KING OF PRUSSIA, Pa., Feb. 26, 2020 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $245.2 million, or $2.79 per diluted share, during the fourth quarter of 2019 as compared to $158.1 million, or $1.70 per diluted share, during the comparable quarter of 2018. Net revenues increased 5.1% to $2.896 billion during the fourth quarter of 2019 as compared to $2.754 billion during the fourth quarter of 2018.

Included in our reported, and our adjusted, net income attributable to UHS during the fourth quarter of 2019 is a pre-tax unrealized gain of $16.7 million, or $.15 per diluted share (included in "Other (income), expense, net"), resulting from an increase in the market value of shares of certain marketable securities held for investment and classified as available for sale. Included in our reported, and our adjusted, net income attributable to UHS during the fourth quarter of 2018 is a pre-tax unrealized loss of $12.5 million, or $.10 per diluted share, resulting from a decrease in the market value of these shares.

As indicated on the attached Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), there were no significant adjustments made to our reported net income attributable to UHS during the fourth quarter of 2019.

As reflected on the Supplemental Schedule, our adjusted net income attributable to UHS during the fourth quarter of 2018 was $220.1 million, or $2.37 per diluted share, Included in our reported results during the fourth quarter of 2018, is a net aggregate unfavorable after-tax impact of $62.0 million, or $.67 per diluted share, consisting primarily of the following: (i) an unfavorable after-tax impact of $24.5 million, or $.26 per diluted share, resulting from a $31.9 million pre-tax increase in the reserve established in connection with the civil aspects of the government's investigation of our behavioral health care facilities ("DOJ Reserve"), as discussed below, and; (ii) an unfavorable after-tax impact of $37.7 million, or $.41 per diluted share, resulting from a $49.3 million provision for intangible asset impairment, as discussed below.

As calculated on the attached Supplemental Schedule, our earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI", NCI is net income attributable to noncontrolling interests), was $485.1 million during the fourth quarter of 2019 as compared to $359.9 million during the fourth quarter of 2018. Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impacts of other (income) expense, net, as well as the unfavorable impact of the above-mentioned increase in the DOJ Reserve and provision for asset impairment, was $465.8 million during the fourth quarter of 2019 as compared to $453.6 million during the fourth quarter of 2018.

Consolidated Results of Operations, As Reported and As Adjusted – Twelve-month periods ended December 31, 2019 and 2018:Reported net income attributable to UHS was $814.9 million, or $9.13 per diluted share, during the twelve-month period ended December 31, 2019 as compared to $779.7 million, or $8.31 per diluted share, during the comparable twelve-month period of 2018. Net revenues increased 5.6% to $11.378 billion during 2019 as compared to $10.772 billion during 2018.

Included in our reported, and our adjusted, net income attributable to UHS are pre-tax unrealized gains of $4.1 million, or $.04 per diluted share, during the twelve-month period ended December 31, 2019, and $6.0 million, or $.05 per diluted share, during the twelve-month period ended December 31, 2018. As discussed above, these unrealized gains resulted from increases in the market value of shares of certain marketable securities held for investment and classified as available for sale.

For the twelve-month period ended December 31, 2019, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, was $891.8 million, or $9.99 per diluted share, as compared to $894.4 million, or $9.53 per diluted share, during the twelve-month period of 2018.

As reflected on the Supplemental Schedule, included in our reported results during the twelve-month period ended December 31, 2019, is an aggregate net unfavorable after-tax impact of $77.0 million, or $.86 per diluted share, resulting from: (i) an unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment, as discussed below; (ii) an unfavorable after-tax impact of $14.6 million, or $.16 per diluted share, resulting from an increase in the DOJ Reserve and the net estimated federal and state income taxes due on the portion of the DOJ Reserve that is estimated to be non-deductible for income tax purposes, as discussed below, and; (iii) a favorable after-tax impact of $12.2 million, or $.14 per diluted share, resulting from our adoption of ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09").

As reflected on the Supplemental Schedule, included in our reported results during the twelve-month period ended December 31, 2018, is a net aggregate unfavorable after-tax impact of $114.6 million, or $1.22 per diluted share, consisting of: (i) an unfavorable after-tax impact of $78.2 million, or $.83 per diluted share, resulting from a $102.3 million pre-tax increase in the DOJ Reserve, as discussed below; (ii) an unfavorable after-tax impact of $37.7 million, or $.40 per diluted share, resulting from a $49.3 million provision for intangible asset impairment, as discussed below, partially offset by; (iii) a favorable after-tax impact of $1.2 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09.

