Cover and table of contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10765

UNIVERSAL HEALTH SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware		23-2077891
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

UNIVERSAL CORPORATE CENTER

367 SOUTH GULPH ROAD

KING OF PRUSSIA**,** Pennsylvania 19406

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (610) 768-3300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, $0.01 par value	UHS	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☒	Accelerated filer		☐
Non-accelerated filer		☐	Smaller reporting company		☐
				Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding, as of July 31, 2024:

Class A		6,577,100
Class B		59,461,566
Class C		661,688
Class D		12,802

UNIVERSAL HEALTH SERVICES, INC.

INDEX

		PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income – Three and Six Months Ended June 30, 2024 and 2023		3
Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2024 and 2023		4
Condensed Consolidated Balance Sheets – June 30, 2024 and December 31, 2023		5
Condensed Consolidated Statements of Changes in Equity – Three and Six Months Ended June 30, 2024 and 2023		6
Condensed Consolidated Statements of Cash Flows - Three and Six Months Ended June 30, 2024 and 2023		8
Notes to Condensed Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		60
Item 4. Controls and Procedures		61
PART II. Other Information
Item 1. Legal Proceedings		62
Item 1A. Risk Factors		62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 5. Other Information		63
Item 6. Exhibits		64
Signatures		65

This Quarterly Report on Form 10-Q is for the quarter ended June 30, 2024. This Report modifies and supersedes documents filed prior to this Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersede information contained in this Report.

In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries. UHS is a registered trademark of UHS of Delaware, Inc., the management company for, and a wholly-owned subsidiary of Universal Health Services, Inc. Universal Health Services, Inc. is a holding company and operates through its subsidiaries including its management company, UHS of Delaware, Inc. All healthcare and management operations are conducted by subsidiaries of Universal Health Services, Inc. To the extent any reference to “UHS” or “UHS facilities” in this report including letters, narratives or other forms contained herein relates to our healthcare or management operations it is referring to Universal Health Services, Inc.’s subsidiaries including UHS of Delaware, Inc. Further, the terms “we,” “us,” “our” or the “Company” in such context similarly refer to the operations of Universal Health Services Inc.’s subsidiaries including UHS of Delaware, Inc. Any reference to employees or employment contained herein refers to employment with or employees of the subsidiaries of Universal Health Services, Inc. including UHS of Delaware, Inc.

PART I. FINANCI****AL INFORMATION

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share amounts)

(unaudited)

	Three months ended June 30,								Six months ended June 30,
	2024				2023				2024				2023
Net revenues	$	3,907,604			$	3,548,138			$	7,751,186			$	7,015,656
Operating charges:
Salaries, wages and benefits		1,856,372				1,770,271				3,698,996				3,523,606
Other operating expenses		1,043,116				938,314				2,075,286				1,817,265
Supplies expense		388,063				380,294				791,636				760,283
Depreciation and amortization		147,480				143,744				288,483				285,365
Lease and rental expense		36,175				35,387				71,625				70,309
		3,471,206				3,268,010				6,926,026				6,456,828
Income from operations		436,398				280,128				825,160				558,828
Interest expense, net		48,899				48,831				101,725				99,707
Other (income) expense, net		5,493				6,602				5,343				20,325
Income before income taxes		382,006				224,695				718,092				438,796
Provision for income taxes		87,676				55,393				157,940				107,119
Net income		294,330				169,302				560,152				331,677
Less: Net income (loss) attributable to noncontrolling interests		5,178				(2,011	)			9,166				(2,751	)
Net income attributable to UHS	$	289,152			$	171,313			$	550,986			$	334,428
Basic earnings per share attributable to UHS	$	4.32			$	2.44			$	8.22			$	4.75
Diluted earnings per share attributable to UHS	$	4.26			$	2.42			$	8.08			$	4.70
Weighted average number of common shares - basic		66,878				70,073				67,041				70,304
Add: Other share equivalents		1,042				766				1,160				859
Weighted average number of common shares and equivalents - diluted		67,920				70,839				68,201				71,163

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEM****ENTS OF COMPREHENSIVE INCOME

(amounts in thousands, unaudited)

		Three months ended June 30,								Six months ended June 30,
		2024				2023				2024				2023
Net income		$	294,330			$	169,302			$	560,152			$	331,677
Other comprehensive income (loss):
Foreign currency translation adjustment			907				19,730				(66	)			23,928
Other			-				-				17				-
Other comprehensive income (loss) before tax			907				19,730				(49	)			23,928
Income tax expense (benefit) related to items of other comprehensive income (loss)			8				1,255				428				831
Total other comprehensive (loss) income, net of tax			899				18,475				(477	)			23,097
Comprehensive income			295,229				187,777				559,675				354,774
Less: Comprehensive income (loss) attributable to noncontrolling interests			5,178				(2,011	)			9,166				(2,751	)
Comprehensive income attributable to UHS		$	290,051			$	189,788			$	550,509			$	357,525

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDA****TED BALANCE SHEETS

(amounts in thousands, unaudited)

	June 30, 2024				December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	128,786			$	119,439
Accounts receivable, net		2,156,811				2,238,265
Supplies		218,780				216,988
Other current assets		236,317				236,658
Total current assets		2,740,694				2,811,350
Property and equipment		12,239,814				11,777,047
Less: accumulated depreciation		(5,905,061	)			(5,652,518	)
		6,334,753				6,124,529
Other assets:
Goodwill		3,942,372				3,932,407
Deferred income taxes		107,963				85,626
Right of use assets-operating leases		425,407				433,962
Deferred charges		6,858				6,974
Other		513,381				572,754
Total Assets	$	14,071,428			$	13,967,602
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	127,508			$	126,686
Accounts payable and other liabilities		1,926,295				1,813,015
Operating lease liabilities		71,982				71,600
Federal and state taxes		23,422				2,046
Total current liabilities		2,149,207				2,013,347
Other noncurrent liabilities		569,687				584,007
Operating lease liabilities noncurrent		379,580				382,559
Long-term debt		4,416,731				4,785,783
Redeemable noncontrolling interests		5,418				5,191
Equity:
UHS common stockholders’ equity		6,485,372				6,149,001
Noncontrolling interest		65,433				47,714
Total equity		6,550,805				6,196,715
Total Liabilities and Stockholders’ Equity	$	14,071,428			$	13,967,602

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Six Months ended June 30, 2024

(amounts in thousands, unaudited)

																														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, April 1, 2024		$	4,987			$	66			$	600			$	7			$	0			$	(673,436	)		$	6,921,547			$	7,913			$	6,256,697			$	49,147			$	6,305,844
Common Stock
Issued/(converted)			—				—				(2	)			—				—				—				3,985				—				3,983				—				3,983
Repurchased, including excise tax			—				—				(4	)			—				—				—				(77,843	)			—				(77,847	)			—				(77,847	)
Restricted share-based compensation expense			—				—				—				—				—				—				12,779				—				12,779				—				12,779
Dividends paid and accrued			—				—				—				—				—				(13,579	)			—				—				(13,579	)			—				(13,579	)
Stock option expense			—				—				—				—				—				—				13,288				—				13,288				—				13,288
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				(609	)			(609	)
Sale of ownership interests to minority members			—				—				—				—				—				—				—				—				—				12,148				12,148
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests			431				—				—				—				—				—				289,152				—				289,152				4,747				293,899
Other			—				—				—				—				—				—				—				—				—				—				—
Foreign currency translation adjustments, net of income tax			—				—				—				—				—				—				—				899				899				—				899
Subtotal - comprehensive income			431				—				—				—				—				—				289,152				899				290,051				4,747				294,798
Balance, June 30, 2024		$	5,418			$	66			$	594			$	7			$	—			$	(687,015	)		$	7,162,908			$	8,812			$	6,485,372			$	65,433			$	6,550,805
																														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, 2024		$	5,191			$	66			$	599			$	7			$	0			$	(659,890	)		$	6,798,930			$	9,289			$	6,149,001			$	47,714			$	6,196,715
Common Stock
Issued/(converted)			—				—				8				—				—				—				7,386				—				7,394				—				7,394
Repurchased, including excise tax			—				—				(13	)			—				—				—				(239,925	)			—				(239,938	)			—				(239,938	)
Restricted share-based compensation expense			—				—				—				—				—				—				17,879				—				17,879				—				17,879
Dividends paid and accrued			—				—				—				—				—				(27,125	)							—				(27,125	)			—				(27,125	)
Stock option expense			—				—				—				—				—				—				27,669				—				27,669				—				27,669
Distributions to noncontrolling interests			(649	)			—				—				—				—				—				—				—				—				(4,440	)			(4,440	)
Sale of ownership interests to minority members			—				—				—				—				—				—				—				—				—				13,869				13,869
Comprehensive income:																															—
Net income (loss) to UHS / noncontrolling interests			876				—				—				—				—				—				550,986				—				550,986				8,290				559,276
Other							—				—				—				—				—				(17	)			17				—				—				—
Foreign currency translation adjustments, net of income tax			—				—				—				—				—				—				—				(494	)			(494	)			—				(494	)
Subtotal - comprehensive income			876				—				—				—				—				—				550,969				(477	)			550,492				8,290				558,782
Balance, June 30, 2024		$	5,418			$	66			$	594			$	7			$	0			$	(687,015	)		$	7,162,908			$	8,812			$	6,485,372			$	65,433			$	6,550,805

