UNIVERSAL HEALTH SERVICES INC 10-K

ITEM 9A. Controls and Procedures. As of December 31, 2023, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the Securities Exchange Act of 1934, as amended, and the SEC rules thereunder. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting or in other factors during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining an adequate system of internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria on Internal Control—Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2023, based on criteria in Internal Control—Integrated Framework (2013) , issued by the COSO. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in its report which appears herein. 76 ITEM 9B Other Information None of the Company’s directors or officers adopted , modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s quarter ended December 31, 2023, as such terms are defined under Item 408(a) of Regulation S-K. ITEM 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Other Information Not applicable. 77 PART III ITEM 10. Directors, Executive Of ficers and Corporate Governance There is hereby incorporated by reference the information to appear under the captions “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2023. See also “Executive Officers of the Registrant” appearing in Item 1 hereof. ITEM 11. Executi ve Compensation There is hereby incorporated by reference the information to appear under the caption “Executive Compensation” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2023. ITEM 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters There is hereby incorporated by reference the information to appear under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2023. ITEM 13. Certain Relationships and Relate d Transactions, and Director Independence There is hereby incorporated by reference the information to appear under the captions “Certain Relationships and Related Transactions” and “Corporate Governance” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2023. ITEM 14. Principal Accou ntant Fees and Services. There is hereby incorporated by reference the information to appear under the caption “Relationship with Independent Auditors” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2023. 78 PART IV ITEM 15. Exhibits and Fina ncial Statement Schedules (a) Documents filed as part of this report: (1) Financial Statements: See “Index to Financial Statements and Financial Statement Schedule.” (2) Financial Statement Schedules: See “Index to Financial Statements and Financial Statement Schedule.” (3) Exhibits: No. Description 3.1 Registrant’s Restated Certificate of Incorporation, and Amendments thereto, previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, are incorporated herein by reference (P). 3.2 Amended and Restated Bylaws of Registrant, previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 21, 2022, is incorporated herein by reference. 3.3 Amendment to the Registrant’s Restated Certificate of Incorporation previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 3, 2001 is incorporated herein by reference. 4.1 Description of Securities of the Registrant previously filed as Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, is incorporated herein by reference. 4.2 Indenture, dated as of September 21, 2020, by and among the Company, the Subsidiary Guarantors party thereto, MUFG Union Bank, N.A., as trustee, and JPMorgan Chase Bank, N.A., as collateral agent., previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 21, 2020, is incorporated herein by reference. 4.3 Additional Authorized Representative Joinder Agreement, dated as of September 21, 2020, among the Company, the Subsidiary Guarantors party thereto, JPMorgan Chase Bank, N.A., as collateral agent, the Authorized Representatives specified therein and MUFG Union Bank, N.A., as trustee, as an Additional Authorized Representative, previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 21, 2020, is incorporated herein by reference . 4.4 Indenture, dated as of August 24, 2021, by and among the Company, the Subsidiary Guarantors party thereto, U.S. Bank National Association, as Trustee, and JPMorgan Chase Bank, N.A., as collateral agent, previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 24, 2021, is incorporated herein by reference. 4.5 Additional Authorized Representative Joinder Agreement, dated as of August 24, 2021, among U.S. Bank National Association, as Trustee and Additional Authorized Representative, the Company, the Subsidiary Guarantors party thereto, and JPMorgan Chase Bank, N.A., as collateral agent and administrative agent, previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August 24, 2021, is incorporated herein by reference. 4.6 Supplemental Indenture, dated as of August 24, 2021, among the Company, the Subsidiary Guarantors party thereto, U.S. Bank National Association (as successor to MUFG Union Bank, N.A.), as trustee, and JPMorgan Chase Bank, N.A., as collateral agent, to the indenture, dated as of September 21, 2020, governing the Existing 2030 Notes, previously filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated August 24, 2021, is incorporated herein by reference. 4.7 Second Supplemental Indenture, dated as of June 23, 2022, among the Company, the Subsidiary Guarantors party thereto, U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, and JPMorgan Chase Bank, N.A., as collateral agent, to the indenture, dated as of September 21, 2020, previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 27, 2022, is incorporated herein by reference. 4.8 First Supplemental Indenture, dated as of June 23, 2022, among the Company, the Subsidiary Guarantors party thereto, U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, and 79 No. Description JPMorgan Chase Bank, N.A., as collateral agent, to the indenture, dated as of August 24, 2021, previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 27, 2022, is incorporated herein by reference. 4.9 Third Supplemental Indenture, dated as of November 4, 2022, among the Company, the Subsidiary Guarantors party thereto, U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, and JPMorgan Chase Bank, N.A., as collateral agent, to the indenture, dated as of September 21, 2020, previously filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q dated November 8, 2022, is incorporated herein by reference. 4.10 Second Supplemental Indenture, dated as of November 4, 2022, among the Company, the Subsidiary Guarantors party thereto, U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as trustee, and JPMorgan Chase Bank, N.A., as collateral agent, to the indenture, dated as of August 24, 2021, previously filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q dated November 8, 2022, is incorporated herein by reference. 10.1 Agreement, dated December 7, 2023, to renew Advisory Agreement dated as of December 24, 1986, and amended and restated effective as of January 1, 2019 between Universal Health Realty Income Trust and UHS of Delaware, Inc. 10.2 Agreement, dated as of December 4, 2019, to renew Advisory Agreement, dated as of December 24, 1986, and amended and restated effective as of January 1, 2019 between Universal Health Realty Income Trust and UHS of Delaware, Inc., previously filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, is incorporated herein by reference. 10.3 Form of Leases, including Form of Master Lease Document for Leases, between certain subsidiaries of the Company and Universal Health Realty Income Trust, filed as Exhibit 10.3 to Amendment No. 3 of the Registration Statement on Form S-11 and Form S-2 of Registrant and Universal Health Realty Income Trust (Registration No. 33-7872), is incorporated herein by reference (P). 10.4 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leases and Contract of Acquisition, dated December 24, 1986, issued by the Company in favor of Universal Health Realty Income Trust, previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference (P). 10.5 Universal Health Services, Inc. Executive Retirement Income Plan dated January 1, 1993, previously filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference. 10.6 Universal Health Services, Inc. Supplemental Executive Retirement Income Plan effective as of June 1, 2018, dated as of June 18, 2018, previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, is incorporated herein by reference. 10.7 Asset Purchase Agreement dated as of February 6, 1996, among Amarillo Hospital District, UHS of Amarillo, Inc. and Universal Health Services, Inc., previously filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated herein by reference (P). 10.8* Amended and Restated Universal Health Services, Inc. Supplemental Deferred Compensation Plan dated as of January 1, 2002, previously filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference. 10.9* Universal Health Services, Inc. Employee Stock Purchase Plan, previously filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-122188), dated January 21, 2005 is incorporated herein by reference. 10.10* Universal Health Services, Inc. Third Amended and Restated 2005 Stock Incentive Plan as Amended, previously filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No.333-218359), dated May 31, 2017, is incorporated herein by reference. 10.11* Form of Stock Option Agreement, previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, dated June 8, 2005, is incorporated herein by reference. 80 No. Description 10.12* Form of Stock Option Agreement for Non-Employee Directors, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated October 3, 2005, is incorporated herein by reference. 10.13 Amendment No. 1 to the Master Lease Document, between certain subsidiaries of Universal Health Services, Inc. and Universal Health Realty Income Trust, dated April 24, 2006, previously filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by reference. 10.14* Amended and Restated Universal Health Services, Inc. 2010 Employees’ Restricted Stock Purchase Plan, previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2015, is incorporated herein by reference. 10.15* Universal Health Services, Inc. 2010 Executive Incentive Plan, previously filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2015, is incorporated herein by reference. 10.16 Omnibus Amendment to Receivables Sale Agreements, dated as of October 27, 2010, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference. 10.17 Amended and Restated Credit and Security Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference. 10.18 Second Amendment to Amended and Restated Credit and Security Agreement, dated as of October 25, 2013, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 30, 2013, is incorporated herein by reference. 10.19 Third Amendment to Amended and Restated Credit and Security Agreement, dated as of August 1, 2014, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 4, 2014, is incorporated herein by reference. 10.20 Fourth Amendment to Amended and Restated Credit and Security Agreement, dated as of December 22, 2015, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 22, 2015, is incorporated herein by reference . 10.21 Fifth Amendment to Amended and Restated Credit and Security Agreement, dated as of July 7, 2017, previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2017, is incorporated herein by reference. 10.22 Sixth Amendment to Amended and Restated Credit and Security Agreement, dated as of April 26, 2018, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 27, 2018, is incorporated herein by reference. 10.23 Eighth Amendment to Amended and Restated Credit and Security Agreement, dated as of April 26, 2021, previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 7, 2021, is incorporated herein by reference. 10.24 Ninth Amendment to Amended and Restated Credit and Security Agreement, dated as of April 22, 2022. previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter dated May 6, 2022, is incorporated herein by reference. 10.25 Tenth Amendment to Amended and Restated Credit and Security Agreement, dated as of July 22, 2022, previously filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q dated August 8, 2022, is incorporated herein by reference. 10.26 Eleventh Amendment to Amended and Restated Credit and Security Agreement, dated as of September 20, 2022, previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated November 8, 2022, is incorporated herein by reference. 10.27 Assignment and Assumption Agreement, dated as of October 27, 2010, previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated November 2, 2010, is incorporated herein by reference. 81 No. Description 10.28 Credit Agreement, dated as of November 15, 2010, by and among Universal Health Services, Inc., JPMorgan Chase Bank, N.A. and the various financial institutions as are or may become parties thereto, as Lenders, SunTrust Bank, The Royal Bank of Scotland, Plc, Bank of Tokyo-Mitsubishi UFJ Trust Company and Credit Agricole Corporate and Investment Bank, as co-documentation agents, Deutsche Bank Securities Inc. and Bank of America N.A. as co-syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and as collateral agent for the secured parties, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 17, 2010, is incorporated herein by reference. 10.29 First Amendment, dated as of March 15, 2011, to the Credit Agreement, dated as of November 15, 2010, by and among Universal Health Services, Inc., JPMorgan Chase Bank, N.A. and the various financial institutions as are or may become parties thereto, as Lenders, certain banks as co-documentation agents, and as co-syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders and as collateral agent for the secured parties, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 15, 2011, is incorporated herein by reference. 10.30 Credit Agreement, dated as of November 15, 2010 and amended and restated as of September 21, 2012, by and among Universal Health Services, Inc. (the borrower), the several lenders from time to time parties thereto, Credit Agricole Corporate and Investment Bank, Mizuho Corporate Bank LTD., Royal Bank of Canada and The Royal Bank of Scotland PLC (as co-documentation agents), Bank of Tokyo-Mitsubishi UFJ Trust Company, Bank of America N.A. and SunTrust Bank (as co-syndication agents), and JPMorgan Chase Bank, N.A. (as administrative agent), previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference. 10.31 Second Amendment, dated as of September 21, 2012, to the Credit Agreement, dated as of November 15, 2010 (as amended from time to time), among Universal Health Services, Inc., a Delaware corporation, the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and the other agents party thereto, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 26, 2012, is incorporated herein by reference. 10.32 Third Amendment, dated as of May 16, 2013, to the Credit Agreement, dated as of November 15, 2010, as amended from time to time, among Universal Health Services, Inc., a Delaware corporation, the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and the other agents party thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 17, 2013, is incorporated herein by reference. 10.33 Fourth Amendment, dated as of August 7, 2014, to the Credit Agreement, dated as of November 15, 2010, as previously amended from time to time, by and among Universal Health Services, Inc., the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and the other agents party thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference. 10.34 Credit Agreement, dated as of November 15, 2010 and amended and restated as of August 7, 2014, by and among Universal Health Services, Inc., the several banks and other financial institutions from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and the other agents party thereto, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference. 10.35 Fifth Amendment to the Credit Agreement, dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013 and August 7, 2014, among the Company, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 8, 2016, is incorporated herein by reference. 10.36 Sixth Amendment, dated as of October 23, 2018, to the Credit Agreement, dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014 and June 7, 2016, among the Company, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 24, 2018, is incorporated herein by reference. 82 No. Description 10.37 Increased Facility Activation Notice – Incremental Term Loans, dated as of October 31, 2018, to the Credit Agreement, dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014, June 7, 2016 and October 23, 2018, among the Company, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 2, 2018, is incorporated herein by reference. 10.38 Seventh Amendment, dated as of August 24, 2021, to the Credit Agreement, dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014, June 7, 2016 and October 23, 2018, among the Company, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 24, 2021, is incorporated herein by reference. 10.39 Eighth Amendment, dated as of September 10, 2021, to the Credit Agreement, dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014, June 7, 2016, October 23, 2018 and August 24, 2021, among the Company, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto, previously filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q dated November 8, 2021, is incorporated herein by reference. 10.40 Ninth Amendment and Increased Facility Activation Notice dated as of June 23, 2022, to Credit Agreement, dated as of November 15, 2010 and as amended and restated as of March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014, June 7, 2016, October 23, 2018, August 24, 2021 and September 10, 2021, among the Company, JP Morgan Chase Bank, N.A., as administrative agent and other financial institutions or entities from time to time parties thereto, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 27, 2022, is incorporated herein by reference. 10.41* Form of Supplemental Life Insurance Plan and Agreement Part A: Alan B. Miller 1998 Dual Life Insurance Trust (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), and Anthony Pantaleoni as Trustee), previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference. 10.42* Form of Supplemental Life Insurance Plan and Agreement Part B: Alan B. Miller 2002 Trust (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), and Anthony Pantaleoni as Trustee), previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference. 10.43* Universal Health Services, Inc. Termination, Assignment and Release Agreement (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), Anthony Pantaleoni as Trustee of the Alan B. Miller 1998 Dual Life Insurance Trust, and Alan B. Miller, Executive), previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference. 10.44* Universal Health Services, Inc. Termination, Assignment and Release Agreement (effective December 9, 2010, by and between Universal Health Services, Inc., a Delaware corporation (the “Company”), Anthony Pantaleoni as Trustee of the Alan B. Miller 2002 Trust, and Alan B. Miller, Executive), previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated December 10, 2010, is incorporated herein by reference. 10.45 Collateral Agreement, dated as of August 7, 2014, among Universal Health Services, Inc., the subsidiary guarantors party thereto, MUFG Union Bank, N.A., as 2014 Trustee, The Bank of New York Mellon Trust Company, N.A., as 2006 Trustee, and JPMorgan Chase Bank, N.A., as collateral agent, previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated August 12, 2014, is incorporated herein by reference. 10.46* Universal Health Services, Inc. 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-238880) dated June 2, 2020, is incorporated herein by reference. 10.47* Form of Stock Option Award Agreement under the Universal Health Services, Inc. 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2020, is incorporated herein by reference. 83 No. Description 10.48* Form of Restricted Stock Award Agreement under the Universal Health Services, Inc. 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2020, is incorporated herein by reference. 10.49* Form of Restricted Stock Unit Award Agreement under the Universal Health Services, Inc. 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2020, is incorporated herein by reference. 10.50 Settlement Agreement among: (i) the United States of America, acting through the United States Department of Justice and on behalf of the Office of Inspector General (OIG-HHS) of the Department of Health and Human Services (HHS); the Defense Health Agency (DHA), acting on behalf of the TRICARE Program; the Office of Personnel Management (OPM), which administers the Federal Employees Health Benefits Program (FEHBP); and the United States Department of Veteran Affairs (VA) (collectively, the United States); (ii) Universal Health Services, Inc. (“UHS, Inc.”) and UHS of Delaware, Inc. (“UHS of Delaware, Inc.”), acting on behalf of the entities listed on Exhibits A and B, (collectively the “Defendants” or “UHS”); and (iii) various individuals (collectively, the “Relators”), previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 10, 2020, is incorporated herein by reference. 10.51 Form of Settlement Agreement between various states and Universal Health Services, Inc. and UHS of Delaware, Inc., acting on behalf of the entities listed on Exhibits A and B, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 10, 2020, is incorporated herein by reference. 10.52 Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Universal Health Services, Inc. and UHS of Delaware, Inc., previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated July 10, 2020, is incorporated herein by reference. 10.53 Stipulation and Agreement of Settlement, dated as of September 15, 2021, by and among (a) lead plaintiffs in the stockholder derivative action captioned In re Universal Health Services, Inc., Derivative Litigation, Case No. 2:17-cv-02187-JHS (including each of its member cases, the “Federal Action”), pending in the United States District Court for the Eastern District of Pennsylvania; (b) plaintiffs in the stockholder derivative litigation captioned Delaware County Employees’ Retirement Fund and the Chester County Employees’ Retirement System v. Alan B. Miller, et al., C.A. No. 2017-0475-JTL (the “Delaware Action”), brought in the Court of Chancery of the State of Delaware; (c) Dr. Eli Inzlicht-Sprei; (d) defendants in the Federal Action; (e) defendants in the Delaware Action; and (f) nominal defendant in the Federal Action and Delaware Action: Universal Health Services, Inc., by and through their respective undersigned counsel, previously filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K dated October 25, 2021, is incorporated herein by reference. 10.54* Employment Agreement between Universal Health Services, Inc. and Marc D. Miller dated as of December 23, 2020, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 23, 2020, is incorporated herein by reference. 10.55* Amendment, dated as of March 23, 2022, to Employment Agreement, dated as of December 23, 2020, between Universal Health Services, Inc. and Marc D. Miller, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 23, 2022, is incorporated herein by reference. 10.56* Employment Agreement between Universal Health Services, Inc. and Alan B. Miller dated as of December 23, 2020, previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 23, 2020, is incorporated herein by reference. 10.57* Amendment, dated as of March 23, 2022, to Employment Agreement, dated as of December 23, 2020, between Universal Health Services, Inc. and Alan B. Miller, previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated March 23, 2022, is incorporated herein by reference. 10.58 Master Lease Document between certain subsidiaries of Universal Health Services, Inc. and Universal Health Realty Income Trust, dated December 31, 2021 previously filed as Exhibit 10.54 to the Company’s Annual Report on Form 10-K dated February 24, 2022, is incorporated herein by reference. 84 No. Description 10.59* Universal Health Services, Inc. 2022 Executive Incentive Plan, previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 23, 2022, is incorporated herein by reference. 10.60* Universal Health Services, Inc. Amended and Restated 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-265495) dated June 9, 2022, is incorporated herein by reference. 10.61* Form of Restricted Stock Unit Award Agreement under the Universal Health Services, Inc. 2020 Omnibus Stock and Incentive Plan, previously filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2022, is incorporated herein by reference. 10.62* Form of Restricted Stock Units Award Agreement for Named Executive Officers with Employment Agreements, , previously filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2022, is incorporated herein by reference. 10.63* Form of Restricted Stock Units Award Agreement for Named Executive Officers without Employment Agreements, previously filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2022, is incorporated herein by reference. 10.64* Form of Restricted Stock Units Award Agreement for Directors, previously filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2022, is incorporated herein by reference. 10.65* Separation Agreement and General Release by and between UHS of Delaware, Inc. and Marvin Pember effective as of December 31, 2022, previously filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A dated December 7, 2022, is incorporated herein by reference. 10.66* Employment Agreement between Universal Health Services, Inc. and Edward Sim dated October 18, 2022 previously filed as Exhibit 10.66 to the Company’s Annual Report on Form 10-K dated February 27, 2023, is incorporated herein by reference. 11 Statement regarding computation of per share earnings is set forth in Note 1 of the Notes to the Consolidated Financial Statements. 21 Subsidiaries of Registrant. 22.1 List of Guarantor Subsidiaries and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize Securities of the Registrant. 23.1 Consent of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP. 31.1 Certification from the Company’s Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certification from the Company’s Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 32.1 Certification from the Company’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification from the Company’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 Universal Health Services, Inc. Clawback Policy. 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents 85 No. Description 104 Cover page formatted as Inline XBRL and contained in Exhibit 101 * Management contract or compensatory plan or arrangement. Exhibits, other than those incorporated by reference, have been included in copies of this Annual Report filed with the Securities and Exchange Commission. Stockholders of the Company will be provided with copies of those exhibits upon written request to the Company. ITEM 16. Form 10-K Summary None. 86 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U NIVERSAL H EALTH S ERVICES , I NC . By: /s/ M ARC D. M ILLER Marc D. Miller Chief Executive Officer February 27, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ A LAN B. M ILLER Alan B. Miller Executive Chairman of the Board February 27, 2024 /s/ M ARC D. M ILLER Marc D. Miller Director, President and Chief Executive Officer (Principal Executive Officer) February 27, 2024 /s/ N INA C HEN -L ANGENMAYR Director February 27, 2024 Nina Chen-Langenmayr /s/ E ILEEN C. M C D ONNELL Eileen C. McDonnell Director February 27, 2024 /s/ W ARREN J. N IMETZ Warren J. Nimetz Director February 27, 2024 /s/ M ARIA S INGER Maria Singer Director February 27, 2024 /s/ E LLIOTT J. S USSMAN M.D. Elliot J. Sussman M.D. Director February 27, 2024 /s/ S TEVE F ILTON Steve Filton Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) February 27, 2024 87 UNIVERSAL HEALTH SERVICES, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm ( PCAOB ID: 238 ) 89 Consolidated Statements of Income for December 31, 2023, 2022, and 2021 91 Consolidated Statements of Comprehensive Income for December 31, 2023, 2022, and 2021 92 Consolidated Balance Sheets as of December 31, 2023 and 2022 93 Consolidated Statements of Changes in Equity for December 31, 2023, 2022 and 2021 94 Consolidated Statements of Cash Flows for December 31, 2023, 2022 and 2021 97 Notes to Consolidated Financial Statements 98 Supplemental Financial Statement Schedule II: Valuation and Qualifying Accounts as of and for December 31, 2023, 2022, and 2021 128 88 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Universal Health Services, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Universal Health Services, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are 89 material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of accounts receivable As described in Notes 1, 10 and 12 to the consolidated financial statements, the Company reports net patient service revenue at the estimated net realizable amounts from patients and third-party payers and others for services rendered. The Company has agreements with third-party payers that provide for payments to the Company at amounts different from established rates. Payment arrangements include rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances, which represent explicit price concessions, under managed care plans are based upon the payment terms specified in the related contractual agreements. Management estimates Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. Management monitors the historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. In addition to explicit price concessions, management estimates revenue adjustments for implicit price concessions based on general factors such as payer mix, the aging of the receivables and historical collection experience. Management routinely reviews accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to the allowances as warranted. As of December 31, 2023, the net accounts receivable balance was $2.2 billion. The principal considerations for our determination that performing procedures relating to the valuation of accounts receivable is a critical audit matter are the significant judgment by management in estimating net accounts receivable, specifically as it relates to developing the estimate for explicit and implicit price concessions, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence obtained related to the estimation of price concessions. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of accounts receivable, including controls over management’s valuation approach, assumptions and data used to estimate the explicit and implicit price concessions. These procedures also included, among others, (i) testing management’s process for developing the estimate for price concessions, as well as the relevance of the historical billing and collection data as an input to the valuation approach; (ii) testing the accuracy of a sample of revenue transactions and a sample of cash collections from the historical billing data and historical collection data used in management’s estimation of price concessions; (iii) evaluating the historical accuracy of management’s process for developing the estimate of the amount which will ultimately be collected by comparing actual cash collections to the previously recorded net accounts receivable balance; and (iv) developing an independent expectation of the net accounts receivable balance. Developing an independent expectation involved calculating the percentage of cash collections as compared to the recorded net accounts receivable balance as of the end of the prior year, applying those calculated percentages to the recorded accounts receivable balance as of December 31, 2023, and comparing the calculated balance to management’s estimate of the net accounts receivable balance. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 27, 2024 We have served as the Company’s auditor since 2007. 90 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STAT EMENTS OF INCOME Year Ended December 31, 2023 2022 2021 (in thousands, except per share data) Net revenues $ 14,281,976 $ 13,399,370 $ 12,642,117 Operating charges: Salaries, wages and benefits 7,107,484 6,762,256 6,163,944 Other operating expenses 3,757,216 3,445,733 3,035,869 Supplies expense 1,532,828 1,474,339 1,427,134 Depreciation and amortization 568,041 581,861 533,213 Lease and rental expense 141,026 131,626 118,863 13,106,595 12,395,815 11,279,023 Income from operations 1,175,381 1,003,555 1,363,094 Interest expense, net 206,674 126,889 83,672 Other (income) expense, net 28,281 10,406 ( 13,891 ) Income before income taxes 940,426 866,260 1,293,313 Provision for income taxes 221,119 209,278 305,681 Net income 719,307 656,982 987,632 Less: Net income (loss) attributable to noncontrolling interests 1,512 ( 18,627 ) ( 3,958 ) Net income attributable to UHS $ 717,795 $ 675,609 $ 991,590 Basic earnings per share attributable to UHS $ 10.35 $ 9.23 $ 11.99 Diluted earnings per share attributable to UHS $ 10.23 $ 9.14 $ 11.82 Weighted average number of common shares—basic 69,321 73,118 82,519 Add: Other share equivalents 804 714 1,173 Weighted average number of common shares and equivalents—diluted 70,125 73,832 83,692 The accompanying notes are an integral part of these consolidated financial statements. 91 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2023 2022 2021 (Dollar amounts in thousands) Net income $ 719,307 $ 656,982 $ 987,632 Other comprehensive income (loss): Minimum pension liability 4,166 ( 2,869 ) 1,427 Foreign currency translation adjustment 15,271 ( 37,310 ) ( 20,743 ) Other comprehensive income before tax 19,437 ( 40,179 ) ( 19,316 ) Income tax expense related to items of other comprehensive income 480 ( 220 ) ( 1,487 ) Total other comprehensive income (loss), net of tax 18,957 ( 39,959 ) ( 17,829 ) Comprehensive income 738,264 617,023 969,803 Less: Comprehensive loss (income) attributable to noncontrolling interests 1,512 ( 18,627 ) ( 3,958 ) Comprehensive income attributable to UHS $ 736,752 $ 635,650 $ 973,761 The accompanying notes are an integral part of these consolidated financial statements. 92 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS December 31, 2023 2022 (Dollar amounts in thousands) Assets Current assets: Cash and cash equivalents $ 119,439 $ 102,818 Accounts receivable, net 2,238,265 2,017,722 Supplies 216,988 218,517 Other current assets 236,658 198,283 Total current assets 2,811,350 2,537,340 Property and Equipment Land 737,226 727,313 Buildings and improvements 7,139,980 6,756,228 Equipment 3,066,339 2,936,992 Property under finance lease 101,318 102,494 11,044,863 10,523,027 Accumulated depreciation ( 5,652,518 ) ( 5,167,394 ) 5,392,345 5,355,633 Construction-in-progress 732,184 562,825 6,124,529 5,918,458 Other assets: Goodwill 3,932,407 3,909,456 Deferred income taxes 85,626 68,397 Right of use assets-operating leases 433,962 454,650 Deferred charges 6,974 6,264 Other 572,754 599,623 5,031,723 5,038,390 Total Assets $ 13,967,602 $ 13,494,188 Liabilities and Stockholders’ Equity Current liabilities: Current maturities of long-term debt $ 126,686 $ 81,447 Accounts payable 613,974 636,601 Accrued liabilities Compensation and related benefits 549,470 470,858 Interest 17,436 16,243 Taxes other than income 154,186 110,889 Operating lease liabilities 71,600 67,776 Medicare accelerated payments and deferred CARES Act and other grants 5,375 2,397 Other 472,574 523,600 Current federal and state income taxes 2,046 4,608 Total current liabilities 2,013,347 1,914,419 Other noncurrent liabilities 584,007 487,669 Operating lease liabilities noncurrent 382,559 395,522 Long-term debt 4,785,783 4,726,533 Commitments and contingencies (Note 8) Redeemable noncontrolling interest 5,191 4,695 Equity: Class A Common Stock, voting, $ .01 par value; authorized 12,000,000 shares: issued and outstanding 6,577,100 shares in 2023 and 6,577,100 shares in 2022 66 66 Class B Common Stock, limited voting, $ .01 par value; authorized 150,000,000 shares: issued and outstanding 59,930,083 shares in 2023 and 63,375,992 shares in 2022 599 637 Class C Common Stock, voting, $ .01 par value; authorized 1,200,000 shares: issued and outstanding 661,688 shares in 2023 and 661,688 shares in 2022 7 7 Class D Common Stock, limited voting, $ .01 par value; authorized 5,000,000 shares: issued and outstanding 12,962 shares in 2023 and 14,170 shares in 2022 0 0 Cumulative dividends ( 659,890 ) ( 604,127 ) Retained earnings 6,798,930 6,533,667 Accumulated other comprehensive income 9,289 ( 9,668 ) Universal Health Services, Inc. common stockholders’ equity 6,149,001 5,920,582 Noncontrolling interest 47,714 44,768 Total Equity 6,196,715 5,965,350 Total Liabilities and Stockholders’ Equity $ 13,967,602 $ 13,494,188 The accompanying notes are an integral part of these consolidated financial statements. 93 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2023, 2022 and 2021 (in thousands) Accumulated UHS Redeemable Other Common Noncontrolling Class A Class B Class C Class D Cumulative Retained Comprehensive Stockholders' Noncontrolling Interest Common Common Common Common Dividends Earnings Income (Loss) Equity Interest Total Balance, January 1, 2021 $ 4,569 $ 66 $ 778 $ 7 $ 0 $ ( 479,503 ) $ 6,747,678 $ 48,120 $ 6,317,146 $ 84,821 $ 6,401,967 Common Stock Issued/(converted) including tax benefits from exercise of stock options — — 5 — — — 13,369 — 13,374 — 13,374 Repurchased — — ( 85 ) — — — ( 1,220,790 ) — ( 1,220,875 ) — ( 1,220,875 ) Restricted share-based compensation expense — — — — — — 12,936 — 12,936 — 12,936 Dividends paid — — — — — ( 65,984 ) — — ( 65,984 ) — ( 65,984 ) Stock option expense — — — — — — 59,306 — 59,306 — 59,306 Distributions to noncontrolling interests ( 202 ) — — — — — — — — ( 6,878 ) ( 6,878 ) Purchase of ownership interests by minority members — — — — — — — — — 13,909 13,909 Other — — — — — — — — — 16,247 16,247 Comprehensive income: Net income to UHS / noncontrolling interests 752 — — — — — 991,590 — 991,590 ( 4,710 ) 986,880 Foreign currency translation adjustments (net of income tax effect of $ 749 ) — — — — — — — ( 18,914 ) ( 18,914 ) — ( 18,914 ) Minimum pension liability (net of income tax effect of $ 1,071 ) — — — — — — — 1,085 1,085 — 1,085 Subtotal - comprehensive income 752 — — — — — 991,590 ( 17,829 ) 973,761 ( 4,710 ) 969,051 Balance, December 31, 2021 $ 5,119 $ 66 $ 698 $ 7 $ — $ ( 545,487 ) $ 6,604,089 $ 30,291 $ 6,089,664 $ 103,389 $ 6,193,053 The accompanying notes are an integral part of these consolidated financial statements. 94 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued) For the Years Ended December 31, 2023, 2022 and 2021 (in thousands) Accumulated UHS Redeemable Other Common Noncontrolling Class A Class B Class C Class D Cumulative Retained Comprehensive Stockholders' Noncontrolling Interest Common Common Common Common Dividends Earnings Income (Loss) Equity Interest Total Balance, January 1, 2022 $ 5,119 $ 66 $ 698 $ 7 $ — $ ( 545,487 ) $ 6,604,089 $ 30,291 $ 6,089,664 $ 103,389 $ 6,193,053 Common Stock Issued/(converted) including tax benefits from exercise of stock options — — 11 — — — 14,196 — 14,207 — 14,207 Repurchased — — ( 72 ) — — — ( 832,846 ) — ( 832,918 ) — ( 832,918 ) Restricted share-based compensation expense — — — — — — 17,649 — 17,649 — 17,649 Dividends paid — — — — — ( 58,640 ) — — ( 58,640 ) — ( 58,640 ) Stock option expense — — — — — — 66,244 — 66,244 — 66,244 Acquisition of noncontrolling interest in majority owned business — — — — — — ( 11,274 ) — ( 11,274 ) ( 37,608 ) ( 48,882 ) Distributions to noncontrolling interests ( 650 ) — — — — — — — — ( 4,741 ) ( 4,741 ) Purchase of ownership interests by minority members — — — — — — — — — 2,581 2,581 Comprehensive income: Net income to UHS / noncontrolling interests 226 — — — — — 675,609 — 675,609 ( 18,853 ) 656,756 Foreign currency translation adjustments (net of income tax effect of $ 469 ) — — — — — — — ( 37,779 ) ( 37,779 ) — ( 37,779 ) Minimum pension liability (net of income tax effect of $ 689 ) — — — — — — — ( 2,180 ) ( 2,180 ) — ( 2,180 ) Subtotal - comprehensive income 226 — — — — — 675,609 ( 39,959 ) 635,650 ( 18,853 ) 616,797 Balance, December 31, 2022 $ 4,695 $ 66 $ 637 $ 7 $ — $ ( 604,127 ) $ 6,533,667 $ ( 9,668 ) $ 5,920,582 $ 44,768 $ 5,965,350 The accompanying notes are an integral part of these consolidated financial statements. 95 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued) For the Years Ended December 31, 2023, 2022 and 2021 (in thousands) Accumulated UHS Redeemable Other Common Noncontrolling Class A Class B Class C Class D Cumulative Retained Comprehensive Stockholders' Noncontrolling Interest Common Common Common Common Dividends Earnings Income (Loss) Equity Interest Total Balance, January 1, 2023 $ 4,695 $ 66 $ 637 $ 7 $ — $ ( 604,127 ) $ 6,533,667 $ ( 9,668 ) $ 5,920,582 $ 44,768 $ 5,965,350 Common Stock Issued/(converted) including tax benefits from exercise of stock options — — 3 — — — 13,760 — 13,763 — 13,763 Repurchased — — ( 41 ) — — — ( 552,567 ) — ( 552,608 ) — ( 552,608 ) Restricted share-based compensation expense — — — — — — 22,032 — 22,032 — 22,032 Dividends paid — — — — — ( 55,763 ) — — ( 55,763 ) — ( 55,763 ) Stock option expense — — — — — — 64,243 — 64,243 — 64,243 Distributions to noncontrolling interests ( 1,050 ) — — — — — — — — ( 5,780 ) ( 5,780 ) Purchase of ownership interests by minority members — — — — — — — — — 8,760 8,760 Comprehensive income: Net income to UHS / noncontrolling interests 1,546 — — — — — 717,795 — 717,795 ( 34 ) 717,761 Foreign currency translation adjustments (net of income tax effect of $ 520 ) — — — — — — — 15,791 15,791 — 15,791 Minimum pension liability (net of income tax effect of $ 1,000 ) — — — — — — — 3,166 3,166 — 3,166 Subtotal - comprehensive income 1,546 — — — — — 717,795 18,957 736,752 ( 34 ) 736,718 Balance, December 31, 2023 $ 5,191 $ 66 $ 599 $ 7 $ — $ ( 659,890 ) $ 6,798,930 $ 9,289 $ 6,149,001 $ 47,714 $ 6,196,715 The accompanying notes are an integral part of these consolidated financial statements. 96 UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (Amounts in thousands) Cash Flows from Operating Activities: Net income $ 719,307 $ 656,982 $ 987,632 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 568,041 581,861 533,213 (Gain) loss on sales of assets and businesses ( 6,250 ) 584 ( 5,170 ) Stock-based compensation expense 87,720 85,378 73,686 Costs related to extinguishment of debt 0 0 16,831 Provision for asset impairment 0 57,550 14,391 Changes in assets & liabilities, net of effects from acquisitions and dispositions: Accounts receivable ( 182,444 ) ( 258,338 ) ( 8,873 ) Accrued interest 1,193 1,835 4,950 Accrued and deferred income taxes ( 43,450 ) ( 29,510 ) ( 54,030 ) Other working capital accounts ( 32,321 ) ( 146,692 ) 46,526 Medicare accelerated payments and deferred CARES Act and other grants 2,978 2,391 ( 698,762 ) Other assets and deferred charges 48,517 19,918 ( 39,337 ) Other 39,133 ( 8,676 ) ( 82,075 ) Accrued insurance expense, net of commercial premiums paid 183,462 174,723 186,215 Payments made in settlement of self-insurance claims ( 118,089 ) ( 141,983 ) ( 91,502 ) Net cash provided by operating activities 1,267,797 996,023 883,695 Cash Flows from Investing Activities: Property and equipment additions ( 743,055 ) ( 734,001 ) ( 855,659 ) Acquisition of businesses and property ( 3,728 ) ( 20,309 ) ( 105,415 ) (Outflows) inflows from foreign exchange contracts that hedge our net U.K. investment ( 40,695 ) 94,913 1,357 Proceeds received from sales of assets and businesses 24,187 12,001 25,425 Costs incurred for purchase and implementation of information technology applications 0 0 19,726 Decrease (increase) in capital reserves of commercial insurance subsidiary 16 100 100 Net cash used in investing activities ( 763,275 ) ( 647,296 ) ( 914,466 ) Cash Flows from Financing Activities: Repayments of long-term debt ( 85,480 ) ( 89,367 ) ( 3,037,868 ) Additional borrowings 185,100 705,321 3,254,974 Financing costs ( 308 ) ( 3,164 ) ( 18,770 ) Repurchase of common shares ( 547,363 ) ( 832,918 ) ( 1,220,875 ) Dividends paid ( 55,480 ) ( 58,449 ) ( 65,896 ) Issuance of common stock 13,654 14,068 13,372 Profit distributions to noncontrolling interests ( 6,830 ) ( 5,391 ) ( 7,080 ) Purchase (sale) of ownership interests by (from) minority member 2,762 ( 48,500 ) 13,193 Net cash used in financing activities ( 493,945 ) ( 318,400 ) ( 1,068,950 ) Effect of exchange rate changes on cash and cash equivalents 3,056 ( 8,424 ) ( 499 ) Increase (decrease) in cash, cash equivalents and restricted cash 13,633 21,903 ( 1,100,220 ) Cash, cash equivalents and restricted cash, beginning of period 200,837 178,934 1,279,154 Cash, cash equivalents and restricted cash, end of period $ 214,470 $ 200,837 $ 178,934 Supplemental Disclosures of Cash Flow Information: Interest paid $ 200,446 $ 120,136 $ 75,607 Income taxes paid, net of refunds $ 257,896 $ 250,759 $ 362,978 Noncash purchases of property and equipment $ 66,899 $ 72,064 $ 167,234 The accompanying notes are an integral part of these consolidated financial statements. 97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Services provided by our hospitals, all of which are operated by subsidiaries of ours, include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We, through our subsidiaries, provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations. Principles of Consolidation: The consolidated financial statements include the accounts of our majority-owned subsidiaries and partnerships controlled by us or our subsidiaries as the managing general partner. All intercompany accounts and transactions have been eliminated. Revenue Recognition: We report net patient service revenue at the estimated net realizable amounts from patients and third-party payers and others for services rendered. We have agreements with third-party payers that provide for payments to us at amounts different from our established rates. Payment arrangements include rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances under managed care plans, which represent explicit price concessions, are based upon the payment terms specified in the related contractual agreements. We closely monitor our historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payers may be different from the amounts we estimate and record. See Note 10-Revenue Recognition , for additional disclosure related to our revenues including a disaggregation of our consolidated net revenues by major source for each of the periods presented herein. We estimate our Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. The laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation and as a result, there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term. Certain types of payments by the Medicare program and state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare Allowable Bad Debts and Inpatient Psychiatric Services) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements. Such amounts are included in accounts receivable, net, on our consolidated balance sheets. The funding of both federal Medicare and state Medicaid programs are subject to legislative and regulatory changes. As such, we cannot provide any assurance that future legislation and regulations, if enacted, will not have a material impact on our future Medicare and Medicaid reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2023, 2022 or 2021. If it were to occur, each 1 % adjustment to our estimated net Medicare revenues that are subject to retrospective review and settlement as of December 31, 2023, would change our after-tax net income by approximately $ 2 mil lion. Charity Care, Uninsured Discounts and Other Adjustments to Revenue: Collection of receivables from third-party payers and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient’s responsibility, primarily co-payments and deductibles. We estimate our revenue adjustments for implicit price concessions based on general factors such as payer mix, the aging of the receivables and historical collection experience. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. At our acute care hospitals, third party liability accounts are pursued until all payment and adjustments are posted to the patient account. For those accounts with a patient balance after third party liability is finalized or accounts for uninsured patients, the patient receives statements and collection letters. Historically, a significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from patients who are employed but do not have health insurance or who have policies with relatively high deductibles. Patients treated at our hospitals for non-elective services, who have gross income of various amounts, dependent upon the state, ranging from 200 % to 400 % of the federal poverty guidelines, are deemed eligible for charity care. The federal poverty guidelines are established by the federal government and are based on income and family size. Because we do not pursue collection of amounts that qualify as charity care, the transaction price is fully adjusted and there is no impact in our net revenues or in our accounts receivable, net. A portion of the accounts receivable at our acute care facilities are comprised of Medicaid accounts that are pending approval from third-party payers but we also have smaller amounts due from other miscellaneous payers such as county indigent programs in certain states. Our patient registration process includes an interview of the patient or the patient’s responsible party at the time of registration. At that time, an insurance eligibility determination is made and an insurance plan code is assigned. There are various 98 pre-established insurance profiles in our patient accounting system which determine the expected insurance reimbursement for each patient based on the insurance plan code assigned and the services rendered. Certain patients may be classified as Medicaid pending at registration based upon a screening evaluation if we are unable to definitively determine if they are currently Medicaid eligible. When a patient is registered as Medicaid eligible or Medicaid pending, our patient accounting system records net revenues for services provided to that patient based upon the established Medicaid reimbursement rates, subject to the ultimate disposition of the patient’s Medicaid eligibility. When the patient’s ultimate eligibility is determined, reclassifications may occur which impacts net revenues in future periods. Although the patient’s ultimate eligibility determination may result in adjustments to net revenues, these adjustments do not have a material impact on our results of operations in 2023, 2022 or 2021 since our facilities make estimates at each financial reporting period to adjust revenue based on historical collections. We also provide discounts to uninsured patients (included in “uninsured discounts” amounts below) who do not qualify for Medicaid or charity care. Because we do not pursue collection of amounts classified as uninsured discounts, the transaction price is fully adjusted and there is no impact in our net revenues or in our net accounts receivable. In implementing the discount policy, we first attempt to qualify uninsured patients for governmental programs, charity care or any other discount program. If an uninsured patient does not qualify for these programs, the uninsured discount is applied. Uncompensated care (charity care and uninsured discounts): The following table shows the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the years ended December 31, 2023, 2022 and 2021: (dollar amounts in thousands) 2023 2022 2021 Amount % Amount % Amount % Charity care $ 843,449 32 % $ 786,962 35 % $ 661,965 33 % Uninsured discounts 1,792,493 68 % 1,474,933 65 % 1,336,319 67 % Total uncompensated care $ 2,635,942 100 % $ 2,261,895 100 % $ 1,998,284 100 % The estimated cost of providing uncompensated care: The estimated cost of providing uncompensated care, as reflected below, were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities. An increase in the level of uninsured patients to our facilities and the resulting adverse trends in the adjustments to net revenues and uncompensated care provided could have a material unfavorable impact on our future operating results. (amounts in thousands) 2023 2022 2021 Estimated cost of providing charity care $ 83,383 $ 85,434 $ 72,095 Estimated cost of providing uninsured discounts 177,206 160,122 145,538 Estimated cost of providing uncompensated care $ 260,589 $ 245,556 $ 217,633 Concentration of Revenues: Our seven acute care hospitals and seven free-standing emergency departments in the Las Vegas, Nevada, market contributed, on a combined basis, 14 % in 2023, 15 % in 2022 and 16 % in 2021 of our consolidated net revenues. Cash, Cash Equivalents and Restricted Cash: We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows are presented separately on our consolidated balance sheets as follow: (amounts in thousands) 2023 2022 2021 Cash and cash equivalents $ 119,439 $ 102,818 $ 115,301 Restricted cash (a) 95,031 98,019 63,633 Total cash, cash equivalents and restricted cash $ 214,470 $ 200,837 $ 178,934 (a) Restricted cash is included in other assets on the accompanying consolidated balance sheets and consists of statutorily required capital reserves related to our commercial insurance subsidiary. The fair value of our restricted cash was computed based upon quotes received from financial institutions. We consider these to be “level 1” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with financial securities. 99 Property and Equipment: Property and equipment are stated at cost. Expenditures for renewals and improvements are charged to the property accounts. Replacements, maintenance and repairs which do not improve or extend the life of the respective asset are expensed as incurred. We remove the cost and the related accumulated depreciation from the accounts for assets sold or retired and the resulting gains or losses are included in the results of operations. Construction-in-progress includes both construction projects and equipment not yet placed into service. Our financial statements for the year ended December 31, 2022, include a pre-tax provision for asset impairment of approximately $ 58 million, which is included in other operating expenses on the accompanying consolidated statements of income, to write-down the asset value of Desert Springs Hospital Medical Center, a 282-bed acute care hospital located in Las Vegas, Nevada. In early 2023, as a result of various competitive pressures and operational challenges experienced in the market, which had a significant unfavorable impact on the hospital's results of operations during the past year, as well as physical plant constraints and limitations resulting from the advanced age of the facility (which opened in 1971), we announced plans to discontinue all inpatient operations by March of 2023. For a period of time, we plan to continue providing emergency department services within a portion of the existing facility while we construct a new free-standing emergency department on the hospital's campus. The provision for asset impairment reduced the asset values of the facility's real estate and equipment to their estimated fair values. We capitalized interest during the construction period of major construction projects and during the development and implementation of information technology applications amountin g to $ 24.4 million during 2023 , $ 8.6 million during 2022 and $ 4.4 million during 2021. Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements ( twenty to forty years ) and equipment ( three to fifteen years ). Depreciation expense was $ 535.6 million during 2023, $ 544.0 million during 2022 and $ 501.6 million during 2021. Long-Lived Assets: We review our long-lived assets, including intangible assets, for impairment whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flows. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount rates. Goodwill: Goodwill is reviewed for impairment at the reporting unit level on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. We have designated October 1 st as our annual impairment assessment date and performed quantitative impairment assessments as of October 1, 2023 which indicated no impairment of goodwill. There were also no goodwill impairments during 2022 or 2021. Future changes in the estimates used to conduct the impairment reviews, including profitability and market value projections, could indicate impairment in future periods potentially resulting in a write-off of a portion or all of our goodwill. Changes in the carrying amount of goodwill for the two years ended December 31, 2023 were as follows (in thousands): Acute Care Services Behavioral Health Services Total Consolidated Balance, January 1, 2022 $ 515,936 $ 3,446,688 $ 3,962,624 Goodwill acquired during the period 0 0 — Goodwill divested during the period 0 0 0 Adjustments to goodwill (a) 690 ( 53,858 ) ( 53,168 ) Balance, December 31, 2022 516,626 3,392,830 3,909,456 Goodwill acquired during the period 0 4,598 4,598 Goodwill divested during the period 0 ( 6,062 ) ( 6,062 ) Adjustments to goodwill (a) 2 24,413 24,415 Balance, December 31, 2023 $ 516,628 $ 3,415,779 $ 3,932,407 (a) The changes in the Behavioral Health Services’ goodwill consist of foreign currency translation adjustments. Other Assets and Intangible Assets: Other assets consist primarily of amounts related to: (i) intangible assets acquired in connection with our acquisitions of Cambian Group, PLC’s adult services’ division during 2015, Ascend Health Corporation during 2012 and Psychiatric Solutions, Inc. during 2010; (ii) prepaid fees for various software and other applications used by our hospitals; (iii) costs incurred in connection with the purchase and implementation of an electronic health records application for each of our acute care facilities; (iv) statutorily required capital reserves related to our commercial insurance subsidiary ($ 113 million and $ 116 million as of December 31, 2023 and 2022, respectively); (v) deposits; (vi) investments in various businesses, including Universal Health Realty Income Trust ($ 7 million and $ 8 million as of as of December 31, 2023 and 2022, respectively) and Premier, Inc. ($ 50 million and $ 78 million as of December 31, 2023 and 2022, respectively); (vii) the invested assets related to a deferred compensation 100 plan that is held by an independent trustee in a rabbi-trust and that has a related payable included in other noncurrent liabilities, and; (viii) other miscellaneous assets. Intangible assets are reviewed for impairment on an annual basis or more often if indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each asset. We have designated October 1 st as our annual impairment assessment date and performed impairment assessments as of October 1, 2023. There were no impairments in 2023 or 2022. In connection with the discontinuation of a certain module of a new clinical/financial information technology application under development, our financial results for the year ended December 31, 2021 include a pre-tax provision for asset impairment of approximately $ 14 million to write-off the applicable portion of the capitalized costs incurred and is included in other operating expenses on the accompanying consolidated statement of income. The following table shows the amounts recorded as net intangible assets for the years ended December 31, 2023 and 2022: (amounts in thousands) 2023 2022 Medicare licenses (a) $ 57,226 $ 57,226 Certificates of need 7,501 7,989 Contract relationships and other (net of $ 56,288 and $ 55,353 of accumulated amortization for 2023 and 2022, respectively) 12,291 12,887 Net Intangible Assets $ 77,018 $ 78,102 (a) Indefinite lives. Supplies: Supplies, which consist primarily of medical supplies, are stated at the lower of cost (first-in, first-out basis) or market. Self-Insured/Other Insurance Risks: We provide for self-insured risks, primarily general and professional liability claims, workers’ compensation claims and healthcare and dental claims. Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimate of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. All relevant information, including our own historical experience is used in estimating the expected amount of claims. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Our estimated self-insured reserves are reviewed and changed, if necessary, at each reporting date and changes are recognized currently as additional expense or as a reduction of expense. In addition, we also: (i) own commercial health insurers headquartered in Nevada and Puerto Rico, and; (ii) maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs/operations include expenses for claims incurred and paid in addition to an accrual for the estimated expenses incurred in connection with claims incurred but not yet reported.See Note 8 - Commitments and Contingencies for additional disclosure related to our self-insured general and professional liability and workers’ compensation liability. Income Taxes: Deferred tax assets and liabilities are recognized for the amount of taxes payable or deductible in future years as a result of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. We believe that future income will enable us to realize our deferred tax assets net of recorded valuation allowances relating to state and foreign net operating loss carry-forwards, tax credits, and interest deduction limitations. Due to recent guidance and enacted laws surrounding the global 15 % minimum tax rate that will be effective after 2024 from the Organization for Economic Co-operation and Development ("OECD") as well as jurisdictions that we operate in. We do not expect these adverse effects to be material and will continue to monitor changes in tax policies and laws issued by the OECD and jurisdictions that we operate in. 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. See Note 6-Income Taxes for additional disclosure. Other Noncurrent Liabilities: Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, and liabilities incurred in connection with split-dollar life insurance agreements on the lives of our executive chairman of the board and his wife. Redeemable Noncontrolling Interests and Noncontrolling Interest: As of December 31, 2023, 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 %, 48 % and 26 % in seven behavioral health care facilities located in Arizona, Pennsylvania, Ohio, Washington, Missouri, Iowa and Michigan, respectively, and; (iii) approximately 5 % in an acute care facility located in Nevada. The noncontrolling interest 101 and redeemable noncontrolling interest balances of $ 48 million and $ 5 million, respectively, as of December 31, 2023, consist primarily of the third-party ownership interests in these hospitals. In August, 2022, we purchased the 20 % noncontrolling ownership interest in a hospital majority owned by us, located in Washington D.C. for $ 51 million. We now have 100 % ownership interest in the hospital. The noncontrolling interest balance was reclassified to retained earnings and is included in common stockholders’ equity in the accompanying consolidated balance sheets and in retained earnings in the accompanying consolidated statements of changes in equity. 