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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............to..........
Commission file number 0-10454
UNIVERSAL HEALTH SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2077891
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
---------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (610) 768-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common shares outstanding, as
of October 31, 1997:
Class A 2,060,929
Class B 30,100,075
Class C 207,230
Class D 32,361
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Page One of Thirteen Pages
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UNIVERSAL HEALTH SERVICES, INC.
I N D E X
PART I. FINANCIAL INFORMATION......................................................... PAGE NO.
--------
Item 1. Financial Statements
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1997 and 1996................................Three
Condensed Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 ..................................................................Four
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996...........................................Five
Notes to Condensed Consolidated Financial Statements................................Six & Seven
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................Eight, Nine,Ten & Eleven
PART II. OTHER INFORMATION.................................................................Twelve
SIGNATURE.................................................................................Thirteen
Page Two of Thirteen Pages
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PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000s omitted except per share amounts)
(unaudited)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------------------------- ----------------------------
Net revenues $ 362,377 $ 299,994 $1,046,373 $ 848,589
Operating charges:
Operating expenses 147,267 118,127 413,206 330,077
Salaries and wages 129,489 107,568 368,374 303,399
Provision for doubtful accounts 29,080 22,926 80,193 59,309
Depreciation and amortization 20,055 19,210 58,898 50,714
Lease and rental expense 10,041 9,441 28,469 28,419
Interest expense, net 4,566 5,223 14,906 15,843
---------- ---------- ---------- ----------
340,498 282,495 964,046 787,761
---------- ---------- ---------- ----------
Income before income taxes 21,879 17,499 82,327 60,828
Provision for income taxes 8,060 6,214 30,071 21,826
---------- ---------- ---------- ----------
Net income $ 13,819 $ 11,285 $ 52,256 $ 39,002
========== ========== ========== ==========
Earnings per common
and common share equivalents: $ 0.42 $ 0.34 $ 1.58 $ 1.29
========== ========== ========== ==========
Weighted average number of
common shares and equivalents: 33,134 32,849 33,078 30,173
========== ========== ========== ==========
See accompanying notes to these condensed consolidated financial statements.
Page Three of Thirteen Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000s omitted)
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1997 1996
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,919 $ 288
Accounts receivable, net 166,750 145,364
Supplies 27,468 22,019
Deferred income taxes 5,907 12,313
Other current assets 7,885 13,969
----------- -----------
Total current assets 215,929 193,953
----------- -----------
Property and equipment 936,497 839,564
Less: accumulated depreciation (313,947) (271,936)
----------- -----------
622,550 567,628
Funds restricted for construction 40,440 -----
----------- -----------
662,990 567,628
----------- -----------
OTHER ASSETS:
Excess of cost over fair value of net
assets acquired 148,229 150,336
Deferred income taxes 11,284 9,993
Deferred charges 11,606 11,237
Other 32,439 32,648
----------- -----------
203,558 204,214
----------- -----------
$ 1,082,477 $ 965,795
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,239 $ 6,866
Accounts payable and accrued liabilities 173,909 132,441
Federal and state taxes ----- 772
----------- -----------
Total current liabilities 179,148 140,079
----------- -----------
Other noncurrent liabilities 120,305 97,102
----------- -----------
Long-term debt, net of current maturities 272,245 275,634
----------- -----------
COMMON STOCKHOLDERS' EQUITY:
Class A Common Stock, 2,060,929 shares
outstanding in 1997, 2,060,929 in 1996 21 21
Class B Common Stock, 30,080,995 shares
outstanding in 1997, 29,816,153 in 1996 301 298
Class C Common Stock, 207,230 shares
outstanding in 1997, 207,230 in 1996 2 2
Class D Common Stock, 32,009 shares
outstanding in 1997, 36,805 in 1996 ----- -----
Capital in excess of par, net of deferred
compensation of $365,000 in 1997
and $377,000 in 1996 199,848 194,308
Retained earnings 310,607 258,351
----------- -----------
510,779 452,980
----------- -----------
$ 1,082,477 $ 965,795
=========== ===========
See accompanying notes to these condensed consolidated financial statements.
Page Four of Thirteen Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s omitted - unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 52,256 $ 39,002
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization 58,898 50,714
Provision for self-insurance reserves 14,515 11,608
Changes in assets & liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable (1,148) 9,282
Accrued interest (3,179) (3,504)
Accrued and deferred income taxes 7,363 9,592
Other working capital accounts 34,506 18,287
Other assets and deferred charges (464) (7,015)
Other 5,088 (2,050)
Payments made in settlement of self-insurance claims (13,652) (6,157)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 154,183 119,759
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions, net (103,703) (79,187)
Funds restricted for construction related to acquisition (40,000) ----
Proceeds received from sale of minority interest 4,000 ----
Acquisition of business (3,218) (168,429)
Notes receivable related to acquisitions ---- (7,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (142,921) (254,616)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (5,016) ----
Additional borrowings ---- 34,655
Issuance of common stock 1,385 100,273
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,631) 134,928
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 7,631 71
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 288 34
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,919 $ 105
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 18,085 $ 19,347
========= =========
Income taxes paid, net of refunds $ 22,708 $ 12,456
========= =========
See accompanying notes to these condensed consolidated financial statements.
