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 September 30, 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 October 31, 2020:

Class A	6,577,100
Class B	77,724,494
Class C	661,688
Class D	18,251

UNIVERSAL HEALTH SERVICES, INC.

INDEX

	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019	3
Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2020 and 2019	4
Condensed Consolidated Balance Sheets – September 30, 2020 and December 31, 2019	5
Condensed Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2020 and 2019	6
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 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	65
Item 4. Controls and Procedures	65
PART II. Other Information
Item 1. Legal Proceedings	66
Item 1A. Risk Factors	68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 6. Exhibits	69
Signatures	70

This Quarterly Report on Form 10-Q is for the quarter ended September 30, 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 September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net revenues	$	2,912,541	$	2,822,453	$	8,471,962	$	8,482,012
Operating charges:
Salaries, wages and benefits		1,406,348		1,408,226		4,147,027		4,157,253
Other operating expenses		666,665		762,174		1,982,202		2,079,518
Supplies expense		335,409		313,936		936,808		927,256
Depreciation and amortization		125,961		121,528		376,563		362,736
Lease and rental expense		28,488		27,660		84,967		80,320
		2,562,871		2,633,524		7,527,567		7,607,083
Income from operations		349,670		188,929		944,395		874,929
Interest expense, net		24,575		41,447		86,399		123,574
Other (income) expense, net		1,831		9,407		8,291		6,176
Income before income taxes		323,264		138,075		849,705		745,179
Provision for income taxes		79,172		37,205		204,649		165,646
Net income		244,092		100,870		645,056		579,533
Less: Net income attributable to noncontrolling interests		2,813		3,680		9,811		9,855
Net income attributable to UHS	$	241,279	$	97,190	$	635,245	$	569,678
Basic earnings per share attributable to UHS	$	2.84	$	1.10	$	7.44	$	6.36
Diluted earnings per share attributable to UHS	$	2.82	$	1.10	$	7.40	$	6.35
Weighted average number of common shares - basic		84,672		87,952		85,172		89,288
Add: Other share equivalents		575		403		415		231
Weighted average number of common shares and    equivalents - diluted		85,247		88,355		85,587		89,519

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 September 30,					Nine months ended September 30,
	2020		2019			2020			2019
Net income	$	244,092	$	100,870		$	645,056		$	579,533
Other comprehensive income (loss):
Unrealized derivative gains (losses) on cash flow hedges		-		-			-			(3,925	)
Foreign currency translation adjustment		14,245		(10,089	)		(18,280	)		(19,192	)
Other comprehensive income (loss) before tax		14,245		(10,089	)		(18,280	)		(23,117	)
Income tax expense (benefit) related to items of other    comprehensive income (loss)		302		174			(908	)		(676	)
Total other comprehensive income (loss), net of tax		13,943		(10,263	)		(17,372	)		(22,441	)
Comprehensive income		258,035		90,607			627,684			557,092
Less: Comprehensive income attributable to noncontrolling    interests		2,813		3,680			9,811			9,855
Comprehensive income attributable to UHS	$	255,222	$	86,927		$	617,873		$	547,237

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)

	September 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,101,230		$	61,268
Accounts receivable, net		1,540,747			1,560,847
Supplies		176,105			159,889
Other current assets		143,072			133,930
Total current assets		2,961,154			1,915,934
Property and equipment		9,652,778			9,106,377
Less: accumulated depreciation		(4,403,941	)		(4,089,679	)
		5,248,837			5,016,698
Other assets:
Goodwill		3,854,265			3,869,760
Deferred income taxes		19,936			16,189
Right of use assets-operating leases		330,172			326,518
Deferred charges		5,136			6,373
Other		556,258			516,778
Total Assets	$	12,975,758		$	11,668,250
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	94,504		$	87,550
Accounts payable and other liabilities		1,591,258			1,272,374
Medicare accelerated payments and deferred CARES Act and other grants		878,480			—
Legal reserves		5,426			144,509
Operating lease liabilities		57,219			56,442
Federal and state taxes		7,335			2,515
Total current liabilities		2,634,222			1,563,390
Other noncurrent liabilities		488,457			329,932
Operating lease liabilities noncurrent		274,236			270,076
Long-term debt		3,514,673			3,896,577
Deferred income taxes		24,895			25,071
Redeemable noncontrolling interests		4,177			4,333
Equity:
UHS common stockholders’ equity		5,962,788			5,504,105
Noncontrolling interest		72,310			74,766
Total equity		6,035,098			5,578,871
Total Liabilities and Stockholders’ Equity	$	12,975,758		$	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 and Nine Months ended September 30, 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)		—			—		3			—		—		—			9,726			—		9,729			—			9,729
Repurchased		—			—		(20	)		—		—		—			(200,078	)		—		(200,098	)		—			(200,098	)
Restricted share-based compensation expense		—			—		—			—		—		—			6,958			—		6,958			—			6,958
Dividends paid		—			—		—			—		—		(17,344	)		—			—		(17,344	)		—			(17,344	)
Stock option expense		—			—		—			—		—		—			41,565			—		41,565			—			41,565
Distributions to noncontrolling interests		(500	)		—		—			—		—		—			—			—		—			(14,675	)		(14,675	)
Purchase of noncontrolling interest		—			—		—			—		—		—			—			—		—			(547	)		(547	)
Other		—			—		—			—		—		—			—			—		—			3,300			3,300
Comprehensive income: