) | 0 | ||||||||||||||
| Property and equipment | 0 | 4,494,567 | 1,717,463 | 0 | 6,212,030 | |||||||||||||||
| Less: accumulated depreciation | 0 | (1,686,192 | ) | (846,149 | ) | 0 | (2,532,341 | ) | ||||||||||||
| 0 | 2,808,375 | 871,314 | 0 | 3,679,689 | ||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Goodwill | 0 | 2,764,555 | 526,658 | 0 | 3,291,213 | |||||||||||||||
| Deferred charges | 32,379 | 5,402 | 2,538 | 0 | 40,319 | |||||||||||||||
| Other | 9,601 | 283,302 | 55,181 | 0 | 348,084 | |||||||||||||||
| $ | 7,273,150 | $ | 8,609,706 | $ | 3,501,550 | $ | (10,409,963 | ) | $ | 8,974,443 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Current maturities of long-term debt | $ | 44,874 | $ | 1,260 | $ | 22,185 | $ | 0 | $ | 68,319 | ||||||||||
| Accounts payable and accrued liabilities | 20,245 | 1,051,309 | 41,508 | 0 | 1,113,062 | |||||||||||||||
| Federal and state taxes | 1,446 | 0 | 0 | 0 | 1,446 | |||||||||||||||
| Total current liabilities | 66,565 | 1,052,569 | 63,693 | 0 | 1,182,827 | |||||||||||||||
| Intercompany payable | 0 | 512,490 | 0 | (512,490 | ) | 0 | ||||||||||||||
| Intercompany note payable | 0 | 1,222,637 | 0 | (1,222,637 | ) | 0 | ||||||||||||||
| Other noncurrent liabilities | 1,322 | 189,456 | 77,777 | 0 | 268,555 | |||||||||||||||
| Long-term debt | 3,187,103 | 20,212 | 2,900 | 0 | 3,210,215 | |||||||||||||||
| Deferred income taxes | 282,214 | 0 | 0 | 0 | 282,214 | |||||||||||||||
| Redeemable noncontrolling interests | 0 | 0 | 239,552 | 0 | 239,552 | |||||||||||||||
| Equity: | ||||||||||||||||||||
| UHS common stockholders’ equity | 3,735,946 | 5,612,342 | 3,062,494 | (8,674,836 | ) | 3,735,946 | ||||||||||||||
| Noncontrolling interest | 0 | 0 | 55,134 | 0 | 55,134 | |||||||||||||||
| Total equity | 3,735,946 | 5,612,342 | 3,117,628 | (8,674,836 | ) | 3,791,080 | ||||||||||||||
| $ | 7,273,150 | $ | 8,609,706 | $ | 3,501,550 | $ | (10,409,963 | ) | $ | 8,974,443 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2015 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (21,287 | ) | $ | 655,439 | $ | 386,746 | $ | 0 | $ | 1,020,898 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (209,355 | ) | (169,966 | ) | 0 | (379,321 | ) | ||||||||||||
| Acquisition of property and businesses | (513,382 | ) | (20,273 | ) | (533,655 | ) | ||||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 647 | 2,744 | 0 | 3,391 | |||||||||||||||
| Increase in insurance subsidiary investments | 0 | (3,300 | ) | 0 | 0 | (3,300 | ) | |||||||||||||
| Net cash used in investing activities | 0 | (725,390 | ) | (187,495 | ) | 0 | (912,885 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (42,133 | ) | (3,459 | ) | (22,574 | ) | 0 | (68,166 | ) | |||||||||||
| Additional borrowings | 234,400 | 0 | 0 | 0 | 234,400 | |||||||||||||||
| Financing costs | (515 | ) | 0 | 0 | 0 | (515 | ) | |||||||||||||
| Repurchase of common shares | (209,782 | ) | 0 | 0 | 0 | (209,782 | ) | |||||||||||||
| Dividends paid | (39,532 | ) | 0 | 0 | 0 | (39,532 | ) | |||||||||||||
| Issuance of common stock | 8,441 | 0 | 0 | 0 | 8,441 | |||||||||||||||
| Excess income tax benefits related to stock-based compensation | 47,364 | 0 | 0 | 0 | 47,364 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (62,220 | ) | 0 | (62,220 | ) | |||||||||||||
| Proceeds received from sale/leaseback of real property | 0 | 0 | 12,765 | 0 | 12,765 | |||||||||||||||
| Changes in intercompany balances with affiliates, net | 23,044 | 100,427 | (123,471 | ) | 0 | 0 | ||||||||||||||
| Net cash provided by (used in) financing activities | 21,287 | 96,968 | (195,500 | ) | 0 | (77,245 | ) | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 0 | (1,609 | ) | 0 | 0 | (1,609 | ) | |||||||||||||
| Increase in cash and cash equivalents | 0 | 25,408 | 3,751 | 0 | 29,159 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 21,784 | 10,285 | 0 | 32,069 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 47,192 | $ | 14,036 | $ | 0 | $ | 61,228 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash provided by operating activities | $ | 18,579 | $ | 687,101 | $ | 330,196 | $ | 0 | $ | 1,035,876 | ||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (230,102 | ) | (161,048 | ) | 0 | (391,150 | ) | ||||||||||||
| Acquisition of property and businesses | 0 | (422,081 | ) | (9,305 | ) | 0 | (431,386 | ) | ||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 11,450 | 3,728 | 0 | 15,178 | |||||||||||||||
| Costs incurred for purchase and implementation of electronic health records application | 0 | (13,488 | ) | 0 | 0 | (13,488 | ) | |||||||||||||
| Increase in insurance subsidiary investments | 0 | (12,000 | ) | 0 | 0 | (12,000 | ) | |||||||||||||
| Net cash used in investing activities | 0 | (666,221 | ) | (166,625 | ) | 0 | (832,846 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (866,748 | ) | (867 | ) | (11,514 | ) | 0 | (879,129 | ) | |||||||||||