Page Five of Thirteen Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments which, in the opinion of
the Company, are necessary to fairly present results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the accompanying disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements, accounting
policies and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Prior to 1997, the Company included charity care services as a component of its
provision for doubtful accounts. Effective January 1, 1997, in accordance with
health care industry practice, the Company began excluding charity care from
net revenues, and has reclassified the 1996 amounts to conform with this
presentation. The change in presentation has no effect on reported net income.
(2) EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares
outstanding during the year adjusted to give effect to common stock
equivalents. In April 1996, the Company declared a two-for-one stock split in
the form of a 100% stock dividend which was paid in May, 1996. All classes of
common stock participated on a pro rata basis. The weighted average number of
common shares and equivalents and earnings per common and common equivalent
share for the three and nine months ended September 30, 1996 have been adjusted
to reflect the two-for-one stock split.
The Financial Accounting Standards Board issued Statement 128, Earnings per
Share, which is effective for financial statements for periods ending after
December 15, 1997. Pursuant to the provisions of Statement 128, the Company's
basic earnings per share would have been $.43 and $.35 for the three month
periods ended September 30, 1997 and 1996 and $1.62 and $1.33 for the nine
months ended September 30, 1997 and 1996, respectively. The diluted earnings
per share would have been $.42 and $.34 for the three month periods ended
September 30, 1997 and 1996 and $1.58 and $1.29 for the nine months ended
September 30, 1997 and 1996, respectively.
(3) OTHER LIABILITIES
Other noncurrent liabilities include the long-term portion of the Company's
professional and general liability, workers' compensation reserves and minority
interest.
(4) COMMITMENT AND CONTINGENCIES
Under certain agreements, the Company has committed or guaranteed an aggregate
of $13 million related principally to the Company's self-insurance programs and
as support for various debt instruments and loan guarantees.
Page Six of Thirteen Pages
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(5) SUBSEQUENT EVENTS
Subsequent to September 30, 1997 the Company agreed in principle to form a
limited liability company ("LLC") in Las Vegas, Nevada with Quorum Health
Group, Inc. ("Quorum"). Pursuant to the preliminary terms of this newly
created entity, the Company would contribute Valley Hospital Medical Center (a
417-bed acute care facility) and the newly constructed Summerlin Hospital (a
148-bed acute care facility) while Quorum would contribute cash and Desert
Springs Hospital (a 241-bed acute care facility). The Company expects to own a
64% interest in the LLC and Quorum will own a 36% interest. Completion of this
transaction, which is not expected to have a material effect on operating
income, is subject to execution of a definitive agreement which is currently
being negotiated. Pending satisfactory completion of an agreement, the Company
will record this transaction using the purchase method of accounting and
expects to record a significant gain which will be credited to equity in
accordance with SEC Staff Accounting Bulletin Number 51. The Company expects
this transaction to be completed during the fourth quarter of 1997.
Page Seven of Thirteen Pages
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The matters discussed in this report as well as the news releases issued from
time to time by the Company contain certain forward-looking statements that
involve risks and uncertainties, including, among other things, that the
majority of the Company's revenues are produced by a small number of its total
facilities, possible changes in levels and terms of reimbursement for the
Company's charges by government programs or other third party payors, the
ability of the Company to successfully integrate its recent and proposed
acquisitions and the ability to continue to finance its growth on favorable
terms.
RESULTS OF OPERATIONS
Net revenues increased 21% or $62 million for the three months ended September
30, 1997 and 23% or $198 million for the nine months ended September 30, 1997,
over the comparable prior year periods. Net revenues at hospital facilities
owned during both periods increased $33 million or 11% and $80 million or 10%
for the three and nine months ended September 30, 1997, respectively, over the
comparable prior year periods. Also contributing to the increase in net
revenues for the three and nine month periods was the acquisition of a 80%
interest in a partnership which owns the operations of a 501-bed acute care
facility located in Washington, DC (acquired during the third quarter of 1997)
and contributing to the increase in net revenues for the nine month period were
the acquisitions of a 357-bed medical complex located in Amarillo, Texas and
four behavioral health centers located in Pennsylvania (all of which were
acquired during the second quarter of 1996).
Earnings before interest, income taxes, depreciation, amortization and lease
and rental expense (EBITDAR) increased 10% or $5 million for the three months
ended September 30, 1997 and 19% or $29 million for the nine months ended
September 30, 1997 as compared to the comparable prior year periods. Overall
operating margins were 16% and 17% for the three months ended September 30,
1997 and 1996, respectively, and 18% for the nine months ended September 30,
1997 and 1996. The decrease in the overall operating margins during the 1997
third quarter as compared to the 1996 comparable quarter was due primarily to:
(i) lower operating margins generated at the operating entities of the medical
complex in Summerlin, Nevada which opened during the fourth quarter of 1996
(outpatient surgery center, medical office building and radiation therapy
center), and; (ii) lower operating margin generated at the 501-bed acute care
facility located in Washington, DC in which the Company acquired an 80%
interest in during the third quarter of 1997.