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Six Months ended June 30, 2023

(amounts in thousands, unaudited)

																														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, April 1, 2023		$	4,269			$	66			$	633			$	7			$	0			$	(618,326	)		$	6,634,774			$	(5,046	)		$	6,012,108			$	40,309			$	6,052,417
Common Stock
Issued/(converted)			—				—				3				—				—				—				3,608				—				3,611				—				3,611
Repurchased, including excise tax			—				—				(8	)			—				—				—				(125,843	)			—				(125,851	)			—				(125,851	)
Restricted share-based compensation expense			—				—				—				—				—				—				5,769				—				5,769				—				5,769
Dividends paid and accrued			—				—				—				—				—				(14,147	)			—				—				(14,147	)			—				(14,147	)
Stock option expense			—				—				—				—				—				—				15,904				—				15,904				—				15,904
Acquisition of noncontrolling interest in majority owned business			—				—				—				—				—				—				—				—				—				—				—
Distributions to noncontrolling interests			(300	)			—				—				—				—				—				—				—				—				(290	)			(290	)
Sale of ownership interests to minority members			—				—				—				—				—				—				—				—				—				3,814				3,814
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests			244				—				—				—				—				—				171,313				—				171,313				(2,256	)			169,057
Foreign currency translation adjustments, net of income tax			—				—				—				—				—				—				—				18,475				18,475				—				18,475
Subtotal - comprehensive income			244				—				—				—				—				—				171,313				18,475				189,788				(2,256	)			187,532
Balance, June 30, 2023		$	4,213			$	66			$	628			$	7			$	—			$	(632,473	)		$	6,705,525			$	13,429			$	6,087,182			$	41,577			$	6,128,759
																														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, 2023		$	4,695			$	66			$	637			$	7			$	0			$	(604,127	)		$	6,533,667			$	(9,668	)		$	5,920,582			$	44,768			$	5,965,350
Common Stock
Issued/(converted)			—				—				6				—				—				—				6,700				—				6,706				—				6,706
Repurchased, including excise tax			—				—				(15	)			—				—				—				(211,662	)			—				(211,677	)			—				(211,677	)
Restricted share-based compensation expense			—				—				—				—				—				—				10,263				—				10,263				—				10,263
Dividends paid and accrued			—				—				—				—				—				(28,346	)			—				—				(28,346	)			—				(28,346	)
Stock option expense			—				—				—				—				—				—				32,129				—				32,129				—				32,129
Acquisition of noncontrolling interest in majority owned business			—				—				—				—				—				—				—				—				—				—				—
Distributions to noncontrolling interests			(1,050	)			—				—				—				—				—				—				—				—				(3,685	)			(3,685	)
Sale of ownership interests to minority members			—				—				—				—				—				—				—				—				—				3,814				3,814
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests			568				—				—				—				—				—				334,428				—				334,428				(3,320	)			331,108
Foreign currency translation adjustments, net of income tax			—				—				—				—				—				—				—				23,097				23,097				—				23,097
Subtotal - comprehensive income			568				—				—				—				—				—				334,428				23,097				357,525				(3,320	)			354,205
Balance, June 30, 2023		$	4,213			$	66			$	628			$	7			$	0			$	(632,473	)		$	6,705,525			$	13,429			$	6,087,182			$	41,577			$	6,128,759

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED S****TATEMENTS OF CASH FLOWS

(amounts in thousands, unaudited)

		Six months ended June 30,
		2024				2023
Cash Flows from Operating Activities:
Net income		$	560,152			$	331,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization			288,483				285,365
Gains on sale of assets and businesses			(3,725	)			(6,250	)
Stock-based compensation expense			46,162				43,062
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable			66,174				(82,078	)
Accrued interest			3,310				(107	)
Accrued and deferred income taxes			26,970				(32,695	)
Other working capital accounts			39,686				20,216
Medicare accelerated payments and deferred CARES Act and other grants			-				2,741
Other assets and deferred charges			(3,030	)			32,746
Other			14,277				15,471
Accrued insurance expense, net of commercial premiums paid			102,222				95,157
Payments made in settlement of self-insurance claims			(64,994	)			(51,604	)
Net cash provided by operating activities			1,075,687			$	653,701
Cash Flows from Investing Activities:
Property and equipment additions			(449,933	)			(336,664	)
Proceeds received from sales of assets and businesses			5,428				23,688
Acquisition of businesses and property			-				(3,728	)
Inflows (outflows) from foreign exchange contracts that hedge our net U.K. investment			6,830				(31,305	)
Decrease in capital reserves of commercial insurance subsidiary			196				-
Net cash used in investing activities			(437,479	)			(348,009	)
Cash Flows from Financing Activities:
Repayments of long-term debt			(382,675	)			(93,557	)
Additional borrowings, net			12,038				-
Financing costs			-				(293	)
Repurchase of common shares			(237,987	)			(209,756	)
Dividends paid			(27,006	)			(28,263	)
Issuance of common stock			7,227				6,598
Profit distributions to noncontrolling interests			(5,089	)			(4,735	)
Sale of ownership interests to minority members			5,025				407
Net cash used in financing activities			(628,467	)			(329,599	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(392	)			2,377
Increase (decrease) in cash, cash equivalents and restricted cash			9,349				(21,530	)
Cash, cash equivalents and restricted cash, beginning of period			214,470				200,837
Cash, cash equivalents and restricted cash, end of period		$	223,819			$	179,307
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	95,902			$	97,297
Income taxes paid, net of refunds		$	131,499			$	133,840
Noncash purchases of property and equipment		$	108,260			$	100,461

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLID****ATED FINANCIAL STATEMENTS

(1) General

This Quarterly Report on Form 10-Q is for the quarterly period ended June 30, 2024. In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries.

The condensed consolidated interim financial statements include the accounts of our majority-owned subsidiaries and partnerships and limited liability companies controlled by us, or our subsidiaries, as managing general partner or managing member. The condensed consolidated interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments (consisting only of normal recurring adjustments) which, in our opinion, are necessary to fairly state results for the interim periods. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, significant accounting policies and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

(2) Relationship with Universal Health Realty Income Trust and Other Related Party Transactions

Relationship with Universal Health Realty Income Trust:

At June 30, 2024, 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. The advisory agreement was renewed by the Trust for 2024 at the same rate in place for 2023, 2022 and 2021, providing for an advisory fee computation at 0.70% of the Trust’s average invested real estate assets. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $1.4 million and $1.3 million during the three-month periods ended June 30, 2024 and 2023, respectively, and approximately $2.7 million and $2.6 million during the six-month periods ended June 30, 2024 and 2023, respectively.

