FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

x

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

For the quarterly period ended September 30, 2011

Or

 

¨

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

For the transition period from            to            

Commission file number 1-11239

 

 

HCA Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-3865930

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Park Plaza   37203

Nashville, Tennessee

(Address of principal executive offices)

  (Zip Code)

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Class of Common Stock

  

Outstanding at October 31, 2011

Voting common stock, $.01 par value

   436,557,300 shares

 

 

 


Table of Contents

HCA HOLDINGS, INC.

Form 10-Q

September 30, 2011

 

          Page of
Form  10-Q
 

Part I.

  

Financial Information

  

Item 1.

  

Financial Statements (Unaudited):

  
  

Condensed Consolidated Income Statements  — for the quarters and nine months ended September 30, 2011 and 2010

     1   
  

Condensed Consolidated Balance Sheets — September 30, 2011 and December 31, 2010

     2   
  

Condensed Consolidated Statements of Cash Flows — for the nine months ended September  30, 2011 and 2010

     3   
  

Notes to Condensed Consolidated Financial Statements

     4   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     28   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     47   

Item 4.

  

Controls and Procedures

     47   

Part II.

   Other Information   

Item 1.

  

Legal Proceedings

     47   

Item 1A.

  

Risk Factors

     48   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     50   

Item 6.

  

Exhibits

     50   

Signatures

     51   

 

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Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Nine Months  
     2011     2010     2011     2010  

Revenues before provision for doubtful accounts

   $ 8,050      $ 7,647      $ 24,168      $ 22,947   

Provision for doubtful accounts

     740        721        2,164        2,073   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

     7,310        6,926        22,004        20,874   

Salaries and benefits

     3,333        3,134        9,948        9,282   

Supplies

     1,263        1,234        3,833        3,685   

Other operating expenses

     1,370        1,268        4,018        3,696   

Equity in earnings of affiliates

     (68     (67     (217     (210

Depreciation and amortization

     362        352        1,078        1,062   

Interest expense

     519        525        1,572        1,571   

Losses on sales of facilities

     2        2        3        2   

Impairments of long-lived assets

            10               119   

Losses on retirement of debt

     406               481          

Termination of management agreement

                   181          
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,187        6,458        20,897        19,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     123        468        1,107        1,667   

Provision (benefit) for income taxes

     (23     143        307        488   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     146        325        800        1,179   

Net income attributable to noncontrolling interests

     85        82        270        255   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 61      $ 243      $ 530      $ 924   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic earnings per share

   $ 0.12      $ 0.57      $ 1.08      $ 2.17   

Diluted earnings per share

   $ 0.11      $ 0.55      $ 1.04      $ 2.11   

Shares used in earnings per share calculations (in thousands):

        

Basic

     508,417        426,361        489,924        426,347   

Diluted

     527,515        439,032        509,583        437,272   

See accompanying notes.

 

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Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

    September 30,
2011
    December 31,
2010
 
ASSETS   

Current assets:

   

Cash and cash equivalents

  $ 359      $ 411   

Accounts receivable, less allowance for doubtful accounts of $3,994 and $3,939

    3,925        3,832   

Inventories

    891        897   

Deferred income taxes

    643        931   

Other

    875        848   
 

 

 

   

 

 

 
    6,693        6,919   

Property and equipment, at cost

    26,647        25,641   

Accumulated depreciation

    (15,002     (14,289
 

 

 

   

 

 

 
    11,645        11,352   

Investments of insurance subsidiary

    545        642   

Investments in and advances to affiliates

    837        869   

Goodwill

    2,701        2,693   

Deferred loan costs

    297        374   

Other

    1,038        1,003   
 

 

 

   

 

 

 
  $ 23,756      $ 23,852   
 

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ DEFICIT   

Current liabilities:

   

Accounts payable

  $ 1,334      $ 1,537   

Accrued salaries

    876        895   

Other accrued expenses

    1,336        1,245   

Long-term debt due within one year

    725        592   
 

 

 

   

 

 

 
    4,271        4,269   

Long-term debt

    25,871        27,633   

Professional liability risks

    993        995   

Income taxes and other liabilities

    1,683        1,608   

Equity securities with contingent redemption rights

           141   

Stockholders’ deficit:

   

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 436,483,900 shares in 2011 and 427,458,800 shares in 2010

    4        4   

Capital in excess of par value

    1,584        386   

Accumulated other comprehensive loss

    (424     (428

Retained deficit

    (11,358     (11,888
 

 

 

   

 

 

 

Stockholders’ deficit attributable to HCA Holdings, Inc.

    (10,194     (11,926

Noncontrolling interests

    1,132        1,132   
 

 

 

   

 

 

 
    (9,062     (10,794
 

 

 

   

 

 

 
  $ 23,756      $ 23,852   
 

 

 

   

 

 

 

See accompanying notes.

 

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HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Unaudited

(Dollars in millions)

 

     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 800      $ 1,179   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Changes in operating assets and liabilities

     (2,336     (1,927

Provision for doubtful accounts

     2,164        2,073   

Depreciation and amortization

     1,078        1,062   

Income taxes

     348        (70

Losses on sales of facilities

     3        2   

Impairments of long-lived assets

            119   

Losses on retirement of debt

     481          

Amortization of deferred loan costs

     56        60   

Share-based compensation

     24        24   

Pay-in-kind interest

     (78       

Other

     6        29   
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,546        2,551   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (1,170     (860

Acquisition of hospitals and health care entities

     (209     (35

Disposition of hospitals and health care entities

     55        26   

Change in investments

     80        473   

Other

     4        (2
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,240     (398
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuance of long-term debt

     5,000        1,387   

Net change in revolving credit facilities

     (414     1,035   

Repayment of long-term debt

     (6,583     (2,020

Distributions to noncontrolling interests

     (281     (282

Distributions to stockholders

     (31     (2,251

Payment of debt issuance costs

     (84     (25

Issuance of common stock

     2,506          

Repurchase of common stock

     (1,503       

Income tax benefits

     54        60   

Other

     (22     8   
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,358     (2,088
  

 

 

   

 

 

 

Change in cash and cash equivalents

     (52     65   

Cash and cash equivalents at beginning of period

     411        312   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 359      $ 377   
  

 

 

   

 

 

 

Interest payments

   $ 1,635      $ 1,399   

Income tax (refunds) payments, net

   $ (95   $ 498   

See accompanying notes.

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reporting Entity

On November 17, 2006, HCA Inc. completed its merger with Hercules Acquisition Corporation, pursuant to which the Company was acquired by Hercules Holding II, LLC, a Delaware limited liability company owned by a private investor group comprised of affiliates of Bain Capital Partners, Kohlberg Kravis Roberts & Co., BAML Capital Partners (formerly Merrill Lynch Global Private Equity) (each a “Sponsor”), affiliates of Citigroup Inc. and Bank of America Corporation (the “Sponsor Assignees”) and affiliates of HCA founder, Dr. Thomas F. Frist Jr., (the “Frist Entities,” and together with the Sponsors and the Sponsor Assignees, the “Investors”) and by members of management and certain other investors.

On November 22, 2010, HCA Inc. reorganized by creating a new holding company structure (the “Corporate Reorganization”). HCA Holdings, Inc. became the new parent company, and HCA Inc. is a wholly-owned direct subsidiary of HCA Holdings, Inc. As part of the Corporate Reorganization, HCA Inc.’s outstanding shares of capital stock were automatically converted, on a share for share basis, into identical shares of our common stock. Immediately following the Corporate Reorganization, our amended and restated certificate of incorporation, amended and restated bylaws, executive officers and board of directors were the same as HCA Inc.’s in effect immediately prior to the Corporate Reorganization, and the rights, privileges and interests of HCA Inc.’s stockholders remained the same with respect to us as the new holding company.

During February 2011, our Board of Directors approved an increase in the number of our authorized shares to 1,800,000,000 shares of common stock and a 4.505-to-one split of our issued and outstanding common shares. All common share and per common share amounts in these condensed consolidated financial statements and notes to condensed consolidated financial statements reflect the 4.505-to-one split. During March 2011, we completed the initial public offering of 87,719,300 shares of our common stock at a price of $30.00 per share (before deducting underwriter discounts, commissions and other related offering expenses). Certain of our stockholders also sold 57,410,700 shares of our common stock in this offering. We did not receive any proceeds from the shares sold by the selling stockholders. Our common stock is now traded on the New York Stock Exchange (symbol “HCA”).

The Investors have provided management and advisory services to the Company pursuant to a management agreement among HCA Inc. and the Investors executed in connection with the Investors’ acquisition of HCA Inc. in November 2006. The management agreement was terminated pursuant to its terms upon completion of the initial public offering of our common stock, and the Company paid the Investors a final fee of $181 million. The management agreement also provided that the Company pay a 1% fee in connection with certain financing, acquisition, divestiture and change of control transactions. The Company paid the Investors a fee of $26 million related to the initial public offering of our common stock, and this fee was recorded as a cost of the stock offering.

HCA Holdings, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Holdings, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2011, these affiliates owned and operated 157 hospitals, 98 freestanding surgery centers and facilities which provided extensive outpatient and ancillary services. Affiliates of HCA Holdings, Inc. are also partners in joint ventures that own and operate seven hospitals and 14 freestanding surgery centers, which are accounted for using the equity method. HCA Holdings, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Inc. and its affiliates prior to the Corporate Reorganization and to HCA Holdings, Inc. and its affiliates after the Corporate Reorganization. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.

The majority of our expenses are “cost of revenue” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $53 million and $46 million for the quarters ended September 30, 2011 and 2010, respectively, and $162 million and $130 million for the nine months ended September 30, 2011 and 2010, respectively. Operating results for the quarter and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2010.

We adopted the provisions of Accounting Standards Update No. 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (“ASU 2011-07”), during the periods ended September 30, 2011. ASU 2011-07 requires health care entities to change the presentation of the statement of operations by reclassifying the provision for doubtful accounts from an operating expense to a deduction from patient service revenues. All periods presented in this Form 10-Q have been reclassified in accordance with ASU 2011-07.

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under the Medicare, Medicaid and other programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay accounts receivable at the estimated amounts we expect to collect. Our revenues from our third-party payers, the uninsured and other revenues for quarters and nine months ended September 30, 2011 and 2010 are summarized in the following tables (dollars in millions):

 

     Quarter  
     2011     Ratio     2010     Ratio  

Medicare

   $ 1,844        25.2   $ 1,745        25.2

Managed Medicare

     610        8.3        531        7.7   

Medicaid

     453        6.2        472        6.8   

Managed Medicaid

     311        4.3        296        4.3   

Managed care and other insurers

     3,855        52.7        3,669        53.0   

International (managed care and other insurers)

     232        3.2        195        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,305        99.9        6,908        99.8   

Uninsured

     508        6.9        518        7.5   

Other

     237        3.2        221        3.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     8,050        110.0        7,647        110.5   

Provision for doubtful accounts

     (740     (10.0     (721     (10.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 7,310        100.0   $ 6,926        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Basis of Presentation (continued)

 

 

     Nine Months  
     2011     Ratio     2010     Ratio  

Medicare

   $ 5,715        26.0   $ 5,420        26.0

Managed Medicare

     1,806        8.2        1,630        7.8   

Medicaid

     1,440        6.5        1,461        7.0   

Managed Medicaid

     946        4.3        874        4.2   

Managed care and other insurers

     11,486        52.2        10,906        52.2   

International (managed care and other insurers)

     698        3.2        577        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 
     22,091        100.4        20,868        100.0   

Uninsured

     1,390        6.3        1,388        6.7   

Other

     687        3.1        691        3.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     24,168        109.8        22,947        110.0   

Provision for doubtful accounts

     (2,164     (9.8     (2,073     (10.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 22,004        100.0   $ 20,874        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 2 — INCOME TAXES

During the quarter ended September 30, 2011, we finalized a settlement with the Internal Revenue Service (“IRS”) Examination Division resolving all outstanding issues for our 1997 through 2001 tax years.

At September 30, 2011, we were contesting, before the IRS Appeals Division, certain claimed deficiencies and adjustments proposed by the IRS Examination Division in connection with its audit of HCA Inc.’s 2005 and 2006 federal income tax returns. The disputed items include the timing of recognition of certain patient service revenues, the deductibility of certain debt retirement costs and our method for calculating the tax allowance for doubtful accounts. In addition, 2002, 2003 and 2004 taxable periods of HCA Inc., for which the primary remaining issue is the computation of the tax allowance for doubtful accounts, were pending before the IRS Examination Division as of September 30, 2011. The IRS Examination Division began an audit of HCA Inc.’s 2007, 2008 and 2009 federal income tax returns in 2010.

Our liability for unrecognized tax benefits was $462 million, including accrued interest of $49 million, as of September 30, 2011 ($413 million and $115 million, respectively, as of December 31, 2010). Unrecognized tax benefits of $153 million ($190 million as of December 31, 2010) would affect the effective rate, if recognized. The liability for unrecognized tax benefits does not reflect deferred tax assets of $38 million ($63 million as of December 31, 2010) related to deductible interest and state income taxes or a refundable deposit of $39 million ($82 million as of December 31, 2010), which is recorded in noncurrent assets. The provision for income taxes reflects $66 million and $5 million ($42 million and $3 million, net of tax) in reductions in interest expense related to taxing authority examinations for the quarters ended September 30, 2011 and 2010, respectively, and $92 million and $79 million ($58 million and $50 million, respectively, net of tax) reductions in interest expense related to taxing authority examinations for the nine months ended September 30, 2011 and 2010, respectively.

Depending on the resolution of the IRS disputes, the completion of examinations by federal, state or international taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible our liability for unrecognized tax benefits may significantly increase or decline within the next 12 months. However, we are currently unable to estimate the range of any possible change.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 3 — EARNINGS PER SHARE

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding stock options and restricted share units, computed using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2011 and 2010 (dollars in millions, except per share amounts, and shares in thousands):

 

     Quarter      Nine Months  
     2011      2010      2011      2010  

Net income attributable to HCA Holdings, Inc.

   $ 61       $ 243       $ 530       $ 924   

Weighted average common shares outstanding

     508,417         426,361         489,924         426,347   

Effect of dilutive securities

     19,098         12,671         19,659         10,925   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used for diluted earnings per share

     527,515         439,032         509,583         437,272   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic earnings per share

   $ 0.12       $ 0.57       $ 1.08       $ 2.17   

Diluted earnings per share

   $ 0.11       $ 0.55       $ 1.04       $ 2.11   

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARY

A summary of our insurance subsidiary’s investments at September 30, 2011 and December 31, 2010 follows (dollars in millions):

 

     September 30, 2011  
     Amortized
Cost
     Unrealized
Amounts
    Fair
  Value   
 
          Gains          Losses      

Debt securities:

          

States and municipalities

   $ 354       $ 15       $ (1   $ 368   

Auction rate securities

     149                 (4     145   

Asset-backed securities

     21                        21   

Money market funds

     88                        88   
  

 

 

    

 

 

    

 

 

   

 

 

 
     612         15         (5     622   

Equity securities

     8         1         (1     8   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 620       $ 16       $ (6     630   
  

 

 

    

 

 

    

 

 

   

Amounts classified as current assets

             (85
          

 

 

 

Investment carrying value

           $ 545   
          

 

 

 

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARY (continued)

 

     December 31, 2010  
     Amortized
Cost
     Unrealized
Amounts
    Fair
  Value   
 
          Gains          Losses      

Debt securities:

          

States and municipalities

   $ 312       $ 12       $ (1   $ 323   

Auction rate securities

     251                 (1     250   

Asset-backed securities

     26         1         (1     26   

Money market funds

     135                        135   
  

 

 

    

 

 

    

 

 

   

 

 

 
     724         13         (3     734   

Equity securities

     8         1         (1     8   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 732       $ 14       $ (4     742   
  

 

 

    

 

 

    

 

 

   

Amounts classified as current assets

             (100
          

 

 

 

Investment carrying value

           $ 642   
          

 

 

 

At September 30, 2011 and December 31, 2010, the investments of our insurance subsidiary were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income. At September 30, 2011 and December 31, 2010, $19 million and $92 million, respectively, of our investments were subject to restrictions included in insurance bond collateralization and assumed reinsurance contracts.

