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8-K - FORM 8-K - UNITED SURGICAL PARTNERS INTERNATIONAL INCd71185e8vk.htm
Exhibit 99.1
(UNITED SURGICAL PARTNERS LOGO)
     
Contact:
  Mark A. Kopser
 
  Executive Vice President and Chief Financial Officer
 
  (972) 713-3500
UNITED SURGICAL PARTNERS INTERNATIONAL
ANNOUNCES FOURTH QUARTER AND YEAR-END 2009 RESULTS
Highlights:
For the year:
  Added 11 facilities
 
  Operating income growth of 15%
 
  Systemwide revenue growth of 10%
 
  U.S. same-facility revenue growth of 8%
For the quarter:
  Added five facilities
 
  Operating income growth of 12%
 
  Systemwide revenue growth of 10%
 
  U.S. same-facility revenue growth of 7%
Dallas, Texas (February 25, 2010) – United Surgical Partners International, Inc. (“USPI” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2009.
Fourth Quarter Financial Results
     For the quarter ended December 31, 2009, consolidated net revenues were $156.5 million compared with $160.3 million in the prior year period. On a year-over-year basis, consolidated net revenues were reduced by $9.7 million due to the deconsolidation of facilities that are now accounted for under the equity method. Operating income for the fourth quarter increased 12% to $60.5 million as compared with $54.2 million for the prior year period. Operating income margin for the fourth quarter of 2009 increased 490 basis points to 38.7% from 33.8% in the prior year period. For the quarter, EBITDA less noncontrolling interests increased 7% to $52.7 million from $49.4 million in the prior year period.
     The operating results in the quarter were driven by strong same-facility revenue growth and an increase in margins. The improvement in margins was primarily a result of U.S. same-facility revenue growth and improved expense management. Same-facility margins in the U.S. increased 200 basis points. In addition, consolidated margins were benefited by the continued growth in equity in earnings of unconsolidated affiliates, which grew 29% in the fourth quarter.
     Cash flows from operating activities for the fourth quarter totaled $40.0 million compared with $37.8 million for the prior year period. During the fourth quarter, the Company and its consolidated subsidiaries invested approximately $5.8 million in maintenance capital expenditures and an additional $9.0 million to develop new facilities and expand existing facilities.
Full Year Financial Results
     For the year ended December 31, 2009, consolidated net revenues were $622.4 million compared with $642.2 million in the prior year period. Operating income for 2009 increased 15% to $229.7 million as compared with $199.8 million for 2008. Operating income margin for the year ended December 31, 2009, increased 580 basis points to 36.9% from 31.1% in the prior year. For the year ended December 31, 2009, EBITDA less noncontrolling interests increased 11% to $201.2 million from $181.4 million in the prior year. On a year-over-year basis, the strengthening of the U.S. dollar reduced net revenue and operating income by $18.9 million and $4.2 million, respectively.
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 2
February 25, 2010
     Cash flows from operating activities for the year ended December 31, 2009, totaled $185.2 million, compared with $145.6 million for the prior year. During 2009, the Company and its consolidated subsidiaries invested approximately $15.0 million in maintenance capital expenditures and an additional $16.8 million to develop new facilities and expand existing facilities.
Systemwide Financial Results
     Due in large part to the Company’s partnerships with physicians and not-for-profit healthcare systems, the Company does not consolidate 109 of the 169 facilities it operates. To help analyze results of operations, management uses an operating measure called systemwide revenue growth, which includes revenues of both consolidated and unconsolidated facilities. While revenues of the Company’s unconsolidated facilities are not recorded as revenues by USPI, equity in earnings of unconsolidated affiliates, which increased $14.7 million, or 31% in 2009, is a significant and growing portion of the Company’s overall earnings. In addition to overall systemwide revenue growth, USPI calculates growth rates and operating margins for the facilities that were operational in both the current and prior year periods, a group the Company refers to as same –store or same –facility measures. This group also consists of both consolidated and unconsolidated facilities.
     For the quarter and year ended December 31, 2009, systemwide net revenues increased 10%. Approximately two-thirds of this increase was a result of increases in U.S. same-facility net revenue, which grew by 7% and 8% for the quarter and year ended December 31, 2009, respectively. The remaining one-third of the increase was a result of the impact of acquiring additional facilities, net of the effect of sold facilities, and, with respect to the full year period, by the strengthening of the U.S. dollar.
Revenue Analysis
     The revenues of the facilities operated by the Company increased on a year-over-year basis, but consolidated and unconsolidated revenues were also affected by other transactions and a strengthening U.S. dollar. The table below lists the key drivers of year-over-year changes in revenues.
                                 
    Three Months Ended     Year Ended  
    December 31, 2009     December 31, 2009  
    As Reported Under GAAP     Unconsolidated     As Reported Under GAAP     Unconsolidated  
 
Total revenues, period ended December 31, 2008
  $ 160,259     $ 277,449     $ 642,223     $ 998,483  
Add: Revenue from acquired facilities
    2,584       17,198       23,467       68,098  
Less: Revenue of disposed facilities
          (7,123 )           (29,799 )
Less: Revenue of deconsolidated facilities
    (9,742 )     9,742       (42,420 )     42,420  
Impact of exchange rate
    1,056             (18,884 )      
           
Adjusted base period
    154,157       297,266       604,386       1,079,202  
Operating growth
    3,587       22,702       17,848       93,761  
Non-facility based revenue
    (1,267 )     4,609       131       1,455  
           
Total revenues, period ended December 31, 2009
  $ 156,477     $ 324,577     $ 622,365     $ 1,174,418  
     
Development Activity
     During the year, the Company added eleven facilities and completed the sale of its interest in six facilities. At December 31, 2009, the Company had eight facilities under development, of which four were under construction; one of these facilities opened in February 2010. In addition to the six divestitures, the Company deconsolidated the financial results of four facilities that it continues to operate.
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 3
February 25, 2010
Other Transactions
     In the three months ended December 31, 2009, the Company paid a special cash dividend of approximately $89.0 million on its common stock. The proceeds of the dividend were used by USPI Holdings, Inc., the Company’s sole stockholder, to pay a special cash dividend on its common stock. In turn, the proceeds were used by USPI Group Holdings, Inc., the sole stockholder of USPI Holdings, Inc., to pay dividends currently accrued on its preferred stock. In addition, the Company recorded an $8 million loss related to the sale and deconsolidation of three facilities.
Summary
     Commenting on the results, William H. Wilcox, USPI’s chief executive officer, said, “Overall, we are pleased with the performance of our company in 2009. Solid financial results were achieved despite a difficult economic environment.”
Impact of Adoption of SFAS No. 160
     Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51,” now codified in the FASB’s Accounting Standards Codification, Topic 810, Consolidation (“ASC 810”) which requires changes to the financial statement presentation. Net income attributable to noncontrolling interests, previously referred to as minority interests in the income of consolidated subsidiaries, is now reported after net earnings. This change results in pretax income being subtotaled before net income attributable to noncontrolling interests has been subtracted.
     In addition, a portion of the noncontrolling interests in the Company’s subsidiaries is now included as a component of total equity on the Company’s consolidated balance sheet. Cash flows related to noncontrolling interests are also classified differently under ASC 810. Cash flows from operating activities no longer include distributions of earnings to noncontrolling interests; under ASC 810 those amounts are classified within financing activities, as are certain amounts previously classified within investing activities. The impact of all of these presentation changes has been reflected in all periods presented.
     The live broadcast of USPI’s fourth quarter and year-end conference call will begin at 10:00 a.m. Eastern Time on February 26, 2010. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast. A link to these events can be found on the Company’s website at www.unitedsurgical.com or at www.earnings.com. Additional financial information pertaining to United Surgical Partners International may be found by visiting the Investor Relations section of the Company’s website.
     USPI, headquartered in Dallas, Texas, currently has ownership interests in or operates 169 surgical facilities. Of the Company’s 165 domestic facilities, 111 are jointly owned with not-for-profit healthcare systems. The Company also operates four facilities in London, England.
     The above includes forward-looking statements based on current management expectations. Numerous factors exist that may cause results to differ from these expectations. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties relating to the Company, including without limitation, (i) reduction in reimbursement from payors; (ii) the Company’s ability to attract physicians and retain qualified management and personnel; (iii) the Company’s significant leverage; (iv) geographic concentrations of certain of the Company’s operations; (v) risks associated with the Company’s acquisition and development strategies; (vi) the regulated nature of the healthcare industry; (vii) the highly competitive nature of the healthcare business; and (viii) those risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission. Therefore, the Company’s actual results may differ materially. The Company undertakes no obligation to update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 4
February 25, 2010
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Statements of Income