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.

Our pre-tax share of income from the Trust was approximately $314,000 and $250,000 during the three-month periods ended June 30, 2024 and 2023, respectively, and approximately $614,000 and $550,000 during the six-month periods ended June 30, 2024 and 2023, respectively, and is included in other (income) expense, net, on the accompanying consolidated statements of income for each period. We received dividends from the Trust amounting to $575,000 and $567,000 during the three-month periods ended June 30, 2024 and 2023, respectively, and $1.1 million during each of the six-month periods ended June 30, 2024 and 2023. The carrying value of our investment in the Trust was approximately $6.4 million and $7.0 million at June 30, 2024 and December 31, 2023, respectively, and is included in other assets in the accompanying condensed consolidated balance sheets. The market value of our investment in the Trust was $30.8 million at June 30, 2024 and $34.1 million at December 31, 2023, based on the closing price of the Trust’s stock on the respective dates.

The Trust commenced operations in 1986 by purchasing certain properties from us and immediately leasing the properties back to our respective subsidiaries. The base rents are paid monthly and the bonus rent, which as of January 1, 2022 is applicable only to McAllen Medical Center, is 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.

On December 31, 2021, we entered into an asset purchase and sale agreement with the Trust, which was amended during the first quarter of 2022, pursuant to the terms of which: (i) a wholly-owned subsidiary of ours purchased from the Trust the real estate assets of the Inland Valley Campus of Southwest Healthcare System located in Wildomar, California, at its fair market value; (ii) two wholly-owned subsidiaries of ours transferred to the Trust, at their respective fair-market values, the real estate assets of Aiken Regional Medical Center (“Aiken”), located in Aiken, South Carolina (which includes a 211-bed acute care hospital and a 62-bed behavioral health facility), and Canyon Creek Behavioral Health (“Canyon Creek”), located in Temple, Texas, and; (iii) we received approximately $4.1 million in cash from the Trust.

As a result of the purchase options within the lease agreements for Aiken and Canyon Creek, the asset purchase and sale transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP. We have accounted for the asset exchange and substitution

transaction with the Trust as a financing arrangement and, since we did not derecognize the real property related to Aiken and Canyon Creek, we will continue to depreciate the assets. Our condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 reflects a financial liability of $75.7 million and $77.5 million, respectively, which is included in debt, for the fair value of real estate assets that we exchanged as part of the transaction. Our monthly lease payments payable to the Trust will be recorded to interest expense and as a reduction to the outstanding financial liability. The amount allocated to interest expense is determined using our incremental borrowing rate and is based on the outstanding financial liability.

The aggregate rent payable to the Trust in connection with the leases on McAllen Medical Center, Wellington Regional Medical Center, Aiken Regional Medical Center and Canyon Creek Behavioral Health was approximately $5 million during each of the three months ended June 30, 2024 and 2023, and approximately $11 million and $10 million during the six months ended June 30, 2024 and 2023, respectively.

Pursuant to the Master Leases by certain subsidiaries of ours and the Trust as described in the table below, dated 1986 and 2021 (“the Master Leases”) which govern the leases of McAllen Medical Center and Wellington Regional Medical Center (each of which is governed by the Master Lease dated 1986), and Aiken Regional Medical Center and Canyon Creek Behavioral Health (each of which is governed by the Master Lease dated 2021), we have the option to renew the leases at the lease terms described above and below 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 their appraised fair market value upon any of the following: (i) at the end of the lease terms or any renewal terms; (ii) upon one month’s notice should a change of control of the Trust occur, or; (iii) within the time period as specified in the lease in the event that we provide notice to the Trust of our intent to offer a substitution property/properties in exchange for one (or more) of the hospital properties leased from the Trust should we be unable to reach an agreement with the Trust on the properties to be substituted. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for a specified period 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 a specified period after, the lease term at the same terms and conditions pursuant to any third-party offer.

In addition, we are the managing, majority member in a joint venture with an unrelated third-party that operates Clive Behavioral Health, a 100-bed behavioral health care facility located in Clive, Iowa. The real property of this facility, which was completed and opened in late 2020, is also leased from the Trust (annual rental of approximately $2.8 million and $2.7 million during 2024 and 2023, respectively) pursuant to the lease terms as provided in the table below. In connection with the lease on this facility, the joint venture has the right to purchase the leased facility from the Trust at its appraised fair market value upon either of the following: (i) by providing notice at least 270 days prior to the end of the lease terms or any renewal terms, or; (ii) upon 30 days' notice anytime within 12 months of a change of control of the Trust (UHS also has this right should the joint venture decline to exercise its purchase right). Additionally, the joint venture has rights of first offer to purchase the facility prior to any third-party sale.

The table below provides certain details for each of the hospitals leased from the Trust as of June 30, 2024:

Hospital Name		Annual Minimum Rent				End of Lease Term		Renewal Term (years)
McAllen Medical Center		$	5,485,000			December, 2026			5		(a)
Wellington Regional Medical Center		$	6,639,000			December, 2026			5		(b)
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services		$	4,072,000			December, 2033			35		(c)
Canyon Creek Behavioral Health		$	1,841,000			December, 2033			35		(c)
Clive Behavioral Health Hospital		$	2,775,000			December, 2040			50		(d)

(a)

We have one 5-year renewal option at existing lease rates (through 2031).

(b)

We have one 5-year renewal option at fair market value lease rates (through 2031). Upon the December 31, 2021 expiration of the lease on Wellington Regional Medical Center, a wholly-owned subsidiary of ours exercised its fair market value renewal option and renewed the lease for a 5-year term scheduled to expire on December 31, 2026. On each January 1st through 2026, the annual rent will increase by 2.5% on a cumulative and compounded basis.

(c)

We have seven 5-year renewal options at fair market value lease rates (2034 through 2068). On each January 1st through 2033, the annual rent will increase by 2.25% on a cumulative and compounded basis.

(d)

This facility is operated by a joint venture in which we are the managing, majority member and an unrelated third-party holds a minority ownership interest. The joint venture has three, 10-year renewal options at computed lease rates as stipulated in the lease (2041 through 2070) and two additional, 10-year renewal options at fair market value lease rates (2071 through 2090). In each January through 2040 (and potentially through 2070 if three, 10-year renewal options are exercised), the annual rental will increase by 2.75% on a cumulative and compounded basis.

In addition, certain of our subsidiaries are tenants in several medical office buildings (“MOBs”) and two free-standing emergency departments owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest.

During the third quarter of 2023, the Trust acquired the McAllen Doctor's Center, a 79,500 rentable square feet medical office building located in McAllen, Texas. A master lease was executed between a wholly-owned subsidiary of ours and the Trust, pursuant to the terms of which our subsidiary will master lease 100% of the rentable square feet of the MOB at an initial minimum rent of $624,000 annually. The master lease commenced during August, 2023 and is scheduled to expire in twelve years.

During the first quarter of 2023, the Trust substantially completed construction on a new 86,000 rentable square feet multi-tenant MOB that is located on the campus of Northern Nevada Sierra Medical Center in Reno, Nevada. Northern Nevada Sierra Medical Center, a 170-bed newly constructed acute care hospital owned and operated by a wholly-owned subsidiary of ours, was completed and opened in April, 2022. In connection with this MOB, a ground lease and a master flex lease was executed between a wholly-owned subsidiary of ours and the Trust, pursuant to the terms of which our subsidiary will master lease approximately 68% of the rentable square feet of the MOB at an initial minimum rent of $1.3 million annually plus a pro-rata share of the common area maintenance expenses. The master flex lease could be reduced during the term if certain conditions are met. The ground lease and master flex lease each commenced during the first quarter of 2023.

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 Alan B. Miller (our Executive Chairman of the Board) 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 Executive Chairman of the Board, 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 will pay/we paid approximately $1.0 million, net, in premium payments during 2024 and 2023.