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. Accumulated Other Comprehensive Income: The accumulated other comprehensive income (“AOCI”) component of stockholders’ equity includes: net unrealized gains and losses on effective cash flow hedges, foreign currency translation adjustments and the net minimum pension liability of a non-contributory defined benefit pension plan which covers employees at one of our subsidiaries. See Note 11 - Pension Plan for additional disclosure regarding the defined benefit pension plan. The amounts recognized in AOCI for the two years ended December 31, 2023 were as follows (in thousands): Net Unrealized Gains (Losses) on Effective Cash Flow Hedges Foreign Currency Translation Adjustment Minimum Pension Liability Total AOCI Balance, January 1, 2022, net of income tax $ ( 17 ) $ 33,524 $ ( 3,216 ) $ 30,291 2022 activity: Pretax amount 0 ( 37,310 ) ( 2,869 ) ( 40,179 ) Income tax effect 0 ( 469 ) 689 220 Change, net of income tax 0 ( 37,779 ) ( 2,180 ) ( 39,959 ) Balance, January 1, 2023, net of income tax ( 17 ) ( 4,255 ) ( 5,396 ) ( 9,668 ) 2023 activity: Pretax amount 0 15,271 4,166 19,437 Income tax effect 0 520 ( 1,000 ) ( 480 ) Change, net of income tax 0 15,791 3,166 18,957 Balance, December 31, 2023, net of income tax $ ( 17 ) $ 11,536 $ ( 2,230 ) $ 9,289 Accounting for Derivative Financial Investments and Hedging Activities and Foreign Currency Forward Exchange Contracts: We manage our ratio of fixed and floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheets as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within statements of changes in equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. From time to time, we use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future. 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. 102 Stock-Based Compensation: We have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model. The expense associated with share-based compensation arrangements is a non-cash charge. In the consolidated statements of cash flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities. Earnings per Share: Basic earnings per share are based on the weighted average number of common shares outstanding during the year. Diluted earnings per share are based on the weighted average number of common shares outstanding during the year adjusted to give effect to common stock equivalents. The following table sets forth the computation o f basic and diluted earnings per share, for the periods indicated (in thousands, except per share data): Twelve Months Ended December 31, 2023 2022 2021 Basic and diluted: Net Income $ 719,307 $ 656,982 $ 987,632 Less: Net (income) loss attributable to noncontrolling interest ("NCI") ( 1,512 ) 18,627 3,958 Less: Net income attributable to unvested restricted share grants ( 308 ) ( 748 ) ( 2,059 ) Net income attributable to UHS—basic and diluted $ 717,487 $ 674,861 $ 989,531 Basic earnings per share attributable to UHS: Weighted average number of common shares—basic 69,321 73,118 82,519 Total basic earnings per share $ 10.35 $ 9.23 $ 11.99 Diluted earnings per share attributable to UHS: Weighted average number of common shares 69,321 73,118 82,519 Net effect of dilutive stock options and grants based on the treasury stock method 804 714 1,173 Weighted average number of common shares and equivalents—diluted 70,125 73,832 83,692 Total diluted earnings per share $ 10.23 $ 9.14 $ 11.82 The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all years presented above, excludes certain outstanding stock options applicable to each year since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled approximately 5.1 million during 2023, 6.0 million during 2022 and 4.2 million during 2021. Fair Value of Financial Instruments: The fair values of our debt and investments are based on quoted market prices. The fair values of other long-term debt, including capital lease obligations, are estimated by discounting cash flows using period-end interest rates and market conditions for instruments with similar maturities and credit quality. The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and short-term borrowings approximates their fair values due to the short-term nature of these instruments. Accordingly, these items have been excluded from the fair value disclosures included elsewhere in these notes to consolidated financial statements. Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Mergers and Acquisitions: The acquisition method of accounting for business combinations requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values with limited exceptions. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The fair value of intangible assets, including Medicare licenses, certificates of need, tradenames and certain contracts, is based on significant judgments made by our management, and accordingly, for significant items we typically obtain assistance from third party valuation specialists. GPO Agreement/Minority Ownership Interest: During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier, Inc. (“Premier"), a healthcare performance improvement alliance, and acquired a minority interest in the GPO for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO, which were recorded as 103 deferred income, on a pro rata basis, as a reduction to our supplies expense over the initial expected life of the GPO agreement. Also in connection with this GPO agreement, we received shares of restricted stock in Premier which vest ratably over a seven-year period ( 2014 through 2020 ), contingent upon our continued participation and minority ownership interest in the GPO. We recognized the fair value of this restricted stock, as a reduction to our supplies expense, in our consolidated statements of income, on a pro rata basis, over the vesting period. 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 value of which is included in other assets on our 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 $ 50 million and $ 78 million as of December 31, 2023 and 2022, respectively. The change in market value of these shares is record ed as an unrealized gain/loss and included in “Other (income) expense, net” on our consolidated statements of income. Additionally, Premier paid cash dividends of $ 1.9 million during 2023, $ 1.8 million during 2022 and $ 1.7 million during 2021, which are included in “Other (income) expense, net” in our consolidated statements of income. Provider Taxes: We incur health-care related taxes (“Provider Taxes”) imposed by states in the form of a licensing fee, assessment or other mandatory payment which are related to: (i) healthcare items or services; (ii) the provision of, or the authority to provide, the health care items or services, or; (iii) the payment for the health care items or services. Such Provider Taxes are subject to various federal regulations that limit the scope and amount of the taxes that can be levied by states in order to secure federal matching funds as part of their respective state Medicaid programs. We derive a related Medicaid reimbursement benefit from assessed Provider Taxes in the form of Medicaid claims based payment increases and/or lump sum Medicaid supplemental payments. Under these programs, including the impact of the Texas Uncompensated Care and Upper Payment Limit program, the Texas Delivery System Reform Incentive program, and various other state programs, we earned revenues (before Provider Taxes) of approximately $ 853 million during 2023, $ 784 million during 2022 and $ 641 million during 2021. These revenues were offset by Provider Taxes of approximately $ 297 million during 2023, $ 287 million during 2022 and $ 211 million during 2021, which are recorded in other operating expenses on the consolidated statements of income as included herein. The aggregate net benefit from these programs was $ 556 million during 2023, $ 497 million during 2022 and $ 430 million during 2021. The aggregate net benefit pursuant to these programs is earned from multiple states and therefore no particular state’s portion is individually material to our consolidated financial statements. In addition, under various disproportionate share hospital payment programs and state plan amendment programs, we earned revenues of $ 73 million in 2023, $ 75 million in 2022 and $ 74 million in 2021. CARES Act and Other Governmental Grants and Medicare Accelerated Payments: During 2021, we received approximately $ 189 million of additional funds from the federal government in connection with the CARES Act, which we returned during the year utilizing a portion of our cash and cash equivalents held on deposit. Therefore, there was no impact on our earnings during 2021 in connection with receipt of those funds. Also during 2021, we made an early repayment of $ 695 million of funds received during 2020 pursuant to the Medicare Accelerated and Advance Payment Program (“MAAPP”). These funds, which were required to be repaid to the government beginning in the second quarter of 2021 through the third quarter of 2022, were returned to the government utilizing a portion of our cash and cash equivalents held on deposit. 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 us as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. We have assessed the recently issued guidance that are not yet effective and, unless otherwise indicated above, we believe the new guidance will not have a material impact on our results of operations, cash flows or financial position. Foreign Currency Translation: Assets and liabilities of our U.K. subsidiaries are denominated in pound sterling and translated into U.S. dollars at: (i) the rates of exchange at the balance sheet date, and; (ii) average rates of exchange prevailing during the year 104 for revenues and expenses. The currency translation adjustments are reported as a component of accumulated other comprehensive income. See Note 3 - Financial Instruments and Fair Value Measurement for additional disclosure. 2) ACQUISITIONS AND DIVESTITURES Year ended December 31, 2023: 2023 Acquisitions of Assets and Businesses: During 2023, we spent $ 4 million on the acquisition of businesses and properties. 2023 Divestiture of Assets and Businesses: During 2023, we received $ 24 million from the sale of assets and businesses. Year ended December 31, 2022: 2022 Acquisitions of Assets and Businesses: During 2022, we spent $ 20 million to acquire various businesses and properties. 2022 Divestiture of Assets: During 2022, we received $ 12 million from the sales of various assets. Year ended December 31, 2021: 2021 Acquisitions of Assets and Businesses: During 2021, we spent $ 105 million on the acquisition of businesses and property, consisting primarily of a micro acute care hospital located in Las Vegas, Nevada, and a physician practice management company located in California. 2021 Divestiture of Assets and Businesses: During 2021, we received $ 25 million from the sale of assets and businesses. 3) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT Cash Flow Hedges: When applicable, we measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from our counterparties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. During the years ended December 31, 2023, 2022 and 2021, we had no cash flow hedges outstanding. 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 outflows of approximately $ 41 million during 2023, and net cash inflows of approximately $ 95 million during 2022 and $ 1 million during 2021. Derivatives Hedging Relationships: The following table presents the effects of our foreign currency foreign exchange contracts on our results of operations for the three years ended December 31 (in thousands): Gain/(Loss) recognized in AOCI December 31, December 31, December 31, 2023 2022 2021 Net Investment Hedge relationships Foreign currency foreign exchange contracts $ ( 45,748 ) $ 96,698 $ ( 7,272 ) No other gains or losses were recognized in income related to derivatives in Subtopic 815-20. 105 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) 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 foreign exchange contracts $ 1,911 Accrued liabilities other $ 1,911 Deferred compensation liability 43,060 Other noncurrent liabilities 43,060 $ 44,971 $ 43,060 $ 1,911 - Balance at Balance Sheet Basis of Fair Value Measurement (in thousands) December 31, 2022 Location Level 1 Level 2 Level 3 Assets: Money market mutual funds $ 113,649 Other noncurrent assets $ 113,649 Certificates of deposit 2,200 Other noncurrent assets 2,200 Equity securities 78,099 Other noncurrent assets 78,099 Deferred compensation assets 38,032 Other noncurrent assets 38,032 Foreign currency foreign exchange contracts 3,142 Other current assets 3,142 $ 235,122 $ 229,780 $ 5,342 - Liabilities: Deferred compensation liability $ 38,032 Other noncurrent liabilities $ 38,032 $ 38,032 $ 38,032 - - 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 valued using quoted forward exchange rates and spot rates at the reporting date. 106 4) LONG-TERM DEBT A summary of long-term debt follows: December 31, 2023 2022 (amounts in thousands) Long-term debt: Notes and Mortgages payable (including obligations under finance leases of $ 72,693 in 2023 and $ 75,595 in 2022) and term loans with varying maturities through 2099 ; weighted average interest rates of 3.5 % in 2023 and 3.6 % in 2022 (see Note 7 regarding finance leases) $ 178,511 $ 184,800 Tranche A term loan 2,258,750 2,338,125 Revolving credit facility 495,500 310,400 2.65 % Senior Secured Notes due 2030 , net of unamortized discount of $ 1,517 in 2023 and $ 1,742 in 2022 798,483 798,258 1.65 % Senior Secured Notes due 2026 , net of unamortized discount of $ 463 in 2023 and $ 638 in 2022 699,537 699,362 2.65 % Senior Secured Notes due 2032 , net of unamortized discount of $ 994 in 2023 and $ 1,124 in 2022 499,006 498,876 Total debt before unamortized financing costs 4,929,787 4,829,821 Less-Unamortized financing costs ( 17,318 ) ( 21,841 ) Total debt after unamortized financing costs 4,912,469 4,807,980 Less-Amounts due within one year ( 126,686 ) ( 81,447 ) Long-term debt $ 4,785,783 $ 4,726,533 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 December 31, 2023, 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 December 31, 2023, had $ 701 million of aggregate available borrowing capacity net of $ 496 million of outstanding borrowings and $ 3 million of letters of credit), and; • a tranche A term loan facility with $ 2.26 billion of outstanding borrowings as of December 31, 2023. 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 December 31, 2023, the applicable margins were 0.50 % for ABR-based loans and 1.50 % 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 December 31, 2023 and 2022. 