KING OF PRUSSIA, Pa., Oct. 27, 2014 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $82.8 million, or $.82 per diluted share, during the third quarter of 2014 as compared to $114.6 million, or $1.15 per diluted share, during the comparable quarter of 2013.  Net revenues increased 11.1% to $2.02 billion during the third quarter of 2014 as compared to $1.82 billion during the third quarter of 2013.

Reported net income attributable to UHS was $372.5 million, or $3.71 per diluted share, during the first nine months of 2014 as compared to $386.2 million, or $3.89 per diluted share, during the comparable period of 2013.  Net revenues increased 8.7% to $5.96 billion during the first nine months of 2014 as compared to $5.48 billion during the comparable period of 2013. 

Included in our reported results during the three and nine-month periods ended September 30, 2014 was a pre-tax charge of $44.0 million incurred in connection with a previously disclosed legal settlement (as discussed below) as well as a pre-tax charge of $36.2 million resulting from the costs related to the extinguishment of debt in connection with the previously disclosed financing transactions that occurred during the quarter.

Consolidated Results of Operations, As Adjusted – Three and nine-month periods ended September 30, 2014 and 2013:

For the three-month period ended September 30, 2014, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Consolidated Statements of Income Information ("Supplemental Schedule"), increased approximately 26% to $137.5 million, or $1.36 per diluted share, as compared to $109.5 million, or $1.10 per diluted share, during the third quarter of 2013.

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2014 was an aggregate net unfavorable after-tax impact of approximately $54.7 million, or $.54 per diluted share, related to:

• an after-tax charge of $27.6 million ($44.0 million pre-tax), or $.27 per diluted share,  incurred in connection with the previously disclosed $65 million settlement of Garden City Employees' Retirement System v. Psychiatric Solutions, Inc. ("PSI"), Joey A. Jacobs, Brent Turner and Jack E. Polson. 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.  The charge incurred during the third quarter of 2014 is net of approximately $16 million of commercial insurance recoveries that we were entitled to and a previously recorded estimated reserve;
• an aggregate after-tax charge of $22.7 million ($36.2 million pre-tax), or $.23 per diluted share, 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, and;     
• an aggregate net unfavorable after-tax impact of $4.5 million, or $.04 per diluted share, related to the incentive income and depreciation and amortization expense recorded in connection with the implementation of electronic health records ("EHR") applications at our acute care hospitals.   

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2013 was a net favorable after-tax impact of approximately $5.1 million, or $.05 per diluted share, related to the incentive income and expenses recorded in connection with the implementation of EHR applications at our acute care hospitals. 

For the nine-month period ended September 30, 2014, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, increased approximately 23% to $429.8 million, or $4.28 per diluted share, as compared to $348.5 million, or $3.51 per diluted share, during the comparable period of 2013.

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2014 was: (i) an unfavorable after-tax impact of approximately $27.6 million, or $.27 per diluted share, resulting from the above-mentioned litigation settlement during the third quarter of 2014; (ii) an aggregate unfavorable after-tax impact of approximately $22.7 million, or $.23 per diluted share, resulting from the above-mentioned costs related to extinguishment of debt incurred during the third quarter of 2014; (iii) an aggregate net unfavorable after-tax impact of approximately $13.3 million, or $.13 per diluted share, related to the incentive income and depreciation and amortization expense recorded in connection with the implementation of EHR applications, and; (iv) a favorable after-tax impact of $6.3 million, or $.06 per diluted share, resulting from a gain realized on the sale of a non-operating investment during the first quarter of 2014.  

Included in our reported results during the nine-month period ended September 30, 2013 was a net favorable after-tax impact of $37.8 million, or $.38 per diluted share, resulting from a reduction to our professional and general liability self-insurance reserves relating to years prior to 2013, based upon a reserve analysis. During the nine-month period ended September 30, 2013, the pre-tax incentive income of $27.9 million earned in connection with the implementation of EHR applications was essentially offset by EHR-related expenses incurred during the period.   

Acute Care Services – Three and nine-month periods ended September 30, 2014 and 2013:

During the third quarter of 2014, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 4.1% and adjusted patient days increased 6.7%, as compared to the third quarter of 2013. Net revenues at these facilities increased 7.9% during the third quarter of 2014 as compared to the comparable quarter of the prior year. At these facilities, net revenue per adjusted admission increased 3.6% while net revenue per adjusted patient day increased 1.0% during the third quarter of 2014 as compared to the comparable quarter of 2013. On a same facility basis, the operating margin at our acute care hospitals increased to 18.3% during the third quarter of 2014 as compared to 14.4% during the third quarter of 2013. We define operating margin as net revenues less salaries, wages and benefits, other operating expenses and supplies expense (excluding the EHR impact, as indicated on the Supplemental Schedule).