(in thousands, except number of facilities)
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
 
Revenues
  $ 156,477     $ 160,259     $ 622,365     $ 642,223  
 
                               
Equity in earnings of unconsolidated affiliates
    18,661       14,480       61,771       47,042  
 
                               
Operating expenses:
                               
Salaries, benefits and other employee costs
    44,060       46,051       174,148       184,871  
Medical services and supplies
    26,654       27,317       102,673       112,499  
Other operating expenses
    24,728       26,267       94,633       107,659  
General and administrative expenses
    9,061       10,222       38,769       40,155  
Provision for doubtful accounts
    1,405       1,612       8,958       7,568  
Depreciation and amortization
    8,687       9,055       35,297       36,757  
           
Total operating expenses
    114,595       120,524       454,478       489,509  
           
Operating income
    60,543       54,215       229,658       199,756  
Interest expense, net
    (17,162 )     (19,819 )     (68,285 )     (82,421 )
Other, net
    (8,936 )     (1,327 )     (28,082 )     (1,790 )
           
Income from continuing operations before income taxes
    34,445       33,069       133,291       115,545  
Income tax benefit (expense)
    (9,407 )     (3,648 )     97       (22,333 )
           
Income from continuing operations
    25,038       29,421       133,388       93,212  
Discontinued operations, net of tax
          338             (560 )
           
Net income
    25,038       29,759       133,388       92,652  
Less: Net income attributable to noncontrolling interests
    (16,515 )     (13,869 )     (63,722 )     (55,138 )
           
Net income attributable to USPI’s common stockholder
  $ 8,523     $ 15,890     $ 69,666     $ 37,514  
     
 
                               
Supplemental Data:
                               
Facilities operated at period end
    169       164       169       164  
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 5
February 25, 2010
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Balance Sheets

(in thousands)
                 
    Dec. 31,     Dec. 31,  
    2009     2008  
     
ASSETS
 
               
Current assets:
               
Cash and cash equivalents
  $ 34,890     $ 49,435  
Accounts receivable, net of allowance for doubtful accounts of $8,160 and $11,544, respectively
    54,237       57,213  
Other receivables
    15,246       17,070  
Inventories
    8,789       9,079  
Deferred tax assets, net
    16,400        
Other
    14,382       11,735  
     
Total current assets
    143,944       144,532  
 
               
Property and equipment, net
    198,506       201,824  
Investments in unconsolidated affiliates
    355,499       307,771  
Goodwill and intangible assets, net
    1,602,187       1,589,139  
Other
    25,256       24,897  
     
Total assets
  $ 2,325,392     $ 2,268,163  
     
 
               
LIABILITIES AND EQUITY
 
               
Current liabilities:
               
Accounts payable
  $ 23,475     $ 22,194  
Accrued expenses and other
    210,148       136,688  
Current portion of long-term debt
    23,337       24,488  
     