ACUTE CARE SERVICES
Net revenues from the Company's acute care hospitals, ambulatory treatment
centers and women's center accounted for 85% of consolidated net revenues for
the three month periods ended September 30, 1997 and 1996, and 85% and 86% of
consolidated net revenues for the nine month periods ended September 30, 1997
and 1996, respectively. Net revenues at the Company's acute care hospitals
owned during both periods increased 12% for the three months ended September
30, 1997 and 11% for the nine month period ended September 30, 1997, over the
comparable prior year periods. Inpatient admissions at these facilities
increased 8% and 5% for the three and nine month periods ended September 30,
1997 as compared to the comparable prior year periods, respectively. Patient
days at the Company's acute care facilities owned during both periods increased
5% and 4% for the three and nine months ended September 30, 1997 over the
comparable prior year periods, respectively. Outpatient activity at the
Company's acute care hospitals continues to increase as gross outpatient
revenues at the acute care facilities owned during both periods increased 12%
for each of the three and nine month periods ended September 30, 1997 over the
comparable prior year periods. Gross outpatient revenues comprised 27% of the
Company's acute care gross patient revenues during the third quarters of 1997
and 1996 and 26% for the nine months ended September 30, 1997 as compared
Page Eight of Thirteen Pages
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to 25% for the prior year nine month period. The increase is primarily the
result of advances in medical technologies, which allow more services to be
provided on an outpatient basis, and increased pressure from Medicare,
Medicaid, health maintenance organizations (HMOs), preferred provider
organizations (PPOs) and insurers to reduce hospital stays and provide
services, where possible, on a less expensive outpatient basis. To
accommodate the increased utilization of outpatient services, the Company has
expanded or redesigned several of its outpatient facilities and services.
BEHAVIORAL HEALTH SERVICES
Net revenues from the Company's behavioral health services facilities accounted
for 14% and 15% of the Company's consolidated net revenues for the three month
periods ended September 30, 1997 and 1996, respectively, and 15% and 14% of
consolidated net revenues for the nine month periods ended September 30, 1997
and 1996, respectively. Net revenues at the Company's behavioral health
centers owned during both periods increased 5% and 1% for the three and nine
month periods ended September 30, 1997 over the comparable prior year periods,
respectively. Inpatient admissions at these facilities increased 12% and 8%
during the three and nine month periods ended September 30, 1997 over the
comparable prior year periods, respectively. Patient days at the Company's
behavioral health services facilities increased 10% and 5% for the three and
nine month periods ended September 30, 1997 over the comparable prior year
periods, respectively. The average length of stay at these facilities were
12.0 days and 12.2 days for the quarters ended September 30, 1997 and 1996,
respectively, and 11.9 days and 12.3 days for the nine month periods ended
September 30, 1997 and 1996. The Company's behavioral health services
facilities continue to experience pressure from payors to reduce the average
length of stay as a large portion of the Company's behavioral health services'
revenues are reimbursed on a per diem basis. The reduction in the average
length of stay is a result of changing practices in the delivery of behavioral
health services and continued cost containment pressures from payors which
includes a greater emphasis on the utilization of outpatient services.
OTHER OPERATING RESULTS
Depreciation and amortization expense increased 4% or $800,000 for the three
months ended September 30, 1997 and 16% or $8 million for the nine months ended
September 30, 1997, over the comparable prior year periods due primarily to the
acquisitions mentioned above.
Interest expense decreased $700,000 or 13% for the three month period ended
September 30, 1997 and $1 million or 6% for the nine month period ended
September 30, 1997 over the comparable prior year periods due primarily to
lower average outstanding borrowings and the interest income generated on the
$40 million project fund restricted for the construction of a replacement acute
care facility in Washington, DC. In June 1996, the Company issued four million
shares of its Class B Common Stock at a price of $26 per share. The total net
proceeds of $99.1 million generated from this stock issuance were used to
partially finance the 1996 acquisitions of a 357-bed medical complex in
Amarillo, Texas and four behavioral health centers located in Pennsylvania.
The effective tax rate was 37% for each of the three and nine month periods
ended September 30, 1997 and 36% for each of the three and nine month periods
ended September 30, 1996.
GENERAL TRENDS
An increased proportion of the Company's revenue is derived from fixed payment
services, including Medicare and Medicaid which accounted for 49% of the
Company's net patient revenues for each of the three month periods ended
September 30, 1997 and 1996 and 50% for each of the nine month periods ended
September 30, 1997 and 1996, respectively. The Company expects the Medicare and
Medicaid revenues to increase as a larger portion of the general population
qualifies for coverage as a result of the aging of the population and
expansion of state Medicaid programs. The Medicare
Page Nine of Thirteen Pages
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program reimburses the Company's hospitals primarily based on established rates
by a diagnosis related group for acute care hospitals and by cost based formula
for behavioral health facilities.
In addition to the Medicare and Medicaid programs, other payors continue to
actively negotiate the amounts they will pay for services performed. In
general, the Company expects the percentage of its business from managed care
programs, including HMOs and PPOs to grow. The consequent growth in managed
care networks and the resulting impact of these networks on the operating
results of the Company's facilities vary among the markets in which the Company
operates.