107 The average amounts outstanding under our Credit Agreement were $ 2.629 billion during 2023, $ 2.396 billion during 2022 and $ 2.214 billion during 2021. The average effective interest rate on borrowings under our Credit Agreement, including amortization of deferred financing costs, were 6.80 % during 2023, 3.33 % during 2022 and 1.69 % during 2021. On August 24, 2021, we completed the following via private offerings 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: • Issued $ 700 million of aggregate principal amount of 1.65 % senior secured notes due on September 1, 2026 , and; • Issued $ 500 million of aggregate principal amount of 2.65 % senior secured notes due on January 15, 2032 . On September 13, 2021, we redeemed $ 400 million of aggregate principal amount of 5.00 % senior secured notes, that were scheduled to mature on June 1, 2026, at 102.50 % of the aggregate principal, or $ 410 million. As of December 31, 2023, 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 9 to the 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 108 transaction, our consolidated balance sheets at December 31, 2023 and December 31, 2022 reflect financial liabilities, which are included in debt, of approximately $ 77 million and $ 81 million, respectively. At December 31, 2023, the carrying value and fair value of our debt were approximately $ 4.9 billion and $ 4.6 billion, respectively. At December 31, 2022, the carrying value and fair value of our debt were approximately $ 4.8 billion and $ 4.4 billion, respectively. The fair value of our debt was computed based upon quotes received from financial institutions. We consider th ese to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments. The aggregate scheduled maturities of our total debt outstanding as of December 31, 2023 are as follows: (000s) 2024 $ 126,686 2025 126,345 2026 3,220,447 2027 7,191 2028 7,751 Later 1,441,367 Total maturities before unamortized financing costs 4,929,787 Less-Unamortized financing costs ( 17,318 ) Total $ 4,912,469 5 ) COMMON STOCK Dividends We declared and paid cash dividends of $ .80 per share during each of the last three years amounting to, in the aggregate, $ 55.5 million during 2023, $ 58.4 million during 2022 and $ 65.9 million during 2021. All classes of our common stock have similar economic rights. Stock Repurchase Programs As of January 1, 2023, we had an aggregate available purchase authorization of $ 947.37 million. As of December 31, 2023, we had an aggregate available repurchase authorization of $ 422.88 million. Pursuant to this program, shares of our Class B Common Stock may be repurchased, from time to time as conditions allow, on the open market or in negotiated private transactions. There is no expiration date for our stock repurchase programs. The following schedule provides information related to our stock repurchase program for each of the three years ended December 31, 2023. During 2023, 3,855,046 shares ($ 524.5 million in the aggregate) were repurchased pursuant to the terms of the stock repurchase program and 164,649 shares ($ 22.9 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs. During 2022, 6,666,547 shares ($ 810.9 million in the aggregate) were repurchased pursuant to the terms of the stock repurchase program and 153,305 shares ($ 22.0 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs. During 2021, 8,409,721 shares ($ 1.20 billion in the aggregate) were repurchased pursuant to the terms of the stock repurchase program and 134,464 shares ($ 19.5 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs. Additional dollars authorized for repurchase (in thousands) Total number of shares purchased (a.) Total number of shares cancelled Average price paid per share for forfeited restricted shares Total number of shares purchased as part of publicly announced programs Average price paid per share for shares purchased as part of publicly announced program Aggregate purchase price paid (in thousands) Aggregate purchase price paid for shares purchased as part of publicly announced program Maximum number of dollars that may yet be purchased under the program (in thousands) Balance as of January 1, 2021 $ 559,563 2021 $ 1,000,000 8,559,946 15,756 $ 0.01 8,409,721 $ 142.85 $ 1,220,876 $ 1,201,330 $ 358,233 2022 $ 1,400,000 6,828,319 8,467 $ 0.01 6,666,547 $ 121.63 $ 832,915 $ 810,865 $ 947,368 2023 $ — 4,022,051 2,356 $ 0.01 3,855,046 $ 136.05 $ 547,362 $ 524,485 $ 422,883 Total for three year period ended December 31, 2023 $ 2,400,000 19,410,316 26,579 $ 0.01 18,931,314 $ 133.99 $ 2,601,153 $ 2,536,680 (a.) Includes 2,356 , 8,467 and 15,756 of restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan during 2023, 2022 and 2021, respectively. 109 Stock-based Compensation Plans At December 31, 2023, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options (computed utilizing the Black-Scholes option-pricing model) and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the awards. Pre-tax share-based compensation costs of $ 64.2 million during 2023, $ 66.2 million during 2022 and $ 59.3 million during 2021 were recognized related to outstanding stock options. In addition, pre-tax compensation costs of $ 22.0 million during 2023, $ 19.1 million during 2022 and $ 14.4 million during 2021 were recognized related to amortization of restricted stock and units as well as discounts provided in connection with shares purchased pursuant to our 2005 Employee Stock Purchase Plan. As of December 31, 2023, there was approximately $ 158.5 million of unrecognized compensation cost related to unvested stock options and restricted stock which is expected to be recognized over the remaining average vesting period of 2.4 years. The expense associated with stock-based compensation arrangements is a non-cash charge. In the consolidated statements of cash flows, stock-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $ 87.7 million in 2023, $ 85.4 million in 2022 and $ 73.7 million in 2021. In connection with our January 1, 2017 adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, our provision for income taxes and our net income attributable to UHS we re unfavorably imp acted by $ 4.7 million during 2023, unfavorably impacted by $ 636,000 during 2022 and favorably impacted by $ 2.4 million in 2021. In 2005, we adopted the 2005 Stock Incentive Plan (the “Stock Incentive Plan”) which was amended in 2008, 2010, 2015 and 2017 and was canceled in 2020, as discussed below. An aggregate of 35.6 million shares of Class B Common Stock had been reserved under the Stock Incentive Plan, the remaining balance of which was canceled in 2020. During 2020 stock options, net of cancellations, of approximately 2.2 million were granted under the Stock Incentive Plan. Stock options to purchase Class B Common Stock have been granted to our officers, key employees and members of our Board of Directors. Commencing in 2018, our key employees and non-executive officers began receiving a portion of their stock-based compensation in the form of restricted stock (as discussed below) in addition to receiving options to purchase Class B Common Stock. In 2020, we adopted the 2020 Omnibus Stock and Incentive Plan (the “2020 Stock Incentive Plan”) which was amended in 2022. An aggregate of 12.1 million shares of Class B Common Stock has been reserved for issuance under the 2020 Stock Incentive Plan. Under the 2020 Stock Incentive Plan, shares that are subject to stock options shall be counted as one share per stock option, and every share that is subject to restricted stock awards or restricted stock units shall be counted as four shares. Various other types of equity awards are also permitted under the 2020 Stock Incentive Plan. During 2023, approximately 1.8 million stock options, net of cancellations, and 271,093 restricted stock units (including 93,606 performance based restricted stock units, net of cancellations) were granted under the 2020 Stock Incentive Plan. During 2022, approximately 1.5 million stock options, net of cancellations, and 215,244 restricted stock units (including 65,768 performance based restricted stock units, net of cancellations) were granted under the 2020 Stock Incentive Plan. During 2021, approximately 2.0 million stock options, net of cancellations, and 119,004 of restricted stock units, net of cancellations, were granted under the 2020 Stock Incentive Plan. Restricted stock and restricted stock units issued under the 2020 Stock Incentive Plan do not have right s to receive dividends on unvested restricted awards, however, the accrual of dividend equivalents on unvested restricted awards may be permitted. Upon adoption of the 2020 Stock Incentive Plan, no additional awards were granted under the 2005 Stock Incentive Plan or the 2010 Employees’ Restricted Stock Purchase Plan (discussed below), and reserves for future issuance pursuant to each plan were canceled. The per option weighted-average grant-date fair value of options granted during 2023 under the 2020 Stock Incentive Plan was $ 41.88 . The per option weighted-average grant-date fair value of options granted during 2022 under the 2020 Stock Incentive Plan was $ 45.63 . The per option weighted-average grant-date fair value of options granted during 2021 under the 2020 Stock Incentive Plan was $ 39.66 . All stock options issued in 2023 and 2022 were granted with an exercise price equal to the fair market value on the date of the grant. Stock options granted during 2021 were either granted with an exercise price equal to the fair market value on the date of grant, or for our named executive officers, half of their total option award value was issued with a premium exercise price of 10 % above the grant date fair market value. The majority of options are exercisable ratably over a four-year period beginning one year after the date of the grant. All outstanding options expire five years after the date of the grant . As of December 31, 2023, approximately 4.31 million shares of Class B Common Stock remain available for issuance pursuant to the 2020 Stock Incentive Plan. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted avera ge assumptions were derived from averaging the number of options granted during the most recent five-year period. The weighted-average assumptions reflected below were based upon thirty option grants for the five-year period ending 110 December 31, 2023, twenty-nine option grants for the five-year period ending December 31, 2022 and twenty-eight option grants for the five-year period ending December 31, 2021. Year Ended December 31, 2023 2022 2021 Expected volatility 36 % 33 % 31 % Risk free Interest rate 2 % 2 % 2 % Expected life (years) 3.5 3.6 3.5 Forfeiture rate 7 % 7 % 8 % Dividend yield 0.7 % 0.6 % 0.5 % The risk-free r ate is based on the U.S. Treasury zero coupon four year yield curve in effect at the time of grant. The expected life of the stock options granted was estimated using the historical behavior of employees. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life. Expected dividend yield is based on our dividend yield at the time of grant. The forfeiture rate is based upon the actual historical forfeitures utilizing the 5 -year term of the option. The table below summarizes our stock option activity during the year ended December 31, 2023: Outstanding Options Number of Shares Weighted Average Exercise Price Balance, January 1, 2023 7,875,667 $ 122.04 Granted 1,916,756 $ 118.78 Exercised ( 2,575,468 ) $ 121.22 Cancelled ( 422,161 ) $ 126.87 Balance, December 31, 2023 6,794,794 $ 121.13 Outstanding options vested and exercisable as of December 31, 2023 2,450,613 $ 114.96 The following table provides information about unvested options for the year ended December 31, 2023: Shares Weighted Average Grant Date Fair Value Unvested options as of January 1, 2023 4,801,953 $ 35.09 Granted 1,916,756 $ 41.88 Vested ( 1,989,313 ) $ 31.64 Cancelled ( 385,215 ) $ 40.09 Unvested options as of December 31, 2023 4,344,181 $ 39.22 The following table provides information regarding all options outstanding at December 31, 2023: Options Outstanding Options Exercisable Number of options outstanding 6,794,794 2,450,613 Weighted average exercise price $ 121.13 $ 114.96 Aggregate intrinsic value as of December 31, 2023 $ 212,853,349 $ 91,893,004 Weighted average remaining contractual life (years) 2.6 1.5 The total in-the-money value of all stock options exercised during the year s ended December 31, 2023, 2022 and 2021 were $ 57.1 million, $ 49.4 million and $ 52.0 million, respectively. 111 The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 202 1, 2022 and 2023 were as follows: Year Ended: Options Outstanding Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life (in Years) Exercisable Options Weighted Average Exercise Price Per Share Expected to Vest Options Weighted Average Exercise Price Per Share Shares Shares Shares 2021 8,556,115 116.80 2.6 2,997,296 119.00 5,005,113 116.94 2022 7,875,667 122.04 2.5 3,073,714 116.89 4,508,480 121.89 2023 6,794,794 121.13 2.6 2,450,613 114.96 4,178,237 124.86 As mentioned above, in 2020, we adopted the 2020 Stock Incentive Plan. During 2023, 2022 and 2021 restricted stock units, net of cancellations, of approximately 271,093 (including 93,606 performance based restricted stock units), 215,244 (including 65,768 performance based restricted stock units, net of cancellations) and 119,004 , respectively, were granted under the 2020 Stock Incentive Plan with four-year vesting periods from the date of grant. The weighted average grant-date fair value of the restricted stock units issued during 2023, 2022 and 2021 under the 2020 Stock Incentive Plan was $ 118.14 , $ 142.70 and $ 138.80 , respectively. The fair value of each rest ricted stock unit was determined as the closing UHS market price on the date of grant. Restricted shares and/or units of Class B Common Stock have been granted to our officers, key employees and members of our Board of Directors. In addition to the 2020 Stock Inc entive Plan, we have our 2005 Employee Stock Purchase Plan (the “Employee Stock Plan”) which allows eligible employees to purchase shares of Class B Common Stock at a ten percent discount. There were 100,507 , 127,538 and 96,179 shares issued pursuant to the Employee Stock Purchase Plan during 2023, 2022 and 2021, respectively. In connection with the Employee Stock Plan, we have reserved 2.0 million shares of Class B Common Stock for issuance and have issued approximately 1.8 million shares as of December 31, 2023. As of December 31, 2023, approximately 200,000 shares of Class B Common Stock remain available for issuance pursuant to this plan. At December 31, 2023, 20,543,028 shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock and for issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock. 6) INCOME TAXES Components of income tax expense/(benefit) are as follows (amounts in thousands): Year Ended December 31, 2023 2022 2021 Current Federal $ 202,895 $ 178,666 $ 276,471 Foreign 6,505 14,740 13,754 State 29,677 33,423 44,993 239,077 226,829 335,218 Deferred Federal ( 19,716 ) ( 9,935 ) ( 26,638 ) Foreign 3,367 ( 1,509 ) 1,521 State ( 1,609 ) ( 6,107 ) ( 4,420 ) ( 17,958 ) ( 17,551 ) ( 29,537 ) Total $ 221,119 $ 209,278 $ 305,681 Our provision for income taxes for the years ended December 31, 2023, 2022 and 2021 included tax expenses of $ 5 million, tax expenses of $ 1 million and tax benefits of $ 2 million, respectively, related to employee share-based payments. Excess tax benefits (when the deductible amount related to the settlement of employee equity awards for tax purposes exceeds the cumulative compensation cost recognized for financial reporting purposes) and deficiencies, if applicable, are recorded as a component of our tax provision. The foreign provision for income taxes is based on foreign pre-tax earnings of $ 80 million in 2023, $ 76 million in 2022 and $ 79 million in 2021. In the future, we anticipate repatriating only previously taxed foreign earnings subjected as well as any future earnings that would qualify for a full dividend received deduction for distributions post-December 31, 2017. As of December 31, 2023, the amount of previously taxed earnings and earnings that would qualify for a full dividend received deduction total $ 100 million. At this time, there are no material tax effects related to future cash repatriation of undistributed foreign earnings. As such, we have not recognized a deferred tax liability related to existing undistributed earnings. On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 (“the Act”). The Act includes tax provisions, among other things, which implements (i) a 15 percent minimum tax on book income of certain large corporations; (ii) a 112 one percent excise tax on net stock repurchases; and (iii) several tax incentives to promote clean energy. The Act does not have a material impact on our income tax provision. A reconciliation between the federal statutory rate and the effective tax rate is as follows: Year Ended December 31, 2023 2022 2021 Federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal income tax benefit 2.4 % 2.4 % 2.5 % Tax effects of foreign operations - 0.7 % - 0.3 % - 0.1 % Tax benefit from settlement of employee equity awards 0.4 % 0.1 % - 0.2 % Other items 0.4 % 0.5 % 0.3 % Impact of income attributable to noncontrolling interests 0.0 % 0.5 % 0.1 % Effective tax rate 23.5 % 24.2 % 23.6 % Our effective tax rates were 23.5 %, 24.2 % and 23.6 % for the years ended December 31, 2023, 2022 and 2021, respectively. The decrease in our effective tax rate for the year ended December 31, 2023, as compared to 2022, is due primarily to the increase in net income attributable to noncontrolling interests during 2023, as compared to 2022. The increase in our effective tax rate for the year ended December 31, 2022, as compared to 2021, is due to the decrease in net income attributable to noncontrolling interests during 2022, as compared to 2021. Included in “Other current assets” on our consolidated balance sheets are prepaid federal, state and foreign