Scheduled maturities of investments in debt securities at September 30, 2011 were as follows (dollars in millions):

 

     Amortized
Cost
     Fair
    Value     
 

Due in one year or less

   $ 136       $ 137   

Due after one year through five years

     113         120   

Due after five years through ten years

     130         135   

Due after ten years

     63         64   
  

 

 

    

 

 

 
     442         456   

Auction rate securities

     149         145   

Asset-backed securities

     21         21   
  

 

 

    

 

 

 
   $ 612       $ 622   
  

 

 

    

 

 

 

The average expected maturity of the investments in debt securities at September 30, 2011 was 3.8 years, compared to the average scheduled maturity of 10.7 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to the scheduled maturity date. The average expected maturities for our auction rate and asset-backed securities were derived from valuation models of expected cash flows and involved management’s judgment. At September 30, 2011, the average expected maturities for our auction rate and asset-backed securities were 4.5 years and 4.9 years, respectively, compared to average scheduled maturities of 25.2 years and 25.0 years, respectively.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 5 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2011 and December 31, 2010, including related interest rates at September 30, 2011, follows (dollars in millions):

 

     September 30,
2011
     December 31,
2010
 

Senior secured asset-based revolving credit facility (effective interest rate of 1.7%)

   $ 1,730       $ 1,875   

Senior secured revolving credit facility (effective interest rate of 1.9%)

     460         729   

Senior secured term loan facilities (effective interest rate of 7.4%)

     7,473         7,530   

Senior secured first lien notes (effective interest rate of 7.7%)

     7,079         4,075   

Other senior secured debt (effective interest rate of 7.0%)

     314         322   
  

 

 

    

 

 

 

First lien debt

     17,056         14,531   
  

 

 

    

 

 

 

Senior secured notes (effective interest rate of 11.0%)

     196         4,501   

Senior secured toggle notes

             1,578   
  

 

 

    

 

 

 

Second lien debt

     196         6,079   
  

 

 

    

 

 

 

Senior unsecured notes (effective interest rate of 7.2%)

     9,344         7,615   
  

 

 

    

 

 

 

Total debt (average life of 7.1 years, rates averaging 7.0%)

     26,596         28,225   

Less amounts due within one year

     725         592   
  

 

 

    

 

 

 
   $ 25,871       $ 27,633   
  

 

 

    

 

 

 

On May 4, 2011, we completed amendments to our senior secured credit agreement and senior secured asset-based revolving credit agreement, as well as extensions of certain of our term loans. The amendments extend $594 million of our term loan A facility with a final maturity of November 2012 to a final maturity of May 2016 and $2.373 billion of our term loan A and term loan B-1 facilities with final maturities of November 2012 and November 2013, respectively, to a final maturity of May 2018.

On June 2, 2011, we redeemed all $1.000 billion aggregate principal amount of our 91/8% senior secured notes due 2014, at a redemption price of 104.563% of the principal amount, and $108 million aggregate principal amount of our 97/8% senior secured notes due 2017, at a redemption price of 109.875% of the principal amount. The pretax loss on retirement of debt related to these redemptions was $75 million.

On August 1, 2011, we issued $5.000 billion aggregate principal amount of notes, comprised of $3.000 billion of 6.50% senior secured first lien notes due 2020 and $2.000 billion of 7.50% senior unsecured notes due 2022. On August 26, 2011, after the payment of related fees and expenses, we used the net proceeds from these debt issuances to redeem all of our outstanding $1.578 billion 9 5/8%/10  3/8% second lien toggle notes due 2016, at a redemption price of 106.783% of the principal amount, and all of our outstanding $3.200 billion 9 1/4% second lien notes due 2016, at a redemption price of 106.513% of the principal amount. The pretax loss on retirement of debt related to these redemptions was $406 million.

On September 30, 2011, we refinanced our $2.000 billion asset-based revolving credit facility maturing on November 16, 2012 to increase the total capacity to $2.500 billion and extend the maturity to 2016.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between two parties based on common notional principal amounts and maturity dates. Pay-fixed interest rate swaps effectively convert LIBOR indexed variable rate obligations to fixed interest rate obligations. Pay-variable interest rate swaps effectively convert fixed interest rate obligations to LIBOR indexed variable rate obligations. The interest payments under these agreements are settled on a net basis. The net interest payments, based on the notional amounts in these agreements, generally match the timing of the related liabilities, for the interest rate swap agreements which have been designated as cash flow hedges. The notional amounts of the swap agreements represent amounts used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at September 30, 2011 (dollars in millions):

 

     Notional
Amount
     Maturity Date    Fair
Value
 

Pay-fixed interest rate swaps

   $ 7,100       November 2011    $ (42

Pay-fixed interest rate swaps (starting November 2011)

     500       December 2014      (8

Pay-fixed interest rate swaps (starting November 2011)

     3,000       December 2016      (332

Pay-fixed interest rate swaps (starting November 2011)

     1,000       December 2017      (48

Certain of our interest rate swaps are not designated as hedges, and changes in fair value are recognized in results of operations. The following table sets forth our interest rate swap agreements, which were not designated as hedges, at September 30, 2011 (dollars in millions):

 

     Notional
Amount
     Maturity Date    Fair
Value
 

Pay-fixed interest rate swap

   $ 900       November 2011    $ (5

Pay-variable interest rate swap

     900       November 2011      1   

During the next 12 months, we estimate $147 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Cross Currency Swaps

The Company and certain subsidiaries have incurred obligations and entered into various intercompany transactions where such obligations are denominated in currencies other than the functional currencies of the parties executing the trade. In order to mitigate the currency exposure risks and better match the cash flows of our obligations and intercompany transactions with cash flows from operations, we entered into various cross currency swaps. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

Certain of our cross currency swaps are not designated as hedges, and changes in fair value are recognized in results of operations. The following table sets forth our cross currency swap agreement, which was not designated as a hedge, at September 30, 2011 (amounts in millions):

 

     Notional
Amount
   Maturity Date    Fair
Value
 

Euro — United States Dollar currency swap

   351 Euro    December 2011    $ 39   

 

10


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

 

Derivatives — Results of Operations

The following table presents the effect on our results of operations of our interest rate swaps for the nine months ended September 30, 2011 (dollars in millions):

 

Derivatives in Cash Flow Hedging Relationships

   Amount of Loss
Recognized  in OCI on
Derivatives, Net of Tax
     Location of Loss
Reclassified  from
Accumulated OCI
into Operations
   Amount of  Loss
Reclassified from
Accumulated  OCI
into Operations
 

Interest rate swaps

   $ 180       Interest expense    $ 279   

Credit-risk-related Contingent Features

We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of September 30, 2011, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2011, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $446 million.

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements.