In addition to the trends described above that continue to have an impact on
operating results, there are a number of other more general factors affecting
the Company's business. In August 1997, a five year budget plan was approved
which calls for a $115 billion reduction in the rate of increase in Medicare
spending over the next five years. Included in this proposal is a $39 billion
reduction in the future rate of increases to payments made to hospitals. No
assurance can be given that the implementation of this plan will not have a
material adverse effect on the Company's business. In Texas, a law has been
passed which mandates that the state senate apply for a waiver from current
Medicaid regulations to allow the state to require that certain Medicaid
participants be serviced through managed care providers. The Company is unable
to predict whether Texas will be granted such a waiver or the effect on the
Company's business of such waiver. Upon meeting certain conditions, and
serving a disproportionately high share of Texas' and South Carolina's low
income patients, three of the Company's facilities located in Texas and one in
South Carolina became eligible and received additional reimbursement from each
state's disproportionate share hospital fund. Included in the Company's
financials was an aggregate of $8.3 million and $4.7 million for the three
month periods ended September 30, 1997 and 1996 and $24.7 million and $10.1
million for the nine months ended September 30, 1997 and 1996, respectively,
received pursuant to the terms of these programs. These programs have been
renewed and are scheduled to terminate in the third quarter of 1998. The
Company cannot predict whether these programs will continue beyond the
scheduled termination dates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $154 million for the nine months
ended September 30, 1997 and $120 million for the nine months ended September
30, 1996. The $34 million net increase during the 1997 nine month period as
compared to the 1996 comparable period was due primarily to a $24 million
increase in the net income plus the addback of the non-cash charges
(depreciation, amortization and provision for self-insurance reserves) and a
$27 million increase in other net working capital changes partially offset by a
$10 million increase in income tax payments and a $7 million increase in
payments made in settlement of self-insurance reserves.
During the first nine months of 1997, the Company spent $104 million to finance
capital expenditures including a total of $56 million on the construction of a
new medical complex in Summerlin, Nevada (including a 148-bed acute care
facility which opened in the fourth quarter of 1997) and a new 129-bed
replacement facility in Edinburg, Texas which opened during the third quarter
of 1997. The Company also reduced outstanding debt by $5 million.
During the nine months of 1997, Company entered into a new revolving credit
agreement. The new agreement, which matures in July 2002, provides for up to
$300 million of borrowing capacity. During the term of this agreement, the
Company has the option to petition the banks to increase the borrowing capacity
to $400 million. The agreement provides for interest at the Company's option at
the prime rate, certificate of deposit plus 3/8% to 5/8%, Euro-dollar plus 1/4%
to 1/2% or money market. A facility fee ranging from 1/8% to 3/8% is required
on the total commitment. As of September 30, 1997, the Company had $265
million of unused borrowing capacity available under the terms of its new
revolving credit and existing commercial paper facilities.
Page Ten of Thirteen Pages
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Subsequent to September 30, 1997, the Company entered into interest rate
protection to fix the rate of interest on a notional principal amount of $50
million for a period of three years. The average fixed rate obtained through
these interest rate swaps is 6.125% including the Company's current borrowing
spread of .35%. The counterparty of these interest rate swaps has the right to
terminate the swap after the second year. The Company also entered into $75
million of forward starting interest rate swaps starting in August, 2000
locking in a fixed rate of 7.09% through August, 2010.
Page Eleven of Thirteen Pages
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PART II. OTHER INFORMATION
UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Deferred Compensation Plan for Universal Health Services Board of
Directors.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
11. Statement re computation of per share earnings is set forth on Page six in
Note 2 of the Notes to Condensed Consolidated Financial Statements.
All other items of this Report are inapplicable.
Page Twelve of Thirteen Pages
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UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Universal Health Services, Inc.
(Registrant)
Date: November 11, 1997 /s/ Kirk E. Gorman
------------------------------------------
Kirk E. Gorman, Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer).
Page Thirteen of Thirteen Pages
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EXHIBIT 10.1
UNIVERSAL HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
FOR UHS BOARD OF DIRECTORS
ARTICLE 1
PURPOSE
This Deferred Compensation Plan for UHS Board of Directors
(the "Plan") is established and maintained in order to enable
Universal Health Services, Inc. (the "Company") to attract and retain
qualified persons to serve as Directors, to provide Directors with an
opportunity to defer some or all of their Retainer as a means of
saving for retirement or other purposes, and to align the interests of
the Directors with those of the Company's shareholders by providing
such Directors with an opportunity to have the investment performance
of all or some portion of their Retainer deferred under the Plan
measured by the Company's stock performance and financial progress.
ARTICLE 2
EFFECTIVE DATE
The Plan is subject to the approval of the Company's Board
at its next regular meeting or, to the extent permitted by law, by
unanimous consent action without a meeting. Subject to the receipt of
such approval, the Plan shall be effective as of July 1, 1997.
ARTICLE 3
DEFINITIONS
Whenever used in the Plan, the following terms shall have
the respective meanings set forth below:
3.1 "Account" means, with respect to each Participant, the Participant's
separate individual account established and maintained for the
exclusive purpose of accounting for the Participant's deferred
Retainer and the investment performance thereon determined in
accordance with Article 5. A Participant's Account will be
comprised of Stock Units, dollar credits or a combination of both.
3.2 "Beneficiary" means, with respect to each Participant, the recipient
or recipients designated by the Participant in writing in accordance
with Article 7.
3.3 "Board" means the Board of Directors of the Company.
2
3.4 "Common Stock" means the Class B common stock of the Company listed
and traded on the New York Stock Exchange.
