Item 16. Form 10-K Summary

204K characters. Original on sec.gov · Markdown

Item 16. Form 10-K Summary

| --- | --- |

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



UNIVERSAL HEALTH SERVICES, INC.

By:		/s/ ALAN B. MILLER
		Alan B. Miller Chairman of the Board and Chief Executive Officer

February 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


	Signatures		Title		Date

/s/ ALAN B. MILLER Alan B. Miller		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)		February 28, 2018

/s/ MARC D. MILLER Marc D. Miller		Director and President		February 28, 2018

/s/ LAWRENCE S. GIBBS Lawrence S. Gibbs		Director		February 28, 2018

/s/ JOHN H. HERRELL John H. Herrell		Director		February 28, 2018

/s/ ROBERT H. HOTZ Robert H. Hotz		Director		February 28, 2018

/s/ EILEEN C. MCDONNELL Eileen C. McDonnell		Director		February 28, 2018

/s/ WARREN J. NIMETZ Warren J. Nimetz		Director		February 28, 2018

/s/ STEVE FILTON Steve Filton		Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)		February 28, 2018

UNIVERSAL HEALTH SERVICES, INC.

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	87
Consolidated Statements of Income for December 31, 2017, 2016, and 2015	88
Consolidated Statements of Comprehensive Income for December 31, 2017, 2016, and 2015	89
Consolidated Balance Sheets as of December 31, 2017 and 2016	90
Consolidated Statements of Changes in Equity for December 31, 2017, 2016 and 2015	91
Consolidated Statements of Cash Flows for December 31, 2017, 2016 and 2015	94
Notes to Consolidated Financial Statements	95
Supplemental Financial Statement Schedule II: Valuation and Qualifying Accounts as of and for December 31, 2017, 2016, and 2015	129

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Universal Health Services, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated financial statements, including the related notes and financial statement schedule, of Universal Health Services, Inc. and its subsidiaries as listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 28, 2018

We have served as the Company’s auditor since 2007.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2017		2016			2015
	(in thousands, except per share data)
Net revenues before provision for doubtful accounts	$	11,278,942	$	10,507,788		$	9,784,724
Less: Provision for doubtful accounts		869,077		741,578			741,273
Net revenues		10,409,865		9,766,210			9,043,451
Operating charges:
Salaries, wages and benefits		4,980,637		4,585,530			4,212,387
Other operating expenses		2,493,062		2,359,339			2,119,805
Supplies expense		1,105,096		1,031,337			974,088
Depreciation and amortization		447,765		416,608			398,618
Lease and rental expense		103,127		97,324			94,973
Electronic health records incentive income		0		(5,339	)		(15,815	)
		9,129,687		8,484,799			7,784,056
Income from operations		1,280,178		1,281,411			1,259,395
Interest expense, net		145,169		125,053			113,494
Income before income taxes		1,135,009		1,156,358			1,145,901
Provision for income taxes		363,697		409,187			395,203
Net income		771,312		747,171			750,698
Less: Net income attributable to noncontrolling interests		19,009		44,762			70,170
Net income attributable to UHS	$	752,303	$	702,409		$	680,528
Basic earnings per share attributable to UHS	$	7.86	$	7.22		$	6.89
Diluted earnings per share attributable to UHS	$	7.81	$	7.14		$	6.76
Weighted average number of common shares—basic		95,652		97,208			98,797
Add: Other share equivalents		673		1,172			1,897
Weighted average number of common shares and equivalents—diluted		96,325		98,380			100,694

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2017			2016			2015
Net income	$	771,312		$	747,171		$	750,698
Other comprehensive income (loss):
Unrealized derivative gains on cash flow hedges		6,679			1,438			4,970
Amortization of terminated hedge		0			(167	)		(336	)
Minimum pension liability		4,070			13,356			2,177
Unrealized loss on marketable security		(2,169	)		(2,229	)		0
Foreign currency translation adjustment		26,678			(10,038	)		(1,728	)
Other comprehensive income before tax		35,258			2,360			5,083
Income tax expense related to items of other comprehensive income		2,664			4,648			2,980
Total other comprehensive income (loss), net of tax		32,594			(2,288	)		2,103
Comprehensive income		803,906			744,883			752,801
Less: Comprehensive income attributable to noncontrolling interests		19,009			44,762			70,170
Comprehensive income attributable to UHS	$	784,897		$	700,121		$	682,631

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2017			2016
	(Dollar amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	74,423		$	33,747
Accounts receivable, net		1,500,898			1,439,553
Supplies		136,177			125,365
Other current assets		86,504			82,706
Total current assets		1,798,002			1,681,371
Property and Equipment
Land		520,447			492,731
Buildings and improvements		4,952,856			4,676,752
Equipment		2,000,305			1,820,468
Property under capital lease		44,740			45,768
		7,518,348			7,035,719
Accumulated depreciation		(3,349,289	)		(2,983,481	)
		4,169,059			4,052,238
Construction-in-progress		402,778			278,718
		4,571,837			4,330,956
Other assets:
Goodwill		3,825,157			3,784,106
Deferred income taxes		3,007			1,234
Deferred charges		9,787			13,520
Other		554,038			506,615
		4,391,989			4,305,475
Total Assets	$	10,761,828		$	10,317,802
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	545,619		$	105,895
Accounts payable		441,984			439,672
Accrued liabilities
Compensation and related benefits		304,668			275,288
Interest		23,755			23,050
Taxes other than income		85,800			68,199
Other		427,874			403,120
Current federal and state income taxes		18,334			2,149
Total current liabilities		1,848,034			1,317,373
Other noncurrent liabilities		306,304			275,167
Long-term debt		3,494,390			4,030,230
Deferred income taxes		54,962			88,119
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest		6,702			9,319
Equity:
Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares: issued and outstanding 6,595,308 shares in 2017 and 6,595,308 shares in 2016		66			66
Class B Common Stock, limited voting, $.01 par value; authorized 150,000,000 shares: issued and outstanding 86,947,407 shares in 2017 and 89,348,958 shares in 2016		869			893
Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares: issued and outstanding 663,940 shares in 2017 and 663,940 shares in 2016		7			7
Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000 shares: issued and outstanding 20,868 shares in 2017 and 22,100 shares in 2016		0			0
Cumulative dividends		(371,814	)		(333,603	)
Retained earnings		5,353,209			4,891,274
Accumulated other comprehensive income (loss)		7,177			(25,417	)
Universal Health Services, Inc. common stockholders’ equity		4,989,514			4,533,220
Noncontrolling interest		61,922			64,374
Total Equity		5,051,436			4,597,594
Total Liabilities and Stockholders’ Equity	$	10,761,828		$	10,317,802

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2017, 2016 and 2015

(in thousands)

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Balance, January 1, 2015	$	239,552		$	66	$	914		$	7	$	0	$	(255,196	)	$	4,015,387		$	(25,232	)	$	3,735,946		$	55,134		$	3,791,080
Common Stock
Issued/(converted) including tax benefits from exercise of stock options		—			—		14			—		—		—			56,473			—			56,487			—			56,487
Repurchased		—			—		(18	)		—		—		—			(224,242	)		—			(224,260	)		—			(224,260	)
Restricted share-based compensation expense		—			—		—			—		—		—			393			—			393			—			393
Dividends paid		—			—		—			—		—		(39,532	)		—			—			(39,532	)		—			(39,532	)
Stock option expense		—			—		—			—		—		—			37,982			—			37,982			—			37,982
Distributions to noncontrolling interests		(51,106	)		—		—			—		—		—			—			—			—			(11,114	)		(11,114	)
Other		—			—		—			—		—		—			—			—			—			(613	)		(613	)
Comprehensive income:
Net income to UHS / noncontrolling interests		54,063			—		—			—		—		—			680,528			—			680,528			16,107			696,635
Foreign currency translation adjustments		—			—		—			—		—		—			—			(1,728	)		(1,728	)		—			(1,728	)
Amortization of terminated hedge (net of income tax effect of $120)		—			—		—			—		—		—			—			(216	)		(216	)		—			(216	)
Unrealized derivative gains on cash flow hedges (net of income tax effect of $2,283)		—			—		—			—		—		—			—			2,687			2,687			—			2,687
Minimum pension liability (net of income tax effect of $817)		—			—		—			—		—		—			—			1,360			1,360			—			1,360
Subtotal		54,063			—		—			—		—		—			680,528			2,103			682,631			16,107			698,738
Balance, December 31, 2015	$	242,509		$	66	$	910		$	7	$	—	$	(294,728	)	$	4,566,521		$	(23,129	)	$	4,249,647		$	59,514		$	4,309,161

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

For the Years Ended December 31, 2017, 2016 and 2015

(in thousands)

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Common Stock
Issued/(converted) including tax benefits from exercise of stock options		—			—		13			—		—		—			54,840			—			54,853			—			54,853
Repurchased		—			—		(30	)		—		—		—			(346,860	)		—			(346,890	)		—			(346,890	)
Restricted share-based compensation expense		—			—		—			—		—		—			1,439			—			1,439			—			1,439
Dividends paid		—			—		—			—		—		(38,875	)		—			—			(38,875	)		—			(38,875	)
Stock option expense		—			—		—			—		—		—			45,777			—			45,777			—			45,777
Distributions to noncontrolling interests		(51,847	)		—		—			—		—		—			—			—			—			(17,735	)		(17,735	)
Acquisition of noncontrolling interests in majority owned businesses		(206,200	)		—		—			—		—		—			(132,852	)		—			(132,852	)		—			(132,852	)
Other		—			—		—			—		—		—			—			—			—			2,690			2,690
Comprehensive income:
Net income to UHS / noncontrolling interests		24,857			—		—			—		—		—			702,409			—			702,409			19,905			722,314
Foreign currency translation adjustments		—			—		—			—		—		—			—			(10,038	)		(10,038	)		—			(10,038	)
Amortization of terminated hedge (net of income tax effect of $60)		—			—		—			—		—		—			—			(107	)		(107	)		—			(107	)
Unrealized loss on marketable security (net of income tax effect of $831)		—			—		—			—		—		—			—			(1,398	)		(1,398	)		—			(1,398	)
Unrealized derivative gains on cash flow hedges (net of income tax effect of $536)		—			—		—			—		—		—			—			902			902			—			902
Minimum pension liability (net of income tax effect of $5,003)		—			—		—			—		—		—			—			8,353			8,353			—			8,353
Subtotal		24,857			—		—			—		—		—			702,409			(2,288	)		700,121			19,905			720,026
Balance, December 31, 2016	$	9,319		$	66	$	893		$	7	$	—	$	(333,603	)	$	4,891,274		$	(25,417	)	$	4,533,220		$	64,374		$	4,597,594

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

For the Years Ended December 31, 2017, 2016 and 2015

(in thousands)

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Common Stock
Issued/(converted) including tax benefits from exercise of stock options		—			—		9			—		—		—			10,370			—			10,379			—			10,379
Repurchased		—			—		(33	)		—		—		—			(356,380	)		—			(356,413	)		—			(356,413	)
Restricted share-based compensation expense		—			—		—			—		—		—			1,377			—			1,377			—			1,377
Dividends paid		—			—		—			—		—		(38,211	)		—			—			(38,211	)		—			(38,211	)
Stock option expense		—			—		—			—		—		—			54,265			—			54,265			—			54,265
Distributions to noncontrolling interests		(1,781	)		—		—			—		—		—			—			—			—			(22,932	)		(22,932	)
Other		—			—		—			—		—		—			—			—			—			635			635
Comprehensive income:
Net income to UHS / noncontrolling interests		(836	)		—		—			—		—		—			752,303			—			752,303			19,845			772,148
Foreign currency translation adjustments		—			—		—			—		—		—			—			26,678			26,678			—			26,678
Unrealized loss on marketable security (net of income tax effect of $809)		—			—		—			—		—		—			—			(1,360	)		(1,360	)		—			(1,360	)
Unrealized derivative gains on cash flow hedges (net of income tax effect of $2,490)		—			—		—			—		—		—			—			4,189			4,189			—			4,189
Minimum pension liability (net of income tax effect of $983)		—			—		—			—		—		—			—			3,087			3,087			—			3,087
Subtotal		(836	)		—		—			—		—		—			752,303			32,594			784,897			19,845			804,742
Balance, December 31, 2017	$	6,702		$	66	$	869		$	7	$	0	$	(371,814	)	$	5,353,209		$	7,177		$	4,989,514		$	61,922		$	5,051,436

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2017			2016			2015
	(Amounts in thousands)
Cash Flows from Operating Activities:
Net income	$	771,312		$	747,171		$	750,698
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		447,883			416,608			398,618
Gains on sales of assets and businesses, net of losses		0			0			(3,615	)
Stock-based compensation expense		56,738			48,109			39,971
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable		(24,719	)		(87,881	)		(45,814	)
Accrued interest		705			9,766			(693	)
Accrued and deferred income taxes		(6,405	)		22,068			(34,394	)
Other working capital accounts		(15,165	)		74,489			(125,556	)
Other assets and deferred charges		(28,607	)		(25,671	)		6,631
Other		(42,564	)		81,139			23,295
Excess income tax benefits related to stock-based compensation		0			45,219			47,364
Accrued insurance expense, net of commercial premiums paid		102,595			84,638			90,895
Payments made in settlement of self-insurance claims		(79,192	)		(81,962	)		(79,138	)
Net cash provided by operating activities		1,182,581			1,333,693			1,068,262
Cash Flows from Investing Activities:
Property and equipment additions, net of disposals		(557,506	)		(519,939	)		(379,321	)
Acquisition of property and businesses		(22,878	)		(613,803	)		(533,655	)
Proceeds received from sales of assets and businesses		108			0			3,391
Costs incurred for purchase and implementation of information technology applications		(29,047	)		(21,475	)		0
Increase in capital reserves of commercial insurance subsidiary		(7,100	)		(32,000	)		(3,300	)
Investment in, and advances to, joint venture		(7,976	)		0			0
Net cash used in investing activities		(624,399	)		(1,187,217	)		(912,885	)
Cash Flows from Financing Activities:
Reduction of long-term debt		(143,106	)		(459,183	)		(68,166	)
Additional borrowings		41,100			1,170,800			234,400
Acquisition of noncontrolling interests in majority owned businesses		0			(418,000	)		0
Financing costs		(76	)		(12,449	)		(515	)
Repurchase of common shares		(364,401	)		(353,380	)		(209,782	)
Dividends paid		(38,211	)		(38,875	)		(39,532	)
Issuance of common stock		10,254			9,503			8,441
Profit distributions to noncontrolling interests		(24,713	)		(69,583	)		(62,220	)
Proceeds received from sale/leaseback of real property		0			0			12,765
Net cash used in financing activities		(519,153	)		(171,167	)		(124,609	)
Effect of exchange rate changes on cash and cash equivalents		1,647			(2,790	)		(1,609	)
Increase (decrease) in cash and cash equivalents		40,676			(27,481	)		29,159
Cash and cash equivalents, beginning of period		33,747			61,228			32,069
Cash and cash equivalents, end of period	$	74,423		$	33,747		$	61,228
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	135,533		$	107,079		$	107,054
Income taxes paid, net of refunds	$	370,855		$	344,611		$	380,658
Noncash purchases of property and equipment	$	82,496		$	65,702		$	49,086

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Services provided by our hospitals, all of which are operated by subsidiaries of ours, include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We, through our subsidiaries, provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.