As calculated on the attached Supplemental Schedule, our EBITDA net of NCI, was $1.707 billion during the twelve-month period ended December 31, 2019 as compared to $1.624 billion during the twelve-month period ended December 31, 2018. Our Adjusted EBITDA net of NCI, which excludes the impacts of other (income) expense, net, as well as the unfavorable impacts of the above-mentioned provisions for asset impairment and increases in the DOJ Reserve, was $1.802 billion during the twelve-month period ended December 31, 2019 as compared to $1.762 billion during the twelve-month period ended December 31, 2018.

Acute Care Services – Three and twelve-month periods ended December 31, 2019 and 2018:During the fourth quarter of 2019, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 2.1% and adjusted patient days increased 6.0%, as compared to the fourth quarter of 2018. At these facilities, net revenue per adjusted admission increased 5.3% while net revenue per adjusted patient day increased 1.4% during the fourth quarter of 2019 as compared to the fourth quarter of 2018. Net revenues from our acute care services on a same facility basis increased 7.9% during the fourth quarter of 2019 as compared to the fourth quarter of 2018.

During the twelve-month period ended December 31, 2019, at our acute care hospitals on a same facility basis, adjusted admissions increased 4.8% and adjusted patient days increased 5.7%, as compared to the full year of 2018. At these facilities, net revenue per adjusted admission increased 2.5% while net revenue per adjusted patient day increased 1.7% during the twelve-month period ended December 31, 2019 as compared to the full year of 2018. Net revenues from our acute care services on a same facility basis increased 7.7% during 2019 as compared to 2018.

Behavioral Health Care Services – Three and twelve-month periods ended December 31, 2019 and 2018:During the fourth quarter of 2019, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 0.8% while adjusted patient days increased 0.9% as compared to the fourth quarter of 2018. At these facilities, net revenue per adjusted admission increased 4.0% while net revenue per adjusted patient day increased 3.9% during the fourth quarter of 2019 as compared to the comparable quarter in 2018. On a same facility basis, our behavioral health care services' net revenues increased 4.5% during the fourth quarter of 2019 as compared to the fourth quarter of 2018.

During the twelve-month period ended December 31, 2019, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 1.2% while adjusted patient days increased 0.6% as compared to the full year of 2018. At these facilities, net revenue per adjusted admission increased 2.2% while net revenue per adjusted patient day increased 2.7% during the full year of 2019 as compared to 2018. On a same facility basis, our behavioral health care services' net revenues increased 3.1% during the twelve-month period ended December 31, 2019 as compared to the full year of 2018.

Net Cash Provided by Operating Activities and Share Repurchase Program:For the twelve months ended December 31, 2019, our net cash provided by operating activities increased to $1.438 billion as compared to $1.275 billion generated during the full year of 2018. The $164 million net increase was due to: (i) a favorable change of $110 million resulting from an increase in net income plus/minus depreciation and amortization expense, stock-based compensation expense, provision for asset impairment, net gains on sale of assets and costs related to extinguishment of debt; (ii) a favorable change of $29 million in accrued and deferred income taxes, and; (iii) $25 million of other combined net favorable changes.

In conjunction with our January 1, 2019 adoption of ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities", we have included the net cash outflows/inflows, which were paid/received in connection with foreign exchange contracts that hedge our investment in the U.K., in investing cash flows on the consolidated statements of cash flows. During the twelve-month period ended December 31, 2019, in connection with foreign exchange contracts that hedge our investment in the U.K., we had $19.8 million of net cash outflows, as compared to $66.2 million of net cash inflows during the year ended December 31, 2018. Prior to 2019, these net outflows/inflows were included in operating cash flows. Prior period amounts have been reclassified to conform with current year presentation on the consolidated statements of cash flows included herein.

In July, 2019, our Board of Directors authorized a $1.0 billion increase to our stock repurchase program, which increased the aggregate authorization to $2.7 billion from the previous $1.7 billion authorization approved in various increments since 2014. Pursuant to this program, which had an aggregate available repurchase authorization of $756.1 million as of December 31, 2019, shares of our Class B Common Stock may be repurchased, from time to time as conditions allow, on the open market or in negotiated private transactions.