3.5 "Company" means Universal Health Services, Inc., a Delaware
corporation, and any successor thereto. Any provisions of this Plan
which authorize the Company to make a determination or to take other
steps shall require action by the appropriate members of the Board or,
if the Board specifically so delegates, by officers, employees or
other Company personnel.
3.6 "Director" means an individual who is a member of the Board, but
excluding those who are employees of the Company or any Subsidiary.
3.7 "Market Value" means the closing price of the Common Stock, as
published in The Wall Street Journal report of the New York Stock
Exchange-Composite Transactions on the date in question or, if the
Common Stock shall not have been traded on such date or if the New
York Stock Exchange is closed on such date, then the first day prior
thereto on which the Common Stock was so traded. If the Common Stock
ceases to be traded on the New York Stock Exchange, Market Value shall
be determined by the Company on the basis of quotes of other publicly
traded ask prices or, if none, such reasonable method as the Company
may determine.
3.8 "Participant" means any Director who has made an election to defer
payment of all or a portion of such person's Retainer.
3.9 "Retainer" means the designated annual cash retainer, currently paid
coincident with the date of each Board meeting for Directors as
established from time to time as annual compensation for services
rendered, but exclusive of reimbursements for expenses incurred in
performance of services as a Director.
3.10 "Stock Unit" means a unit of investment measure, derived by reference
to the Market Value of a share of Common Stock and credited to a
Participant's Account under this Plan. No certificates shall be
issued with respect to such Stock Units, but the Company shall
maintain only a bookkeeping Account in the name of the Participant
with respect to the Stock Units.
3.11 "Subsidiary" means any corporation in which the Company owns directly
or indirectly through its Subsidiaries, at least 50 percent of the
total combined voting power of all classes of stock, or any other
entity (including, but not limited to, partnerships and joint
ventures) in which the Company owns at least 50 percent of the
combined equity thereof.
3.12 "Termination" means retirement from the Board or termination of
services as a Director for disability, resignation or any reason
(other than death).
A-2
3
ARTICLE 4
ELECTION TO DEFER RETAINER
4.1 ELECTION TO DEFER
For calendar years after 1997, a Director may elect to defer receipt
of all or a specified portion of the Director's Retainer for a year by
filing with the Company, on or before December 31st of the preceding
year, a written election to defer. Subject to the terms and conditions
of the Plan, the written election to defer shall specify: (i) the
amount or percentage of the Retainer to be deferred, (ii) the future
date or time when deferred amounts should be paid, (iii) the method of
distribution to be used when deferred amounts are paid, (iv) the
investment measure to be used for crediting earnings on deferred
amounts during the period while held pursuant to the Plan, and (v)
such other information as the Company may consider necessary or
appropriate. If a Director elects to defer less than all of his or
her Retainer for the year, the deferred portion will be pro-rated
against each periodic payment of the Retainer made during the year.
Notwithstanding the foregoing:
(a) a Director may choose to participate in the Plan beginning
with the Retainer payable on or after July 1, 1997, by filing an
election to defer on or before July 15, 1997; and
(b) a Director (i) who fills a vacancy on the Company's Board
in mid-year and who was not a Director on the preceding December 31st,
or (ii) whose term of office otherwise does not begin until mid-year,
may choose to participate in the Plan beginning with the Retainer
payable for such year and after the date he or she assumes the
position of Director by filing an election to defer within 30 days
after the date he or she first assumes the position of Director.
4.2 PERIOD OF DEFERRAL
A Participant shall specify a period of deferral at the time
of his or her election to defer under Section 4.1. A period of
deferral represents the time upon which deferred amounts will first
begin to be paid and shall be the earlier of: (i) the Participant's
Termination or (ii) a fixed and determinable date specified by the
Participant, which shall be no later than the date the Participant
attains age 70 and which shall be no sooner than two years from the
date of the election to defer. A Participant's choice of a period of
deferral for deferred amounts for one year may be different than the
period of deferral specified for deferred amounts in earlier years,
but once a period of deferral has been specified by a Participant for
a deferred amount, the Participant may not change or modify the period
of deferral for such deferred amount.
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4.3 REVOCATION OF ELECTION
An election to defer pursuant to Section 4.1 may not be
revoked or modified (except as otherwise state herein) with respect to
the Retainer payable for a calendar year or portion of a calendar year
for which such election is effective. An election to defer filed with
the Company shall remain in effect for the Retainer payable in all
subsequent calendar years until such election is timely terminated or
modified by a Participant.
An effective election to defer may be terminated or modified
for any subsequent calendar year by the filing of another written
election to defer (or a written revocation of elections), on or before
December 31st of the calendar year preceding the calendar year for
which such modifications or termination is to be effective. Any
termination or modification of an election to defer with respect to
the Retainer payable in subsequent calendar years shall not alter or
change the election for deferred amounts under the Plan made prior to
the effective date of such termination or modification.
ARTICLE 5
INVESTMENT MEASURES ON DEFERRED AMOUNTS
5.1 CHOICE OF INVESTMENT MEASURES
When a Participant elects to defer under Section 4.1 for a
calendar year, the Participant shall specify the investment measure to
be used for purposes of crediting investments performance on deferred
amounts during the entire period of deferral. Participants may choose
between only two methods of investment measures consisting of: (i) a
fixed rate of return credited on an annual basis in accordance with
Section 5.2, or (ii) the investment performance of Company Common
Stock in accordance with Section 5.3.