In August, 2015, Marc D. Miller, our President and Chief Executive Officer 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 vested ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. During the third quarter of 2020, we entered into an agreement with Premier pursuant to the terms of which, among other things, our ownership interest in Premier was converted into shares of Class A Common Stock of Premier. 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 condensed consolidated balance sheets. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier was approximately $42 million and $50 million as of June 30, 2024 and December 31, 2023, respectively. The change in market value of our Premier shares since December 31, 2023 was recorded as an unrealized loss and included in “Other (income) expense, net” in our condensed consolidated statements of income for the three and six-month period ended June 30, 2024. Additionally, we received cash dividends from Premier amounting to approximately $470,000 and $500,000 for the three-month periods ended June 30, 2024 and 2023, respectively, and approximately $900,000 for each of the six-month periods ended June 30, 2024 and 2023. The dividends are included in “Other (income) expense, net” in our condensed consolidated statements of income.

A member of our Board of Directors and member of the Executive Committee and Finance Committee is a partner in Norton Rose Fulbright US LLP, a law firm engaged by us for a variety of legal services. The Board member and his law firm also provide personal legal services to our Executive Chairman and he acts as trustee of certain trusts for the benefit of our Executive Chairman and his family.

(3) Other Noncurrent liabilities and Redeemable/Noncontrolling Interests

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.

As of June 30, 2024, outside owners held noncontrolling, minority ownership interests of: (i) approximately 7% in an acute care facility located in Texas; (ii) 49%, 20%, 30%, 20%, 25%, and 48% in six behavioral health care facilities located in Arizona, Pennsylvania, Ohio, Washington, Missouri, and Iowa, respectively, (iii) 26% and 49% in two behavioral health care facilities located in Michigan (one currently under construction with an expected opening in the second quarter of 2025) and; (iv) approximately 5% in an acute care facility and 49% in a surgery center, located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $65 million and $5 million, respectively, as of June 30, 2024, consist primarily of the third-party ownership interests in these hospitals.

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 sheets, 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. Accordingly, the amounts recorded as redeemable noncontrolling interests on our consolidated balance sheets reflect the estimated fair market value of these ownership interests.

(4) Treasury

Credit Facilities and Outstanding Debt Securities:

In June, 2022, we entered into a ninth amendment to our credit agreement dated as of November 15, 2010, as amended and restated as of September, 2012, August, 2014, October, 2018, August, 2021, and September, 2021, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, (the “Credit Agreement”). The ninth amendment provided for, among other things, the following: (i) a new incremental tranche A term loan facility in the aggregate principal amount of $700 million which is scheduled to mature on August 24, 2026, and; (ii) replaces the option to make Eurodollar borrowings (which bear interest by reference to the LIBO Rate) with Term Benchmark Loans, which will bear interest by reference to the Secured Overnight Financing Rate (“SOFR”). The net proceeds generated from the incremental tranche A term loan facility were used to repay a portion of the borrowings that were previously outstanding under our revolving credit facility.

As of June 30, 2024, our Credit Agreement provided for the following:

a $1.2 billion aggregate amount revolving credit facility that is scheduled to mature in August, 2026 (which, as of June 30, 2024, had $1.02 billion of aggregate available borrowing capacity net of $177 million of outstanding borrowings and $3 million of letters of credit), and;

a tranche A term loan facility with $2.20 billion of outstanding borrowings as of June 30, 2024.

The tranche A term loan facility provides for installment payments of $30.0 million per quarter through June, 2026. The unpaid principal balance at June 30, 2026 is payable on the August 24, 2026 scheduled maturity date of the Credit Agreement.

Revolving credit and tranche A term loan borrowings under the Credit Agreement bear interest at our election at either (1) the ABR rate which is defined as the rate per annum equal to 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 term SOFR rate plus 1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.25% to 0.625%, or (2) the one, three or six month term SOFR rate plus 0.1% (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.25% to 1.625%. As of June 30, 2024, the applicable margins were 0.375% for ABR-based loans and 1.375% for SOFR-based loans under the revolving credit and term loan A facilities. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is secured by certain assets of the Company and our material subsidiaries (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, if sold to a receivables facility pursuant to the Credit Agreement, and certain real estate assets and assets held in joint-ventures with third parties) and is guaranteed by our material subsidiaries.

The Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement also contains covenants that include a limitation on sales of assets, mergers, change of ownership, liens, indebtedness, transactions with

affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage. We were in compliance with all required covenants as of June 30, 2024 and December 31, 2023.

As of June 30, 2024, we had combined aggregate principal of $2.0 billion from the following senior secured notes:

$700 million aggregate principal amount of 1.65% senior secured notes due in September, 2026 (“2026 Notes”) which were issued on August 24, 2021.

$800 million aggregate principal amount of 2.65% senior secured notes due in October, 2030 (“2030 Notes”) which were issued on September 21, 2020.

$500 million of aggregate principal amount of 2.65% senior secured notes due in January, 2032 (“2032 Notes”) which were issued on August 24, 2021.

Interest on the 2026 Notes is payable on March 1st and September 1st until the maturity date of September 1, 2026. Interest on the 2030 Notes is payable on April 15th and October 15th, until the maturity date of October 15, 2030. Interest on the 2032 Notes is payable on January 15th and July 15th until the maturity date of January 15, 2032.

The 2026 Notes, 2030 Notes and 2032 Notes (collectively “The Notes”) were initially issued 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”). In December, 2022, we completed a registered exchange offer in which virtually all previously outstanding Notes were exchanged for identical Notes that were registered under the Securities Act, and thereby became freely transferable (subject to certain restrictions applicable to affiliates and broker dealers). Notes originally issued under Rule 144A or Regulation S that were not exchanged remain outstanding and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from registration requirements thereunder.

The Notes are guaranteed (the “Guarantees”) on a senior secured basis by all of our existing and future direct and indirect subsidiaries (the “Subsidiary Guarantors”) that guarantee our Credit Agreement, or other first lien obligations or any junior lien obligations. The Notes and the Guarantees are secured by first-priority liens, subject to permitted liens, on certain of the Company’s and the Subsidiary Guarantors’ assets now owned or acquired in the future by the Company or the Subsidiary Guarantors (other than real property, accounts receivable sold pursuant to the Company’s existing receivables facility (as defined in the Indenture pursuant to which The Notes were issued (the “Indenture”)), and certain other excluded assets). The Company’s obligations with respect to The Notes, the obligations of the Subsidiary Guarantors under the Guarantees, and the performance of all of the Company’s and the Subsidiary Guarantors’ other obligations under the Indenture, are secured equally and ratably with the Company’s and the Subsidiary Guarantors’ obligations under the Credit Agreement and The Notes by a perfected first-priority security interest, subject to permitted liens, in the collateral owned by the Company and its Subsidiary Guarantors, whether now owned or hereafter acquired. However, the liens on the collateral securing The Notes and the Guarantees will be released if: (i) The Notes have investment grade ratings; (ii) no default has occurred and is continuing, and; (iii) the liens on the collateral securing all first lien obligations (including the Credit Agreement and The Notes) and any junior lien obligations are released or the collateral under the Credit Agreement, any other first lien obligations and any junior lien obligations is released or no longer required to be pledged. The liens on any collateral securing The Notes and the Guarantees will also be released if the liens on that collateral securing the Credit Agreement, other first lien obligations and any junior lien obligations are released.

As discussed in Note 2 to the Condensed Consolidated Financial Statements-Relationship with Universal Health Realty Income Trust and Other Related Party Transactions, on December 31, 2021, we (through wholly-owned subsidiaries of ours) entered into an asset purchase and sale agreement with Universal Health Realty Income Trust (the “Trust”). Pursuant to the terms of the agreement, which was amended during the first quarter of 2022, we, among other things, transferred to the Trust, the real estate assets of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”). In connection with this transaction, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases, as amended, (with the Trust as lessor), for initial lease terms on each property of approximately twelve years, ending on December 31, 2033. As a result of our purchase option within the Aiken and Canyon Creek lease agreements, this asset purchase and sale transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP and we have accounted for the transaction as a financing arrangement. Our lease payments payable to the Trust are recorded to interest expense and as a reduction of the outstanding financial liability, and the amount allocated to interest expense is determined based upon our incremental borrowing rate and the outstanding financial liability. In connection with this transaction, our consolidated balance sheets at June 30, 2024 and December 31, 2023 reflect financial liabilities, which are included in debt, of approximately $76 million and $77 million, respectively.