During the first nine months of 2014, at our acute care hospitals on a same facility basis, adjusted admissions increased 2.3% and adjusted patient days increased 6.4%, as compared to the comparable period of 2013. Net revenues at these facilities increased 8.4% during the first nine months of 2014 as compared to the comparable period of the prior year. At these facilities, net revenue per adjusted admission increased 5.9% while net revenue per adjusted patient day increased 1.9% during the first nine months of 2014 as compared to the comparable period of 2013. On a same facility basis, the operating margin at our acute care hospitals increased to 19.1% during the first nine months of 2014 as compared to 15.1% during the comparable period of 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. Our acute care hospitals provided charity care and uninsured discounts, based on gross charges, amounting to approximately $266 million and $276 million during the three-month periods ended September 30, 2014 and 2013, respectively, and $852 million and $764 million during the nine-month periods ended September 30, 2014 and 2013, respectively. The provision for doubtful accounts at our acute care hospitals decreased to approximately $129 million during the three-month period ended September 30, 2014 as compared to $291 million during the comparable quarter of 2013, and decreased to $460 million during the nine-month period ended September 30, 2014 as compared to $725 million during the comparable period of 2013.  During the three and nine-month periods ended September 30, 2014, as compared to the comparable periods of 2013, our acute care hospitals experienced a decrease in the aggregate of charity care, uninsured discounts and provision for doubtful accounts as a percentage of gross charges.      

Behavioral Health Care Services – Three and nine-month periods ended September 30, 2014 and 2013:

During the third quarter of 2014, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 5.4% while adjusted patient days increased 2.1% compared to the third quarter of 2013. At these facilities, net revenue per adjusted admission decreased 0.3% while net revenue per adjusted patient day increased 2.9% during the third quarter of 2014 as compared to the comparable quarter in 2013. On a same facility basis, our behavioral health services' net revenues increased 6.2% during the third quarter of 2014, as compared to the comparable quarter in 2013, and the operating margins were 27.6% and 27.3% during the three-month periods ended September 30, 2014 and 2013, respectively.   

During the nine-month period ended September 30, 2014, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 4.0% while adjusted patient days increased 1.4% compared to the comparable period of 2013. At these facilities, net revenue per adjusted admission remained relatively unchanged while net revenue per adjusted patient day increased 2.5% during the first nine months of 2014 as compared to the comparable period of 2013. On a same facility basis, our behavioral health services' net revenues increased 5.3% during the first nine months of 2014, as compared to the comparable period of 2013, and the operating margins were 28.0% and 28.2% during the nine-month periods ended September 30, 2014 and 2013, respectively.

Acquisition of Cygnet and Share Repurchase Program:

As previously disclosed, in late September, 2014, we acquired the stock of Cygnet Health Care Limited ("Cygnet") for a purchase price of approximately $327 million. Through this acquisition, we have added a total of 18 facilities located throughout the United Kingdom including 16 inpatient behavioral health hospitals and 2 nursing homes with a total of 734 beds. The Cygnet facilities generated aggregate revenues of approximately $161 million during the twelve-month period prior to our acquisition.

During the third quarter of 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 or in negotiated private transactions.  In conjunction with this program, during the third quarter of 2014, we repurchased 226,692 shares at an aggregate cost of $25.2 million.      

Conference call information:

We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on October 28, 2014. The dial-in number is 1-877-648-7971. 

A live broadcast of the conference call will be available on our website at www.uhsinc.com.  A replay of the call will be available following the conclusion of the live call and will be available for one full year.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:

Universal Health Services, Inc. ("UHS") is one of the nation's largest hospital companies operating through its subsidiaries acute care hospitals, behavioral health facilities and ambulatory centers located throughout the United States, the United Kingdom, Puerto Rico and the U.S. Virgin Islands.  It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE:UHT).  For additional information on the Company, visit our web site: http://www.uhsinc.com.

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2013 and in Item 2-Forward Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended June 30, 2014), may cause the results to differ materially from those anticipated in the forward-looking statements.  Many of the factors that will determine our future results are beyond our capability to control or predict. These statements are subject to risks and uncertainties and therefore actual results may differ materially.  Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof.  We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Our acute care hospitals are eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, once they have demonstrated meaningful use of certified EHR technology for the applicable stage or have completed attestations to their adoption or implementation of certified EHR technology.  However, there may be timing differences in the recognition of the incentive income and expenses recorded in connection with the implementation of the EHR application which may cause material period-to-period changes in our future results of operations. Hospitals that do not qualify as a meaningful user of EHR by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. Although we believe that our acute care hospitals will be in compliance with the EHR standards by 2015, there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provision of the HITECH Act.

We believe that operating income, operating margin, adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share and earnings before interest, taxes, depreciation and amortization ("EBITDA"), which are non-GAAP financial measures ("GAAP" is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect in each year of material items that are nonrecurring or non-operational in nature including items such as, but not limited to, costs related to extinguishment of debt, gains on sales of assets and businesses, reserves for settlements, legal judgments and lawsuits, impairments of long-lived assets and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods.  To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2013 and our Report on Form 10-Q for the quarterly period ended June 30, 2014. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability.  Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies.  Investors are encouraged to use GAAP measures when evaluating our financial performance.