A Participant may not divide or split the deferred amount for
a year between the two available methods of investment measure. A
Participant's choice of a method of investment measure for deferred
amounts for one year may be different than the method of investment
measure specified for deferred amounts in earlier years, but once a
Participant has selected a method of investment measure for the
deferred amounts for a year, the method of investment measure used for
such amounts will remain in effect for the entire period of deferral
and may not be changed by the Participant for such deferred amounts.
5.2 FIXED RATE OF RETURN
If a Participant specifies a fixed rate of return as the
measure of investment performance for deferred amounts, compound
interest shall be credited on an annual
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basis as of December 31st of each year or, as applicable, on a
pro-rated basis as of the last day preceding the date of payment of
deferred amounts. For the first year when deferred amounts are made,
interest shall be credited only from the date the Retainer would have
been paid, but for the election to defer, through the end of the year.
The interest rate shall be redetermined and set annually by
the Company's Chief Financial Officer and/or the Company's Vice
President/Controller, in their sole discretion. The determination of
the annual interest rate to be used for the next calendar year shall
be made no later than 45 days before the first day of such calendar
year and shall be communicated in writing to the Board by such date.
Once an annual interest rate has been set for a year, it shall remain
in effect for the entire year and may not be changed or modified until
the following year. The interest rate applicable for the period from
July 1, 1997 through December 31, 1997 shall be six percent (6%).
5.3 COMMON STOCK PERFORMANCE
(a) If a Participant specifies investment performance of
Company Common Stock as the measure of investment performance for
deferred amounts, the Participant's Account shall be credited with a
number of Stock Units for this purpose. The number of Stock Units to
be credited, on each date the deferred amount of the Retainer would
otherwise have been payable to the Participant but for the election to
defer, shall be equal to the whole and fractional Stock Units,
computed to three decimal places, obtained by dividing (i) the dollar
value of the deferred amount of the Retainer which otherwise would
have been payable to the Participant but for his or her election to
defer by (ii) the Market Value of the Common Stock on the date of the
Board meeting for which the Retainer would normally be paid but for
the election to defer.
(b) On each dividend payment date, if any, with respect
to the Common Stock, the Account of a Participant, with Stock Units
held pursuant to this Section, shall be credited with an additional
number of whole and fractional Stock Units, computed to three decimal
places, equal to (i) the product of the dividend per share of Common
Stock then payable, multiplied by the number of Stock Units then
credited to such Account; divided by (ii) the Market Value of the
Common Stock on the first day of the month which includes the dividend
payment date.
(c) The number of Stock Units credited to a Participant's
Account pursuant to this Section shall be appropriately adjusted for
any change in the Common Stock by reason of any merger,
reclassification, consolidation, recapitalization, stock dividend,
stock split or any other similar change affecting the Common Stock.
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ARTICLE 6
PAYMENT OF DEFERRED AMOUNTS
6.1 MANNER OF PAYMENT UPON TERMINATION OR FIXED DATE
(a) In accordance with the Participant's written election
to defer as provided in Section 4.1, the relevant portion of the
accumulated value of a Participant's Account shall be paid to the
Participant in the manner elected by the Participant either as (i) a
lump sum distribution within 30 days after, as applicable, the
Participant's Termination or the specified date for the period of
deferral, or (ii) in up to 10 annual installments commencing within 30
days after, as applicable, the Participant's Termination or the
specified date for the period of deferral. Once chosen, a Participant
may not change of modify his or her election of the manner of payment.
Payment shall be made only in cash. Stock Units shall be converted to
cash on the basis of the Market Value of the Common Stock on the first
day of the month in which the payment is made.
(b) If all or some portion of a Participant's Account is
paid in two or more annual installments:
(i) installments ordinarily will be paid on or about the
same date each year, but shall be paid on a date no
more than a period of 30 days following the
anniversary date of the initial installment;
(ii) any such payment in installments which has begun at
any time before a Participant's Termination shall
continue to be made without change or alteration,
unless the Company, in its sole discretion,
determines that the Participant's Termination was
involuntary and chooses to accelerate the payment of
any remaining installments by paying them in a single
cash lump sum payment;
(iii) investment performance shall continue to be credited
on the unpaid portion of the Account in accordance
with Article 5;
(iv) that portion of any installment representing Stock
Units will not be converted in accordance with
subsection (a) above to a cash equivalent until such
time when the value of the Stock Units will actually
be paid to the Participant; and
(v) the amount to be distributed in any one installment
shall be equal to the total value of the Account on
the first day of the month that includes the payment
date of the installation divided by the number of
installments remaining (including such installment).
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6.2 MANNER OF PAYMENT UPON DEATH
Notwithstanding the Participant's election, if a Participant
dies while an Account is held for the Participant, such Account will
be paid to the Beneficiary in a lump sum in cash within 90 days from
the date of the Participant's death. Upon written application by the
Beneficiary (including, if applicable, the legal representative for
the Participant's estate) filed within 45 days of the Participant's
death, the lump sum payment may be deferred for a reasonable period of
time beyond 90 days for good cause, if the Company consents in writing
to such deferral.