At June 30, 2024, the carrying value and fair value of our debt were approximately $4.5 billion and $4.3 billion, respectively. At December 31, 2023, the carrying value and fair value of our debt were approximately $4.9 billion and $4.6 billion, respectively. 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.

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. In connection with these forward exchange contracts, we recorded net cash inflows of $7 million during the six-month period ended June 30, 2024 and net cash outflows of $31 million during the six-month period ended June 30, 2023.

Derivatives Hedging Relationships:

The following table presents the effects of our foreign currency forward exchange contracts on our results of operations for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

	Gain/(Loss) recognized in AOCI
	Three months ended								Six months ended
	June 30,				June 30,				June 30,				June 30,
	2024				2023				2024				2023
Net Investment Hedge relationships
Foreign currency forward exchange contracts	$	(1,696	)		$	(8,256	)		$	8,201			$	(30,400	)

No other gains or losses were recognized in income related to derivatives in Subtopic 815-20.

Cash, Cash Equivalents and Restricted Cash:

Cash, cash equivalents, and restricted cash as reported in the condensed consolidated statements of cash flows are presented separately on our condensed consolidated balance sheets as follows (in thousands):

	June 30,				June 30,				December 31,
	2024				2023				2023
Cash and cash equivalents	$	128,786			$	79,451			$	119,439
Restricted cash (a)		95,033				99,856				95,031
Total cash, cash equivalents and restricted cash	$	223,819			$	179,307			$	214,470

(a) Restricted cash is included in other noncurrent assets on the accompanying condensed consolidated balance sheets.

(5) Fair Value Measurement

Fair value is defined as the price that would be received to sell 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. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These included quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

	Balance at			Balance Sheet	Basis of Fair Value Measurement
(in thousands)	June 30, 2024			Location	Level 1			Level 2			Level 3
Assets:
Money market mutual funds	$	111,289		Other noncurrent assets	$	111,289
Certificates of deposit		2,201		Other noncurrent assets					2,201
Equity securities		41,684		Other noncurrent assets		41,684
Deferred compensation assets		47,753		Other noncurrent assets		47,753
	$	202,927			$	200,726		$	2,201			-
Liabilities:
Foreign currency forward exchange contracts	$	540		Accounts payable and other liabilities				$	540
Deferred compensation liability		47,753		Other noncurrent liabilities		47,753
	$	48,293			$	47,753		$	540			-
	Balance at			Balance Sheet	Basis of Fair Value Measurement
(in thousands)	December 31, 2023			Location	Level 1			Level 2			Level 3
Assets:
Money market mutual funds	$	111,129		Other noncurrent assets	$	111,129
Certificates of deposit		2,300		Other noncurrent assets					2,300
Equity securities		49,923		Other noncurrent assets		49,923
Deferred compensation assets		43,060		Other noncurrent assets		43,060
	$	206,412			$	204,112		$	2,300			-
Liabilities:
Foreign currency forward exchange contracts	$	1,911		Accounts payable and other liabilities				$	1,911
Deferred compensation liability		43,060		Other noncurrent liabilities		43,060
	$	44,971			$	43,060		$	1,911			-

The fair value of our money market mutual funds, certificates of deposit and equity securities with a readily determinable fair value are computed based upon quoted market prices in an active market. The fair value of deferred compensation assets and the offsetting liability are computed based on market prices in an active market held in a rabbi trust. The fair value of our foreign currency exchange contracts is determined using quoted forward exchange rates and spot rates at the reporting date.

(6) Commitments and Contingencies

Professional and General Liability, Workers’ Compensation Liability

The vast majority of our subsidiaries are self-insured for professional and general liability exposure up to: (i) $20 million for professional liability and $3 million for general liability per occurrence in 2024, 2023, 2022 and 2021; (ii) $10 million and $3 million per occurrence in 2020; (iii) $5 million and $3 million per occurrence, respectively, during 2019, 2018 and 2017, and; (iv) $10 million and $3 million per occurrence, respectively, prior to 2017.

These subsidiaries are provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence and aggregate self-insured retention or underlying policy limits up to approximately $175 million in 2024; $165 million in 2023; $162 million in 2022; $155 million in 2021 and $250 million during each of 2014 through 2020. 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 £18.5 million of professional liability coverage, and £25 million of general liability coverage. The commercial insurance limits indicated above for each policy year may have been reduced due to payment of covered claims or suits, subject to the policy terms and conditions.

As disclosed below in Legal Proceedings, on March 28, 2024, a jury returned a verdict for compensatory damages of $60 million and punitive damages of $475 million and a related judgment was entered against The Pavilion Behavioral Health System (the “Pavilion”), an indirect subsidiary of ours. We are uncertain as to the ultimate financial exposure related to the Pavilion matter (which relates to a 2020 occurrence) and we can make no assurances regarding its outcome, or the amount of damages that may be ultimately held recoverable after post-judgment proceedings and appeal. While the Pavilion has professional liability insurance to cover a portion of these amounts, the resolution of the Pavilion matter may have a material adverse effect on the Company. As of June 30, 2024, without reduction for any potential amounts related to the Pavilion matter, the Company and its subsidiaries have aggregate insurance coverage of approximately $221 million remaining under commercial policies for matters applicable to the 2020 policy year (in excess

of the applicable self-insured retention amounts of $10 million per occurrence for professional liability claims and $3 million per occurrence for general liability claims). In the event the resolution of the Pavilion matter exhausts all or a significant portion of the remaining commercial insurance coverage available to the Company and its subsidiaries related to other matters that occurred in 2020, or the Pavilion matter causes the posting of a large bond or other collateral during an appeal process, our future results of operations and capital resources could be materially adversely impacted.

As of June 30, 2024, the total net accrual for our professional and general liability claims was $465 million, of which $70 million was included in current liabilities. As of December 31, 2023, the total net accrual for our professional and general liability claims was $431 million, of which $70 million was included in current liabilities.

As a result of unfavorable trends experienced during the past several years, included in our results of operations were increases to our reserves for self-insured professional and general liability claims amounting to approximately $7 million and $14 million during the three and six-month periods ended June 30, 2024, respectively, and $20 million during the three and six-month periods ended June 30, 2023. 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.

As of June 30, 2024, the total accrual for our workers’ compensation liability claims was $134 million, $58 million of which was included in current liabilities. As of December 31, 2023, the total accrual for our workers’ compensation liability claims was $130 million, $55 million of which was included in current liabilities. As a result of favorable trends experienced in prior years, included in our results of operations during the three and six-month periods ended June 30, 2023, was a pre-tax decrease to our reserves for self-insured workers' compensation liability claims of approximately $10 million.

Although we are unable to predict whether or not our future financial statements will require updates to estimates for our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of 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 the period of June 1, 2024 to June 1, 2025, providing property and business interruption coverage for losses in excess of $15 million per occurrence or per location (as applicable based upon the event) up to a $1 billion annual policy limitation for certain catastrophic events or perils. These commercial policies provide for coverage of up to $250 million of annual aggregate coverage for losses resulting from windstorm damage. 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) $100 million limitation for our facilities located in California, New Madrid Seismic Zone, Pacific Northwest Seismic Zone, Alaska and certain counties in Nevada; (ii) $100 million limitation for our facilities located in fault zones within the United States; (iii) $40 million limitation for our facilities located in Puerto Rico, and; (iv) $250 million limitation for many of our facilities located in other states. Our commercially insured flood coverage has a limit of $100 million annually. There is also a $10 million sublimit for one of our facilities located in Houston, Texas, and a $1 million sublimit for our facilities located in Puerto Rico. In addition, subject to the underlying policies' deductible provisions, our facilities located in California, New Madrid Seismic Zone, Pacific Northwest Seismic Zone, Alaska and certain counties in Nevada, have $50 million of excess commercial property insurance coverage for earthquake losses in excess of $100 million. Property insurance for our behavioral health facilities located in the U.K. are provided on an all risk basis up to a £1.5 billion policy limit, with coverage caps per location, that includes coverage for real and personal property as well as business interruption losses.