In conjunction with our stock repurchase program, during the fourth quarter of 2019, we have repurchased approximately 1.29 million shares at an aggregate cost of $181.2 million (approximately $141 per share). During the full year of 2019, we have repurchased approximately 5.40 million shares at an aggregate cost of $706.2 million (approximately $131 per share). Since inception of the program in 2014 through December 31, 2019, we have repurchased approximately 16.07 million shares at an aggregate cost of approximately $1.94 billion (approximately $121 per share).

Agreement in Principle with DOJ's Civil Division and DOJ Reserve:As previously disclosed on July 25, 2019, we have reached an agreement in principle with the DOJ's Civil Division, and on behalf of various states' attorneys general offices, to resolve the civil aspect of the government's investigation of our behavioral health care facilities for $127 million subject to requisite approvals and preparation and execution of definitive settlement and related agreements. At that time, we also disclosed that we were further advised that the previously disclosed investigations being conducted by the DOJ's Criminal Frauds Section in connection with these matters had been closed.

In connection with the agreement in principle with the DOJ's Civil Division, during the twelve-month period ended December 31, 2019, we recorded a pre-tax increase of approximately $11.0 million in the DOJ Reserve, which includes related fees and costs due to or on behalf of third-parties. There was no change to the DOJ Reserve during the fourth quarter of 2019. The aggregate pre-tax DOJ Reserve amounted to approximately $134 million as of December 31, 2019. As of December 31, 2018, the aggregate pre-tax DOJ Reserve amounted to approximately $123 million, including pre-tax increases of $31.9 million and $102.3 million recorded during the three and twelve-month periods ended December 31, 2018, respectively.

In late August, 2019, we received the initial draft of the settlement agreement from the DOJ's Civil Division. Negotiations regarding the terms and conditions of the settlement agreement continue. Based upon the terms and provisions included in the draft settlement agreement, and related subsequent discussions, our financial statements for the twelve-month period ended December 31, 2019 include an unfavorable provision for income taxes of $6.2 million resulting from the net estimated federal and state income taxes due on the portion of the aggregate pre-tax DOJ Reserve that is estimated to be non-deductible for income tax purposes.

Since the agreement in principle with the DOJ's Civil Division is subject to certain required approvals and negotiation and execution of definitive settlement agreements, as well as finalization and execution of a corporate integrity agreement with the Office of Inspector General for the United States Department of Health and Human Services, we can provide no assurance that definitive agreements will ultimately be finalized. We therefore can provide no assurance that final amounts paid in settlement or otherwise, or associated costs, or the income tax deductibility of such payments, will not differ materially from our established reserve and assumptions related to income tax deductibility. Please see Item 3-Legal Proceedings in our Form 10-K for the year ended December 31, 2019 for additional disclosure in connection with this matter.

Provision for Asset Impairment – Foundations Recovery Network Our financial results for twelve-month period ended December 31, 2019, include an aggregate pre-tax provision for asset impairment of $97.6 million recorded in connection with Foundations Recovery Network, L.L.C. ("Foundations"), which was acquired by us in 2015. This pre-tax provision for asset impairment includes: (i) a $74.9 million impairment provision to write-off the carrying value of the Foundations' tradename intangible asset, and; (ii) a $22.7 million impairment provision to reduce the carrying value of real property assets of certain Foundations' facilities.

Our financial results for the three and twelve-month periods ended December 31, 2018, include a pre-tax provision for asset impairment of $49.3 million to reduce the carrying value of a tradename intangible asset to approximately $75 million from approximately $124 million as originally recorded in connection with our acquisition of Foundations.

These provision for asset impairments, which are included in other operating expenses in our consolidated statements of income for the all applicable periods, were recorded after evaluation of the estimated fair value of the Foundations' tradename as well as certain related real property assets. The provisions for asset impairments were impacted by the following: (i) decisions made by management during 2019 to cancel the opening of future planned de novo facilities; (ii) reductions in projected future patient volumes, revenues and cash flows based upon the operating trends and financial results experienced by existing facilities that significantly lagged expectations, and; (iii) competitive pressures experienced in certain markets that were deemed to be permanent.

2020 Operating Results Forecast:Reflected below is our 2020 guidance range for consolidated net revenues, earnings before interest, taxes, depreciation & amortization, and the impacts of other income/expense and net income attributable to noncontrolling interests ("Adjusted EBITDA net of NCI"), adjusted net income attributable to UHS per diluted share ("Adjusted EPS-diluted") and capital expenditures.