6.3 DETERMINATION
Any cash payments of Stock Units shall be calculated on the
basis of the Market Value of the Common Stock on the first day of the
month which includes the relevant date for payment or other
calculation, irrespective of installment payment dates or the date of
the Participant's death, as the case may be.
6.4 SMALL PAYMENT AMOUNTS
Notwithstanding any elections made by a Participant or
anything else in this Plan to the contrary, the Company shall pay to a
Participant (or, if appropriate, his or her Beneficiary) in a single
cash lump sum that portion of an Account which first becomes payable
at the end of a period of deferral if, at that time, the amount of
such portion is $10,000 or less.
6.5 FINANCIAL HARDSHIP
Notwithstanding any elections made by a Participant or
anything else in this Plan to the contrary, the Company shall pay all
or some portion of a Participant's Account if the Participant
establishes to the satisfaction of the Company that the Participant
has developed an immediate and heavy financial need. The amount of a
distribution under this Section on account of an immediate and heavy
financial need shall not exceed the amount required to relieve the
financial need. No distribution under this Section shall be made to
the extent the immediate and heavy financial need can be satisfied
from other financial resources of the Participant (including
liquidation of assets, cessation of contributions to tax-favored plans
or distributions or non-taxable loans from retirement plans) or
through reimbursement or compensation by insurance or otherwise.
For purposes of this Section, an "immediate and heavy
financial need" shall exist only if the Company determines the need to
arise from payments related to medical expenses for the Participant or
his or her dependents; needed to prevent eviction from the
Participant's principal residence; or needed to prevent foreclosure on
the mortgage of the Participant's principal residence.
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The Company may require the Participant to provide such
written statements, documentation and other evidence as the Company in
its discretion deems necessary or appropriate to establish immediate
and heavy financial need. Distributions on account of immediate and
heavy financial need shall be made first from that portion of the
Account, if any, where the investment measure is a fixed rate of
return, and then from the remaining portion, if any, where the
investment measure is Company Common Stock performance. Stock Units
shall be converted to cash on the basis of the Market Value of the
Common Stock on the first day of the month in which a distribution is
made. No Stock Unit may be converted to cash if held for less than
six months. A Participant who receives a distribution on account of
an immediate and heavy financial need shall cease to have deferred
amounts made under the Plan for the year in which the distribution is
made and may not make an election to defer for the following year.
ARTICLE 7
BENEFICIARY DESIGNATION
Each Participant shall be entitled to designate a Beneficiary
of Beneficiaries (which may be an entity other than a natural person)
who, following the Participant's death, will be entitled to receive
any payments to be made under Section 6.2. At any time, and from time
to time, any designation may be changed or canceled by the Participant
without the consent of any Beneficiary. Any designation, change, or
cancellation must be by written notice filed with the Company before
the Participant's date of death and shall not be effective until
received by the Company.
Payment shall be made in accordance with the last unrevoked
written designation of Beneficiary that has been signed by the
Participant and delivered by the Participant to the Company prior to
the Participant's death. If the Participant designates more than one
Beneficiary, any payments under Section 6.2 to the Beneficiaries shall
be made in equal shares unless the Participant has expressly
designated otherwise, in which case the payments shall be made in the
proportions designed by the Participant. If no Beneficiary has been
named by the Participant or if all Beneficiaries predecease the
Participant, payment shall be made to the Participant's estate.
ARTICLE 8
TRANSFERABILITY RESTRICTIONS
The Plan shall not in any manner be liable for, or subject to,
the debts and liabilities of any Participant or Beneficiary. No payee
may assign any payment due such party under the Plan. No benefits at
any time payable under the Plan, or interests in the Plan, shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, attachment, garnishment, levy, execution, or other
legal or equitable process, or encumbrance of any kind, including
without limitation by reason of any qualified or other domestic
relations order.
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ARTICLE 9
FUNDING POLICY
The Company's obligations under the Plan shall be totally
unfunded so that the Company or any Subsidiary is under merely a
contractual duty to make payments when due under the Plan. The
promise to pay shall not be represented by notes and shall not be
secured in any way. The Company, in its sole discretion, may take
action to establish a separate trust or trusts for purposes of holding
assets set aside in connection with the Plan, but the Plan and
obligations thereunder shall at all times remain unfunded.
ARTICLE 10
CHANGE OF CONTROL
Notwithstanding any provision of this Plan to the contrary, if
a "Change of Control" (as defined below) of the Company occurs, the
accumulated value of a Participant's Account on the day immediately
preceding the Change of Control will be paid in a cash lump sum to the
Participant not later than 15 days after the date of the Change of
Control. For this purpose, the cash equivalent of Stock Units in the
Account shall be determined by the higher of (a) the average of the
Market Value of the Common Stock for the last 20 trading days
immediately prior to such Change of Control or (b) if the Change of
Control of the Company occurs as a result of a tender or exchange
offer or consummation of a corporate transaction, then the highest
price paid per share of Common Stock pursuant thereto. Any
consideration (other than cash) forming a part or all of the
consideration for the Common Stock to be paid pursuant to the
applicable transaction shall be valued at the valuation price thereon
reasonably determined by the Board (other than those who are
Participants) serving on the day immediately before the Change of
Control.