These commercial policies are subject to a deductible of: (i) $5 million per location for damage resulting from earthquake, wind, hail and flood, and; (ii) $5 million per occurrence for all other events. For per location or per occurrence losses in excess of the applicable deductible, we are self-insured, through our wholly-owned captive, for up to $10 million of annual aggregate losses. Should the $10 million self-insured annual aggregate limitation be exhausted during the policy year, we have commercial insurance coverage for the next $30 million of annual aggregate losses in excess of the applicable deductible. In the event the $30 million of commercial coverage is also exhausted, we are self-insured for all per location or per occurrence losses up to $25 million, including the $5 million deductible.

Commitment to Develop, Lease and Operate an Acute Care Hospital in Washington, D.C.

During 2020, we entered into various agreements with the District of Columbia (the “District”) related to the development, leasing and operation of an acute care hospital and certain other facilities/structures on land owned by the District (“District Facilities”). The agreements contemplate that we will serve as manager for development and construction of the District Facilities on behalf of the District, with a projected aggregate cost of approximately $439 million, approximately $257 million of which was incurred as of June 30, 2024, which will be entirely funded by the District. Construction of the District Facilities is expected to be completed during 2025.

Upon completion of the District Facilities, we will lease the District Facilities for a nominal rental amount for a period of 75 years and are obligated to operate the District Facilities during the lease term. We have certain lease termination rights in connection with the District Facilities beginning on the tenth anniversary of the lease commencement date for various and decreasing amounts as provided for in the agreements. Additionally, any time after the 10th anniversary of the lease term, we have a right to purchase the District Facilities for a price equal to the greater of fair market value of the District Facilities or the amount necessary to defease the bonds issued by the District to fund the construction of the District Facilities. The lease agreement also entitles the District to participation rent should certain specified earnings before interest, taxes, depreciation and amortization thresholds be achieved by the acute care hospital.

Additionally, we have committed to expend no less than $75 million (approximately $6 million of which has been incurred as of June 30, 2024), over a projected 12-year period, in healthcare infrastructure including expenditures related to the District Facilities as well as other healthcare related expenditures in certain specified areas of Washington, D.C. Pursuant to the agreements, the District is entitled to certain termination fees and other amounts as specified in the agreements in the event we, within certain specified periods of time, cease to operate the acute care hospital or there is a transfer of control of us or our subsidiary operating the hospital.

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 Claims 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 Claims 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 original Patient Protection and Affordable Care Act, as amended by the Health and Education Reconciliation 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:

Knight v. Miller, et. al.

In July 2021, a shareholder derivative lawsuit was filed by plaintiff, Robin Knight, in the Chancery Court in Delaware against the members of the Board of Directors of the Company as well as certain officers (C.A. No.: 2021-0581-SG). The Company was named as a nominal defendant. The lawsuit alleges that in March 2020 stock options were awarded with exercise prices that did not reflect the Company’s fundamentals and business prospects, and in anticipation of future market rebound resulting in excessive gains. The lawsuit makes claims of breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. The lawsuit seeks monetary damages allegedly incurred by the Company, disgorgement of the March 2020 stock awards as well as any proceeds derived therefrom and unspecified equitable relief. Defendants deny the allegations. We filed a motion to dismiss the complaint and the court granted part and denied part of our motion. During the third quarter of 2022, we reached a preliminary settlement, which would not have had a material impact on our consolidated financial statements. The settlement required court approval which the court declined to provide. Our Board of Directors authorized the formation of a Special Litigation Committee ("SLC") to review the matter and determine whether it is in the best interests of the Company to pursue this claim. The court stayed the litigation until April 15, 2024 while the SLC conducted their review. According to the SLC’s status letter to the Court of Chancery, dated April 15, 2024, after a thorough examination of documentary evidence, interviews with relevant persons, and a review of the applicable law, the SLC has determined that the claims asserted in the shareholder derivative lawsuit do not have merit and that pursuing them would not be in the interest of the Company. The SLC further advised the Court that the SLC has concluded that the claims should be dismissed. The parties have jointly filed a stipulation with the Court requesting dismissal of the case. After a preliminary hearing on the matter, the court requested a revised stipulation be filed which is being prepared and expected to be filed shortly. In the event that the Court approves the stipulation for dismissal, further notice of the dismissal, and of the Company’s agreement to resolve plaintiff's counsel’s fee demand in exchange for a $250,000 payment, will be provided as required by the stipulation. In the event the Court does not approve the dismissal of the case, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Disproportionate Share Hospital Payment Matter:

In late September, 2015, many hospitals in Pennsylvania, including certain 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”), primarily consisting of managed care payments characterized as DSH payments, for the federal fiscal year (“FFY”) 2011 amounting to approximately $4 million in the aggregate. Since that time, certain of our behavioral health care hospitals in Pennsylvania have received similar requests for repayment for alleged DSH overpayments for FFYs 2012 through 2015. For FFY 2012, the claimed overpayment amounts to approximately $4 million. For FY 2013, FY 2014 and FY 2015 the initial claimed overpayments and attempted recoupment by the Department were approximately $7 million, $8 million and $7 million, respectively. The Department has agreed to a change in methodology which, upon confirmation of the underlying data being accepted by the Department, could reduce the initial claimed overpayments for FY 2013, FY 2014 and FY 2015 to approximately $2 million, $2 million and $3 million, respectively. We filed administrative appeals for all of our facilities contesting the recoupment efforts for FFYs 2011 through 2015 as we believe the Department’s calculation methodology is inaccurate and conflicts with applicable federal and state laws and regulations. The Department agreed to postpone the recoupment of the state’s share for FFY 2011 to 2013 until all hospital appeals are resolved but recouped the federal share. For FFY 2014 and FFY 2015, the Department initiated the recoupment of the alleged overpayments (both federal and state shares). Starting in FY 2016, the first full fiscal year after the January 1, 2015 effective date of Medicaid expansion in Pennsylvania, the Department no longer characterized managed care payments received by the hospitals as DSH payments. While the administrative appeals on the disputed DSH payments remain pending, we have been in continued settlement discussions with the Department. As a part of these discussions, we have presented certain calculation errors that we believe, if corrected, could materially reduce the alleged overpayments. We have recently reached a settlement in principle with the Department that will result in a partial repayment to us of amounts previously recouped. The parties are in the process of drafting a definitive settlement agreement codifying our agreement to conclude this matter. In the event that we are unable to complete the settlement agreement, we will continue with our administrative appeals*.* We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to the Department’s repayment demands in the event the pending settlement is not finalized and we are unable to assess liability or damages with certainty at this time. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments.

Rachel Capriglione, as natural mother and Next Friend of A.T., a minor, Plaintiff, v. The Pavilion Foundation d/b/a The Pavilion Behavioral Health System

As previously reported on Form 8-K as filed on April 1, 2024, the Pavilion Behavioral Health System (the “Pavilion”), an indirect subsidiary of the Company, is the sole defendant in a lawsuit filed in Champaign County, Illinois, relating to the sexual assault of one minor patient by another minor patient in 2020. Plaintiff asserted claims of negligence and misrepresentation. The Pavilion denied any liability.