ASC 820 emphasizes fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Cash Traded Investments

Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

Cash Traded Investments (continued)

 

with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. Such instruments include auction rate securities (“ARS”) and limited partnership investments. The transaction price is initially used as the best estimate of fair value.

Our wholly-owned insurance subsidiary had investments in tax-exempt ARS, which are backed by student loans substantially guaranteed by the federal government, of $145 million ($149 million par value) at September 30, 2011. We do not currently intend to attempt to sell the ARS as the liquidity needs of our insurance subsidiary are expected to be met by other investments in its investment portfolio. During 2010 and the first nine months of 2011, certain issuers and their broker/dealers redeemed or repurchased $150 million and $102 million, respectively, of our ARS at par value. The valuation of these securities involved management’s judgment, after consideration of market factors and the absence of market transparency, market liquidity and observable inputs. Our valuation models derived a fair market value compared to tax-equivalent yields of other student loan backed variable rate securities of similar credit worthiness and similar effective maturities.

Derivative Financial Instruments

We have entered into interest rate and cross currency swap agreements to manage our exposure to fluctuations in interest rates and foreign currency risks. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Although we determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and at September 30, 2011 and December 31, 2010, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

Fair Value Summary

The following table summarizes our assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

     September 30, 2011  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices  in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
    Significant  Other
Observable Inputs
(Level 2)
    Significant
Unobservable  Inputs
(Level 3)
 

Assets:

        

Investments of insurance subsidiary:

        

Debt securities:

        

States and municipalities

   $ 368      $      $ 368      $   

Auction rate securities

     145                      145   

Asset-backed securities

     21               21          

Money market funds

     88        88                 
  

 

 

   

 

 

   

 

 

   

 

 

 
     622        88        389        145   

Equity securities

     8        2        5        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiary

     630        90        394        146   

Less amounts classified as current assets

     (85     (85              
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 545      $ 5      $ 394      $ 146   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cross currency swap (Other assets)

   $ 39      $      $ 39      $   

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 434      $      $ 434      $   

 

13


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

Fair Value Summary (continued)

 

     December 31, 2010  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices in
Active  Markets for
Identical Assets
and Liabilities
(Level 1)
    Significant Other
Observable  Inputs
(Level 2)
    Significant
Unobservable  Inputs
(Level 3)
 

Assets:

        

Investments of insurance subsidiary:

        

Debt securities:

        

States and municipalities

   $ 323      $      $ 323      $   

Auction rate securities

     250                      250   

Asset-backed securities

     26               26          

Money market funds

     135        135                 
  

 

 

   

 

 

   

 

 

   

 

 

 
     734        135        349        250   

Equity securities

     8        2        5        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiary

     742        137        354        251   

Less amounts classified as current assets

     (100     (100              
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 642      $ 37      $ 354      $ 251   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cross currency swap (Other assets)

   $ 39      $      $ 39      $   

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 426      $      $ 426      $   

The following table summarizes the activity related to the auction rate and equity securities investments of our insurance subsidiary, which have fair value measurements based on significant unobservable inputs (Level 3), during the nine months ended September 30, 2011 (dollars in millions):

 

Asset balances at December 31, 2010

   $ 251   

Unrealized losses included in other comprehensive income

     (3

Settlements

     (102
  

 

 

 

Asset balances at September 30, 2011

   $ 146   
  

 

 

 

The estimated fair value of our long-term debt was $25.989 billion and $28.738 billion at September 30, 2011 and December 31, 2010, respectively, compared to carrying amounts aggregating $26.596 billion and $28.225 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 8 — CONTINGENCIES

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations or financial position in a given period.

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 8 — CONTINGENCIES (continued)

 

Health care companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received government inquiries from federal and state agencies and our facilities may receive such inquiries in future periods. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations or financial position.

We are subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. It is management’s opinion that the ultimate resolution of these pending claims and legal proceedings will not have a material, adverse effect on our results of operations or financial position.

The Civil Division of the Department of Justice (“DOJ”) has contacted the Company in connection with its nationwide review of whether, in certain cases, hospital charges to the federal government relating to implantable cardio-defibrillators (“ICDs”) met the Centers for Medicare & Medicaid Services criteria. In connection with this nationwide review, the DOJ has indicated that it will be reviewing certain ICD billing and medical records at 95 HCA hospitals; the review covers the period from October 2003 to the present. The review could potentially give rise to claims against the Company under the federal False Claims Act or other statutes, regulations or laws. At this time, we cannot predict what effect, if any, this review or any resulting claims could have on the Company.

NOTE 9 — COMPREHENSIVE INCOME AND CAPITAL STRUCTURE

The components of comprehensive income (loss), net of related taxes, for the quarters and nine months ended September 30, 2011 and 2010 are only attributable to HCA Holdings, Inc. and are as follows (dollars in millions):

 

     Quarter     Nine Months  
     2011     2010     2011     2010  

Net income attributable to HCA Holdings, Inc.

   $ 61      $ 243      $ 530      $ 924   

Change in fair value of derivative instruments

     (72     (15     (3     (41

Change in fair value of available-for-sale securities

     1        3               (4

Foreign currency translation adjustments

     (18     20        (4     (7

Defined benefit plans

     4        3        11        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (24   $ 254      $ 534      $ 880   
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of accumulated other comprehensive loss, net of related taxes, are as follows (dollars in millions):

 

     September 30,
2011
    December 31,
2010
 

Change in fair value of derivative instruments

   $ (275   $ (272

Change in fair value of available-for-sale securities

     6        6   

Foreign currency translation adjustments

     (23     (19

Defined benefit plans

     (132     (143
  

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ (424   $ (428
  

 

 

   

 

 

 

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 9 — COMPREHENSIVE INCOME AND CAPITAL STRUCTURE (continued)

 

The changes in stockholders’ deficit, including changes in stockholders’ deficit attributable to HCA Holdings, Inc. and changes in equity attributable to noncontrolling interests, are as follows (dollars in millions):

 

    Equity (Deficit) Attributable to HCA Holdings, Inc.     Equity
Attributable to
Noncontrolling
Interests
    Total  
    Common Stock     Capital in
Excess of
Par
Value
    Accumulated
Other
Comprehensive
Loss
    Retained
Deficit
     
             
    Shares
(000)
    Par
  Value  
           

Balances, December 31, 2010

    427,459      $ 4      $ 386      $ (428   $ (11,888   $ 1,132      $ (10,794

Net income

                                530        270        800   

Other comprehensive income

                         4                      4   

Issuance of common stock

    87,719        1        2,505                             2,506   

Repurchase of common stock

    (80,771     (1     (1,502                          (1,503

Distributions

                                       (281     (281

Share-based benefit plans

    2,077               27                             27   

Reclassification of certain equity securities with contingent redemption rights

                  141                             141   

Other

                  27                      11        38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, September 30, 2011

    436,484      $ 4      $ 1,584      $ (424   $ (11,358   $ 1,132      $ (9,062
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During February 2011, our Board of Directors approved an increase in the number of our authorized shares to 1,800,000,000 shares of common stock and a 4.505-to-one split of our issued and outstanding common shares. During March 2011, we completed the initial public offering of 87,719,300 shares of our common stock at a price of $30.00 per share and realized net proceeds (after costs of the offering) of $2.506 billion.

Prior to the consummation of the initial public offering of our common stock, certain employees could elect to have the Company redeem their common stock and vested options in the event of death or permanent disability, pursuant to the terms of their management stockholder agreements. The consummation of the initial public offering of our common stock effectively terminated the contingent redemption rights and the applicable amounts have been reclassified to stockholders’ equity.