The more significant accounting policies follow:

A) Principles of Consolidation: The consolidated financial statements include the accounts of our majority-owned subsidiaries and partnerships controlled by us or our subsidiaries as the managing general partner. All significant intercompany accounts and transactions have been eliminated.

B) Revenue Recognition: We record revenues and related receivables for health care services at the time the services are provided. Medicare and Medicaid revenues represented 30% of our net patient revenues during 2017, 32% during 2016 and 34% during 2015. Revenues from managed care entities, including health maintenance organizations and managed Medicare and Medicaid programs accounted for 56% of our net patient revenues during 2017 and 2016 and 54% during 2015.

We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others for services rendered. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances under managed care plans are based upon the payment terms specified in the related contractual agreements. We closely monitor our historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payors may be different from the amounts we estimate and record.

We estimate our Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. The laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation and as a result, there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term. Certain types of payments by the Medicare program and state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare Allowable Bad Debts and Inpatient Psychiatric Services) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements. Such amounts are included in accounts receivable, net, on our Consolidated Balance Sheets. The vast majority of the net revenues generated at our behavioral health facilities located in the United Kingdom are derived from government based payors. The funding of both federal Medicare and state Medicaid programs, and the government based payor programs in the United Kingdom, are subject to legislative and regulatory changes. As such, we cannot provide any assurance that future legislation and regulations, if enacted, will not have a material impact on our future government based reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2017, 2016 and 2015. We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. See additional disclosure below in Charity Care, Uninsured Discounts and Provision for Doubtful Accounts for our estimated uncompensated care provided and estimated cost of providing uncompensated care.

C) Charity Care, Uninsured Discounts and Provision for Doubtful Accounts: Collection of receivables from third-party payers and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient’s responsibility, primarily co-payments and deductibles. We estimate our provisions for doubtful accounts based on general factors such as payer mix, the agings of the receivables and historical collection experience. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. At our acute care hospitals, third party liability accounts are pursued until all payment and adjustments are posted to the patient account. For those accounts with a patient balance after third party liability is finalized or accounts for uninsured patients, the patient receives statements and collection letters. Our hospitals establish a partial reserve for self-pay accounts in the allowance for doubtful accounts for both unbilled balances and those that have been billed and are under 90 days old. All self-pay accounts are fully reserved at 90 days from the date of discharge. Third party liability accounts are fully reserved in the allowance for doubtful accounts when the balance ages past 180 days from the date of discharge. Patients that express an inability to pay are reviewed for potential sources of financial

assistance including our charity care policy. If the patient is deemed unwilling to pay, the account is written-off as bad debt and transferred to an outside collection agency for additional collection effort.

Historically, a significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from patients who are employed but do not have health insurance or who have policies with relatively high deductibles. Patients treated at our hospitals for non-elective services, who have gross income less than 400% of the federal poverty guidelines, are deemed eligible for charity care. The federal poverty guidelines are established by the federal government and are based on income and family size. Because we do not pursue collection of amounts that qualify as charity care, they are not reported in our net revenues or in our accounts receivable, net.

A portion of the accounts receivable at our acute care facilities are comprised of Medicaid accounts that are pending approval from third-party payers but we also have smaller amounts due from other miscellaneous payers such as county indigent programs in certain states. Our patient registration process includes an interview of the patient or the patient’s responsible party at the time of registration. At that time, an insurance eligibility determination is made and an insurance plan code is assigned. There are various pre-established insurance profiles in our patient accounting system which determine the expected insurance reimbursement for each patient based on the insurance plan code assigned and the services rendered. Certain patients may be classified as Medicaid pending at registration based upon a screening evaluation if we are unable to definitively determine if they are currently Medicaid eligible. When a patient is registered as Medicaid eligible or Medicaid pending, our patient accounting system records net revenues for services provided to that patient based upon the established Medicaid reimbursement rates, subject to the ultimate disposition of the patient’s Medicaid eligibility. When the patient’s ultimate eligibility is determined, reclassifications may occur which impacts the reported amounts in future periods for the provision for doubtful accounts and other accounts such as Medicaid pending. Although the patient’s ultimate eligibility determination may result in amounts being reclassified among these accounts from period to period, these reclassifications did not have a material impact on our results of operations in 2017, 2016 or 2015 since our facilities make estimates at each financial reporting period to reserve for amounts that are deemed to be uncollectible.

We also provide discounts to uninsured patients (included in “uninsured discounts” amounts below) who do not qualify for Medicaid or charity care. Because we do not pursue collection of amounts classified as uninsured discounts, they are not reported in our net revenues or in our net accounts receivable. In implementing the discount policy, we first attempt to qualify uninsured patients for governmental programs, charity care or any other discount program. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.

On a consolidated basis, we monitor our total self-pay receivables to ensure that the total allowance for doubtful accounts provides adequate coverage based on historical collection experience. Our accounts receivable are recorded net of allowance for doubtful accounts of $480 million and $410 million at December 31, 2017 and 2016, respectively.

Uncompensated care (charity care and uninsured discounts):

The following table shows the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the years ended December 31, 2017, 2016 and 2015:

	(dollar amounts in thousands)
	2017					2016					2015
	Amount		%			Amount		%			Amount		%
Charity care	$	887,136		50	%	$	733,585		50	%	$	506,571		42	%
Uninsured discounts		881,265		50	%		720,205		50	%		696,463		58	%
Total uncompensated care	$	1,768,401		100	%	$	1,453,790		100	%	$	1,203,034		100	%

The provision for doubtful accounts at our acute care hospitals was approximately $756 million during 2017, $628 million during 2016 and $631 million during 2015.

The estimated cost of providing uncompensated care:

The estimated cost of providing uncompensated care, as reflected below, were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities. An increase in the level of uninsured patients to our facilities and the resulting adverse trends in the provision for doubtful accounts and uncompensated care provided could have a material unfavorable impact on our future operating results.

	(amounts in thousands)
	2017		2016		2015
Estimated cost of providing charity care	$	120,208	$	107,887	$	77,557
Estimated cost of providing uninsured discounts related care		119,412		105,920		106,630
Estimated cost of providing uncompensated care	$	239,620	$	213,807	$	184,187

Our accounts receivable as of December 31, 2017 and December 31, 2016 include amounts due from Illinois of approximately $25 million and $38 million, respectively. Collection of the outstanding receivables continues to be delayed due to state budgetary and funding pressures. Approximately $8 million as of December 31, 2017 and $25 million as of December 31, 2016, of the receivables due from Illinois were outstanding in excess of 60 days, as of each respective date. Although the accounts receivable due from Illinois could remain outstanding for the foreseeable future, since we expect to eventually collect all amounts due to us, no related reserves have been established in our consolidated financial statements. However, we can provide no assurance that we will eventually collect all amounts due to us from Illinois. Failure to ultimately collect all outstanding amounts due to us from Illinois would have an adverse impact on our future consolidated results of operations and cash flows.

D) Concentration of Revenues: Our six acute care hospitals in the Las Vegas, Nevada market contributed, on a combined basis, 15% in 2017, 14% in 2016 and 13% in 2015 of our consolidated net revenues.

E) Cash and Cash Equivalents: We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.

F) Property and Equipment: Property and equipment are stated at cost. Expenditures for renewals and improvements are charged to the property accounts. Replacements, maintenance and repairs which do not improve or extend the life of the respective asset are expensed as incurred. We remove the cost and the related accumulated depreciation from the accounts for assets sold or retired and the resulting gains or losses are included in the results of operations. Construction-in-progress includes both construction projects and equipment not yet placed into service.

While in progress, we capitalized interest on major construction projects and the development and implementation of information technology applications amounting to $1.0 million during 2017, $1.9 million during 2016 and $304,000 during 2015.

Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements (twenty to forty years) and equipment (three to fifteen years). Depreciation expense was $388.4 million during 2017, $350.8 million during 2016 and $337.5 million during 2015.

G) Long-Lived Assets: We review our long-lived assets, including intangible assets, for impairment whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flow. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount rates.

H) Goodwill: Goodwill and indefinite-lived intangible assets are reviewed for impairment at the reporting unit level on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. We have designated October 1st as our annual impairment assessment date and performed impairment assessments as of October 1, 2017 which indicated no impairment of goodwill or indefinite-lived intangible assets. There were also no impairments during 2016 or 2015. Future changes in the estimates used to conduct the impairment reviews, including profitability and market value projections, could indicate impairment in future periods potentially resulting in a write-off of a portion or all of our goodwill or indefinite-lived intangible assets.

Changes in the carrying amount of goodwill for the two years ended December 31, 2017 were as follows (in thousands):

	Acute Care Services			Behavioral Health Services			Total Consolidated
Balance, January 1, 2016	$	389,507		$	3,206,607		$	3,596,114
Goodwill acquired during the period		50,897			183,761			234,658
Adjustments to goodwill (a)		(110	)		(46,556	)		(46,666	)
Balance, December 31, 2016		440,294			3,343,812			3,784,106
Goodwill acquired during the period		80			0			80
Adjustments to goodwill (a)		1,137			39,834			40,971
Balance, December 31, 2017	$	441,511		$	3,383,646		$	3,825,157

(a)	The increase/(decrease) in the Behavioral Health Services’ goodwill consists primarily of foreign currency translation adjustments.

I) Other Assets: Other assets consist primarily of amounts related to: (i) intangible assets acquired in connection with our acquisitions of Cambian Group, PLC’s adult services’ division, Foundations Recovery Network, LLC during 2015, Ascend Health Corporation during 2012 and Psychiatric Solutions, Inc. during 2010; (ii) prepaid fees for various software and other applications used by our hospitals; (iii) costs incurred in connection with the purchase and implementation of an electronic health records application for each of our acute care facilities; (iv) statutorily required capital reserves related to our commercial insurance subsidiary ($110 million as of December 31, 2017); (v) deposits; (vi) investments in various businesses, including Universal Health Realty Income Trust ($8 million as of December 31, 2017) and Premier, Inc. ($33 million as of December 31, 2017); (vii) the invested assets related to a deferred compensation plan that is held by an independent trustee in a rabbi-trust and that has a related payable included in other noncurrent liabilities; (viii) the estimated future payments related to physician-related contractual commitments, as discussed below, and; (ix) other miscellaneous assets.

The following table shows the amounts recorded as net intangible assets for the years ended December 31, 2017 and 2016:

	(amounts in millions)
	2017		2016
Tradenames	$	124	$	124
Medicare licenses		57		57
Certificates of need		12		12
Contract relationships and other (net of $44 and $34 of accumulated amortization for 2017 and 2016, respectively)		27		35
Net Intangible Assets	$	220	$	228

J) Physician Guarantees and Commitments: Our accrued liabilities-other, and our other assets included approximately $2 million of estimated future payments related to physician-related contractual commitments as of each of December 31, 2017 and 2016. Substantially all of the $2 million of potential future financial obligations outstanding as of December 31, 2017 are potential 2018 obligations.

K) Self-Insured/Other Insurance Risks: We provide for self-insured risks, primarily general and professional liability claims and workers’ compensation claims. Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimate of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. All relevant information, including our own historical experience is used in estimating the expected amount of claims. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Our estimated self-insured reserves are reviewed and changed, if necessary, at each reporting date and changes are recognized currently as additional expense or as a reduction of expense. See Note 8 - Commitments and Contingencies for discussion of adjustments to our prior year reserves for claims related to our self-insured general and professional liability and workers’ compensation liability.

In addition, we also: (i) own commercial health insurers headquartered in Nevada and Puerto Rico, and; (ii) maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs/operations include expenses for claims incurred and paid in addition to an accrual for the estimated expenses incurred in connection with claims incurred but not yet reported. Given our significant insurance-related exposure, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.

L) Income Taxes: Deferred tax assets and liabilities are recognized for the amount of taxes payable or deductible in future years as a result of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. We believe that future income will enable us to realize our deferred tax assets net of recorded valuation allowances relating to state net operating loss carry-forwards.

We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. Our tax returns have been examined by the Internal Revenue Service (“IRS”) through the year ended December 31, 2006. We believe that adequate accruals have been provided for federal, foreign and state taxes. See Note 6 - Income Taxes, for additional disclosure.

M) Other Noncurrent Liabilities: Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, and liabilities incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife.

N) Redeemable Noncontrolling Interests and Noncontrolling Interest: As of December 31, 2017, outside owners held noncontrolling, minority ownership interests of: (i) 20% in an acute care facility located in Washington, D.C.; (ii) approximately 11% in an acute care facility located in Texas; (iii) 20% and 30% in two behavioral health care facilities located in Pennsylvania and Ohio, respectively, and; (iv) approximately 5% in an acute care facility located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $62 million and $7 million, respectively, as of December 31, 2017, consist primarily of the third-party ownership interests in these hospitals.

In May, 2016, we purchased the minority ownership interests held by a third-party in our six acute care hospitals located in Las Vegas, Nevada, for an aggregate cash payment of $445 million which included both the purchase price ($418 million) and the return of reserve capital ($27 million). The ownership interests purchased ranged from 26.1% to 27.5%.

In connection with the two behavioral health care facilities located in Pennsylvania and Ohio, the minority ownership interests of which are reflected as redeemable noncontrolling interests on our Consolidated Balance Sheet, the outside owners have “put options” to put their entire ownership interest to us at any time. If exercised, the put option requires us to purchase the minority member’s interest at fair market value.