The case went to trial in March of 2024. On March 28, 2024, a jury rejected the misrepresentation claim, returned a verdict for ordinary negligence, and awarded compensatory damages of $60 million and punitive damages of $475 million. Based on a search of verdicts in comparable cases, the magnitude of this verdict was unexpected and is unprecedented for a single-plaintiff injury case of this type in Champaign County, Illinois. The Pavilion has filed post-trial motions, a portion of which were heard on August 1, 2024, with the remainder scheduled to be heard on August 23, 2024. The Pavilion will pursue an appeal as appropriate depending on the trial court's resolution of the post-trial motions.

We are uncertain as to the ultimate financial exposure related to the Pavilion matter and we can make no assurances regarding the timing or substance of its outcome, or the amount of damages that may be held recoverable after post-judgment proceedings and appeal. While the Pavilion has professional liability insurance to cover a portion of these amounts, in the event the resolution of the Pavilion matter exceeds the remaining commercial insurance coverage available, or the Pavilion matter causes the posting of a large bond or other collateral during an appeal process, our future results of operations and capital resources could be materially adversely impacted.

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.

(7) 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 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 our Annual Report on Form 10-K for the year ended December 31, 2023. 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.

		Three months ended June 30, 2024
		Acute Care Hospital Services				Behavioral Health Services (a)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	12,334,730			$	2,785,485							$	15,120,215
Gross outpatient revenues		$	8,633,892			$	286,550							$	8,920,442
Total net revenues		$	2,173,409			$	1,731,309			$	2,886			$	3,907,604
Income/(loss) before allocation of corporate overhead and income taxes		$	211,720			$	360,480			$	(190,194	)		$	382,006
Allocation of corporate overhead		$	(64,887	)		$	(46,975	)		$	111,862			$	0
Income/(loss) after allocation of corporate overhead and before income taxes		$	146,833			$	313,505			$	(78,332	)		$	382,006
Total assets as of June 30, 2024		$	6,338,360			$	7,572,228			$	160,840			$	14,071,428
		Six months ended June 30, 2024
		Acute Care Hospital Services				Behavioral Health Services (a)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	25,244,832			$	5,540,169							$	30,785,001
Gross outpatient revenues		$	16,980,181			$	565,078							$	17,545,259
Total net revenues		$	4,358,490			$	3,387,376			$	5,320			$	7,751,186
Income/(loss) before allocation of corporate overhead and income taxes		$	417,188			$	680,418			$	(379,514	)		$	718,092
Allocation of corporate overhead		$	(129,733	)		$	(93,910	)		$	223,643			$	0
Income/(loss) after allocation of corporate overhead and before income taxes		$	287,455			$	586,508			$	(155,871	)		$	718,092
Total assets as of June 30, 2024		$	6,338,360			$	7,572,228			$	160,840			$	14,071,428
		Three months ended June 30, 2023
		Acute Care Hospital Services				Behavioral Health Services (a)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	10,960,845			$	2,670,370							$	13,631,215
Gross outpatient revenues		$	7,515,780			$	281,036							$	7,796,816
Total net revenues		$	2,003,079			$	1,542,194			$	2,865			$	3,548,138
Income/(loss) before allocation of corporate overhead and income taxes		$	130,527			$	263,693			$	(169,525	)		$	224,695
Allocation of corporate overhead		$	(66,326	)		$	(46,679	)		$	113,005			$	0
Income/(loss) after allocation of corporate overhead and before income taxes		$	64,201			$	217,014			$	(56,520	)		$	224,695
Total assets as of June 30, 2023		$	6,108,389			$	7,365,545			$	258,375			$	13,732,309
		Six months ended June 30, 2023
		Acute Care Hospital Services				Behavioral Health Services (a)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	22,362,336			$	5,298,360							$	27,660,696
Gross outpatient revenues		$	14,811,896			$	553,407							$	15,365,303
Total net revenues		$	3,976,611			$	3,032,683			$	6,362			$	7,015,656
Income/(loss) before allocation of corporate overhead and income taxes		$	263,823			$	530,049			$	(355,076	)		$	438,796
Allocation of corporate overhead		$	(133,588	)		$	(93,321	)		$	226,909			$	0
Income/(loss) after allocation of corporate overhead and before income taxes		$	130,235			$	436,728			$	(128,167	)		$	438,796
Total assets as of June 30, 2023		$	6,108,389			$	7,365,545			$	258,375			$	13,732,309

(a)

Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $213 million and $190 million for the three-month periods ended June 30, 2024 and 2023, respectively, and approximately $421 million and $358 million for the six-month periods ended June 30, 2024 and 2023, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.36 billion and $1.295 billion as of June 30, 2024 and 2023, respectively.

(8) Earnings Per Share Data and Stock Based Compensation

Basic earnings per share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share are based on the weighted average number of common shares outstanding during the period 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 (in thousands, except per share data):

		Three months ended June 30,								Six months ended June 30,
		2024				2023				2024				2023
Basic and Diluted:
Net income attributable to UHS		$	289,152			$	171,313			$	550,986			$	334,428
Less: Net income attributable to unvested restricted share grants			(5	)			(61	)			(50	)			(190	)
Net income attributable to UHS – basic and diluted		$	289,147			$	171,252			$	550,936			$	334,238
Weighted average number of common shares - basic			66,878				70,073				67,041				70,304
Net effect of dilutive stock options and grants based on the treasury stock method			1,042				766				1,160				859
Weighted average number of common shares and equivalents - diluted			67,920				70,839				68,201				71,163
Earnings per basic share attributable to UHS:		$	4.32			$	2.44			$	8.22			$	4.75
Earnings per diluted share attributable to UHS:		$	4.26			$	2.42			$	8.08			$	4.70

The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all periods presented above, excludes certain outstanding stock options applicable to each period since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled 1.1 million for the three-months ended June 30, 2024 and 1.2 million for the six-months ended June 30, 2024. The excluded weighted-average stock options totaled 5.2 million for the three and six-months ended June 30, 2023. All classes of our common stock have the same dividend rights.

Stock-Based Compensation:

During the three-month periods ended June 30, 2024 and 2023, pre-tax compensation costs of $13.3 million and $15.9 million, respectively, was recognized related to outstanding stock options. During the six-month periods ended June 30, 2024 and 2023, pre-tax compensation costs of $27.7 million and $32.1 million, respectively, was recognized related to outstanding stock options. In addition, during the three-month periods ended June 30, 2024 and 2023, pre-tax compensation cost of approximately $12.8 million and $5.8 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. During the six-month periods ended June 30, 2024 and 2023, pre-tax compensation costs of approximately $17.9 million and $10.3 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. As of June 30, 2024 there was approximately $206.8 million of unrecognized compensation cost related to unvested options, restricted stock awards, restricted stock units and performance based restricted stock units which is expected to be recognized over the remaining weighted average vesting period of 2.7 years. There were 3,000 stock options granted during the first six months of 2024 under the 2020 Stock Incentive Plan with a weighted-average grant date fair value of $44.58 per option. There were an aggregate of 535,440 restricted units, net of cancellations, granted during the first six months of 2024 under the 2020 Stock Incentive Plan, including 63,362 performance based restricted stock units, with a weighted-average grant date fair value of $180.79 per share.

The expense associated with stock-based compensation arrangements is a non-cash charge. In the condensed 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 $46.2 million and $43.1 million during the six-month periods ended June 30, 2024 and 2023, respectively.

(9) Dispositions and acquisitions

Six-month period ended June 30, 2024:

Acquisitions:

During the first six months of 2024, there were no acquisitions.

Divestitures:

During the first six months of 2024, we received $5 million from the sales of assets and businesses.

Six-month period ended June 30, 2023:

Acquisitions:

During the first six months of 2023, we spent $4 million on the acquisition of businesses and property.

Divestitures:

During the first six months of 2023, we received $24 million from the sales of assets and businesses.

(10) Dividends

We declared and paid dividends of $13.4 million, or $.20 per share, during the second quarter of 2024 and $14.2 million, or $.20 per share, during the second quarter of 2023. We declared and paid dividends of $27.0 million, or $.40 per share, during the six-month period ended June 30, 2024 and $28.4 million, or $.40 per share, during the six-month period ended June 30, 2023. Included in the amounts above were dividend equivalents applicable to unvested restricted stock units which were accrued during 2024 and 2023 and will be, or were, paid upon vesting of the restricted stock unit.