Total current liabilities
    256,960       183,370  
 
Long-term debt
    1,048,191       1,073,459  
Other liabilities
    158,373       153,156  
     
Total liabilities
    1,463,524       1,409,985  
 
               
Noncontrolling interests — redeemable
    63,865       51,961  
 
               
USPI stockholder’s equity
    757,952       764,137  
Noncontrolling interests — nonredeemable
    40,051       42,080  
     
Total equity
    798,003       806,217  
     
Total liabilities and equity
  $ 2,325,392     $ 2,268,163  
     
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 6
February 25, 2010
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Key Operating Statistics
                         
    Three Months Ended December 31,  
    2009     2008     %Change  
     
Systemwide statistics (in thousands):
                       
Revenue
  $ 468,831     $ 427,061       9.8 %
Operating income
    131,109       114,185       14.8 %
 
                       
Systemwide same-facility statistics(1) (2):
                       
United States
                       
Facility cases
    190,838       188,781       1.1 %
 
                       
Net revenue/case
  $ 2,239     $ 2,122       5.5 %
 
                       
Net revenue (in thousands)
  $ 427,233     $ 400,644       6.6 %
 
                       
Facility operating income margin(3)
    29.0 %     27.0 %   200 bps
 
                       
United Kingdom:
                       
Adjusted admissions
    5,394       5,759       (6.3 %)
Net revenue/adjusted admission
  $ 5,026     $ 4,452       12.9 %
Net revenue/adjusted admission (at constant currency translation rates)(4)
  $ 5,026     $ 4,625       8.7 %
Net revenue (in thousands)
  $ 27,109     $ 25,642       5.7 %
Facility operating income margin(3)
    22.6 %     25.8 %   (320) bps
 
                       
Other:
                       
Total consolidated facilities
    60       62          
 
                       
EBITDA less noncontrolling interests(5) (in thousands):
                       
GAAP operating income
  $ 60,543     $ 54,215       11.7 %
Depreciation and amortization
    8,687       9,055          
             
EBITDA
    69,230       63,270          
Net income attributable to noncontrolling interests
    (16,515 )     (13,869 )        
             
EBITDA less noncontrolling interests
  $ 52,715     $ 49,401       6.7 %
             
 
(1)     Excludes facilities in their first year of operations. Includes facilities accounted for under the equity method as well as consolidated facilities.
 
(2)     Statistics are included in both periods for current year acquisitions.
 
(3)    Calculated as operating income divided by net revenue.
 
(4)     Calculated using fourth quarter 2009 exchange rates. The Company believes net revenue per adjusted admission is an important measure of the United Kingdom operations and that using a constant currency translation rate more accurately reflects the trend of the business.
 
(5)    EBITDA and EBITDA less noncontrolling interests are not measures defined under generally accepted accounting principles (GAAP). The Company believes EBITDA and EBITDA less noncontrolling interests are important measures for purposes of allocating resources and assessing performance. EBITDA, which is computed by adding operating income plus depreciation and amortization, is commonly used as an analytical indicator within the healthcare industry and also serves as a measure of leverage capacity and debt service ability. EBITDA less noncontrolling interests, which is computed by subtracting net income attributable to noncontrolling interests from EBITDA, adjusts both years’ EBITDA to reflect that the Company does not own 100% of each facility. EBITDA and EBITDA less noncontrolling interests should not be considered as measures of financial performance under GAAP, and the items
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United Surgical Partners Announces Fourth Quarter and Year-End 2009 Results
Page 7
February 25, 2010
 
    excluded from EBITDA and EBITDA less noncontrolling interests are significant components in understanding and assessing financial performance. Because EBITDA and EBITDA less noncontrolling interests are not measurements determined in accordance with GAAP and are thus susceptible to varying calculation methods, EBITDA and EBITDA less noncontrolling interests as presented by United Surgical Partners International may not be comparable to similarly titled measures of other companies.
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