O) Accumulated Other Comprehensive Income: The accumulated other comprehensive income (“AOCI”) component of stockholders’ equity includes: net unrealized gains and losses on effective cash flow hedges, foreign currency translation adjustments and the net minimum pension liability of a non-contributory defined benefit pension plan which covers employees at one of our subsidiaries. See Note 10 - Pension Plan for additional disclosure regarding the defined benefit pension plan.

The amounts recognized in AOCI for the two years ended December 31, 2017 were as follows (in thousands):

	Net Unrealized Gains (Losses) on Effective Cash Flow Hedges			Foreign Currency Translation Adjustment			Unrealized loss on marketable security			Minimum Pension Liability			Total AOCI
Balance, January 1, 2016, net of income tax	$	(776	)	$	(4,159	)	$	—		$	(18,194	)	$	(23,129	)
2016 activity:
Pretax amount		1,271			(10,038	)		(2,229	)		13,356			2,360
Income tax effect		(476	)		—			831			(5,003	)		(4,648	)
Change, net of income tax		795			(10,038	)		(1,398	)		8,353			(2,288	)
Balance, January 1, 2017, net of income tax		19			(14,197	)		(1,398	)		(9,841	)		(25,417	)
2017 activity:
Pretax amount		6,679			26,678			(2,169	)		4,070			35,258
Income tax effect		(2,490	)		—			809			(983	)		(2,664	)
Change, net of income tax		4,189			26,678			(1,360	)		3,087			32,594
Balance, December 31, 2017, net of income tax	$	4,208		$	12,481		$	(2,758	)	$	(6,754	)	$	7,177

P) Accounting for Derivative Financial Investments and Hedging Activities and Foreign Currency Forward Exchange Contracts: We manage our ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.

We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair

value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.

We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Fair value hedges are accounted for by recording the changes in the fair value of both the derivative instrument and the hedged item in the income statement.

For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.

Q) Stock-Based Compensation: At December 31, 2017, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities.

R) Earnings per Share: Basic earnings per share are based on the weighted average number of common shares outstanding during the year. Diluted earnings per share are based on the weighted average number of common shares outstanding during the year adjusted to give effect to common stock equivalents.

The following table sets forth the computation of basic and diluted earnings per share, for the periods indicated:

	Twelve Months Ended December 31,
	2017			2016			2015
Basic and diluted:
Net Income	$	771,312		$	747,171		$	750,698
Less: Net income attributable to noncontrolling interest		(19,009	)		(44,762	)		(70,170	)
Less: Net income attributable to unvested restricted share grants		(362	)		(314	)		(281	)
Net income attributable to UHS—basic and diluted	$	751,941		$	702,095		$	680,247
Basic earnings per share attributable to UHS:
Weighted average number of common shares—basic		95,652			97,208			98,797
Total basic earnings per share	$	7.86		$	7.22		$	6.89
Diluted earnings per share attributable to UHS:
Weighted average number of common shares		95,652			97,208			98,797
Net effect of dilutive stock options and grants based on the treasury stock method		673			1,172			1,897
Weighted average number of common shares and equivalents—diluted		96,325			98,380			100,694
Total diluted earnings per share	$	7.81		$	7.14		$	6.76

The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all years presented above, excludes certain outstanding stock options applicable to each year since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled approximately 6.2 million during 2017, 2.2 million during 2016 and 765,000 during 2015.

S) Fair Value of Financial Instruments: The fair values of our registered debt and investments are based on quoted market prices. The fair values of other long-term debt, including capital lease obligations, are estimated by discounting cash flows using period-end interest rates and market conditions for instruments with similar maturities and credit quality. The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, and short-term borrowings approximates their fair values due to the short-term nature of these instruments. Accordingly, these items have been excluded from the fair value disclosures included elsewhere in these notes to consolidated financial statements.

T) Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

U) Mergers and Acquisitions: The acquisition method of accounting for business combinations requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values with limited exceptions. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The fair value of intangible assets, including Medicare licenses, certificates of need, tradenames and certain contracts, is based on significant judgments made by our management, and accordingly, for significant items we typically obtain assistance from third party valuation specialists.

V) GPO Agreement/Minority Ownership Interest: During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier, Inc. (“Premier), a healthcare performance improvement alliance, and acquired a minority interest in the GPO for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO, which were recorded as deferred income, on a pro rata basis, as a reduction to our supplies expense over the initial expected life of the GPO agreement. Also in connection with this GPO agreement, we received shares of restricted stock in Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. We recognize the fair value of this restricted stock, as a reduction to our supplies expense, in our consolidated statements of income, on a pro rata basis, over the vesting period. We have elected to retain of portion of the previously vested shares of Premier, the value of which is included in other assets on our consolidated balance sheet. Premier shares held by us after the restrictions have lapsed are adjusted, through accumulated other comprehensive income/loss, to the then current market value as of each respective balance sheet date amounting to $33 million and $23 million as of December 31, 2017 and 2016, respectively.

W) Provider Taxes: We incur health-care related taxes (“Provider Taxes”) imposed by states in the form of a licensing fee, assessment or other mandatory payment which are related to: (i) healthcare items or services; (ii) the provision of, or the authority to provide, the health care items or services, or; (iii) the payment for the health care items or services. Such Provider Taxes are subject to various federal regulations that limit the scope and amount of the taxes that can be levied by states in order to secure federal matching funds as part of their respective state Medicaid programs. We derive a related Medicaid reimbursement benefit from assessed Provider Taxes in the form of Medicaid claims based payment increases and/or lump sum Medicaid supplemental payments.

Under these programs, including the impact of the Texas Uncompensated Care and Upper Payment Limit program, the Texas Delivery System Reform Incentive program, and various other state programs, we earned revenues (before Provider Taxes) of approximately $357 million during 2017, $327 million during 2016 and $307 million during 2015. These revenues were offset by Provider Taxes of approximately $171 million during 2017, $166 million during 2016, $137 million during 2015, which are recorded in other operating expenses on the Consolidated Statements of Income as included herein. The aggregate net benefit from these programs was $186 million during 2017, $161 million during 2016 and $170 million during 2015. The aggregate net benefit pursuant to these programs is earned from multiple states and therefore no particular state’s portion is individually material to our consolidated financial statements. In addition, under various disproportionate share hospital payment programs and the Nevada state plan amendment program, we earned revenues of $55 million in 2017, $53 million in 2016 and $46 million in 2015.

X) Recent Accounting Standards: In August, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which adds or clarifies guidance of the classification of certain cash receipts and payments in the statement of cash flows with the intent to alleviate diversity in practice for classifying various types of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact of this ASU on our statement of cash flows.

In March, 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which amends the accounting for employee share-based payment transactions to require recognition of the tax effects resulting from the settlement of stock-based awards as income tax expense or benefit in the income statement in the reporting period in which they occur. We have adopted this new standard, which is effective for annual reporting periods beginning after December 15, 2016, as of January 1, 2017. The impact of ASU 2016-09 to date is explained in Note 10-Income Taxes. Since the impact of ASU 2016-09 on our future Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flows is dependent upon the timing of stock option exercises, and the market price of our stock at the time of exercise, we are unable to estimate the impact this adoption will have on our future financial statements.

In May 2014 and March 2016, the FASB issued ASU 2014-09 and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)” and “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, respectively, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosures. The FASB updated the new revenue standard by clarifying the principal versus agent implementation guidance, but does not change the core principle of the new standard. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016; however, in July 2015, the FASB approved a one-year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. We are currently in the process of assessing and analyzing the various sources of revenue and plan to use a portfolio approach as a practical expedient to account for patient contracts. We have a team in place to lead the implementation of the new standard, including the evaluation of our systems and internal controls to ensure adequacy of data and information needed for adoption, as well as assessing the potential impact of the new standard on various reimbursement programs in which our hospitals participate. The team, consisting of representatives across the organization is progressing towards the completion of their evaluation and began drafting required disclosures and updates to our policies and practices in the fourth quarter of 2017. We are planning to adopt the standard using the modified retrospective approach. We anticipate the most significant change will be how the estimate for the allowance for doubtful accounts will be recognized under the new standards. Under the current standards, our estimate for amounts not expected to be collected based upon our historical experience have been included within net revenue. Under the new standards, our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue. However, subsequent changes in estimate of collectability due to a change in the financial status of a payor, for example a bankruptcy, will be recognized as bad debt expense in operating charges. Although we continue to evaluate the impact of this ASU, we do not expect the adoption to have a material impact on our consolidated financial statements and related disclosures.

In February, 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“Update 2016-02”), which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity’s leasing arrangements. This update is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. A modified retrospective approach is required. Upon adoption of this new standard, we will recognize significant right of use assets and lease obligation liabilities on the consolidated balance sheet as a result of our operating lease obligations. Operating lease expense will still be recognized on a straight-

line basis over the remaining life of the lease within lease and rental expense in the consolidated statements of income. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In January, 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the annual and interim periods beginning January 1, 2020 with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.

In January, 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” to clarify the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us, if any.

In August, 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities", which amends the accounting and presentation of certain hedging activities outlined in ASC 815 and is intended to more accurately present economic results of hedging activities. This update is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The adoption is required prospectively with a cumulative-effect adjustment. We are currently evaluating the impact of this ASU on our financial statements.

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by the Company as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. The Company has assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, believes the new guidance will not have a material impact on our results of operations, cash flows or financial position.

Y) Foreign Currency Translation: Assets and liabilities of our U.K. subsidiaries are denominated in pound sterling and translated into U.S. dollars at: (i) the rates of exchange at the balance sheet date, and; (ii) average rates of exchange prevailing during the year for revenues and expenses. The currency translation adjustments are reported as a component of accumulated other comprehensive income. See Note 3 - Financial Instruments, Foreign Currency Forward Exchange Contracts for additional disclosure.

Z) Supplies: Supplies, which consist primarily of medical supplies, are stated at the lower of cost (first-in, first-out basis) or market.

ACQUISITIONS AND DIVESTITURES

2018 Acquisitions:

In January, 2018, we acquired Gulfport Behavioral Health System, a 109-bed behavioral health care facility located in Gulfport, Mississippi.

Year ended December 31, 2017:

2017 Acquisitions of Assets and Businesses:

During 2017 we spent $23 million to acquire businesses and property.

2017 Divestiture of Assets and Businesses:

There were no significant divestitures during 2017.

Year ended December 31, 2016:

2016 Acquisitions of Assets and Businesses:

During 2016 we spent $614 million to:

	•	acquire the adult services division of Cambian Group, PLC consisting of 79 inpatient and 2 outpatient behavioral health facilities located in the U.K. (acquired late in the fourth quarter);

	•	acquire Desert View Hospital, a 25-bed acute care facility located in Pahrump, Nevada (acquired during the third quarter), and;

	•	acquire various other businesses and real property assets.

The aggregate net purchase price of the facilities, which were acquired to enhance and expand our existing operations in the U.S. and the U.K., was allocated to assets and liabilities based on their preliminary estimated fair values as follows:

	Amount (000s)
Working capital, net	$	6,680
Property & equipment		343,846
Goodwill		234,658
Other assets (includes $18 million of contract-based relationships intangible assets)		19,910
Income tax assets, net of deferred tax liabilities		11,551
Debt		(152	)
Noncontrolling interest		(2,690	)
Cash paid in 2016 for acquisitions	$	613,803

Goodwill of the facilities acquired during each of the last 3 years is computed, pursuant to the residual method, by deducting the fair value of the acquired assets and liabilities from the total purchase price. The factors that contribute to the recognition of goodwill, which may also influence the purchase price, include the following for each of the acquired facilities: (i) the historical cash flows and income levels; (ii) the reputations in their respective markets; (iii) the nature of the respective operations, and; (iv) the future cash flows and income growth projections. The vast majority of the goodwill resulting from these transactions is not deductible for federal income tax purposes (see Note 6 - Income Taxes).

On December 28, 2016, we completed the acquisition of Cambian Group, PLC’s adult services’ division (the “Cambian Adult Services”) for a total purchase price of approximately $473 million. At the time of acquisition, the Cambian Adult Services consisted of 79 inpatient and 2 outpatient behavioral health facilities located in the U.K. The Competition and Markets Authority (“CMA”) in the U.K. reviewed our acquisition of the Cambian Adult Services. In April, 2017, the CMA notified us that they identified potential competition concerns in certain markets and announced its decision to refer our acquisition of Cambian Group, PLC’s Adult Services division for a Phase 2 investigation. In October, 2017, the CMA provided the final ruling regarding the Phase 2 investigation requiring us to divest a facility which was subsequently designated to be The Limes, an 18-bed facility. The operating results for The Limes are reflected as discontinued operations during 2017. Since the aggregate income from discontinued operations before income tax expense for this facility is not material to our 2017 consolidated financial statements, it is included as a reduction to our operating expenses. For the twelve-month period ended December 31, 2017, The Limes generated approximately $3 million of net revenues, $953,000 of income before income taxes and $770,000 of after-tax income.

Our consolidated statement of income for the year ended December 31, 2016 was not impacted by our acquisition of the Cambian Adult Services business since the acquisition occurred in late December, 2016. Our consolidated net revenues for the year ended December 31, 2016 included approximately $12 million of net revenues generated at the above-mentioned Desert View Hospital representing the facility’s net revenues from the date of acquisition through December 31, 2016. The earnings generated by the hospital since its date of acquisition was not material to our 2016 consolidated net income attributable to UHS and net income attributable to UHS per diluted share.

Assuming the acquisition of the Cambian Adult Services business and Desert View Hospital occurred on January 1, 2016, our 2016 unaudited pro forma net revenues would have been approximately $9.98 billion and our unaudited pro forma net income attributable to UHS would have been approximately $730 million, or $7.25 per diluted share. Assuming the above-mentioned acquisitions occurred on January 1, 2015, our 2015 unaudited pro forma net revenues would have been approximately $9.28 billion and our unaudited pro forma net income attributable to UHS would have been approximately $708 million and $7.03 per diluted share.

2016 Divestiture of Assets and Businesses:

There were no divestitures during 2016.

Year ended December 31, 2015:

2015 Acquisitions of Assets and Businesses:

During 2015 we spent $534 million to:

	•	acquire a 46-bed behavioral health care facility located in the U.K. (acquired during the first quarter);

	•	acquire Alpha Hospitals Holdings Limited consisting of four behavioral health care hospitals with 305 beds located in the U.K. (acquired during the third quarter);

	•	acquire Foundations Recovery Network, LLC (“Foundations”) consisting of 4 inpatient facilities (322 beds) as well as 8 outpatient centers (during the fourth quarter), and;

	•	various other businesses, a management contract and real property assets.