On September 21, 2011, HCA Holdings, Inc. repurchased 80,771,143 shares of its common stock beneficially owned by affiliates of Bank of America Corporation at a purchase price of $18.61 per share, the closing price of the Company’s common stock on the New York Stock Exchange on September 14, 2011. The repurchase was financed using a combination of cash on hand and borrowings under available credit facilities. The shares repurchased represented approximately 15.6% of the Company’s total shares outstanding.

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. Our operations are structured into three geographically organized groups: the National, Southwest and Central Groups. During February 2011, we reorganized our operational groups and have restated the prior period amounts to reflect this reorganization. The National Group includes 65 consolidating hospitals located in Florida, South Carolina, southern Georgia, Alaska, California, Nevada, Utah and Idaho, the Southwest Group includes 39 consolidating hospitals located in Texas, Oklahoma and the Wichita, Kansas market, and the Central Group includes 47 consolidating hospitals located in Louisiana, Indiana, Kentucky, Tennessee, Virginia, New Hampshire, northern Georgia and the Kansas City market. We also operate six consolidating hospitals in England, and these facilities are included in the Corporate and other group.

 

16


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses on sales of facilities, impairments of long-lived assets, losses on retirement of debt, termination of management agreement, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA, and depreciation and amortization for the quarters and nine months ended September 30, 2011 and 2010 are summarized in the following table (dollars in millions):

 

     Quarter     Nine Months  
     2011     2010     2011     2010  

Revenues:

        

National Group

   $ 3,033      $ 2,858      $ 9,150      $ 8,668   

Southwest Group

     2,248        2,157        6,760        6,474   

Central Group

     1,743        1,667        5,240        5,006   

Corporate and other

     286        244        854        726   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 7,310      $ 6,926      $ 22,004      $ 20,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of affiliates:

        

National Group

   $ (3   $ (1   $ (5   $ (3

Southwest Group

     (64     (66     (212     (206

Central Group

            (1            (2

Corporate and other

     (1     1               1   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (68   $ (67   $ (217   $ (210
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted segment EBITDA:

        

National Group

   $ 587      $ 557      $ 1,835      $ 1,821   

Southwest Group

     552        539        1,714        1,674   

Central Group

     298        289        949        956   

Corporate and other

     (25     (28     (76     (30
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,412      $ 1,357      $ 4,422      $ 4,421   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

National Group

   $ 129      $ 127      $ 381      $ 383   

Southwest Group

     111        106        332        319   

Central Group

     86        88        263        266   

Corporate and other

     36        31        102        94   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 362      $ 352      $ 1,078      $ 1,062   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted segment EBITDA

   $ 1,412      $ 1,357      $ 4,422      $ 4,421   

Depreciation and amortization

     362        352        1,078        1,062   

Interest expense

     519        525        1,572        1,571   

Losses on sales of facilities

     2        2        3        2   

Impairments of long-lived assets

            10               119   

Losses on retirement of debt

     406               481          

Termination of management agreement

                   181          
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 123      $ 468      $ 1,107      $ 1,667   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

17


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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 11 — ACQUISITIONS, DISPOSITIONS AND IMPAIRMENTS OF LONG-LIVED ASSETS

During the nine months ended September 30, 2011, we paid $136 million to acquire a hospital in the National Group and $73 million to acquire other nonhospital health care entities. During the nine months ended September 30, 2010, we paid $35 million to acquire nonhospital health care entities.

During the nine months ended September 30, 2011, we received proceeds of $55 million and recognized a net pretax loss of $3 million related to the sales of a hospital facility and our investment in a hospital joint venture. During the nine months ended September 30, 2010, we received proceeds of $26 million and recognized a net pretax loss of $2 million related to sales of real estate investments.

During the quarter ended September 30, 2010, we recorded impairments of long-lived assets of $10 million, primarily related to a hospital facility in our Southwest Group, to adjust the carrying values to estimated fair value. During the nine months ended September 30, 2010, we recorded impairments of long-lived assets of $119 million, primarily comprised of the third quarter 2010 charges of $10 million and the impairment charges of $56 million related to revised, reduced projections of future expected cash flows for a hospital facility in our Central Group and $35 million for capitalized engineering and design costs in our Corporate and other group related to certain building safety requirements (California earthquake standards) that have been revised, to adjust the carrying values to estimated fair value. There were no impairments of long-lived assets for the quarter or nine months ended September 30, 2011.

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On November 22, 2010, HCA Inc. reorganized by creating a new holding company structure. HCA Holdings, Inc. became the new parent company, and HCA Inc. is now HCA Holdings, Inc.’s wholly-owned direct subsidiary. On November 23, 2010, HCA Holdings, Inc. issued $1.525 billion aggregate principal amount of 7 3/4% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

Our senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, wholly-owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility).

 

18


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

Our summarized condensed consolidating balance sheets at September 30, 2011 and December 31, 2010, condensed consolidating statements of income for the quarters and nine months ended September 30, 2011 and 2010 and condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2010, segregating HCA Holdings, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow:

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

(Dollars in millions)

 

     HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $      $      $ 4,569      $ 3,481      $      $ 8,050   

Provision for doubtful accounts

                   424        316               740   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                   4,145        3,165               7,310   

Salaries and benefits

                   1,901        1,432               3,333   

Supplies

                   702        561               1,263   

Other operating expenses

            1        697        672               1,370   

Equity in earnings of affiliates

     (77            (24     (44     77        (68

Depreciation and amortization

                   193        169               362   

Interest expense

     20        776        (245     (32            519   

Losses on sales of facilities

                   2                      2   

Losses on retirement of debt

            406                             406   

Management fees

                   (128     128                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (57     1,183        3,098        2,886        77        7,187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     57        (1,183     1,047        279        (77     123   

Provision (benefit) for income taxes

     (4     (357     293        45               (23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     61        (826     754        234        (77     146   

Net income attributable to noncontrolling interests

                   16        69               85   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

   $ 61      $ (826   $ 738      $ 165      $ (77   $ 61   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

(Dollars in millions)

 

     HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $      $ 4,415      $ 3,232      $      $ 7,647   

Provision for doubtful accounts

            452        269               721   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

            3,963        2,963               6,926   

Salaries and benefits

            1,829        1,305               3,134   

Supplies

            698        536               1,234   

Other operating expenses

     1        678        589               1,268   

Equity in earnings of affiliates

     (680     (27     (40     680        (67

Depreciation and amortization

            196        156               352   

Interest expense

     685        (139     (21            525   

Losses on sales of facilities

                   2               2   

Impairments of long-lived assets

            5        5               10   

Management fees

            (118     118                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     6        3,122        2,650        680        6,458   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (6     841        313        (680     468   

Provision (benefit) for income taxes

     (249     303        89               143   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     243        538        224        (680     325   

Net income attributable to noncontrolling interests

            4        78               82   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 243      $ 534      $ 146      $ (680   $ 243   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(Dollars in millions)

 

     HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $      $      $ 13,662      $ 10,506      $      $ 24,168   

Provision for doubtful accounts

                   1,298        866               2,164   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                   12,364        9,640               22,004   

Salaries and benefits

                   5,669        4,279               9,948   

Supplies

                   2,133        1,700               3,833   

Other operating expenses

            5        2,064        1,949               4,018   

Equity in earnings of affiliates

     (581            (84     (133     581        (217

Depreciation and amortization

                   582        496               1,078   

Interest expense

     80        2,208        (561     (155            1,572   

Losses (gains) on sales of facilities

                   18        (15            3   

Losses on retirement of debt

            481                             481   

Termination of management agreement

            181                             181   

Management fees

                   (381     381                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (501     2,875        9,440        8,502        581        20,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     501        (2,875     2,924        1,138        (581     1,107   

Provision (benefit) for income taxes

     (29     (1,055     1,055        336               307   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     530        (1,820     1,869        802        (581     800   