income taxes amounting to approximately $ 37 million and $ 17 million as of December 31, 2023 and 2022, respectively. The components of deferred taxes are as follows (amounts in thousands): Year Ended December 31, 2023 2022 Assets Liabilities Assets Liabilities Self-insurance reserves $ 118,824 $ $ 103,528 $ Compensation accruals 81,747 77,269 Doubtful accounts and other reserves 123,634 141,511 Other currently non-deductible accrued liabilities 19,926 12,520 Depreciable and amortizable assets 280,678 281,203 Operating lease liabilities 106,590 108,704 Right of use assets-operating leases 101,853 106,675 State and foreign net operating loss carryforwards and other state and foreign deferred tax assets 96,117 80,823 Net pension liabilities – OCI only 701 1,702 Other liabilities 6,715 6,457 $ 547,539 $ 389,246 $ 526,057 $ 394,335 Valuation allowance ( 72,667 ) 0 ( 63,325 ) 0 Total deferred income taxes $ 474,872 $ 389,246 $ 462,732 $ 394,335 At December 31, 2023, state net operating loss carryforwards (losses originating in tax years beginning prior to January 1, 2023, expiring in years 2024 through 2042), and credit carryforwards available to offset future taxable income approximated $ 1 billion representing approximately $ 72 million in deferred state tax benefit (net of the federal benefit); and state related interest expense carryforwards approximated $ 58 million representing approximately $ 3 million in deferred state tax benefit (net of the federal benefit). At December 31, 2023, there were foreign net operating losses and interest expense carryforwards of approximately $ 77 million, most of which are carried forward indefinitely, representing approximately $ 19 million in deferred foreign tax benefit. At December 31, 2023, related to a prior year stock acquisition, there were federal net operating losses of approximately $ 8 million carried forward indefinitely for federal purposes representing approximately $ 2 million in deferred federal tax benefits. A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $ 68 million and $ 59 million have been reflected as of December 31, 2023 and 2022, respectively. During 2023, the valuation allowance on these state tax benefits increased by $ 9 mil lion primarily due to additional net operating losses incurred. In addition, valuation allowances of approximately $ 4 million have been reflected as of December 31, 2023 and 2022, related to foreign net operating losses and credit carryforwards. During 2023 and 2022, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased less than $ 1 million due to tax positions taken in the current and prior years. The balance at each of the years ended 113 December 31, 2023 and 2022, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $ 2 million as of each date. We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2023 and 2022, we have accrued interest and penalties of less than $ 1 million as of each date. The U.S. federal statute of limitations remains open for the 2020 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months . It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months, however, it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations. The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021 is as follows (amounts in thousands): As of December 31, 2023 2022 2021 Balance at January 1, $ 2,727 $ 2,544 $ 2,806 Additions based on tax positions related to the current year 500 500 500 Additions for tax positions of prior years 180 159 213 Reductions for tax positions of prior years ( 557 ) ( 461 ) ( 261 ) Settlements 0 ( 15 ) ( 714 ) Balance at December 31, $ 2,850 $ 2,727 $ 2,544 7) LEASE COMMITMENTS We follow FASB ASU 2016-02 ("Topic 842") "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheets for most leases and provide enhanced disclosures. Leases will be classified as either finance or operating. We have elected the policy exemption that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and are applying this expedient to all relevant asset classes. We determine if an arrangement is or contains a lease at inception of the contract. Our right-of-use assets represent our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate noted within the contract if known or determinable. If the implicit rate is not readily available, we use our estimated incremental borrowing rate, which is derived using a collateralized borrowing rate for the same currency and term as the associated lease. A right-of-use asset and lease liability is not recognized for leases with an initial term of 12 months or less and we recognize lease expense for these leases on a straight-line basis over the lease term within lease and rental expense. 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 hospital terms expiring in 2026 , two expiring in 2033 , and one expiring in 2040 (see Note 9 for additional disclosure). We also lease the real property of certain facilities (see Item 2. Properties for additional disclosure). The components of lease expense for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands): 114 Twelve months ended December 31, 2023 2022 2021 Operating lease cost $ 99,812 $ 90,326 $ 77,420 Variable and short term lease cost (a) 41,214 41,300 41,443 Total lease and rental expense $ 141,026 $ 131,626 $ 118,863 Finance lease cost: Amortization of property under capital lease $ 4,998 $ 5,110 $ 3,626 Interest on debt of property under capital lease 3,771 3,903 4,124 Total finance lease cost $ 8,769 $ 9,013 $ 7,750 (a) Includes equipment, month-to-month and leases with a maturity of less than 12 months. Supplemental cash flow information related to leases for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands): Twelve months ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 129,299 $ 124,704 $ 118,433 Operating cash flows from finance leases $ 3,832 $ 3,963 $ 4,612 Financing cash flows from finance leases $ 3,817 $ 3,454 $ 2,849 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 62,223 $ 163,679 $ 95,805 Finance leases $ 452 $ 1,066 $ 28,600 115 Supplemental balance sheets information related to leases as of December 31, 2023 and 2022 are as follows (in thousands): December 31, December 31, 2023 2022 Operating Leases Right of use assets-operating leases $ 433,962 $ 454,650 Operating lease liabilities $ 71,600 $ 67,776 Operating lease liabilities noncurrent 382,559 395,522 Total operating lease liabilities $ 454,159 $ 463,298 Finance Leases Property and equipment $ 101,318 $ 102,494 Accumulated depreciation ( 38,423 ) ( 34,455 ) Property and equipment, net $ 62,895 $ 68,039 Current maturities of long-term debt $ 3,050 $ 3,046 Long-term debt 69,643 72,549 Total finance lease liabilities $ 72,693 $ 75,595 Weighted Average remaining lease term, years Operating leases 16.5 16.1 Finance leases 20.0 20.7 Weighted Average discount rate Operating leases 5.2 % 5.0 % Finance leases 5.5 % 5.4 % Future maturities of lease liabilities as of December 31, 2023 are as follows (in thousands): Operating Leases Finance Leases Year ending December 31, 2024 $ 84,621 $ 6,716 2025 77,848 5,943 2026 68,363 5,948 2027 50,291 6,104 2028 38,042 6,265 Later years 595,748 95,309 Total lease payments 914,913 126,285 less imputed interest ( 460,754 ) ( 53,592 ) Total $ 454,159 $ 72,693 We assumed approximately $ 1 million in finance lease obligations during each of 2023 and 2022 and $ 29 million during 2021. In the ordinary course of business, our facilities routinely lease equipment pursuant to new lease arrangements that will likely result in future lease and rental expense in excess of amounts indicated above. 8) 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 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 116 $ 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 £ 16 million of professional liability coverage, and £ 25 million of general liability coverage. 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 of December 31, 2022, the total net accrual for our professional and general liability claims was $ 372 million, of which $ 74 million was included in current liabilities. As a result of unfavorable trends experienced during the last three years, our results of operations included pre-tax increases to our reserves for self-insured professional and general liability claims amounting to approximately $ 25 million during 2023, $ 16 million during 2022 and $ 52 million during 2021. 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 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 of December 31, 2022, the total accrual for our workers’ compensation liability claims was $ 125 million, $ 55 million of which was included in current liabilities. As a result of favorable trends experienced during the year, included in our results of operations during 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. Below is a schedule showing the changes in our general and professional liability and workers’ compensation reserves during the three years ended December 31, 2023 (amount in thousands): General and Professional Workers’ Liability Compensation Total Balance at January 1, 2021 $ 263,779 $ 105,185 $ 368,964 Plus: Accrued insurance expense, net of commercial premiums paid 129,690 56,525 186,215 Less: Payments made in settlement of self-insured claims ( 44,776 ) ( 46,725 ) ( 91,501 ) Balance at January 1, 2022 348,693 114,985 463,678 Plus: Accrued insurance expense, net of commercial premiums paid 111,763 62,960 174,723 Less: Payments made in settlement of self-insured claims ( 88,556 ) ( 53,429 ) ( 141,985 ) Balance at January 1, 2023 371,900 124,516 496,416 Plus: Accrued insurance expense, net of commercial premiums paid 127,445 56,017 183,462 Less: Payments made in settlement of self-insured claims ( 67,860 ) ( 50,229 ) ( 118,089 ) Balance at December 31, 2023 $ 431,485 $ 130,304 $ 561,789 Property Insurance We have commercial property insurance policies for our properties providing property and business interruption coverage for losses in excess of $ 25 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 windstor ms 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 various 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 117 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. 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 t o 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 $ 20 million of annual aggregate losses. Should the $ 20 million self-insured annual aggregate limitation be exhausted during the policy year, we have commercial insurance coverage for the next $ 20 million of annual aggregate losses in excess of the applicable deductible. In the event the $ 20 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 $ 210 million of which was incurred as of December 31, 2023, 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 10 th 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 $ 5 million of which has been incurred as of December 31, 2023), 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. Information Technology Incident In connection with an information technology security incident in late September, 2020, our results of operations for the years ended December 31, 2022 and 2021 were favorably impacted by an aggregate of approximately $ 13 million and $ 45 million, respectively, resulting from receipt of commercial cyber insurance proceeds (approximate ly $ 41 million in the aggregate during 2022 and 2021), and; (ii) collection of revenues previously reserved during 2020 (approximately $ 17 million during 2021). Other Contractual Commitments: In addition to our long-term debt obligations as discussed in Note 4 - Long-Term Debt and our operating lease obligations as discussed in Note 7 - Lease Commitments , we have various other contractual commitments outstanding as of December 31, 2023 as follows: (i) other combined estimated future purchase obligations of $ 327 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($ 65 million), expected future costs to be paid to a third-party vendor in connection with the ongoing operation of an electronic health records application and purchase implementation of a revenue cycle and other applications for our acute care facilities ($ 188 million), healthcare infrastructure in Washington D.C. in connection with various agreements with the District of Columbia ($ 70 million), and other software applications ($ 4 million); (ii) estimated construction commitment of $ 99 million representing our share of the construction cost of two behavioral health care facilities scheduled to be completed in 2025 that, subject to approval of certain regulatory conditions, we are required to build pursuant to joint-venture agreements with a third-party; (iii) combined estimated future payments of $ 165 million related to our non-contributory, defined benefit pension plan ($ 139 million consisting of estimated payments through 2080) and other retirement plan liabilities ($ 26 million), and; (iv) accrued and unpaid estimated claims expense incurred in connection with our commercial health insurers and self-insured employee benefit plans ($ 110 million). Legal Proceedings We operate in a highly regulated and litigious industry which subjects us to various claims and lawsuits in the ordinary course of business as well as regulatory proceedings and government investigations. These claims or suits include claims for damages for 118 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 Legislation 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 has authorized the formation of a Special Litigation Committee to review the matter and determine whether it is in the best interests of the Company to pursue this claim. The court has stayed the litigation until March 31, 2024 while the Special Litigation Committee conducts their review. 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 FFY 2013, FFY 2014 and FFY 2015 the initial claimed overpayments and attempted recoupment by the Department were approximately $ 7 119 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 FFY 2013, FFY 2014 and FFY 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 has agreed to postpone the recoupment of the state’s share for FFY 2011 to 2013 until all hospital appeals are resolved but started recoupment of the federal share. For FFY 2014 and FFY 2015, the Department has initiated the recoupment of the alleged overpayments. 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. We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to the Department’s repayment demands. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments. 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. 9) RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND OTHER RELATED PARTY TRANSACTIONS Relationship with Universal Health Realty Income Trust: At December 31, 2023, 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 31 st 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 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 $ 5.3 million during 2023, $ 5.1 million during 2022 and $ 4.4 million during 2021. 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 w as $ 874,000 during 2023, $ 1.2 million during 2022 and $ 6.2 million during 2021, which are included in other income (expense), net, on the accompanying consolidated statements of income for each year. We received dividends from the Trust amounting to $ 2.3 million during 2023 and $ 2.2 million during each of 2022 and 2021. Included in our share of the Trust’s income during 2021 was approximately $ 5.0 million related to our share of gains on various transactions recorded by the Trust, including an asset purchase and sale transaction between the Trust and UHS, as discussed below. The carrying value of our investment in the Trust was $ 7.0 million and $ 8.4 million at December 31, 2023 and 2022, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $ 34.1 million at December 31, 2023 and $ 37.6 million at December 31, 2022, based on the closing price of the Trust’s stock on the respective dates. The Trust commenced operations in 1986 by purchasing certain hospital properties from us and immediately leasing the properties back to our respective subsidiaries. The base rents are paid monthly and the bonus rents, which effective as of January 1, 2022 are applicable only to McAllen Medical Center, are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with those subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another. 