The aggregate net purchase price of the facilities was allocated to assets and liabilities based on their preliminary estimated fair values as follows:

	Amount (000s)
Working capital, net	$	(7,000	)
Property & equipment		116,000
Goodwill		319,000
Other assets		128,000
Income tax assets, net of deferred tax liabilities		(22,000	)
Cash paid in 2015 for acquisitions	$	534,000

Other assets includes an indefinite lived tradename for $124 million recorded in connection with the Foundations acquisition.

Included in our consolidated net revenues for the year ended December 31, 2015 was an aggregate of approximately $30 million representing the net revenues generated at the newly acquired facilities from their respective dates of acquisition through December 31, 2015. The aggregate effect of the earnings generated by these facilities since the dates of acquisition, less the cost on the borrowings utilized to finance the acquisition, was not material to our 2015 net income attributable to UHS and net income attributable to UHS per diluted share.

Assuming the acquisitions occurred on January 1, 2015, our 2015 unaudited pro forma net revenues would have been approximately $9.17 billion and our unaudited pro forma net income attributable to UHS would have been approximately $690 million, or $6.85 per diluted share. Assuming the above-mentioned acquisitions occurred on January 1, 2014, our 2014 unaudited pro forma net revenues would have been approximately $8.35 billion and our unaudited pro forma net income attributable to UHS would have been approximately $545 million and $5.42 per diluted share.

2015 Divestiture of Assets and Businesses:

During 2015 we received $3 million in connection with the divestiture of a small operator of behavioral health care services.

FINANCIAL INSTRUMENTS

Fair Value Hedges:

During 2017, 2016 and 2015, we had no fair value hedges outstanding.

Cash Flow Hedges:

We manage our ratio of fixed and floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. We account

for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.

The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on estimates obtained from the counterparties. We assess the effectiveness of our hedge instruments on a quarterly basis. We performed periodic assessments of the cash flow hedge instruments during 2017 and 2016 and determined the hedges to be highly effective. We also determined that any portion of the hedges deemed to be ineffective was de minimis and therefore there was no material effect on our consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose us to credit risk in the event of nonperformance. We do not anticipate nonperformance by our counterparties. We do not hold or issue derivative financial instruments for trading purposes.

Seven interest rate swaps on a total notional amount of $825 million matured in May, 2015. Four of these swaps, with a total notional amount of $600 million, became effective in December, 2011 and provided that we receive three-month LIBOR while the average fixed rate payable was 2.38%. The remaining three swaps, with a total notional amount of $225 million, became effective in March, 2011 and provided that we receive three-month LIBOR while the average fixed rate payable was 1.91%.

During 2015, we entered into nine forward starting interest rate swaps whereby we pay a fixed rate on a total notional amount of $1.0 billion and receive one-month LIBOR. The average fixed rate payable on these swaps, which are scheduled to mature on April 15, 2019, is 1.31%. These interest rates swaps consist of:

Four forward starting interest rate swaps, entered into during the second quarter of 2015, whereby we pay a fixed rate on a total notional amount of $500 million and receive one-month LIBOR. Each of the four swaps became effective on July 15, 2015 and are scheduled to mature on April 15, 2019. The average fixed rate payable on these swaps is 1.40%;
Four forward starting interest rate swaps, entered into during the third quarter of 2015, whereby we pay a fixed rate on a total notional amount of $400 million and receive one-month LIBOR. One swap on a notional amount of $100 million became effective on July 15, 2015, two swaps on a total notional amount of $200 million became effective on September 15, 2015 and another swap on a notional amount of $100 million became effective on December 15, 2015. All of these swaps are scheduled to mature on April 15, 2019. The average fixed rate payable on these four swaps is 1.23%, and;
One interest rate swap, entered into during the fourth quarter of 2015, whereby we pay a fixed rate on a total notional amount of $100 million and receive one-month LIBOR. The swap became effective on December 15, 2015 and is scheduled to mature on April 15, 2019. The fixed rate payable on this swap is 1.21%.

We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from our counterparties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At December 31, 2017, the fair value of our interest rate swaps was a net asset of $7 million, $4 million of which is included in net accounts receivable and $3 million of which is included in other assets on the accompanying balance sheet. At December 31, 2016, the fair value of our interest rate swaps was de minimis on a net basis comprised of a $4 million asset which is included in other assets offset by a $4 million liability which is included in other current liabilities on the accompanying consolidated balance sheet.

Foreign Currency Forward Exchange Contracts:

We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within accumulated other comprehensive income and remains there until either the sale or liquidation of the subsidiary. The cash flows from these contracts are reported as operating activities in the consolidated statements of cash flows. During 2017, we recorded net cash outflows of $64 million while during 2016 and 2015, we recorded net cash inflows of $79 million and $23 million, respectively, associated with these forward exchange contracts.

LONG-TERM DEBT

A summary of long-term debt follows:

	December 31,
	2017			2016
	(amounts in thousands)
Long-term debt:
Notes payable and Mortgages payable (including obligations under capitalized leases of $21,780 in 2017 and $23,446 in 2016) and term loans with varying maturities through 2027; weighted average interest rates of 9.1% in 2017 and 8.9% in 2016 (see Note 7 regarding capitalized leases)	$	22,794		$	25,246
Revolving credit and on-demand credit facility		438,100			469,700
Term Loan A, net of unamortized discount of $708 in 2017 and $1,151 in 2016		1,774,607			1,862,915
Accounts receivable securitization program		419,500			398,700
3.75% Senior Secured Notes due 2019, net of unamortized discount of $69 in 2017 and $112 in 2016		299,931			299,888
4.75% Senior Secured Notes due 2022, including unamortized premium of $4,430 in 2017 and $5,400 in 2016 and net of unamortized discount of $124 in 2017 and $150 in 2016		704,306			705,250
5.00% Senior Secured Notes due 2026		400,000			400,000
Total debt before unamortized financing costs		4,059,238			4,161,699
Less-Unamortized financing costs		(19,229	)		(25,574	)
Total debt after unamortized financing costs		4,040,009			4,136,125
Less-Amounts due within one year (net of unamortized financing costs)		(545,619	)		(105,895	)
Long-term debt	$	3,494,390		$	4,030,230

On June 7, 2016, we entered into a Fifth Amendment (the “Fifth Amendment”) to our credit agreement dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013 and August 7, 2014, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders (“Credit Agreement”). The Fifth Amendment increased the size of the term loan A facility by $200 million and those proceeds were utilized to repay outstanding borrowings under the revolving credit facility of the Credit Agreement. The Credit Agreement, as amended, which is scheduled to mature in August, 2019, consists of: (i) an $800 million revolving credit facility ($403 million of borrowings outstanding as of December 31, 2017), and; (ii) a term loan A facility with $1.775 billion of borrowings outstanding as of December 31, 2017.

Borrowings under the Credit Agreement bear interest at either (1) the ABR rate which is defined as the rate per annum equal to, at our election: the greatest of (a) the lender’s prime rate, (b) the weighted average of the federal funds rate, plus 0.5% and (c) one month LIBOR rate plus 1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.50% to 1.25% for revolving credit and term loan-A borrowings, or (2) the one, two, three or six month LIBOR rate (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.50% to 2.25% for revolving credit and term loan-A borrowings. As of December 31, 2017, the applicable margins were 0.50% for ABR-based loans and 1.50% for LIBOR-based loans under the revolving credit and term loan-A facilities.

As of December 31, 2017, we had $403 million of borrowings outstanding pursuant to the terms of our $800 million revolving credit facility and we had $329 million of available borrowing capacity net of $33 million of outstanding letters of credit and $35 million of outstanding borrowings pursuant to a short-term, on-demand credit facility. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is collateralized by certain assets of the Company (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, certain real estate assets and assets held in joint-ventures with third-parties) and our material subsidiaries and guaranteed by our material subsidiaries.

Pursuant to the terms of the Credit Agreement, term loan-A installment payments of approximately $22 million per quarter commenced during the fourth quarter of 2016 and are scheduled through June, 2019. Previously, approximately $11 million of quarterly installment payments were made from the fourth quarter of 2014 through the third quarter of 2016.

In July, 2017, we amended our accounts receivable securitization program (“Securitization”) with a group of conduit lenders and liquidity banks to increase the borrowing capacity to $440 million from $400 million previously. Pursuant to the terms of our Securitization program, on which the scheduled maturity date of December, 2018 remained unchanged, substantially all of the patient-related accounts receivable of our acute care hospitals (“Receivables”) serve as collateral for the outstanding borrowings. We have accounted for this Securitization as borrowings. We maintain effective control over the Receivables since, pursuant to the terms of the Securitization, the Receivables are sold from certain of our subsidiaries to special purpose entities that are wholly-owned by us. The Receivables, however, are owned by the special purpose entities, can be used only to satisfy the debts of the wholly-owned special purpose entities, and thus are not available to us except through our ownership interest in the special purpose entities. The wholly-owned special purpose entities use the Receivables to collateralize the loans obtained from the group of third-party conduit lenders and liquidity banks. The group of third-party conduit lenders and liquidity banks do not have recourse to us beyond the assets of the wholly-owned special purpose entities that securitize the loans. At December 31, 2017, we had $420 million of outstanding borrowings pursuant to the terms of the Securitization, which are included in current maturities of long-term debt as of that date, and $20 million of available borrowing capacity.

As of December 31, 2017, we had combined aggregate principal of $1.4 billion from the following senior secured notes:

	•	$300 million aggregate principal amount of 3.75% senior secured notes due in 2019 (“2019 Notes”) which were issued on August 7, 2014.

	•	$700 million aggregate principal amount of 4.75% senior secured notes due in 2022 (“2022 Notes”) which were issued as follows:

	o	$300 million aggregate principal amount issued on August 7, 2014 at par.

	o	$400 million aggregate principal amount issued on June 3, 2016 at 101.5% to yield 4.35%.

	•	$400 million aggregate principal amount of 5.00% senior secured notes due in 2026 (“2026 Notes”) which were issued on June 3, 2016.

Interest is payable on the 2019 Notes and the 2022 Notes on February 1 and August 1 of each year until the maturity date of August 1, 2019 for the 2019 Notes and August 1, 2022 for the 2022 Notes. Interest on the 2026 Notes is payable on June 1 and December 1 until the maturity date of June 1, 2026. The 2019 Notes, 2022 Notes and 2026 Notes were offered only to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The 2019 Notes, 2022 Notes and 2026 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

In June, 2016, we repaid the $400 million, 7.125% senior secured notes which matured on June 30, 2016.

The average amounts outstanding during each of years 2017, 2016 and 2015 under the current and prior Credit Agreements, demand notes and accounts receivable securitization programs was $2.6 billion, $2.3 billion and $2.1 billion, respectively, with corresponding interest rates of 2.5%, 2.0% and 1.7%, respectively, including commitment and facility fees. The maximum amounts outstanding at any month-end were $2.7 billion in 2017, $2.7 billion in 2016 and $2.3 billion in 2015. The effective interest rate on our current and prior Credit Agreements, accounts receivable securitization programs, and demand notes, which includes the respective interest expense, commitment and facility fees, designated interest rate swaps expense and amortization of deferred financing costs and original issue discounts, was 2.8% in 2017, 2.6% in 2016 and 2.4% in 2015.

Our Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement contains covenants that include a limitation on sales of assets, mergers, change of ownership, liens and indebtedness, transactions with affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage and minimum interest coverage ratios. We are in compliance with all required covenants as of December 31, 2017.

At December 31, 2017, the net carrying value and fair value of our debt were each approximately $4.0 billion and $4.1 billion, respectively. At December 31, 2016, the carrying value and fair value of our debt were each approximately $4.1 billion. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

The aggregate scheduled maturities of our total debt outstanding as of December 31, 2017 are as follows:

	(000s)
2018	$	545,885
2019		2,391,033
2020		1,650
2021		1,696
2022		706,470
Later		412,504
Total maturities before unamortized financing costs		4,059,238
Less-Unamortized financing costs		(19,229	)
Total	$	4,040,009

COMMON STOCK

Dividends

Cash dividends of $0.40 per share ($38.2 million in the aggregate) were declared and paid during 2017, $0.40 per share ($38.9 million in the aggregate) were declared and paid during 2016, and $.40 per share ($39.5 million in the aggregate) were declared and paid during 2015. All classes of our common stock have similar economic rights.

Stock Repurchase Programs

In July, 2014, our Board of Directors authorized a stock repurchase program whereby, from time to time as conditions allow, we may spend up to $400 million to purchase shares of our Class B Common Stock on the open market at prevailing market prices or in negotiated private transactions. In February, 2016, our Board of Directors authorized a $400 million increase to our stock repurchase program, which then increased the aggregate authorization to $800 million from the previous $400 million mentioned above. In November, 2017, our Board of Directors again authorized an additional $400 million increase in our stock purchase program, which increased the aggregate authorization to $1.2 billion from the previous $800 million authorization approved in 2016 and 2014, as mentioned above. There is no expiration date for our stock repurchase programs.

The following schedule provides information related to our stock repurchase program for each of the three years ended December 31, 2017. During 2017, 2,960,843 shares ($322.2 million) were repurchased pursuant to the terms of our stock repurchase program, 305,278 shares ($34.2 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants and 10,791 shares were repurchased as a result of forfeited restricted shares. During 2016, 2,512,592 shares ($289.9 million) were repurchased pursuant to the terms of our stock repurchase program, 468,228 shares ($57.0 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants and 2,500 shares were repurchased as a result of forfeited restricted shares. During 2015, 1,326,207 shares ($166.2 million) were repurchased pursuant to the terms of our stock repurchase program and 493,296 shares ($58.0 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants.

	Additional dollars authorized for repurchase (in thousands)				Average price paid per share for forfeited restricted shares			Average price paid per share for shares purchased as part of publicly announced program		Aggregate purchase price paid (in thousands)		Aggregate purchase price paid for shares purchased as part of publicly announced program		Maximum number of dollars that may yet be purchased under the program (in thousands)
Balance as of January 1, 2015														$	342,050
2015	$	—	1,819,503	—	N/A		1,326,207	$	125.34	$	224,260	$	166,222	$	175,828
2016	$	400,000	2,983,320	2,500	$	0.01	2,512,592	$	115.39	$	346,890	$	289,937	$	285,891
2017	$	400,000	3,266,121	10,791	$	0.01	2,960,843	$	108.83	$	356,413	$	322,231	$	363,660
Total for three year period ended December 31, 2017	$	800,000	8,068,944	13,291	$	0.01	6,799,642	$	114.48	$	927,563	$	778,390

	(a.)	Includes 10,791 and 2,500 of restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan during 2017 and 2016, respectively.