Net income attributable to noncontrolling interests

                   47        223               270   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

   $ 530      $ (1,820   $ 1,822      $ 579      $ (581   $ 530   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(Dollars in millions)

 

     HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $      $ 13,268      $ 9,679      $      $ 22,947   

Provision for doubtful accounts

            1,309        764               2,073   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

            11,959        8,915               20,874   

Salaries and benefits

            5,464        3,818               9,282   

Supplies

            2,112        1,573               3,685   

Other operating expenses

     4        1,981        1,711               3,696   

Equity in earnings of affiliates

     (2,236     (82     (128     2,236        (210

Depreciation and amortization

            588        474               1,062   

Interest expense

     2,001        (376     (54            1,571   

Losses on sales of facilities

                   2               2   

Impairments of long-lived assets

            58        61               119   

Management fees

            (356     356                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (231     9,389        7,813        2,236        19,207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     231        2,570        1,102        (2,236     1,667   

Provision (benefit) for income taxes

     (693     875        306               488   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     924        1,695        796        (2,236     1,179   

Net income attributable to noncontrolling interests

            33        222               255   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 924      $ 1,662      $ 574      $ (2,236   $ 924   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

SEPTEMBER 30, 2011

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 
ASSETS            

Current assets:

           

Cash and cash equivalents

  $      $      $ 95      $ 264      $      $ 359   

Accounts receivable, net

                  2,259        1,666               3,925   

Inventories

                  546        345               891   

Deferred income taxes

    643                                    643   

Other

    218               228        429               875   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    861               3,128        2,704               6,693   

Property and equipment, net

                  6,973        4,672               11,645   

Investments of insurance subsidiary

                         545               545   

Investments in and advances to affiliates

                  220        617               837   

Goodwill

                  1,608        1,093               2,701   

Deferred loan costs

    22        275                             297   

Investments in and advances to subsidiaries

    14,863                             (14,863       

Other

    763        38        26        211               1,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 16,509      $ 313      $ 11,955      $ 9,842      $ (14,863   $ 23,756   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

           

Current liabilities:

           

Accounts payable

  $      $      $ 769      $ 565      $      $ 1,334   

Accrued salaries

                  557        319               876   

Other accrued expenses

    44        234        350        708               1,336   

Long-term debt due within one year

           682        15        28               725   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    44        916        1,691        1,620               4,271   

Long-term debt

    1,525        23,693        87        566               25,871   

Intercompany balances

    24,619        (12,397     (14,435     2,213                 

Professional liability risks

                         993               993   

Income taxes and other liabilities

    515        434        519        215               1,683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    26,703        12,646        (12,138     5,607               32,818   

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.

    (10,194     (12,333     23,989        3,207        (14,863     (10,194

Noncontrolling interests

                  104        1,028               1,132   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (10,194     (12,333     24,093        4,235        (14,863     (9,062
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 16,509      $ 313      $ 11,955      $ 9,842      $ (14,863   $ 23,756   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 
ASSETS            

Current assets:

           

Cash and cash equivalents

  $ 6      $      $ 156      $ 249      $      $ 411   

Accounts receivable, net

                  2,214        1,618               3,832   

Inventories

                  547        350               897   

Deferred income taxes

    931                                    931   

Other

    202               223        423               848   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,139               3,140        2,640               6,919   

Property and equipment, net

                  6,817        4,535               11,352   

Investments of insurance subsidiary

                         642               642   

Investments in and advances to affiliates

                  248        621               869   

Goodwill

                  1,635        1,058               2,693   

Deferred loan costs

    23        351                             374   

Investments in and advances to subsidiaries

    14,282                             (14,282       

Other

    776        39        21        167               1,003   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 16,220      $ 390      $ 11,861      $ 9,663      $ (14,282   $ 23,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

           

Current liabilities:

           

Accounts payable

  $      $      $ 919      $ 618      $      $ 1,537   

Accrued salaries

                  556        339               895   

Other accrued expenses

    12        296        328        609               1,245   

Long-term debt due within one year

           554        12        26               592   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    12        850        1,815        1,592               4,269   

Long-term debt

    1,525        25,758        95        255               27,633   

Intercompany balances

    25,985        (16,130     (12,833     2,978                 

Professional liability risks

                         995               995   

Income taxes and other liabilities

    483        425        505        195               1,608   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    28,005        10,903        (10,418     6,015               34,505   

Equity securities with contingent redemption rights

    141                                    141   

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.

    (11,926     (10,513     22,167        2,628        (14,282     (11,926

Noncontrolling interests

                  112        1,020               1,132   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (11,926     (10,513     22,279        3,648        (14,282     (10,794
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 16,220      $ 390      $ 11,861      $ 9,663      $ (14,282   $ 23,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Cash flows from operating activities:

           

Net income

  $ 530      $ (1,820   $ 1,869      $ 802      $ (581   $ 800   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

           

Changes in operating assets and liabilities

    34        (61     (1,442     (867            (2,336

Provision for doubtful accounts

                  1,298        866               2,164   

Depreciation and amortization

                  582        496               1,078   

Income taxes

    348                                    348   

Losses (gains) on sales of facilities

                  18        (15            3   

Losses on retirement of debt

           481                             481   

Amortization of deferred loan costs

           56                             56   

Share-based compensation

    24                                    24   

Pay-in-kind interest

           (78                          (78

Equity in earnings of affiliates

    (581                          581          

Other

           7               (1            6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    355        (1,415     2,325        1,281               2,546   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                  (594     (576            (1,170

Acquisition of hospitals and health care entities

                  (136     (73            (209

Disposition of hospitals and health care entities

                  1        54               55   

Change in investments

                  31        49               80   

Other

                         4               4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                  (698     (542            (1,240
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

           5,000                             5,000   

Net change in revolving bank credit facilities

           (414                          (414

Repayment of long-term debt

           (6,529     (8     (46            (6,583

Distributions to noncontrolling interests

                  (55     (226            (281

Distributions to stockholders

    (31                                 (31

Changes in intercompany balances with affiliates, net

    (1,358     3,442        (1,625     (459              

Payment of debt issuance costs

           (84                          (84

Issuances of common stock

    2,506                                    2,506   

Repurchase of common stock

    (1,503                                 (1,503

Income tax benefits

    54                                    54   

Other

    (29                   7               (22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (361     1,415        (1,688     (724            (1,358
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

    (6            (61     15               (52

Cash and cash equivalents at beginning of period

    6               156        249               411   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $      $      $ 95      $ 264      $      $ 359   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(Dollars in millions)

 

    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Cash flows from operating activities:

         

Net income

  $ 924      $ 1,695      $ 796      $ (2,236   $ 1,179   

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

         

Changes in operating assets and liabilities

    111        (1,358     (680            (1,927

Provision for doubtful accounts

           1,309        764               2,073   

Depreciation and amortization

           588        474               1,062   

Income taxes

    (70                          (70

Losses on sales of facilities

                  2               2   

Impairments of long-lived assets

           58        61               119   

Amortization of deferred loan costs

    60                             60   

Share-based compensation

    24                             24   

Equity in earnings of affiliates

    (2,236                   2,236          

Other

    29                             29   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

    (1,158     2,292        1,417               2,551   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

         

Purchase of property and equipment

           (338     (522            (860

Acquisition of hospitals and health care entities

           (21     (14            (35

Disposition of hospitals and health care entities

           24        2               26   

Change in investments

           1        472               473   

Other

                  (2            (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

           (334     (64            (398
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

         

Issuance of long-term debt

    1,387                             1,387   

Net change in revolving credit facilities

    1,035                             1,035   

Repayment of long-term debt

    (1,956     (16     (48            (2,020

Distributions to noncontrolling interests

           (49     (233            (282

Distributions to stockholders

    (2,251                          (2,251

Changes in intercompany balances with affiliates, net

    2,913        (1,896     (1,017              

Payment of debt issuance costs

    (25                          (25

Income tax benefits

    60                             60   

Other

    (5            13               8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    1,158        (1,961     (1,285            (2,088
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

           (3     68               65   

Cash and cash equivalents at beginning of period

           95        217               312   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $      $ 92      $ 285      $      $ 377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

NOTE 13 — SUBSEQUENT EVENT

On October 14, 2011, we acquired the Colorado Health Foundation’s approximate 40% remaining ownership interest in the HCA-HealthONE LLC joint venture for $1.450 billion. As a result, we own all of HCA-HealthONE LLC. HealthONE LLC’s assets include seven hospitals and 14 freestanding surgery centers in the Denver area. The operations of these facilities were previously accounted for under the equity method, and we expect this acquisition to provide immediate accretion to our earnings.

 

27


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This quarterly report on Form 10-Q includes certain disclosures which contain “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the effects related to the enactment and implementation of the Budget Control Act of 2011 (“BCA”) and the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Health Reform Law”), the possible enactment of additional federal or state health care reforms and possible changes to the Health Reform Law and other federal, state or local laws or regulations affecting the health care industry, (3) increases in the amount and risk of collectibility of uninsured accounts and deductibles and copayment amounts for insured accounts, (4) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (5) possible changes in the Medicare, Medicaid and other state programs, including Medicaid supplemental payments pursuant to upper payment limit (“UPL”) programs, that may impact reimbursements to health care providers and insurers, (6) the highly competitive nature of the health care business, (7) changes in revenue mix, including potential declines in the population covered under managed care agreements and the ability to enter into and renew managed care provider agreements on acceptable terms, (8) the efforts of insurers, health care providers and others to contain health care costs, (9) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (10) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (11) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (12) changes in accounting practices, (13) changes in general economic conditions nationally and regionally in our markets, (14) future divestitures which may result in charges and possible impairments of long-lived assets, (15) changes in business strategy or development plans, (16) delays in receiving payments for services provided, (17) the outcome of pending and any future tax audits, appeals and litigation associated with our tax positions, (18) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (19) our ongoing ability to demonstrate meaningful use of certified electronic health record technology and recognize revenues for the related Medicare or Medicaid incentive payments, and (20) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2010 and our other filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

Health Care Reform

As enacted, the Health Reform Law will change how health care services are covered, delivered and reimbursed through expanded coverage of uninsured individuals, reduced growth in Medicare program spending, reductions in Medicare and Medicaid Disproportionate Share Hospital payments, and the establishment of programs in which reimbursement is tied to quality and integration. In addition, the Health Reform Law reforms certain aspects of health insurance, expands existing efforts to tie Medicare and Medicaid payments to performance and quality, and contains provisions intended to strengthen fraud and abuse enforcement.

 

28


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Third Quarter 2011 Operations Summary

Net income attributable to HCA Holdings, Inc. totaled $61 million, or $0.11 per diluted share, for the quarter ended September 30, 2011, compared to $243 million, or $0.55 per diluted share, for the quarter ended September 30, 2010. Revenues increased to $7.310 billion in the third quarter of 2011 from $6.926 billion in the third quarter of 2010. Third quarter 2011 results include losses on sales of facilities of $2 million and losses on retirement of debt of $406 million, or $0.49 per diluted share. Third quarter 2010 results include losses on sales of facilities of $2 million and impairments of long-lived assets of $10 million, or $0.02 per diluted share. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 527.515 million shares for the quarter ended September 30, 2011 and 439.032 million shares for the quarter ended September 30, 2010. During March 2011, we completed the initial public offering of 87.719 million shares of our common stock, and during September 2011, we repurchased 80.771 million shares of our common stock from affiliates of Bank of America Corporation.

Revenues increased 5.5% on a consolidated basis and increased 3.7% on a same facility basis for the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010. The increase in consolidated revenues can be attributed primarily to the combined impact of a 0.2% increase in revenue per equivalent admission and a 5.4% increase in equivalent admissions. The same facility revenues increase resulted primarily from the combined impact of a 0.1% decline in same facility revenue per equivalent admission and a 3.8% increase in same facility equivalent admissions. We experienced a shift in service mix from more complex surgical cases to less acute medical cases, resulting in lower than anticipated revenue per equivalent admission growth for the quarter ended September 30, 2011. Revenues for the third quarter of 2011 included $34 million and $17 million, respectively, of Medicaid and Medicare incentive revenues related to certain of our eligible hospitals becoming able to attest to their adoption, implementation or demonstration of meaningful use of certified electronic health record technology.

During the quarter ended September 30, 2011, consolidated admissions and same facility admissions increased 4.8% and 3.2%, respectively, compared to the quarter ended September 30, 2010. Inpatient surgeries declined 0.5% on a consolidated basis and 0.9% on a same facility basis during the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010. Outpatient surgeries increased 0.1% on a consolidated basis and declined 1.2% on a same facility basis during the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010. Emergency department visits increased 5.7% on a consolidated basis and 4.9% on a same facility basis during the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010.

For the quarter ended September 30, 2011, the provision for doubtful accounts increased $19 million, compared to the quarter ended September 30, 2010. The self-pay revenue deductions for charity care and uninsured discounts increased $96 million and $279 million, respectively, during the third quarter of 2011, compared to the third quarter of 2010. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, provision for doubtful accounts, uninsured discounts and charity care, was 28.3% for the third quarter of 2011, compared to 26.4% for the third quarter of 2010. Same facility uninsured admissions increased 8.8% and same facility uninsured emergency room visits increased 4.2% for the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010.

Interest expense declined $6 million to $519 million for the quarter ended September 30, 2011 from $525 million for the quarter ended September 30, 2010. The decline in interest expense was primarily due to a decline in the average debt balance.

During the quarter ended September 30, 2011, we recorded an income tax benefit of $23 million compared to a provision for income taxes of $143 million for the quarter ended September 30, 2010. The third quarter 2011 income tax benefit was primarily due to the finalization of settlements with the IRS for the 1997 through 2001 tax years which resulted in a reduction of interest expense related to taxing authority examinations of $66 million pretax.

 

29


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Third Quarter 2011 Operations Summary (continued)

Cash flows from operating activities declined $376 million from $1.256 billion for the third quarter of 2010 to $880 million for the third quarter of 2011. The decline is primarily related to changes to working capital items.

Results of Operations

Revenue/Volume Trends

Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Gross charges typically do not reflect what our facilities are actually paid. Our facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts related to patients who meet our guidelines to qualify for charity care; therefore, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans. After the discounts are applied, we are still unable to collect a significant portion of uninsured patients’ accounts, and we record significant provisions for doubtful accounts (based upon our historical collection experience) related to uninsured patients in the period the services are provided.

We adopted the provisions of Accounting Standards Update No. 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (“ASU 2011-07”), during the period ended September 30, 2011. ASU 2011-07 requires health care entities to change the presentation of the statement of operations by reclassifying the provision for doubtful accounts from an operating expense to a deduction from patient service revenues. All periods presented have been reclassified in accordance with ASU 2011-07.