| Additional borrowings | 830,000 | 0 | 0 | 0 | 830,000 | |||||||||||||||
| Financing costs | (14,976 | ) | 0 | 0 | 0 | (14,976 | ) | |||||||||||||
| Repurchase of common shares | (100,749 | ) | 0 | 0 | 0 | (100,749 | ) | |||||||||||||
| Dividends paid | (29,665 | ) | 0 | 0 | 0 | (29,665 | ) | |||||||||||||
| Issuance of common stock | 6,863 | 0 | 0 | 0 | 6,863 | |||||||||||||||
| Excess income tax benefits related to stock-based compensation | 33,912 | 0 | 0 | 0 | 33,912 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (33,680 | ) | 0 | (33,680 | ) | |||||||||||||
| Changes in intercompany balances with affiliates, net | 122,784 | (5,444 | ) | (117,340 | ) | 0 | 0 | |||||||||||||
| Net cash used in financing activities | (18,579 | ) | (6,311 | ) | (162,534 | ) | 0 | (187,424 | ) | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 0 | (775 | ) | 0 | 0 | (775 | ) | |||||||||||||
| Increase in cash and cash equivalents | 0 | 13,794 | 1,037 | 0 | 14,831 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 7,990 | 9,248 | 0 | 17,238 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 21,784 | $ | 10,285 | $ | 0 | $ | 32,069 |
| UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS | ||||||||||||||||||||
| FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2013 | ||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| Parent | Guarantors | Non Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
| Net cash provided by operating activities | $ | 17,946 | $ | 587,083 | $ | 279,212 | $ | 0 | $ | 884,241 | ||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Property and equipment additions, net of disposals | 0 | (269,419 | ) | (89,074 | ) | 0 | (358,493 | ) | ||||||||||||
| Acquisition of property and businesses | 0 | (8,094 | ) | (4,542 | ) | 0 | (12,636 | ) | ||||||||||||
| Proceeds received from sale of assets and businesses | 0 | 7,916 | 29,566 | 0 | 37,482 | |||||||||||||||
| Costs incurred for purchase and implementation of electronic health records application | 0 | (49,811 | ) | 0 | 0 | (49,811 | ) | |||||||||||||
| Net cash used in investing activities | 0 | (319,408 | ) | (64,050 | ) | 0 | (383,458 | ) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Reduction of long-term debt | (429,996 | ) | (109 | ) | (10,119 | ) | 0 | (440,224 | ) | |||||||||||
| Additional borrowings | 15,761 | 0 | 0 | 0 | 15,761 | |||||||||||||||
| Financing costs | (231 | ) | 0 | 0 | 0 | (231 | ) | |||||||||||||
| Repurchase of common shares | (27,201 | ) | 0 | 0 | 0 | (27,201 | ) | |||||||||||||
| Dividends paid | (19,621 | ) | 0 | 0 | 0 | (19,621 | ) | |||||||||||||
| Issuance of common stock | 5,708 | 0 | 0 | 0 | 5,708 | |||||||||||||||
| Excess income tax benefits related to stock-based compensation | 20,121 | 0 | 0 | 0 | 20,121 | |||||||||||||||
| Profit distributions to noncontrolling interests | 0 | 0 | (61,329 | ) | 0 | (61,329 | ) | |||||||||||||
| Changes in intercompany balances with affiliates, net | 417,513 | (271,525 | ) | (145,988 | ) | 0 | 0 | |||||||||||||
| Net cash used in financing activities | (17,946 | ) | (271,634 | ) | (217,436 | ) | 0 | (507,016 | ) | |||||||||||
| Decrease in cash and cash equivalents | 0 | (3,959 | ) | (2,274 | ) | 0 | (6,233 | ) | ||||||||||||
| Cash and cash equivalents, beginning of period | 0 | 11,949 | 11,522 | 0 | 23,471 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 7,990 | $ | 9,248 | $ | 0 | $ | 17,238 |
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
| Balance at | Charges to | Write-off of | Balance | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| beginning | costs and | Acquisitions | uncollectible | at end | ||||||||||||||||
| Allowance for Doubtful Accounts Receivable: | of period | expenses | of business | accounts | of period | |||||||||||||||
| Year ended December 31, 2015 | $ | 324,648 | $ | 741,273 | $ | - | $ | (667,124 | ) | $ | 398,797 | |||||||||
| Year ended December 31, 2014 | $ | 395,035 | $ | 698,983 | $ | 506 | $ | (769,876 | ) | $ | 324,648 | |||||||||
| Year ended December 31, 2013 | $ | 311,387 | $ | 1,127,216 | $ | - | $ | (1,043,568 | ) | $ | 395,035 |
| Balance at | Charges to | Balance | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| beginning | costs and | Acquisitions | at end | |||||||||||||||||
| Valuation Allowance for Deferred Tax Assets: | of period | expenses | of business | Write-offs | of period | |||||||||||||||
| Year ended December 31, 2015 | $ | 52,764 | $ | (197 | ) | $ | - | $ | - | $ | 52,567 | |||||||||
| Year ended December 31, 2014 | $ | 46,841 | $ | 5,923 | $ | - | $ | - | $ | 52,764 | ||||||||||
| Year ended December 31, 2013 | $ | 44,511 | $ | 2,330 | $ | - | $ | - | $ | 46,841 |
Previous: Item 14. Principal Accountant Fees and Services.