(11) Income Taxes

Our effective income tax rates were 23.0% and 24.7% during the three-month periods ended June 30, 2024 and 2023, respectively, and 22.0% and 24.4% during the six-month periods ended June 30, 2024, and 2023, respectively. The decrease in the effective tax rates during the three and six-month period ended June 30, 2024, as compared to the comparable periods of 2023, was primarily due to a $4 million and $12 million favorable change in the tax benefit from employee share-based payments, respectively.

As of January 1, 2024, our unrecognized tax benefits were approximately $2 million. The amount, if recognized, that would favorably affect the effective tax rate is approximately $2 million. During the six months ended June 30, 2024, changes to the estimated liabilities for uncertain tax positions (including accrued interest) relating to tax positions taken during prior and current periods did not have a material impact on our financial statements.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of June 30, 2024, we have less than $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for 2020 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging from 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 uncertain 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.

We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. We believe that adequate accruals have been provided for federal, foreign and state taxes.

(12) Revenue

We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. 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 payer, for example a bankruptcy, will be recognized as bad debt expense in operating charges.

The performance obligation is separately identifiable from other promises in the customer contract. As the performance obligations are met (i.e. room, board, ancillary services, level of care), revenue is recognized based upon allocated transaction price. The transaction price is allocated to separate performance obligations based upon the relative standalone selling price. In instances where we determine there are multiple performance obligations across multiple months, the transaction price will be allocated by applying an estimated implicit and explicit rate to gross charges based on the separate performance obligations*.*

In assessing collectability, we have elected the portfolio approach. This portfolio approach is being used as we have large volume of similar contracts with similar classes of customers. We reasonably expect that the effect of applying a portfolio approach to a group of contracts would not differ materially from considering each contract separately. Management’s judgment to group the contracts by portfolio is based on the payment behavior expected in each portfolio category. As a result, aggregating all of the contracts (which are at the patient level) by the particular payer or group of payers, will result in the recognition of the same amount of revenue as applying the analysis at the individual patient level.

We group our revenues into categories based on payment behaviors. Each component has its own reimbursement structure which allows us to disaggregate the revenue into categories that share the nature and timing of payments. The other patient revenue consists primarily of self-pay, government-funded non-Medicaid, and other.

The following table disaggregates our revenue by major source for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

	For the three months ended June 30, 2024
	Acute Care							Behavioral Health							Other				Total
Medicare	$	338,077			16	%		$	76,331			4	%						$	414,408			11	%
Managed Medicare		369,288			17	%			103,404			6	%							472,692			12	%
Medicaid		239,470			11	%			293,498			17	%							532,968			14	%
Managed Medicaid		152,760			7	%			416,237			24	%							568,997			15	%
Managed Care (HMO and PPOs)		705,318			32	%			421,879			24	%							1,127,197			29	%
UK Revenue		0			0	%			212,706			12	%							212,706			5	%
Other patient revenue and adjustments, net		134,149			6	%			150,146			9	%							284,295			7	%
Other non-patient revenue		234,347			11	%			57,108			3	%			2,886				294,341			8	%
Total Net Revenue	$	2,173,409			100	%		$	1,731,309			100	%		$	2,886				3,907,604			100	%
	For the six months ended June 30, 2024
	Acute Care							Behavioral Health							Other				Total
Medicare	$	687,164			16	%		$	153,147			5	%						$	840,311			11	%
Managed Medicare		742,689			17	%			199,478			6	%							942,167			12	%
Medicaid		474,332			11	%			541,861			16	%							1,016,193			13	%
Managed Medicaid		312,119			7	%			839,545			25	%							1,151,664			15	%
Managed Care (HMO and PPOs)		1,404,103			32	%			826,052			24	%							2,230,155			29	%
UK Revenue		0			0	%			420,502			12	%							420,502			5	%
Other patient revenue and adjustments, net		257,482			6	%			294,277			9	%							551,759			7	%
Other non-patient revenue		480,601			11	%			112,514			3	%			5,320				598,435			8	%
Total Net Revenue	$	4,358,490			100	%		$	3,387,376			100	%		$	5,320			$	7,751,186			100	%
	For the three months ended June 30, 2023
	Acute Care							Behavioral Health							Other				Total
Medicare	$	334,073			17	%		$	75,697			5	%						$	409,770			12	%
Managed Medicare		344,975			17	%			85,611			6	%							430,586			12	%
Medicaid		134,521			7	%			215,329			14	%							349,850			10	%
Managed Medicaid		171,824			9	%			397,389			26	%							569,213			16	%
Managed Care (HMO and PPOs)		702,499			35	%			386,377			25	%							1,088,876			31	%
UK Revenue		0			0	%			190,114			12	%							190,114			5	%
Other patient revenue and adjustments, net		74,290			4	%			136,158			9	%							210,448			6	%
Other non-patient revenue		240,897			12	%			55,519			4	%			2,865				299,281			8	%
Total Net Revenue	$	2,003,079			100	%		$	1,542,194			100	%		$	2,865			$	3,548,138			100	%
	For the six months ended June 30, 2023
	Acute Care							Behavioral Health							Other				Total
Medicare	$	663,519			17	%		$	152,241			5	%						$	815,760			12	%
Managed Medicare		689,007			17	%			160,688			5	%							849,695			12	%
Medicaid		244,530			6	%			421,802			14	%							666,332			9	%
Managed Medicaid		364,122			9	%			796,340			26	%							1,160,462			17	%
Managed Care (HMO and PPOs)		1,357,294			34	%			777,674			26	%							2,134,968			30	%
UK Revenue		0			0	%			357,903			12	%							357,903			5	%
Other patient revenue and adjustments, net		195,247			5	%			257,835			9	%							453,082			6	%
Other non-patient revenue		462,892			12	%			108,200			4	%			6,362				577,454			8	%
Total Net Revenue	$	3,976,611			100	%		$	3,032,683			100	%		$	6,362			$	7,015,656			100	%

(13) Lease Accounting

Our operating leases are primarily for real estate, including certain acute care facilities, off-campus outpatient facilities, medical office buildings, and corporate and other administrative offices. Our real estate lease agreements typically have initial terms of five to ten years. These real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to ten years. The exercise of lease renewal options is at our sole discretion. When determining the lease term, we included options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Five of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with two leases expiring in 2026, two expiring in 2033 and one expiring in 2040 (for additional disclosure, see Note 2 to the Consolidated Financial Statements-Relationship with Universal Health Realty Income Trust and Other Related Party Transactions). We are also the lessee of the real property of certain facilities from unrelated third parties.

Supplemental cash flow information related to leases for the six-month period ended June 30, 2024 and 2023 are as follows (in thousands):

	Six months ended June 30,
	2024				2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	65,765			$	64,197
Operating cash flows from finance leases	$	1,850			$	1,937
Financing cash flows from finance leases	$	2,183			$	2,013
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	33,278			$	33,227

(14) Recent Accounting Standards

In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures (Topic 280)”. ASU 2023-07 modifies reportable segment disclosure requirements, primarily through enhanced disclosures about segment expenses categorized as significant or regularly provided to the Chief Operating Decision Maker (CODM). In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact this new standard will have on the related disclosures in the consolidated financial statements, but do not believe there will be a material impact.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures (Topic 740)”. ASU 2023-09 requires enhanced disclosures on income taxes paid, adds disaggregation of continuing operations before income taxes between foreign and domestic earnings and defines specific categories for the reconciliation of jurisdictional tax rate to effective tax rate. This ASU is effective for fiscal years beginning after December 15, 2024, and can be applied on a prospective basis. We are currently evaluating the impact this new standard will have on the related disclosures in the consolidated 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 believes the new guidance will not have a material impact on our results of operations, cash flows or financial position.