Adjusted EPS-diluted and Adjusted EBITDA net of NCI, are non-GAAP financial measures and should be examined in connection with net income determined in accordance with GAAP as presented in the consolidated financial statements and notes thereto in this report or in our filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2019. Please see the Supplemental Non-GAAP Disclosures - 2020 Operating Results Forecast schedule as included herein for additional information and a reconciliation to the financial forecasts as computed in accordance with GAAP.

Our 2020 guidance contains a number of assumptions including, but not limited to, the following:

• The 2020 forecasted amounts exclude the impact of future items, if applicable, that are nonrecurring or non-operational in nature including items such as changes in the DOJ Reserve (including the income tax deductibility assumptions) established in connection with the agreement in principle with the Department of Justice-Civil Division (see below for additional disclosure), pre-tax unrealized gains/losses resulting from increases/decreases in the market value of shares of certain marketable securities held for investment and classified as available for sale, our adoption of ASU 2016-09, and other potential material items including, but not limited to, reserves for various matters including settlements, legal judgments and lawsuits, potential impacts of non-ordinary course acquisitions, divestitures, joint ventures or other strategic transactions, costs related to extinguishment of debt, gains/losses on sales of assets and businesses, impairment of long-lived and intangible assets, other amounts that may be reflected in the current financial statements that relate to prior periods, and the impact of share repurchases that differ from included assumptions. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.
• Our net revenues are estimated to be approximately $11.960 billion to $12.116 billion representing an increase of approximately 5.1% to 6.5% over our 2019 net revenues of approximately $11.378 billion.
• Our Adjusted EBITDA net of NCI is estimated to be approximately $1.823 billion to $1.902 billion representing an increase of approximately 1.1% to 5.5% over our 2019 Adjusted EBITDA net of NCI of $1.802 billion.
• The Adjusted EPS-diluted guidance range of $10.30 per diluted share to $11.00 per diluted share represents an increase of approximately 3.1% to 10.1% over our adjusted net income attributable to UHS of $9.99 per diluted share for the year ended December 31, 2019, as calculated on the attached Supplemental Schedule.

Conference call information: We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on February 27, 2020. 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. Also, a replay of the call will be available following the conclusion of the live call and will be available for one full year.

Adoption of ASU 2016-02, "Leases (Topic 842): Amendments to the FASB Accounting Standards Codification":Effective January 1, 2019, we adopted ASU 2016-02 which requires companies to, among other things, recognize lease assets and lease liabilities on the balance sheet. Our consolidated balance sheet as of December 31, 2019 includes right of use assets-operating leases and operating lease liabilities (current and noncurrent) recorded in connection with our adoption of ASU 2016-02. Prior period financial statements were not adjusted for the effects of this new standard.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:One of the nation's largest and most respected providers of hospital and healthcare services, Universal Health Services, Inc. has built an impressive record of achievement and performance. Growing steadily since our inception into an esteemed Fortune 500 corporation, our annual revenues were $11.378 billion during 2019. In 2020, UHS was again recognized as one of the World's Most Admired Companies by Fortune; in 2019 ranked #293 on the Fortune 500; and in 2017, listed #275 in Forbes inaugural ranking of America's Top 500 Public Companies.

Our operating philosophy is as effective today as it was 40 years ago, enabling us to provide compassionate care to our patients and their loved ones. Our strategy includes building or acquiring high quality hospitals in rapidly growing markets, investing in the people and equipment needed to allow each facility to thrive, and becoming the leading healthcare provider in each community we serve.

Headquartered in King of Prussia, PA, UHS has more than 90,000 employees and through its subsidiaries operates 26 acute care hospitals, 328 behavioral health facilities, 42 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and various related services located in 37 U.S. states, Washington, D.C., Puerto Rico and the United Kingdom. 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, 2019), 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.

We believe that adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share, EBITDA net of NCI and Adjusted EBITDA net of NCI, 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 impacting our net income attributable to UHS, such as, changes in the reserve established in connection with our discussions with the Department of Justice, our adoption of ASU 2016-09 and other potential material items that are nonrecurring or non-operational in nature including, but not limited to, impairments of long-lived and intangible assets, reserves for various matters including settlements, legal judgments and lawsuits, costs related to extinguishment of debt, gains/losses on sales of assets and businesses, 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 attributable to UHS, as determined in accordance with GAAP, and 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 Reports on Form 10-K for the year ended December 31, 2019. 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.

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