In addition, if the Change of Control of the Company occurs,
the Company shall reimburse a Participant for the legal fees and
expenses incurred if the Participant is required to seek to obtain or
enforce any right to distribution or any other right under this plan.
In the event that it is determined that such Participant is properly
entitled to a cash distribution hereunder, such Participant shall also
be entitled to interest thereon at the prime rate of interest as
published in The Wall Street Journal plus two percent from the date
such distribution should have been made to and including the date it
is made. Notwithstanding any provisions of this Plan to the contrary,
the provisions of this Plan may not be amended by an amendment
effected at any time within three years following a Change of Control.
For the purposes of this Plan, Change of Control shall mean:
the purchase or other acquisition by any person, entity or group of
persons, within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 ("Act"), or any comparable successor
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provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 30 percent or more of either the
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each cash, with respect
to which persons who were stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not,
immediately, thereafter, own more than 50 percent of the combined
voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated Company's then outstanding
securities, or a liquidation or dissolution of the Company or of the
sale of all or substantially all of the Company's assets. The Board
(other than those who are Participants) shall have the duty to make a
determination as to those events which give rise to a Change of
Control and shall do so prior to the occurrence of a Change of
Control.
ARTICLE 11
ADMINISTRATION
The Plan shall be administered by the Company. The Company
shall have authority to interpret and construe the Plan, and to
prescribe, amend and rescind rules and regulations relating to the
administration of the Plan, and all such interpretations, rules and
regulations shall be conclusive and binding on all Directors and
Participants. The Company may employ agents, attorneys, accountants,
or other persons (who also may be employees of a Subsidiary) and
allocate or delegate to them powers, rights, and duties, all as the
Company in its discretion may consider necessary or advisable to
properly carry out the administration of the Plan.
Upon the request of a Participant, and not more frequent than
once each calendar year, the Company shall provide the Participant
with a written statement showing the total value of the Participant's
Account as of a date selected by the Company, the portion of the total
Account allocated to each of the investment measures, the date on
which payment of deferred amounts are expected to be made, the manner
in which payments will be made and such other information as the
Company in its sole discretion deems necessary or appropriate.
ARTICLE 12
AMENDMENT AND TERMINATION
The Company, by resolution duly adopted by the Board, shall
have the right, authority and power to alter, amend, modify, revoke,
or terminate the Plan; except as provided in Article 10; and provided
further, that no amendment or termination of the Plan shall adversely
affect the rights of any Participant with respect to any Stock Units
or other amounts credited such Participant's Account, unless the
Participant shall consent thereto in writing.
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ARTICLE 13
MISCELLANEOUS
13.1 NO RIGHT TO CONTINUE AS A DIRECTOR
Nothing in this Plan shall be construed as conferring upon a
Participant any right to continue as a member of the Board.
13.2 NO INTEREST AS A SHAREHOLDER
Stock Units do not give a Participant any voting, dividend or
other rights whatsoever with respect to shares of Common Stock.
13.3 NO RIGHT TO CORPORATE ASSETS
Nothing in this plan shall be construed as giving the
Participant, the Participant's designated Beneficiaries or any other
person any equity or interest of any kind in the assets of the Company
or any Subsidiary or creating a trust of any kind or a fiduciary
relationship of any kind between the Company or any Subsidiary and any
person. As to any claim for payments due under the provisions of the
Plan, a Participant, Beneficiary and any other persons having a claim
for payments shall be mere unsecured creditors of the Company or any
Subsidiary.
13.4 TAX WITHHOLDING; OTHER TAX CONSEQUENCES
A Director shall be solely responsible for determining and
providing for the timely payment of federal, state and local income
and other taxes incident to deferred amounts of the Retainer pursuant
to the Plan. The Company is authorized to make such arrangements and
establish such procedures as they determine may be necessary or
appropriate for any reporting or withholding obligations they may have
under the tax laws.
13.5 PAYMENT TO LEGAL REPRESENTATIVE FOR PARTICIPANT
In the event the Company shall find that a Participant is
unable to care for his or her affairs because of illness or accident,
the Company may direct that any payment due the Participant be paid to
the Participant's duly appointed legal representative, and any such
payment so made shall be a complete discharge of the liabilities of
the Plan.
13.6 NO LIMIT ON FURTHER CORPORATE ACTION
Nothing contained in the Plan shall be construed so as to
prevent the Company or any Subsidiary from taking any corporate action
which is deemed by the Company or any Subsidiary to be appropriate or
in its best interest.
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13.7 GOVERNING LAW
The Plan shall be construed and administered according to the
laws of the State of Delaware to the extent that those laws are not
preempted by the laws of the United States of America.
13.8 HEADINGS
The headings of articles, sections, subsections, paragraphs or
other parts of the Plan are for convenience of reference only and do
not define, limit, construe, or otherwise effect its contents.
IN WITNESS WHEREOF, the undersigned has signed and dated this
Plan on the 17th day of September, 1997.
UNIVERSAL HEALTH SERVICES, INC.
By: /s/Alan B. Miller
-----------------
Date: 9/17/97
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1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
7,919
0
166,750
0
27,468
215,929
976,937
313,947
1,082,477
179,148
272,245
0
0
324
510,455
1,082,477
0
1,046,373
0
781,580
87,367
80,193
14,906
82,327
30,071
52,256
0
0
0
52,256
1.58
1.58