Stock-based Compensation Plans

At December 31, 2017, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.

Pre-tax compensation costs of $54.3 million during 2017, $45.8 million during 2016 and $38.0 million during 2015 were recognized related to outstanding stock options. In addition, pre-tax compensation costs of $2.5 million during 2017, $2.3 million during 2016 and $2.0 million during 2015 were recognized related to amortization of restricted stock and discounts provided in connection with shares purchased pursuant to our 2005 Employee Stock Purchase Plan. As of December 31, 2017, there was approximately $98.2 million of unrecognized compensation cost related to unvested stock options and restricted stock which is expected to be recognized over the remaining average vesting period of 2.6 years.

The expense associated with stock-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, stock-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $56.7 million in 2017, $48.1 million in 2016 and $40.0 million in 2015.

Effective January 1, 2017, we adopted ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which amends the accounting for employee share-based payment transactions to require recognition of the tax effects resulting from the settlement of stock-based awards as income tax expense or benefit in the income statement in the reporting period in which they occur. For the year ended December 31, 2017, our provision for income taxes and our net income attributable to UHS were each favorably impacted by $22.1 million resulting from our adoption of ASU 2016-09. Additionally, effective with our modified retrospective adoption of ASU 2016-09 on January 1, 2017, excess income tax benefits related to stock based compensation, amounting to $45.2 million during 2016 and $47.4 million during 2015, are reflected as cash inflows from operating activities in our Consolidated Statement of Cash Flows. Prior to the adoption of ASU 2016-09, excess income tax benefits related to stock based compensation were reflected as cash inflows from financings activities in our Consolidated Statement of Cash Flows.

In 2005, we adopted the 2005 Stock Incentive Plan which was amended in 2008, 2010, 2015 and 2017 (the “Stock Incentive Plan”). An aggregate of 35.6 million shares of Class B Common Stock has been reserved under the Stock Incentive Plan. During 2017, 2016 and 2015, stock options, net of cancellations, of approximately 2.9 million, 2.7 million and 2.7 million, respectively, were granted. The per option weighted-average grant-date fair value of options granted during 2017, 2016 and 2015 was $27.05, $23.80 and $21.37, respectively. Stock options to purchase Class B Common Stock have been granted to our officers, key employees and members of our Board of Directors. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. Options are exercisable ratably over a four-year period beginning one year after the date of the grant. All outstanding options expire five years after the date of the grant. As of December 31, 2017, approximately 7.8 million shares of Class B Common Stock remain available for issuance pursuant to the Stock Incentive Plan.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were derived from averaging the number of options granted during the most recent five-year period. The weighted-average assumptions reflected below were based upon twenty-seven option grants for the five-year period ending December 31, 2017, twenty-seven option grants for the five-year period ending December 31, 2016 and twenty-five option grants for the five-year period ending December 31, 2015.

Year Ended December 31,
Volatility	28	%	31	%	33	%
Interest rate	1	%	1	%	1	%
Expected life (years)	3.4		3.4		3.4
Forfeiture rate	10	%	10	%	10	%
Dividend yield	0.4	%	0.4	%	0.4	%

The risk-free rate is based on the U.S. Treasury zero coupon four year yield in effect at the time of grant. The expected life of the stock options granted was estimated using the historical behavior of employees. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life. Expected dividend yield is based on our dividend yield at the time of grant. The forfeiture rate is based upon the actual historical forfeitures utilizing the 5-year term of the option.

The table below summarizes our stock option activity during each of the last three years:

Outstanding Options			Average Option Price		Range (High-Low)
Balance, January 1, 2015	7,897,451		$	57.29	$102.21-$36.95
Granted	3,039,350		$	117.70	$142.43-$108.29
Exercised	(2,256,454	)	$	48.97	$102.21-$36.95
Cancelled	(280,164	)	$	83.63	$134.70-$36.95
Balance, January 1, 2016	8,400,183		$	80.50	$142.43-$36.95
Granted	2,945,550		$	118.72	$138.00-$107.39
Exercised	(2,162,850	)	$	53.02	$117.29-$36.95
Cancelled	(412,750	)	$	103.01	$130.32-$36.95
Balance, January 1, 2017	8,770,133		$	99.06	$142.43-$36.95
Granted	3,061,725		$	124.38	$124.56-$110.15
Exercised	(1,734,409	)	$	64.41	$118.62-$36.95
Cancelled	(457,500	)	$	118.65	$142.43-$53.38
Balance, December 31, 2017	9,639,949		$	112.40	$138.00-$53.38
Outstanding options vested and exercisable as of December 31, 2017	2,869,346		$	100.51	$138.00-$53.38

The following table provides information about unvested options for the year December 31, 2017:

			Weighted Average Grant Date Fair Value
Unvested options as of January 1, 2017	6,695,266		$	20.94
Granted	3,061,725		$	27.05
Vested	(2,555,013	)	$	19.21
Cancelled	(431,375	)	$	24.02
Unvested options as of December 31, 2017	6,770,603		$	24.16

The following table provides information regarding all options outstanding at December 31, 2017:

	Options Outstanding		Options Exercisable
Number of options outstanding		9,639,949		2,869,346
Weighted average exercise price	$	112.40	$	100.51
Aggregate intrinsic value as of December 31, 2017	$	65,133,533	$	44,588,121
Weighted average remaining contractual life		2.9		2.0

The total in-the-money value of all stock options exercised during the years ended December 31, 2017, 2016 and 2015 were $85.5 million, $149.4 million and $154.1 million, respectively.

The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 2017 were as follows:

Exercise Price	Options Outstanding		Weighted Average Exercise Price Per Share			Exercisable Options		Weighted Average Exercise Price Per Share		Expected to Vest Options (a)		Weighted Average Exercise Price Per Share
	Shares					Shares				Shares
$53.38 – $79.79		1,752,085	$	76.37	1.1		1,173,671	$	75.48		565,589	$	78.17
$96.98 – $117.29		2,384,488		117.06	2.2		1,070,813		117.12		1,152,681		117.05
$118.60 – $124.44		2,583,401		118.65	3.2		605,862		118.65		1,549,346		118.65
$124.56 – $138.00		2,919,975		124.69	4.2		19,000		131.62		1,763,506		124.67
Total		9,639,949	$	112.40	2.9		2,869,346	$	100.51		5,031,122	$	118.17

(a)	Assumes a weighted average forfeiture rate of 9.64%.

In addition to the Stock Incentive Plan, we have the following stock incentive and purchase plans: (i) the 2010 Employees’ Restricted Stock Purchase Plan, as amended in 2015, (“2010 Plan”) which allows eligible participants to purchase shares of Class B Common Stock at par value, subject to certain restrictions, and; (ii) a 2005 Employee Stock Purchase Plan which allows eligible employees to purchase shares of Class B Common Stock at a ten percent discount. There were 23,557, 14,146 and 17,789 shares of restricted stock granted pursuant to the 2010 Plan during 2017, 2016 and 2015, respectively, with various ratable vesting periods ranging up to five years from the date of grant. There were 86,693, 75,792 and 68,213 and shares issued pursuant to the Employee Stock Purchase Plan during 2017, 2016 and 2015, respectively.

We have reserved 2.8 million shares of Class B Common Stock for issuance under these various plans (excluding terminated plans and including a reserve reduction during 2015) and have issued approximately 1.5 million shares, net of cancellations, pursuant to the terms of these plans (excluding terminated plans) as of December 31, 2017. As of December 31, 2017, approximately 1.3 million shares of Class B Common Stock remain available for issuance pursuant to these various plans.

At December 31, 2017, 26,069,031 shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock and for issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock.

INCOME TAXES

Components of income tax expense/(benefit) are as follows (amounts in thousands):

	Year Ended December 31,
	2017			2016			2015
Current
Federal	$	352,433		$	368,957		$	363,734
Foreign		10,625			8,513			3,151
State		37,421			42,166			38,987
		400,479			419,636			405,872
Deferred
Federal		(36,998	)		(12,092	)		(15,912	)
Foreign		24			2,463			5,545
State		192			(820	)		(302	)
		(36,782	)		(10,449	)		(10,669	)
Total	$	363,697		$	409,187		$	395,203

On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA-17”). The TCJA-17 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations through the implementation of a territorial tax system; and (5) creating a new limitation on deductible interest expense. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant has not obtained, prepared, or analyzed (including computations) all of the information needed in order to complete the accounting for certain income tax effects of the TCJA-17. To the extent that a company’s accounting for certain income tax effects of the TCJA-17 is incomplete, a reasonable estimate should be recorded as a provisional amount in the financial statements.

We were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete. We recorded the following provisional adjustments:

Reduction of U.S. federal corporate tax rate: The TCJA-17 reduces the corporate tax rate to 21 percent, effective January 1, 2018. Deferred income taxes are based on the estimated future tax effects of differences between the financial statement carrying amounts and the tax bases of assets and liabilities under the provisions of the enacted tax laws. For certain of our deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $97 million and $127 million, respectively, with a corresponding net adjustment to deferred tax benefit of $30 million for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the TCJA-17, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.

Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $11.3 million. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax.

Valuation allowances: We must assess whether valuation allowance analyses are affected by various aspects of the TCJA-17 (e.g., deemed repatriation of deferred foreign income). Since, as discussed herein, we have recorded provisional amounts related to certain portions of the TCJA-17, any corresponding determination of the need for a change in valuation allowance is also provisional.

The accounting for the above provisional amounts is expected to be complete when our 2017 U.S. Corporate Income Tax return is filed in 2018.

The TCJA-17 contains two new anti-base erosion tax provisions, (1) the global intangible low-taxed income (“GILTI”) provisions and (2) the base erosion and anti-abuse tax (“BEAT”) provisions:

GILTI: The GILTI provisions require the inclusion of the earnings of certain foreign subsidiaries in excess of an acceptable rate of return on certain assets of the respective subsidiaries in our U.S. tax return for tax years beginning after December 31, 2017. Due to complexities around the calculation we have not recorded any provisional deferred tax effects related to the GILTI tax and will not make an accounting policy election at this time with respect to GILTI for our consolidated financial statements for the year ended December 31, 2017.

BEAT: The BEAT provisions limit the deduction for U.S. tax base erosion related payments made by U.S. operations to related foreign affiliates. We do not expect any BEAT tax for our U.S. operations; therefore, we have not recorded any tax expense related to BEAT tax in our consolidated financial statements.

The foreign provision for income taxes is based on foreign pre-tax earnings of $70 million in 2017, $58 million in 2016 and $41 million in 2015. Previously, in 2016 and 2015, we had provided no deferred taxes related to unremitted earnings from foreign subsidiaries. As a result of the mandatory repatriation tax provisions in the TCJA-17, we recorded an accrued tax provision of $11.3 million as of December 31, 2017. Going forward, we anticipate repatriating only previously taxed foreign income subject to the mandatory repatriation tax and any future earnings that would qualify for a full dividend received deduction permitted under the TCJA-17 for distributions after December 31, 2017. At this time, there are no material tax effects related to future cash repatriation of our previously taxed foreign income. As such, we have not recognized a deferred tax liability related to existing undistributed earnings.

Our provision for income taxes for the year ended December 31, 2017 included tax benefits of $22 million related to the adoption of ASU 2016-09, which changes how companies account for certain aspects of share-based payments to employees. Under ASU 2016-09, we no longer record excess tax benefits (when the deductible amount related to the settlement of employee equity awards for tax purposes exceeds the cumulative compensation cost recognized for financial reporting purposes) in equity. Instead, we recognize these tax benefits (and deficiencies, if applicable) as a component of our tax provision. This reporting change is applied prospectively and prior period amounts are not restated (the excess tax benefit for the years ending December 31, 2016 and 2015, related to the settlement of employee equity awards, were $45 million and $47 million, respectively, and were recorded in equity). ASU 2016-09 requires companies to present excess tax benefits as an operating activity on the Consolidated Statement of Cash Flows rather than as a financing activity, as previously required. We have elected to apply the change to the Consolidated Statement of Cash Flows on a modified retrospective basis resulting in a reclassification of the 2016 and 2015 excess income tax benefits related to stock-based compensation from financing activities to operating activities.

A reconciliation between the federal statutory rate and the effective tax rate is as follows:

	Year Ended December 31,
	2017			2016			2015
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal income tax benefit		2.2	%		2.4	%		2.3	%
Tax effects of foreign operations		-1.2	%		-0.8	%		-0.9	%
Tax benefit from settlement of employee equity awards		-1.9	%		0.0	%		0.0	%
Enactment of the TCJA-17		-1.7	%		0.0	%		0.0	%
Other items		0.2	%		0.2	%		0.3	%
Impact of income attributable to noncontrolling interests		-0.6	%		-1.4	%		-2.2	%
Effective tax rate		32.0	%		35.4	%		34.5	%

Our effective tax rates were 32.0%, 35.4% and 34.5% for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in our effective tax rate for the year ended December 31, 2017, as compared to 2016 and 2015, is due to the tax benefit resulting from our January 1, 2017 adoption of ASU 2016-09, the net favorable impact of the enactment of the TCJA-17 as discussed above, and the tax effects of our foreign operations in connection with our acquisition of Cambian Group, PLC's adult services division (acquired in late December, 2016). The increase in our effective tax rate for the year ended December 31, 2016 is primarily impacted by the decrease in net income attributable to noncontrolling interests due to our purchase of the minority ownership interests held by a third-party in our six acute care hospitals located in Las Vegas, Nevada, which is not tax effected in the statement of income. Including the expense related to income attributable to noncontrolling interests, the effective tax rate for the years ended December 31, 2017, 2016 and 2015 were 32.6%, 36.8% and 36.7%, respectively.

Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal and state income taxes amounting to approximately $5 million and $10 million as of December 31, 2017 and 2016, respectively.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 under the TCJA-17, we revalued our ending deferred tax assets and deferred tax liabilities at December 31, 2017 and we have recorded a provisional decrease of $97 million and $127 million, respectively, with a corresponding net adjustment to deferred tax benefit of $30 million in the consolidated statement of income for the year ended December 31, 2017. The components of deferred taxes are as follows (amounts in thousands):

		Year Ended December 31,
		2017							2016
		Assets				Liabilities			Assets				Liabilities
Self-insurance reserves	$		64,181		$			$		85,940		$
Compensation accruals			63,021							83,328
Doubtful accounts and other reserves			20,809							38,017
Other currently non-deductible accrued liabilities			19,759							24,058
Depreciable and amortizable assets							226,389							332,326
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets			76,439							66,639
Net pension liabilities – OCI only			2,825							5,926
Other combined items – OCI only							550			815
Other liabilities							1,824							2,949
	$		247,034		$		228,763	$		304,723		$		335,275
Valuation Allowance			(70,227	)			0			(56,333	)			0
Total deferred income taxes	$		176,807		$		228,763	$		248,390		$		335,275

At December 31, 2017, state net operating loss carryforwards (expiring in years 2018 through 2037), and credit carryforwards available to offset future taxable income approximated $1.09 billion representing approximately $70 million in deferred state tax benefit (net of the federal benefit). At December 31, 2017, there were foreign net operating losses and credit carryforwards of approximately $26 million, most of which are carried forward indefinitely, representing approximately $6 million in deferred foreign tax benefit.

A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $66 million and $52 million have been reflected as of December 31, 2017 and 2016, respectively. During 2017, the valuation allowance on these state tax benefits increased by $2 million due to additional net operating losses incurred and by $12 million due to the reduction of the federal benefit due to the change in U.S. corporate income tax rates. In addition, valuation allowances of approximately $4 million have been reflected as of December 31, 2017 and 2016 related to foreign net operating losses and credit carryforwards.

During 2017 and 2016, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased less than $1 million due to tax positions taken in the current and prior years. The balance at each of December 31, 2017 and 2016, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $1 million as of each date.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2017 and 2016, we have accrued interest and penalties of less than $1 million as of each date. The U.S. federal statute of limitations remains open for the 2014 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months, however, it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.

The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 is as follows (amounts in thousands).

	As of December 31,
	2017			2016			2015
Balance at January 1,	$	1,259		$	1,982		$	2,402
Additions based on tax positions related to the current year		500			50			50
Additions for tax positions of prior years		47			74			111
Reductions for tax positions of prior years		0			(94	)		(524	)
Settlements		(710	)		(753	)		(57	)
Balance at December 31,	$	1,096		$	1,259		$	1,982

LEASE COMMITMENTS

Three of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with terms expiring in 2021 (see Note 9 for additional disclosure). We also lease the real property of certain facilities (see Item 2. Properties for additional disclosure).

A summary of property under capital lease follows (amounts in thousands):

	As of December 31,
	2017			2016
Land, buildings and equipment	$	44,740		$	45,768
Less: accumulated amortization		(29,628	)		(28,864	)
	$	15,112		$	16,904

Future minimum rental payments under lease commitments with a term of more than one year as of December 31, 2017, are as follows (amounts in thousands):

Year	Capital Leases			Operating Leases
2018	$	3,899		$	73,310
2019		4,003			63,156
2020		3,345			50,948
2021		3,227			42,167
2022		3,508			24,871
Later years		15,694			147,965
Total minimum rental	$	33,676		$	402,417
Less: Amount representing interest		(11,891	)
Present value of minimum rental commitments		21,785
Less: Current portion of capital lease obligations		(1,837	)
Long-term portion of capital lease obligations	$	19,948

We assumed no capital lease obligations in 2017 and assumed capital lease obligations of approximately $152,000 in 2016 and $7 million in 2015, in connection with the leases on certain real estate assets. In the ordinary course of business, our facilities routinely lease equipment pursuant to new lease arrangements that will likely result in future lease and rental expense in excess of amounts indicated above.

COMMITMENTS AND CONTINGENCIES

Professional and General Liability, Workers’ Compensation Liability

Effective January, 2017, the vast majority of our subsidiaries are self-insured for professional and general liability exposure up to $5 million and $3 million per occurrence, respectively, subject to certain aggregate limitations. Prior to January, 2017, the vast majority of our subsidiaries were self-insured for professional and general liability exposure up to $10 million and $3 million per occurrence, respectively. These subsidiaries are provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence self-insured retention or underlying policy limits up to $250 million per occurrence and in the aggregate for claims incurred after 2013 and up to $200 million per occurrence and in the aggregate for claims incurred from 2011 through 2013. We remain liable for 10%, up to an annual aggregate limitation of $5 million, of the claims paid pursuant to the commercially insured excess coverage. In addition, from time to time based upon marketplace conditions, we may elect to purchase additional commercial coverage for certain of our facilities or businesses. Our behavioral health care facilities located in the U.K. have policies through a commercial insurance carrier located in the U.K. that provides for £10 million of professional liability coverage and £25 million of general liability coverage. The coverage for the facilities located in the U.K. acquired in late December, 2016 in connection with our acquisition of the Cambian Group, PLC’s adult services division is similar to the above-mentioned U.K. insurance program.

As of December 31, 2017, the total accrual for our professional and general liability claims was $229 million, of which $54 million was included in current liabilities. As of December 31, 2016, the total accrual for our professional and general liability claims was $207 million, of which $48 million was included in current liabilities. During 2017, based upon a reserve analysis of our estimated future claims payments, we recorded an increase to our professional and general liability self-insurance reserves (relating to prior years) of $15 million. Our consolidated results of operations during 2016 and 2015 were not materially impacted by adjustments to our prior year reserves for professional and general liability claims.

As of December 31, 2017, the total accrual for our workers’ compensation liability claims was $70 million, of which $35 million is included in current liabilities. As of December 31, 2016, the total accrual for our workers’ compensation liability claims was $67 million, of which $33 million is included in current liabilities. Our consolidated results of operations during 2017, 2016 and 2015 were not materially impacted by adjustments to our prior year reserves for workers’ compensation claims.

Below is a schedule showing the changes in our general and professional liability and workers’ compensation reserves during the three years ended December 31, 2017 (amount in thousands):

	General and
	Professional			Workers’
	Liability			Compensation			Total
Balance at January 1, 2015	$	192,904		$	66,814		$	259,718
Plus: Accrued insurance expense, net of commercial premiums paid		58,460			32,435			90,895
Less: Payments made in settlement of self-insured claims		(47,391	)		(31,746	)		(79,137	)
Balance at January 1, 2016		203,973			67,503			271,476
Liabilities assumed in acquisition		0			661			661
Plus: Accrued insurance expense, net of commercial premiums paid		54,671			29,967			84,638
Less: Payments made in settlement of self-insured claims		(51,185	)		(30,775	)		(81,960	)
Balance at January 1, 2017		207,459			67,356			274,815
Plus: Accrued insurance expense, net of commercial premiums paid		65,049			37,546			102,595
Less: Payments made in settlement of self-insured claims		(43,817	)		(35,371	)		(79,188	)
Balance at December 31, 2017	$	228,691		$	69,531		$	298,222

Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations. Although we are unable to predict whether or not our future financial statements will include adjustments to our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively

unpredictable nature of the these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.

Property Insurance:

We have commercial property insurance policies for our properties covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit, subject to a deductible ranging from $50,000 to $250,000 per occurrence. Losses resulting from named windstorms are subject to deductibles between 3% and 5% of the total insurable value of the property. In addition, we have commercial property insurance policies covering catastrophic losses resulting from earthquake and flood damage, each subject to aggregated loss limits (as opposed to per occurrence losses). Commercially insured earthquake coverage for our facilities is subject to various deductibles and limitations including: (i) $500 million limitation for our facilities located in Nevada; (ii) $130 million limitation for our facilities located in California; (iii) $100 million limitation for our facilities located in fault zones within the United States; (iv) $40 million limitation for our facility located in Puerto Rico, and; (v) $250 million limitation for many of our facilities located in other states. Deductibles for flood losses vary in amount, up to a maximum of $500,000, based upon location of the facility. Since certain of our facilities have been designated by our insurer as flood prone, we have elected to purchase policies from The National Flood Insurance Program. Property insurance for our behavioral health facilities located in the U.K. are provided on an all risk basis up to a £1.29 billion policy limit, with coverage caps per location, that includes coverage for real and personal property as well as business interruption losses.

Other Contractual Commitments:

In addition to our long-term debt obligations as discussed in Note 4 - Long-Term Debt and our operating lease obligations as discussed in Note 7 - Lease Commitments, we have various other contractual commitments outstanding as of December 31, 2017 as follows: (i) other combined estimated future purchase obligations of $315 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($73 million), expected future costs to be paid to a third-party vendor in connection with the ongoing operation of an electronic health records application and purchase implementation of a revenue cycle and other applications for our acute care facilities ($240 million) and estimated minimum liabilities for physician commitments expected to be paid in the future ($2 million); (ii) estimated construction commitment of $30 million representing our share of the construction costs of two new behavioral health care facilities located in Pennsylvania and Washington that we are required to build pursuant to joint-venture agreements with third-parties; (iii) combined estimated future payments of $206 million related to our non-contributory, defined benefit pension plan ($188 million consisting of estimated payments through 2089) and other retirement plan liabilities ($18 million), and; (iv) accrued and unpaid estimated claims expense incurred in connection with our commercial health insurers and self-insured employee benefit plans ($86 million).

Legal Proceedings

We operate in a highly regulated and litigious industry which subjects us to various claims and lawsuits in the ordinary course of business as well as regulatory proceedings and government investigations. These claims or suits include claims for damages for personal injuries, medical malpractice, commercial/contractual disputes, wrongful restriction of, or interference with, physicians’ staff privileges, and employment related claims. In addition, health care companies are subject to investigations and/or actions by various state and federal governmental agencies or those bringing claims on their behalf. Government action has increased with respect to investigations and/or allegations against healthcare providers concerning possible violations of fraud and abuse and false claims statutes as well as compliance with clinical and operational regulations. Currently, and from time to time, we and some of our facilities are subjected to inquiries in the form of subpoenas, Civil Investigative Demands, audits and other document requests from various federal and state agencies. These inquiries can lead to notices and/or actions including repayment obligations from state and federal government agencies associated with potential non-compliance with laws and regulations. Further, the federal False Claim Act allows private individuals to bring lawsuits (qui tam actions) against healthcare providers that submit claims for payments to the government. Various states have also adopted similar statutes. When such a claim is filed, the government will investigate the matter and decide if they are going to intervene in the pending case. These qui tam lawsuits are placed under seal by the court to comply with the False Claims Act’s requirements. If the government chooses not to intervene, the private individual(s) can proceed independently on behalf of the government. Health care providers that are found to violate the False Claims Act may be subject to substantial monetary fines/penalties as well as face potential exclusion from participating in government health care programs or be required to comply with Corporate Integrity Agreements as a condition of a settlement of a False Claim Act matter. In September 2014, the Criminal Division of the Department of Justice (“DOJ”) announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The DOJ has also announced an intention to pursue civil and criminal actions against individuals within a company as well as the corporate entity or entities. In addition, health care facilities are subject to monitoring by state and federal surveyors to ensure compliance with program Conditions of Participation. In the event a facility is found to be out of compliance with a Condition of Participation and unable to remedy the alleged deficiency(s), the facility faces termination from the Medicare and Medicaid programs or compliance with a System Improvement Agreement to remedy deficiencies and ensure compliance.

The laws and regulations governing the healthcare industry are complex covering, among other things, government healthcare participation requirements, licensure, certification and accreditation, privacy of patient information, reimbursement for patient services as well as fraud and abuse compliance. These laws and regulations are constantly evolving and expanding. Further, the Affordable Care Act has added additional obligations on healthcare providers to report and refund overpayments by government healthcare programs and authorizes the suspension of Medicare and Medicaid payments “pending an investigation of a credible allegation of fraud.” We monitor our business and have developed an ethics and compliance program with respect to these complex laws, rules and regulations. Although we believe our policies, procedures and practices comply with government regulations, there is no assurance that we will not be faced with the sanctions referenced above which include fines, penalties and/or substantial damages, repayment obligations, payment suspensions, licensure revocation, and expulsion from government healthcare programs. Even if we were to ultimately prevail in any action brought against us or our facilities or in responding to any inquiry, such action or inquiry could have a material adverse effect on us.

Certain legal matters are described below:

Government Investigations:

UHS Behavioral Health

In February, 2013, the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) served a subpoena requesting various documents from January, 2008 to the date of the subpoena directed at Universal Health Services, Inc. (“UHS”) concerning it and UHS of Delaware, Inc., and certain UHS owned behavioral health facilities including: Keys of Carolina, Old Vineyard Behavioral Health, The Meadows Psychiatric Center, Streamwood Behavioral Health, Hartgrove Hospital, Rock River Academy and Residential Treatment Center, Roxbury Treatment Center, Harbor Point Behavioral Health Center, f/k/a The Pines Residential Treatment Center, including the Crawford, Brighton and Kempsville campuses, Wekiva Springs Center and River Point Behavioral Health. Prior to receipt of this subpoena, some of these facilities had received independent subpoenas from state or federal agencies. Subsequent to the February 2013 subpoenas, some of the facilities above have received additional, specific subpoenas or other document and information requests. In addition to the OIG, the DOJ and various U.S. Attorneys’ and state Attorneys’ General Offices are also involved in this matter. Since February 2013, additional facilities have also received subpoenas and/or document and information requests or we have been notified are included in the omnibus investigation. Those facilities include: National Deaf Academy, Arbour-HRI Hospital, Behavioral Hospital of Bellaire, St. Simons By the Sea, Turning Point Care Center, Salt Lake Behavioral Health, Central Florida Behavioral Hospital, University Behavioral Center, Arbour Hospital, Arbour-Fuller Hospital, Pembroke Hospital, Westwood Lodge, Coastal Harbor Health System, Shadow Mountain Behavioral Health, Cedar Hills Hospital, Mayhill Hospital, Southern Crescent Behavioral Health (Anchor Hospital and Crescent Pines campuses), Valley Hospital (AZ), Peachford Behavioral Health System of Atlanta, University Behavioral Health of Denton, and El Paso Behavioral Health System.