120 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: • 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 of $ 79.6 million. • two wholly-owned subsidiaries of ours transferred to the Trust, the real estate assets of the following properties: o 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), at its fair-market value of approximately $ 57.7 million, and; o Canyon Creek Behavioral Health (“Canyon Creek”), a 102-bed facility located in Temple, Texas, at its fair-market value of approximately $ 26.0 million. • in connection with this transaction, since the fair-market value of Aiken and Canyon Creek, which totaled approximately $ 83.7 million in the aggregate, exceeded the $ 79.6 million fair-market value of the Inland Valley Campus of Southwest Healthcare System, we received approximately $ 4.1 million in cash from the Trust. This transaction generated a gain of approximately $ 68.4 million for the Trust, our share of which (approximately $ 4.0 million) is included in our consolidated statement of income for the year ended December 31, 2021. Also on December 31, 2021, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases (with the Trust as lessor), as amended, for initial lease terms on each property of approximately twelve years , ending on December 31, 2033 . Subject to the terms of the master lease, Aiken and Canyon Creek have the right to renew their leases, at the then current fair market rent (as defined in the master lease), for seven , five-year optional renewal terms. The aggregate annual rental during 2023 pursuant to the leases for these two facilities, amounted to approximately $ 5.8 million ($ 4.0 million related to Aiken and $ 1.8 million related to Canyon Creek). The aggregate annual rental during 2022 pursuant to the leases for these two facilities, amounted to approximately $ 5.7 million ($ 3.9 million related to Aiken and $ 1.8 million related to Canyon Creek). There is no bonus rental component applicable to either of these leases. On each January 1 st through 2033, the annual rental will increase by 2.25 % on a cumulative and compounded basis. 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 arrangem ent and, since we did not derecognize the real property related to Aiken and Canyon Creek, we will continue to depreciate the assets. Our consolidated balance sheets as of December 31, 2023 and 2022 reflects a financial liability of $ 77.5 million and $ 80.9 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 $ 20.6 million during 2023 and $ 20.2 million during 2022. Total aggregate rent expense under the operating leases on three hospital facilities with the Trust (McAllen Medical Center, Wellington Regional Medical Center and Inland Valley Campus of Southwest Healthcare System) was $ 17.7 million during 2021. 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 g overn 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 of time 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 approxi mately $ 2.7 million, $ 2.6 million and $ 2.5 million during 2023, 2022 and 2021, respectively) pursuant to the lease terms as provided in the table below. I n 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) 121 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 January 1, 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 $ 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 . Effective January 1, 2024, the annual lease rate for this hospital is $ 6.6 million (there is no longer a bonus rental component of the lease payment). On each January 1 st through 2026, the annual rent will increase by 2.50 % 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 1 st 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 various 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 paid approximately $ 1.0 million, net, in premium payments during 2023, 2022 and 2021. In August, 2015, Marc D. Miller, our President and Chief Executive Officer and member of our Board of Directors, was appointed to the Bo ard 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 122 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 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 $ 50 million as of December 31, 2023 and $ 78 million as of December 31, 2022. The $ 28 million decrease in market value of our vested Premier shares since December 31, 2021 was recorded as an unrealized loss and included in “Other (income) expense, net” in our consolidated statements of income for the year ended December 31, 2023. A $ 14 million decrease in the market value of our vested Premier shares during 2022 was recorded as an unrealized loss and included in “Other (income) expense, net” in our consolidated statements of income for the year ended December 31, 2022. A $ 14 million increase in the market value of our vested Premier shares during 2021 was recorded as an unrealized gain and included in “Other (income) expense, net” in our consolidated statements of income for the year ended December 31, 2021. Additionally, we received cash dividends from Premier amounting to $ 1.9 million during 2023, $ 1.8 million during 2022 and $ 1.7 million during 2021, which are included in “Other (income) expense, net” in our 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. 10) REVENUE RECOGNITION We recognize revenue when it transfers 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. 123 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 years ended December 31, 2023, 2022 and 2021 (in thousands): For the year ended December 31, 2023 Acute Care Behavioral Health Other Total Medicare $ 1,297,084 16 % $ 310,321 5 % $ 1,607,405 11 % Managed Medicare 1,368,284 17 % 345,771 6 % 1,714,055 12 % Medicaid 638,986 8 % 893,918 14 % 1,532,904 11 % Managed Medicaid 716,380 9 % 1,574,281 25 % 2,290,661 16 % Managed Care (HMO and PPOs) 2,658,890 33 % 1,552,304 25 % 4,211,194 29 % UK Revenue 0 0 % 761,124 12 % 761,124 5 % Other patient revenue and adjustments, net 452,781 6 % 528,422 9 % 981,203 7 % Other non-patient revenue 948,997 12 % 224,780 4 % 9,653 1,183,430 8 % Total Net Revenue $ 8,081,402 100 % $ 6,190,921 100 % $ 9,653 $ 14,281,976 100 % For the year ended December 31, 2022 Acute Care Behavioral Health Other Total Medicare $ 1,289,425 17 % $ 326,337 6 % $ 1,615,762 12 % Managed Medicare 1,274,719 17 % 285,870 5 % 1,560,589 12 % Medicaid 719,870 9 % 792,526 14 % 1,512,396 11 % Managed Medicaid 757,488 10 % 1,449,367 25 % 2,206,855 16 % Managed Care (HMO and PPOs) 2,536,818 33 % 1,476,136 26 % 4,012,954 30 % UK Revenue 0 0 % 684,594 12 % 684,594 5 % Other patient revenue and adjustments, net 261,879 3 % 483,763 8 % 745,642 6 % Other non-patient revenue 806,550 11 % 231,165 4 % 22,863 1,060,578 8 % Total Net Revenue $ 7,646,749 100 % $ 5,729,758 100 % $ 22,863 $ 13,399,370 100 % For the year ended December 31, 2021 Acute Care Behavioral Health Other Total Medicare $ 1,292,205 18 % $ 361,914 7 % $ 1,654,119 13 % Managed Medicare 1,118,901 16 % 244,061 4 % 1,362,962 11 % Medicaid 539,741 8 % 751,951 14 % 1,291,692 10 % Managed Medicaid 618,727 9 % 1,328,536 24 % 1,947,263 15 % Managed Care (HMO and PPOs) 2,521,089 35 % 1,435,938 26 % 3,957,027 31 % UK Revenue 0 0 % 687,725 12 % 687,725 5 % Other patient revenue and adjustments, net 358,458 5 % 484,742 9 % 843,200 7 % Other non-patient revenue 659,133 9 % 208,777 4 % 30,219 898,129 7 % Total Net Revenue $ 7,108,254 100 % $ 5,503,644 100 % $ 30,219 $ 12,642,117 100 % 11) PENSION PLAN We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $ 73.9 million, $ 72.0 million and $ 69.8 million in 2023, 2022 and 2021, respectively. The non-contributory plan is a defined benefit pension plan which covers employees of one of our subsidiaries. The benefits are based on years of service and the employee’s highest compensation for any five years of employment. Our funding policy is to contribute annually at least the minimum amount that should be funded in accordance with the provisions of ERISA. For defined benefit pension plans, the benefit obligation is the “projected benefit obligation”, the actuarial present value, as of December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions 124 concerning future interest rates and future compensation levels. The following table shows the reconciliation of the defined benefit pension plan as of December 31, 2023 and 2022: 2023 2022 (000s) Change in plan assets: Fair value of plan assets at beginning of year $ 96,627 $ 127,360 Actual return (loss) on plan assets 8,779 ( 23,674 ) Benefits paid ( 6,417 ) ( 6,448 ) Administrative expenses ( 574 ) ( 611 ) Fair value of plan assets at end of year $ 98,415 $ 96,627 Change in benefit obligation: Benefit obligation at beginning of year $ 87,277 $ 116,034 Service cost 803 607 Interest cost 4,118 2,836 Benefits paid ( 6,417 ) ( 6,448 ) Actuarial (gain) loss ( 156 ) ( 25,752 ) Benefit obligation at end of year $ 85,625 $ 87,277 Amounts recognized in the Consolidated Balance Sheet: Other noncurrent assets $ 12,790 $ 9,350 Total amounts recognized at end of year $ 12,790 $ 9,350 2023 2022 2021 (000s) Components of net periodic cost (benefit) Service cost $ 803 $ 607 $ 546 Interest cost 4,118 2,836 2,493 Expected return on plan assets ( 4,195 ) ( 4,335 ) ( 4,490 ) Net periodic cost $ 726 $ ( 892 ) $ ( 1,451 ) 2023 2022 Measurement Dates Benefit obligations 12/31/2023 12/31/2022 Fair value of plan assets 12/31/2023 12/31/2022 2023 2022 Weighted average assumptions as of December 31 Discount rate 4.71 % 4.91 % Rate of compensation increase 4.00 % 4.00 % 2023 2022 2021 Weighted-average assumptions for net periodic benefit cost calculations Discount rate 4.91 % 2.52 % 2.08 % Expected long-term rate of return on plan assets 4.50 % 3.50 % 3.50 % Rate of compensation increase 4.00 % 4.00 % 4.00 % The “accumulated benefit obligation” for our pension plan represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our plan was $ 85.6 million and $ 87.3 million as of December 31, 2023 and 2022, respectively. The fair value of plan assets exceeded the accumulated benefit obligation by $ 12.8 million and $ 9.4 million as of December 31, 2023 and 2022, respectively. We estimate that there will be no net loss or prior service cost amortized from accumulated other comprehensive income during 2024. The market values of our pension plan assets at December 31, 2023 and 2022, reported using net asset value as a practical expedient, by asset category are as follows (in thousands): 125 2023 2022 Equities: U.S. Large Cap $ 5,423 $ 5,301 U.S. Mid Cap 1,480 1,451 U.S. Small Cap 1,491 1,452 International Developed 3,943 3,867 Emerging Markets 2,540 2,426 Fixed income: Core Fixed Income 17,492 17,074 Long Duration Fixed Income 65,289 64,277 Cash/Currency: Cash Equivalents 757 779 Total market value $ 98,415 $ 96,627 To develop the expected long-term rate of return on plan assets assumption, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. The following table shows expected benefit payments for the years 2024 through 2033 for our defined pension plan. There will be benefit payments under this plan beyond 2033. Estimated Future Benefit Payments (000s) 2024 $ 6,752 2025 6,745 2026 6,714 2027 6,671 2028 6,601 2029-2033 31,330 Total $ 64,813 2023 2022 Plan Assets Asset Category Equity securities 15 % 15 % Fixed income securities 84 % 84 % Other 1 % 1 % Total 100 % 100 % Investment Policy, Guidelines and Objectives have been established for the defined benefit pension plan. The investment policy is in keeping with the fiduciary requirements under existing federal laws and managed in accordance with the Prudent Investor Rule. Total portfolio risk is regularly evaluated and compared to that of the plan’s policy target allocation and judged on a relative basis over a market cycle. The following asset allocation policy and ranges have been established in accordance with the overall risk and return objectives of the portfolio: As of 12/31/2023 Permitted Range Total Equity 15 % 10 - 30 % Total Fixed Income 84 % 70 - 90 % Other 1 % 0 - 10 % In accordance with the investment policy, the portfolio will invest in high quality, large and small capitalization companies traded on national exchanges, and investment grade securities. The investment managers will not write or buy options for speculative purposes; securities may not be margined or sold short. The manager may employ futures or options for the purpose of hedging exposure, and will not purchase unregistered sectors, private placements, partnerships or commodities. 12) 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 126 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 Note 1-Business and Summary of Significant Accounting Policies . 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. 2023 Acute Care Hospital Services Behavioral Health Services (a.) Other Total Consolidated (Dollar amounts in thousands) Gross inpatient revenues $ 44,687,035 $ 10,648,996 $ — $ 55,336,031 Gross outpatient revenues $ 29,858,874 $ 1,087,595 $ — $ 30,946,469 Total net revenues $ 8,081,402 $ 6,190,921 $ 9,653 $ 14,281,976 Income (loss) before allocation of corporate overhead and income taxes $ 540,345 $ 1,083,680 $ ( 683,599 ) $ 940,426 Allocation of corporate overhead $ ( 266,413 ) $ ( 186,662 ) $ 453,075 $ 0 Income (loss) after allocation of corporate overhead and before income taxes $ 273,932 $ 897,018 $ ( 230,524 ) $ 940,426 Total assets $ 6,201,235 $ 7,526,672 $ 239,695 $ 13,967,602 2022 Acute Care Hospital Services (b.) Behavioral Health Services (a.) Other Total Consolidated (Dollar amounts in thousands) Gross inpatient revenues $ 40,004,670 $ 10,116,566 $ — $ 50,121,236 Gross outpatient revenues $ 24,813,718 $ 1,031,370 $ — $ 25,845,088 Total net revenues $ 7,646,749 $ 5,729,758 $ 22,863 $ 13,399,370 Income (loss) before allocation of corporate overhead and income taxes $ 429,664 $ 980,290 $ ( 543,694 ) $ 866,260 Allocation of corporate overhead $ ( 252,034 ) $ ( 179,936 ) $ 431,970 $ 0 Income (loss) after allocation of corporate overhead and before income taxes $ 177,630 $ 800,354 $ ( 111,724 ) $ 866,260 Total assets $ 5,993,887 $ 7,277,293 $ 223,008 $ 13,494,188 2021 Acute Care Hospital Services Behavioral Health Services (a.) Other Total Consolidated (Dollar amounts in thousands) Gross inpatient revenues $ 36,522,155 $ 9,927,401 $ — $ 46,449,556 Gross outpatient revenues $ 20,633,921 $ 1,013,547 $ — $ 21,647,468 Total net revenues $ 7,108,254 $ 5,503,644 $ 30,219 $ 12,642,117 Income (loss) before allocation of corporate overhead and income taxes $ 734,666 $ 1,025,557 $ ( 466,910 ) $ 1,293,313 Allocation of corporate overhead $ ( 233,298 ) $ ( 172,512 ) $ 405,810 $ 0 Income (loss) after allocation of corporate overhead and before income taxes $ 501,368 $ 853,045 $ ( 61,100 ) $ 1,293,313 Total assets $ 5,534,912 $ 7,250,427 $ 308,204 $ 13,093,543 (a) Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $ 761 million in 2023, $ 685 million in 2022 and $ 688 million in 2021. Total assets at our U.K. behavioral health care facilities were approximately $ 1.327 billion as of December 31, 2023, $ 1.235 billion as of December 31, 2022 and $ 1.351 billion as of December 31, 2021. (b) Included in our 2022 acute care hospital services operating segment income (loss) before allocation of corporate overhead and income taxes is a pre-tax $ 58 million provision for asset impairment charge to reduce the carrying value of real property assets. 127 SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands) Balance at Charges to Balance beginning costs and at end Valuation Allowance for Deferred Tax Assets: of period expenses of period Year ended December 31, 2023 $ 63,325 $ 9,342 $ 72,667 Year ended December 31, 2022 $ 62,356 $ 969 $ 63,325 Year ended December 31, 2021 $ 68,003 $ ( 5,647 ) $ 62,356 128