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 March 31, 2020

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 April 30, 2020:

Class A	6,577,100
Class B	77,669,278
Class C	661,688
Class D	18,411

UNIVERSAL HEALTH SERVICES, INC.

INDEX

	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income - Three Months Ended March 31, 2020 and 2019	3
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2020 and 2019	4
Condensed Consolidated Balance Sheets - March 31, 2020 and December 31, 2019	5
Condensed Consolidated Statements of Changes in Equity – Three Months Ended March 31, 2020 and 2019	6
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2020 and 2019	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	60
Item 4. Controls and Procedures	60
PART II. Other Information
Item 1. Legal Proceedings	61
Item 1A. Risk Factors	64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 6. Exhibits	66
Signatures	67

This Quarterly Report on Form 10-Q is for the quarter ended March 31, 2020. 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.

2

PART I. FINANCIAL INFORMATION

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share amounts)

(unaudited)

	Three months ended March 31,
	2020		2019
Net revenues	$	2,829,667	$	2,804,391
Operating charges:
Salaries, wages and benefits		1,432,669		1,365,546
Other operating expenses		689,790		644,780
Supplies expense		317,827		307,463
Depreciation and amortization		124,394		120,040
Lease and rental expense		28,293		26,125
		2,592,973		2,463,954
Income from operations		236,694		340,437
Interest expense, net		36,351		39,640
Other (income) expense, net		9,560		4,501
Income before income taxes		190,783		296,296
Provision for income taxes		46,323		58,898
Net income		144,460		237,398
Less: Net income attributable to noncontrolling interests		2,423		3,230
Net income attributable to UHS	$	142,037	$	234,168
Basic earnings per share attributable to UHS	$	1.64	$	2.57
Diluted earnings per share attributable to UHS	$	1.64	$	2.57
Weighted average number of common shares - basic		86,212		90,776
Add: Other share equivalents		243		191
Weighted average number of common shares and    equivalents - diluted		86,455		90,967

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

3

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in thousands, unaudited)

	Three months ended March 31,
	2020			2019
Net income	$	144,460		$	237,398
Other comprehensive income (loss):
Unrealized derivative gains (losses) on cash flow hedges		-			(2,917	)
Foreign currency translation adjustment		(39,201	)		(14,262	)
Other comprehensive income (loss) before tax		(39,201	)		(17,179	)
Income tax expense (benefit) related to items of other    comprehensive income (loss)		(2,108	)		(2,466	)
Total other comprehensive income (loss), net of tax		(37,093	)		(14,713	)
Comprehensive income		107,367			222,685
Less: Comprehensive income attributable to noncontrolling    interests		2,423			3,230
Comprehensive income attributable to UHS	$	104,944		$	219,455

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

4

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, unaudited)

	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	54,619		$	61,268
Accounts receivable, net		1,486,829			1,560,847
Supplies		162,597			159,889
Other current assets		130,301			133,930
Total current assets		1,834,346			1,915,934
Property and equipment		9,232,949			9,106,377
Less: accumulated depreciation		(4,190,658	)		(4,089,679	)
		5,042,291			5,016,698
Other assets:
Goodwill		3,836,566			3,869,760
Deferred income taxes		17,482			16,189
Right of use assets-operating leases		341,264			326,518
Deferred charges		5,936			6,373
Other		542,541			516,778
Total Assets	$	11,620,426		$	11,668,250
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	69,521		$	87,550
Accounts payable and accrued liabilities		1,382,652			1,272,374
Legal reserves		145,227			144,509
Operating lease liabilities		57,772			56,442
Federal and state taxes		34,779			2,515
Total current liabilities		1,689,951			1,563,390
Other noncurrent liabilities		387,669			329,932
Operating lease liabilities noncurrent		284,008			270,076
Long-term debt		3,735,799			3,896,577
Deferred income taxes		34,003			25,071
Redeemable noncontrolling interests		3,953			4,333
Equity:
UHS common stockholders’ equity		5,413,209			5,504,105
Noncontrolling interest		71,834			74,766
Total equity		5,485,043			5,578,871
Total Liabilities and Stockholders’ Equity	$	11,620,426		$	11,668,250

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

5

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months ended March 31, 2020

(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, January 1, 2020	$	4,333		$	66	$	794		$	7	$	0	$	(462,159	)	$	5,933,504		$	31,893		$	5,504,105		$	74,766		$	5,578,871
Common Stock
Issued/(converted)		—			—		2			—		—		—			3,110			—			3,112			—			3,112
Repurchased		—			—		(20	)		—		—		—			(199,272	)		—			(199,292	)		—			(199,292	)
Restricted share-based compensation expense		—			—		—			—		—		—			2,355			—			2,355			—			2,355
Dividends paid		—			—		—			—		—		(17,344	)		—			—			(17,344	)		—			(17,344	)
Stock option expense		—			—		—			—		—		—			15,329			—			15,329			—			15,329
Distributions to noncontrolling interests		(500	)		—		—			—		—		—			—			—			—			(5,234	)		(5,234	)
Comprehensive income:
Net income to UHS / noncontrolling interests		120			—		—			—		—		—			142,037			—			142,037			2,302			144,339
Foreign currency translation adjustments, net of income tax		—			—		—			—		—		—			—			(37,093	)		(37,093	)		—			(37,093	)
Subtotal - comprehensive income		120			—		—			—		—		—			142,037			(37,093	)		104,944			2,302			107,246
Balance, March 31, 2020	$	3,953		$	66	$	776		$	7	$	0	$	(479,503	)	$	5,897,063		$	(5,200	)	$	5,413,209		$	71,834		$	5,485,043

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

6

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months ended March 31, 2019

(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, January 1, 2019	$	4,292	$	66	$	841		$	7	$	0	$	(409,156	)	$	5,793,262	$	4,242	$	5,389,262	$	76,531	$	5,465,793
Common Stock
Issued/(converted)		—		—		6			—		—		—			2,720		—		2,726		—		2,726
Repurchased		—		—		(10	)		—		—		—