Earnings Per Share Data ("EPS") and Stock Based Compensation

3 Months Ended

Mar. 31, 2014

Earnings Per Share Data ("EPS") and Stock Based Compensation

(7) Earnings Per Share Data (“EPS”) 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 March 31,
	2014			2013
Basic and Diluted:
Net income attributable to UHS	$	138,078		$	119,784
Less: Net income attributable to unvested restricted share grants		(70	)		(69	)
Net income attributable to UHS - basic and diluted	$	138,008		$	119,715
Weighted average number of common shares - basic		98,572			97,711
Net effect of dilutive stock options and grants based on the treasury stock method		1,585			860
Weighted average number of common shares and equivalents - diluted		100,157			98,571
Earnings per basic share attributable to UHS:	$	1.40		$	1.23
Earnings per diluted share attributable to UHS:	$	1.38		$	1.21

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. There were no anti-dilutive stock options during the three months ended March 31, 2014 and March 31, 2013, respectively. All classes of our common stock have the same dividend rights.

Stock-Based Compensation: During the three-month periods ended March 31, 2014 and 2013, compensation cost of $6.8 million ($4.3 million after-tax) and $6.7 million ($4.2 million after-tax), respectively, was recognized related to outstanding stock options. In addition, during the three-month periods ended March 31, 2014 and 2013, compensation cost of approximately $409,000 ($256,000 after-tax) and $405,000 ($252,000 after-tax), respectively, was recognized related to restricted stock. As of March 31, 2014 there was $72.5 million of unrecognized compensation cost related to unvested options and restricted stock which is expected to be recognized over the remaining weighted average vesting period of 3.1 years. There were 2,772,100 stock options granted (net of cancellations) during the first three months of 2014 with a weighted-average grant date fair value of $17.12 per share.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $7.2 million and $7.1 million during the three-month periods ended March 31, 2014 and 2013, respectively. In accordance with ASC 718, excess income tax benefits related to stock based compensation are classified as cash inflows from financing activities on the Consolidated Statement of Cash Flows. Previously for the three-month period ended March 31, 2013, we included $9.3 million of excess income tax benefits related to stock based compensation as net cash provided by operating activities as included in the change in accrued and deferred income taxes for that period. In our Consolidated Statements of Cash Flows, as included herein, that amount is reflected as cash inflows from financing activities for the 2013 three-month period. We assessed this misclassification and concluded that it was not material to our previously issued quarterly Consolidated Statements of Cash Flows. During the first quarter of 2014, we generated $11.8 million of excess income tax benefits related to stock based compensation which are reflected as cash inflows from financing activities in our Consolidated Statements of Cash Flows.