In October, 2013, we were advised that the DOJ’s Criminal Frauds Section had opened an investigation of River Point Behavioral Health and Wekiva Springs Center. Since that time, we have been notified that the Criminal Frauds section has opened investigations of National Deaf Academy, Hartgrove Hospital and UHS as a corporate entity. In April 2017, the DOJ’s Criminal Division issued a subpoena requesting documentation from Shadow Mountain Behavioral Health. In August 2017, Kempsville Center of Behavioral Health (a part of Harbor Point Behavioral Health previously identified above) received a subpoena requesting documentation.

In April, 2014, the Centers for Medicare and Medicaid Services (“CMS”) instituted a Medicare payment suspension at River Point Behavioral Health in accordance with federal regulations regarding suspension of payments during certain investigations. The Florida Agency for Health Care Administration (“AHCA”) subsequently issued a Medicaid payment suspension for the facility. River Point Behavioral Health submitted a rebuttal statement disputing the basis of the suspension and requesting revocation of the suspension. Notwithstanding, CMS continued the payment suspension. River Point Behavioral Health provided additional information to CMS in an effort to obtain relief from the payment suspension but the Medicare suspension remains in effect. In June 2017, AHCA advised that while they were maintaining the suspension for dual eligible and cross-over Medicare beneficiaries, the Medicaid payment suspension was lifted effective June 27, 2017. We cannot predict if and/or when the facility’s remaining suspended payments will resume in total. From inception through December 31, 2017, the aggregate funds withheld from us in connection with the River Point Behavioral Health payment suspension amounted to approximately $10 million. Although the operating results of River Point Behavioral Health did not have a material impact on our consolidated results of operations during 2017, 2016 or 2015, the payment suspension has had a material adverse effect on the facility’s results of operations and financial condition.

The DOJ has advised us that the civil aspect of the coordinated investigation referenced above is a False Claims Act investigation focused on billings submitted to government payers in relation to services provided at those facilities. Based upon our initial discussions with the DOJ, our financial statements as of December 31, 2017 include a $22 million reserve established in connection with the civil aspects of these matters. However, changes in the reserve may be required in future periods as discussions continue and additional information becomes available. We cannot predict the ultimate resolution of these matters and therefore can provide no assurance that final amounts paid in settlement or otherwise, if any, or associated costs, will not differ materially from our established reserve.

Litigation:

U.S. ex rel Escobar v. Universal Health Services, Inc. et.al.

This is a False Claims Act case filed against Universal Health Services, Inc., UHS of Delaware, Inc. and HRI Clinics, Inc. d/b/a Arbour Counseling Services in U.S. District Court for the District of Massachusetts. This qui tam action primarily alleges that Arbour Counseling Services failed to appropriately supervise certain clinical providers in contravention of regulatory requirements and the submission of claims to Medicaid were subsequently improper. Relators make other claims of improper billing to Medicaid associated with alleged failures of Arbour Counseling to comply with state regulations. The U.S. Attorney’s Office and the Massachusetts Attorney General’s Office initially declined to intervene. UHS filed a motion to dismiss and the trial court originally granted the motion dismissing the case. The First Circuit Court of Appeals (“First Circuit”) reversed the trial court’s dismissal of the case. The United States Supreme Court subsequently vacated the First Circuit’s opinion and remanded the case for further consideration under the new legal standards established by the Supreme Court for False Claims Act cases. During the 4th quarter of 2016, the First Circuit issued a revised opinion upholding their reversal of the trial court’s dismissal. The case was then remanded to the trial court for further proceedings. In January 2017, the U.S. Attorney’s Office and Massachusetts Attorney General’s Office advised of the potential for intervention in the case. The Massachusetts Attorney General’s Office subsequently filed its motion to intervene which was granted and, in April 2017, filed their Complaint in Intervention. We are defending this case vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Shareholder Class Action

In December 2016 a purported shareholder class action lawsuit was filed in U.S. District Court for the Central District of California against UHS, and certain UHS officers alleging violations of the federal securities laws. Plaintiff alleges that defendants violated federal securities laws relating to the disclosures made in public filings associated with practices at our behavioral health facilities. The case was originally filed as Heed v. Universal Health Services, Inc. et. al. (Case No. 2:16-CV-09499-PSG-JC). The court subsequently appointed Teamsters Local 456 Pension Fund and Teamsters Local 456 Annuity Fund to serve as lead plaintiffs. The case has been transferred to the U.S. District Court for the Eastern District of Pennsylvania and the style of the case has been changed to Teamsters Local 456 Pension Fund, et. al. v. Universal Health Services, Inc. et. al. (Case No. 2:17-CV-02817-LS). In September, 2017, Teamsters Local 456 Pension Fund filed an amended complaint. In December 2017, we filed a motion to dismiss the amended complaint. We deny liability and intend to defend ourselves vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Shareholder Derivative Cases

In March 2017, a shareholder derivative suit was filed by plaintiff David Heed in the Court of Common Pleas of Philadelphia County. A notice of removal to the United States District Court for the Eastern District of Pennsylvania was filed (Case No. 2:17-cv-01476-LS). Plaintiff filed a motion to remand. In December 2017, the Court denied plaintiff’s motion to remand and has retained the case in federal court. The suit alleges breaches of fiduciary duties and other allegedly wrongful conduct by the members of the Board of Directors and certain officers of Universal Health Services, Inc. relating to practices at our behavioral health facilities. UHS has been named as a nominal defendant in the case. In May, June and July 2017, additional shareholder derivative suits were filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs in those cases are: Central Laborers’ Pension Fund (Case No. 17-cv-02187-LS); Firemen’s Retirement System of St. Louis (Case No. 17—cv-02317-LS); Waterford Township Police & Fire Retirement System (Case No. 17-cv-02595-LS); and Amalgamated Bank Longview Funds (Case No. 17-cv-03404-LS). The Fireman’s Retirement System case has since been voluntarily dismissed. In addition, a shareholder derivative case was filed in Chancery Court in Delaware by the Delaware County Employees’ Retirement Fund (Case No. 2017-0475-JTL). In December 2017, the Chancery Court stayed this case pending resolution of other contemporaneous matters. These additional cases make substantially similar allegations and claims based upon alleged violations of federal securities laws as well common law causes of action against the individual defendants. All of these additional cases have also named all members of the UHS Board of Directors as well as certain officers of the Company. The defendants deny liability and intend to defend these cases vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with these matters.

Chowdary v. Universal Health Services, Inc., et. al.

This is a lawsuit filed in 1999 in state court in Hidalgo County, Texas by a physician and his professional associations alleging tortious interference with contractual relationships and retaliation against McAllen Medical Center in McAllen, Texas as well as Universal Health Services, Inc. The state court has entered a summary judgment order awarding plaintiff $3.85 million in damages. With prejudgment interest, the total amount of the order amounts to approximately $9 million, for which a reserve is included in our financial statements as of December 31, 2017. A trial on punitive damages, emotional distress and attorneys’ fees remains to be conducted if the summary judgment order is not vacated. The case has been removed to federal court. Plaintiffs filed a motion to remand. In February 2018, the federal court denied plaintiffs’ motion to remand and retained the case in federal court. Plaintiffs have filed a writ of mandamus with the 5th Circuit Court of Appeals seeking to overturn the federal court’s decision denying remand. We have filed a motion for reconsideration of state court’s summary judgment order in the federal court proceeding.

Disproportionate Share Hospital Payment Matter:

In late September, 2015, many hospitals in Pennsylvania, including seven of our behavioral health care hospitals located in the state, received letters from the Pennsylvania Department of Human Services (the “Department”) demanding repayment of allegedly excess Medicaid Disproportionate Share Hospital payments (“DSH”) for the federal fiscal year 2011 (“FFY2011”) amounting to approximately $4 million in the aggregate. Since that time, we have received similar requests for repayment for alleged DSH overpayments for FFYs 2012 and 2013 aggregating to approximately $11 million. We filed administrative appeals for all of our facilities contesting the recoupment efforts for FFYs 2011 through 2013 as we believe the Department’s calculation methodology is inaccurate and conflicts with applicable federal and state laws and regulations. The Department has agreed to postpone the recoupment of the state’s share of the DSH payments until all hospital appeals are resolved but started recoupment of the federal share. The Department will likely make similar repayment demand for FFY 2014. Due to a change in the Pennsylvania Medicaid State Plan and implementation of a CMS-approved Medicaid Section 1115 Waiver, we do not believe the methodology applied by the Department to FFYs 2011 through 2013 is applicable to reimbursements received for Medicaid services provided after January 1, 2015 by our behavioral health care facilities located in Pennsylvania. We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to the Department’s repayment demands. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments.

Matters Relating to Psychiatric Solutions, Inc. (“PSI”):

The following matters pertain to PSI or former PSI facilities (owned by subsidiaries of PSI) which were in existence prior to the acquisition of PSI and for which we have assumed the defense as a result of our acquisition which was completed in November, 2010:

Department of Justice Investigation of Riveredge Hospital

In 2008, Riveredge Hospital in Chicago, Illinois received a subpoena from the DOJ requesting certain information from the facility. Additional requests for documents were also received from the DOJ in 2009 and 2010. The requested documents have been provided to the DOJ. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.

Department of Justice Investigation of Friends Hospital

In October, 2010, Friends Hospital in Philadelphia, Pennsylvania, received a subpoena from the DOJ requesting certain documents from the facility. The requested documents were collected and provided to the DOJ for review and examination. Another subpoena was issued to the facility in July, 2011 requesting additional documents, which have also been delivered to the DOJ. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.

Other Matters:

Various other suits, claims and investigations, including government subpoenas, arising against, or issued to, us are pending and additional such matters may arise in the future. Management will consider additional disclosure from time to time to the extent it believes such matters may be or become material. The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters described above or that are otherwise pending because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including, but not limited to: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the matter is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties, or; (vii) there is a wide range of potential outcomes. It is possible that the outcome of these matters could have a material adverse impact on our future results of operations, financial position, cash flows and, potentially, our reputation.

RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND OTHER RELATED PARTY TRANSACTIONS

Relationship with Universal Health Realty Income Trust:

At December 31, 2017, we held approximately 5.7% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement, which is scheduled to expire on December 31st of each year, pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services

and present investment opportunities. In December, 2017, the advisory agreement was renewed by the Trust for 2018 pursuant to the same terms in place during each of the last three years. During 2017, 2016 and 2015, the advisory fee was computed at 0.70% of the Trust’s average invested real estate assets. In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $3.6 million during 2017, $3.3 million during 2016 and $2.8 million during 2015.

Our pre-tax share of income from the Trust was $2.6 million during 2017, $1.0 million during 2016 and $1.4 million during 2015, and is included in net revenues in the accompanying consolidated statements of income for each year. Included in our share of the Trust’s income was approximately $1.7 million in 2017 related to our share of a gain recorded resulting from a property transaction, as well as insurance proceeds in excess of damaged Trust property. During 2015, our share of the Trust’s income included $500,000 related to our share of a gain on an exchange transaction recorded by the Trust. We received dividends from the Trust amounting to $2.1 million during 2017 and $2.0 million during each of 2016 and 2015.

The carrying value of our investment in the Trust was $8.2 million and $7.7 million at December 31, 2017 and 2016, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $59.2 million at December 31, 2017 and $51.7 million at December 31, 2016, based on the closing price of the Trust’s stock on the respective dates.

The Trust commenced operations in 1986 by purchasing certain hospital properties from us and immediately leasing the properties back to our respective subsidiaries. Most of the leases were entered into at the time the Trust commenced operations and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. Each hospital lease also provided for additional or bonus rental, as discussed below. The base rents are paid monthly and the bonus rents are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with those subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another.

Total rent expense under the operating leases on the three hospital facilities with the Trust during 2017, 2016 and 2015 was $16.0 million, $15.9 million, and $15.6 million, respectively. Pursuant to the terms of the three hospital leases with the Trust, we have the option to renew the leases at the lease terms described above by providing notice to the Trust at least 90 days prior to the termination of the then current term. We also have the right to purchase the respective leased hospitals at the end of the lease terms or any renewal terms at their appraised fair market value as well as purchase any or all of the three leased hospital properties at the appraised fair market value upon one month’s notice should a change of control of the Trust occur. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer.

The table below details the renewal options and terms for each of our three hospital facilities leased from the Trust:

Hospital Name	Type of Facility	Annual Minimum Rent		End of Lease Term
McAllen Medical Center	Acute Care	$	5,485,000	December, 2021	10	(a)
Wellington Regional Medical Center	Acute Care	$	3,030,000	December, 2021	10	(b)
Southwest Healthcare System, Inland Valley Campus	Acute Care	$	2,648,000	December, 2021	10	(b)

(a)	We have two 5-year renewal options at existing lease rates (through 2031).

(b)	We have two 5-year renewal options at fair market value lease rates (2022 through 2031).

In addition, certain of our subsidiaries are tenants in various medical office buildings and two free-standing emergency departments (“FEDs”) owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest. During the first quarter of 2015, wholly-owned subsidiaries of ours sold to and leased back from the Trust, two newly constructed FEDs located in Texas which were completed and opened during the first quarter of 2015. In conjunction with these transactions, ten-year lease agreements with six, five-year renewal options have been executed with the Trust. We have the option to purchase the properties upon the expiration of the fixed terms and each five-year renewal terms at the fair market value of the property. The aggregate construction cost/sales proceeds of these facilities was approximately $13 million, and the aggregate rent expense paid to the Trust at the commencement of the leases was approximately $900,000 annually.

Other Related Party Transactions:

In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of our chief executive officer (“CEO”) and his wife. As a result of these agreements, as amended in October, 2016, based on actuarial tables and other assumptions, during the life expectancies of the insureds, we would pay approximately $28 million in premiums, and certain trusts owned by our CEO, would pay approximately $9 million in premiums. Based on the projected premiums mentioned above, and assuming the policies remain in effect until the death of the insureds, we will be entitled to receive death benefit proceeds of no less than approximately $37 million representing the $28 million of aggregate premiums paid by us as well as the $9 million of aggregate premiums paid by the trusts. In connection with these policies, we paid approximately $1.2 million and $1.3 million in premium payments during 2017 and 2016.

In August, 2015, Marc D. Miller, our President and member of our Board of Directors, was appointed to the Board of Directors of Premier, Inc. (“Premier”), a healthcare performance improvement alliance. During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier. In conjunction with the GPO agreement, we acquired a minority interest in Premier for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO. Also in connection with this GPO agreement, we received shares of restricted stock of Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. We have elected to retain a portion of the previously vested shares of Premier, the market value of which is included in other assets on our consolidated balance sheet. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier on which the restrictions have lapsed was $33 million as of December 31, 2017 and $23 million as of December 31, 2016. See Note 1 to the Consolidated Financial Statements-Business and Summary of Significant Accounting Policies, V) GPO Agreement/Minority Ownership Interest for additional disclosure related to this agreement.

In January, 2018, our Board of Directors elected a new member to fill a vacancy created by the retirement of another member. The retired Director was a member of the Executive Committee and Finance Committee of our Board of Directors, was Of Counsel to Norton Rose Fulbright US LLP, and was also the trustee of certain trusts for the benefit of our Chief Executive Officer (“CEO”) and his family. The newly elected Director, who is a Partner in Norton Rose Fulbright US LLP, will serve as a member of the Executive Committee and Finance Committee and acts as a trustee of certain trusts for the benefit of our CEO and his family. We engage Norton Rose Fulbright US LLP for a variety of legal services and the law firm also provides personal legal services to our CEO.

PENSION PLAN

We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $50.1 million, $45.7 million and $40.7 million in 2017, 2016 and 2015, respectively. The non-contributory plan is a defined benefit pension plan which covers employees of one of our subsidiaries. The benefits are based on years of service and the employee’s highest compensation for any five years of employment. Our funding policy is to contribute annually at least the minimum amount that should be funded in accordance with the provisions of ERISA.

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation”, the actuarial present value, as of December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future compensation levels. The following table shows the reconciliation of the defined benefit pension plan as of December 31, 2017 and 2016:

	2017			2016
	(000s)
Change in plan assets:
Fair value of plan assets at beginning of year	$	109,677		$	106,839
Actual return (loss) on plan assets		15,533			8,858
Benefits paid		(5,846	)		(5,651	)
Administrative expenses		(697	)		(369	)
Fair value of plan assets at end of year	$	118,667		$	109,677
Change in benefit obligation:
Benefit obligation at beginning of year	$	110,949		$	118,180
Service cost		721			926
Interest cost		4,465			4,997
Benefits paid		(5,846	)		(5,651	)
Actuarial (gain) loss		5,767			(7,503	)
Benefit obligation at end of year	$	116,056		$	110,949
Amounts recognized in the Consolidated Balance Sheet:
Other non-current assets		2,611
Other non-current liabilities					1,272
Total amounts recognized at end of year	$	2,611		$	1,272

	2017			2016			2015
	(000s)
Components of net periodic cost (benefit)
Service cost	$	721		$	926		$	1,051
Interest cost		4,465			4,997			4,912
Expected return on plan assets		(5,862	)		(5,708	)		(6,254	)
Amortization of actuarial loss		863			3,072			3,164
Net periodic cost	$	187		$	3,287		$	2,873

	2017	2016
Measurement Dates
Benefit obligations	12/31/2017	12/31/2016
Fair value of plan assets	12/31/2017	12/31/2016


Weighted average assumptions as of December 31
Discount rate	3.60	%	4.14	%
Rate of compensation increase	4.00	%	4.00	%


Weighted-average assumptions for net periodic benefit cost calculations
Discount rate	4.14	%	4.34	%	3.95	%
Expected long-term rate of return on plan assets	5.50	%	5.50	%	5.50	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%

The accumulated benefit obligation for our pension plan represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our plan was $115.9 million and $110.6 million as of December 31, 2017 and 2016, respectively. As of December 31, 2017, the fair value of plan assets exceed the accumulated benefit obligation by $2.7 million. As of December 31, 2016, the accumulated benefit obligation exceeded the fair value of plan assets by $0.9 million.

We estimate that there will be no net loss or prior service cost amortized from accumulated other comprehensive income during 2018.

In May, 2015, the FASB issued ASU No. 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)," which is effective for annual reporting periods beginning after December 15, 2015. The standard removes the requirement to categorize investments for which fair value is measured using the net asset value (NAV) per share practical expedient within the fair value hierarchy. We have adopted this standard effective January 1, 2016, and applied the guidance retrospectively. This standard impacts financial statement disclosure only. In previous reporting periods, we disclosed the full fair value hierarchy and disclosed our pension assets as level 2 within the hierarchy. Going forward, we will disclose our pension assets by asset category reported using NAV as a practical expedient for comparative years.

The market values of our pension plan assets at December 31, 2017 and December 31, 2016, reported using net asset value as a practical expedient, by asset category are as follows:

	2017		2016
Equities:
U.S. Large Cap	$	9,393	$	8,547
U.S. Mid Cap		2,937		2,651
U.S. Small Cap		3,005		2,669
International Developed		7,213		6,534
Emerging Markets		4,792		4,360
Fixed income:
Core Fixed Income		25,915		23,719
Long Duration Fixed Income		62,522		58,312
Real Estate:
REIT Fund		2,370		2,216
Cash/Currency:
Cash Equivalents		520		669
Total market value	$	118,667	$	109,677

To develop the expected long-term rate of return on plan assets assumption, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.

The following table shows expected benefit payments for the years ended December 31, 2018 through 2027 for our defined pension plan. There will be benefit payments under this plan beyond 2027.

Estimated Future Benefit Payments (000s)
2018	$	6,376
2019		6,578
2020		6,705
2021		6,789
2022		6,841
2023-2027		34,230
Total	$	67,519


Plan Assets
Asset Category
Equity securities	23	%	23	%
Fixed income securities	75	%	75	%
Other	2	%	2	%
Total	100	%	100	%

Investment Policy, Guidelines and Objectives have been established for the defined benefit pension plan. The investment policy is in keeping with the fiduciary requirements under existing federal laws and managed in accordance with the Prudent Investor Rule. Total portfolio risk is regularly evaluated and compared to that of the plan’s policy target allocation and judged on a relative basis over

a market cycle. The following asset allocation policy and ranges have been established in accordance with the overall risk and return objectives of the portfolio:

			Permitted Range
Total Equity	23	%	10-30%
Total Fixed Income	75	%	70-90%
Other	2	%	0-10%

In accordance with the investment policy, the portfolio will invest in high quality, large and small capitalization companies traded on national exchanges, and investment grade securities. The investment managers will not write or buy options for speculative purposes; securities may not be margined or sold short. The manager may employ futures or options for the purpose of hedging exposure, and will not purchase unregistered sectors, private placements, partnerships or commodities.

SEGMENT REPORTING

Our reportable operating segments consist of acute care hospital services and behavioral health care services. The “Other” segment column below includes centralized services including, but not limited to, information technology, purchasing, reimbursement, accounting and finance, taxation, legal, advertising and design and construction. The chief operating decision making group for our acute care services and behavioral health care services is comprised of our Chief Executive Officer, the President and the Presidents of each operating segment. The Presidents for each operating segment also manage the profitability of each respective segment’s various facilities. The operating segments are managed separately because each operating segment represents a business unit that offers different types of healthcare services or operates in different healthcare environments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in this Annual Report on Form 10-K for the year ended December 31, 2017. The corporate overhead allocations, as reflected below, are utilized for internal reporting purposes and are comprised of each period’s projected corporate-level operating expenses (excluding interest expense). The overhead expenses are captured and allocated directly to each segment, to the extent possible, based upon each segment’s respective percentage of total operating expenses.

2017	Acute Care Hospital Services			Behavioral Health Services (a.)			Other			Total Consolidated
	(Dollar amounts in thousands)
Gross inpatient revenues	$	21,888,207		$	8,949,984		$	—		$	30,838,191
Gross outpatient revenues	$	13,115,881		$	993,409		$	—		$	14,109,290
Total net revenues	$	5,484,683		$	4,906,719		$	18,463		$	10,409,865
Income (loss) before allocation of corporate overhead and income taxes	$	641,857		$	968,974		$	(475,822	)	$	1,135,009
Allocation of corporate overhead	$	(182,713	)	$	(158,735	)	$	341,448		$	0
Income (loss) after allocation of corporate overhead and before income taxes	$	459,144		$	810,239		$	(134,374	)	$	1,135,009
Total assets	$	3,849,214		$	6,648,818		$	263,796		$	10,761,828

2016	Acute Care Hospital Services			Behavioral Health Services (a.)			Other			Total Consolidated
	(Dollar amounts in thousands)
Gross inpatient revenues	$	19,042,627		$	8,017,585		$	—		$	27,060,212
Gross outpatient revenues	$	11,374,098		$	902,102		$	—		$	12,276,200
Total net revenues	$	5,112,950		$	4,645,007		$	8,253		$	9,766,210
Income (loss) before allocation of corporate overhead and income taxes	$	557,472		$	1,030,734		$	(431,848	)	$	1,156,358
Allocation of corporate overhead	$	(170,767	)	$	(154,843	)	$	325,610		$	0
Income (loss) after allocation of corporate overhead and before income taxes	$	386,705		$	875,891		$	(106,238	)	$	1,156,358
Total assets	$	3,723,075		$	6,440,195		$	154,532		$	10,317,802

2015	Acute Care Hospital Services			Behavioral Health Services (a.)			Other			Total Consolidated
	(Dollar amounts in thousands)
Gross inpatient revenues	$	16,847,944		$	7,456,397		$	—		$	24,304,341
Gross outpatient revenues	$	9,604,952		$	839,884		$	15,794		$	10,460,630
Total net revenues	$	4,632,564		$	4,400,335		$	10,552		$	9,043,451
Income (loss) before allocation of corporate overhead and income taxes	$	519,630		$	1,021,823		$	(395,552	)	$	1,145,901
Allocation of corporate overhead	$	(197,699	)	$	(117,203	)	$	314,902		$	0
Income (loss) after allocation of corporate overhead and before income taxes	$	321,931		$	904,620		$	(80,650	)	$	1,145,901
Total assets	$	3,413,879		$	5,867,088		$	334,477		$	9,615,444

	(a.)	Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $429 million in 2017, $241 million in 2016 and $203 million in 2015. Total assets at our U.K. behavioral health care facilities were approximately $1.098 billion as of December 31, 2017, $965 million as of December 31, 2016 and $521 million as of December 31, 2015.

QUARTERLY RESULTS (unaudited)

The following tables summarize the quarterly financial data for the two years ended December 31, 2017 and 2016:

2017	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Net revenues	$	2,612,858	$	2,612,356	$	2,541,864	$	2,642,787	$	10,409,865
Net income	$	210,527	$	190,388	$	145,362	$	225,035	$	771,312
Less: Net income attributable to noncontrolling interests	$	4,472	$	4,994	$	4,117	$	5,426	$	19,009
Net income attributable to UHS	$	206,055	$	185,394	$	141,245	$	219,609	$	752,303
Earnings per share attributable to UHS-Basic:
Total basic earnings per share	$	2.13	$	1.93	$	1.48	$	2.32	$	7.86
Earnings per share attributable to UHS-Diluted:
Total diluted earnings per share	$	2.12	$	1.91	$	1.47	$	2.31	$	7.81

The 2017 quarterly financial data presented above includes the following:

First Quarter:

	•	an unfavorable $8.1 million pre-tax impact ($5.1 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

	•	a favorable after-tax impact of $6.8 million, or $.07 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”).

Second Quarter:

	•	an unfavorable $6.4 million pre-tax impact ($4.0 million, or $.04 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

	•	a favorable after-tax impact of $1.4 million, or $.01 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Third Quarter:

	•	an unfavorable $4.2 million pre-tax impact ($2.6 million, or $.03 per diluted share, net of taxes) recorded in connection with the implementation of EHR application;

	•	a favorable after-tax impact of $487,000, or $.01 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Fourth Quarter:

	•	an unfavorable $3.6 million pre-tax impact ($2.3 million, or $.03 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

	•	a favorable after-tax impact of $13.5 million, or $.14 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09;

	•	a favorable after-tax impact of $30.0 million, or $.32 per diluted share, resulting from a reduction in our net deferred income tax liability resulting from lower federal income tax rates beginning January 1, 2018 pursuant to the Tax Cuts and Jobs Act of 2017;

	•	an unfavorable after-tax impact of $11.3 million, or $.12 per diluted share, resulting from the one-time repatriation tax incurred pursuant to the Tax Cuts and Jobs Act of 2017 (in connection with our behavioral health care facilities located in the U.K. and Puerto Rico).

2016	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Net revenues	$	2,449,798	$	2,430,855	$	2,409,872	$	2,475,685	$	9,766,210
Net income	$	215,719	$	195,449	$	157,265	$	178,738	$	747,171
Less: Net income attributable to noncontrolling interests	$	24,960	$	9,872	$	5,400	$	4,530	$	44,762
Net income attributable to UHS	$	190,759	$	185,577	$	151,865	$	174,208	$	702,409
Earnings per share attributable to UHS-Basic:
Total basic earnings per share	$	1.95	$	1.91	$	1.56	$	1.80	$	7.22
Earnings per share attributable to UHS-Diluted:
Total diluted earnings per share	$	1.93	$	1.89	$	1.54	$	1.78	$	7.14

The 2016 quarterly financial data presented above includes the following:

First Quarter:

	•	an unfavorable $8.3 million pre-tax impact ($5.2 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

Second Quarter:

	•	an unfavorable $8.7 million pre-tax impact ($5.5 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications.

Third Quarter:

	•	an unfavorable $8.5 million pre-tax impact ($5.3 million, or $.06 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications.

Fourth Quarter:

	•	an unfavorable $2.8 million pre-tax impact ($1.8 million, or $.02 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

	Balance at		Charges to				Write-off of			Balance
	beginning		costs and		Acquisitions		uncollectible			at end
Allowance for Doubtful Accounts Receivable:	of period		expenses		of business		accounts			of period
Year ended December 31, 2017	$	410,374	$	869,077	$	-	$	(799,162	)	$	480,289
Year ended December 31, 2016	$	398,797	$	741,578	$	-	$	(730,001	)	$	410,374
Year ended December 31, 2015	$	324,648	$	741,273	$	-	$	(667,124	)	$	398,797

	Balance at		Charges to							Balance
	beginning		costs and			Acquisitions				at end
Valuation Allowance for Deferred Tax Assets:	of period		expenses			of business		Write-offs		of period
Year ended December 31, 2017	$	56,333	$	13,894		$	-	$	-	$	70,227
Year ended December 31, 2016	$	52,567	$	3,766		$	-	$	-	$	56,333
Year ended December 31, 2015	$	52,764	$	(197	)	$	-	$	-	$	52,567

Previous: Item 15. Exhibits and Financial Statement Schedules