Revenues increased 5.5% from $6.926 billion in the third quarter of 2010 to $7.310 billion in the third quarter of 2011. Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under the Medicare, Medicaid and other programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay accounts receivable at the estimated amounts we expect to collect. Our revenues from our third-party payers, the uninsured and other revenues for quarters and nine months ended September 30, 2011 and 2010 are summarized in the following tables (dollars in millions):

 

     Quarter  
     2011     Ratio     2010     Ratio  

Medicare

   $ 1,844        25.2   $ 1,745        25.2

Managed Medicare

     610        8.3        531        7.7   

Medicaid

     453        6.2        472        6.8   

Managed Medicaid

     311        4.3        296        4.3   

Managed care and other insurers

     3,855        52.7        3,669        53.0   

International (managed care and other insurers)

     232        3.2        195        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,305        99.9        6,908        99.8   

Uninsured

     508        6.9        518        7.5   

Other

     237        3.2        221        3.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     8,050        110.0        7,647        110.5   

Provision for doubtful accounts

     (740     (10.0     (721     (10.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 7,310        100.0   $ 6,926        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Revenue/Volume Trends (continued)

 

     Nine Months  
     2011     Ratio     2010     Ratio  

Medicare

   $ 5,715        26.0   $ 5,420        26.0

Managed Medicare

     1,806        8.2        1,630        7.8   

Medicaid

     1,440        6.5        1,461        7.0   

Managed Medicaid

     946        4.3        874        4.2   

Managed care and other insurers

     11,486        52.2        10,906        52.2   

International (managed care and other insurers)

     698        3.2        577        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 
     22,091        100.4        20,868        100.0   

Uninsured

     1,390        6.3        1,388        6.7   

Other

     687        3.1        691        3.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     24,168        109.8        22,947        110.0   

Provision for doubtful accounts

     (2,164     (9.8     (2,073     (10.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 22,004        100.0   $ 20,874        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated and same facility revenue per equivalent admission increased 0.2% and declined 0.1%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility equivalent admissions increased 5.4% and 3.8%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility admissions increased 4.8% and 3.2%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility outpatient surgeries increased 0.1% and declined 1.2%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility inpatient surgeries declined 0.5% and 0.9%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility emergency department visits increased 5.7% and 4.9%, respectively, in the third quarter of 2011, compared to the third quarter of 2010.

To quantify the total impact of and trends related to uninsured accounts, we believe it is beneficial to view the uninsured revenue deductions and provision for doubtful accounts in combination, rather than each separately. At September 30, 2011, our allowance for doubtful accounts represented approximately 92% of the $4.323 billion total patient due accounts receivable balance. The patient due accounts receivable balance represents the estimated uninsured portion of our accounts receivable. A summary of these amounts for the quarters and nine months ended September 30, 2011 and 2010 follows (dollars in millions):

 

     Quarter     Nine Months  
     2011      Ratio     2010      Ratio     2011      Ratio     2010      Ratio  

Provision for doubtful accounts

   $ 740         26   $ 721         29   $ 2,164         26   $ 2,073         29

Uninsured discounts

     1,457         50        1,178         47        4,072         50        3,285         47   

Charity care

     682         24        586         24        1,974         24        1,730         24   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Totals

   $ 2,879         100   $ 2,485         100   $ 8,210         100   $ 7,088         100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Same facility uninsured admissions increased by 2,489 admissions, or 8.8%, in the third quarter of 2011, compared to the third quarter of 2010. Same facility uninsured admissions in 2011, compared to 2010, increased by 10.6% in the second quarter of 2011 and increased 4.7% in the first quarter of 2011. Same facility uninsured admissions in 2010, compared to 2009, increased 8.9% in the fourth quarter of 2010, increased 3.9% in the third quarter of 2010, increased 2.1% in the second quarter of 2010 and increased 6.8% in the first quarter of 2010.

 

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Revenue/Volume Trends (continued)

 

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and other insurers and the uninsured for the quarters and nine months ended September 30, 2011 and 2010 are set forth in the following table.

 

     Quarter     Nine Months  
     2011     2010     2011     2010  

Medicare

     33     33     34     34

Managed Medicare

     11        10        11        10   

Medicaid

     9        9        9        9   

Managed Medicaid

     8        8        8        8   

Managed care and other insurers

     31        33        31        32   

Uninsured

     8        7        7        7   
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

The approximate percentages of our inpatient revenues, before provision for doubtful accounts, related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and other insurers and the uninsured for the quarters and nine months ended September 30, 2011 and 2010 are set forth in the following table.

 

     Quarter     Nine Months  
     2011     2010     2011     2010  

Medicare

     31     31     31     31

Managed Medicare

     9        9        9        9   

Medicaid

     8        9        9        9   

Managed Medicaid

     4        4        4        4   

Managed care and other insurers

     45        43        44        44   

Uninsured

     3        4        3        3   
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2011, we had 75 hospitals in the states of Texas and Florida. During the third quarter of 2011, 57% of our admissions and 50% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 64% of our uninsured admissions during the third quarter of 2011.

We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. We provide indigent care services in several communities in the state of Texas, in affiliation with other hospitals. The state of Texas has been involved in efforts to increase the indigent care provided by private hospitals. Additional indigent care provided by private hospitals allows public hospital districts or counties in Texas to have funds available that were previously devoted to indigent care. The public hospital districts or counties are under no contractual or legal obligation to provide such indigent care. The public hospital districts or counties have elected to transfer some portion of these available funds to the state’s Medicaid program. Such action is at the sole discretion of the public hospital districts or counties. It is anticipated that these contributions to the state will be matched with federal Medicaid funds. The state then may make supplemental payments to hospitals in the state for Medicaid services rendered. Hospitals receiving Medicaid supplemental payments may include those that are providing additional indigent care services. Such payments must be within the federal UPL established by federal regulation. Our Texas Medicaid revenues included $123 million and $150 million during the third quarters of

 

32


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Revenue/Volume Trends (continued)

 

2011 and 2010, respectively, and $424 million and $486 million during the first nine months of 2011 and 2010, respectively, of Medicaid supplemental payments pursuant to UPL programs. In addition, we receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made waiver requests to the Centers for Medicare & Medicaid Services (“CMS”) to replace their existing supplemental payment programs. It is possible these reviews and waiver requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.

The American Recovery and Reinvestment Act of 2009 provides for Medicare and Medicaid incentive payments beginning in 2011 for eligible hospitals and professionals that adopt and meaningfully use certified electronic health record (“EHR”) technology. We recognize revenues related to Medicare and Medicaid incentive payments when our eligible hospitals have demonstrated meaningful use of certified EHR technology for the applicable period and the cost report information for the full cost report year that will determine the final calculation of the incentive payment is available. We recognized $51 million and $90 million of revenues related to Medicaid and Medicare incentive programs during the third quarter and first nine months of 2011, respectively, and expect to recognize additional revenues during the fourth quarter of 2011. We estimate that during 2011 the amount of Medicare and Medicaid incentive payments realizable (and revenues recognized) will be in the range of $190 million to $220 million. We estimate that approximately 60% of our total expected incentive revenues for 2011 relates to Medicare incentives. Actual incentive payments could vary from these estimates due to certain factors such as availability of federal funding for both Medicare and Medicaid incentive payments, timing of the approval of state Medicaid incentive payment plans by CMS and our ability to implement and demonstrate meaningful use of certified EHR technology. We have incurred and will continue to incur both capital costs and operating expenses in order to implement our certified EHR technology and meet meaningful use requirements. These expenses are ongoing and are projected to continue over all stages of implementation of meaningful use. The timing of recognizing the expenses may not correlate with the receipt of the incentive payments and the recognition of revenues. We estimate that operating expenses to implement our certified EHR technology and meet meaningful use will be in the range of $75 million to $85 million for 2011. Actual operating expenses could vary from these estimates. For the third quarter and first nine months of 2011, we incurred $14 million and $58 million, respectively, of operating expenses to implement our certified EHR technology and meet meaningful use. There can be no assurance that we will be able to demonstrate meaningful use of certified EHR technology, and the failure to do so could have a material, adverse effect on our results of operations.

 

33


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Operating Results Summary

The following are comparative summaries of results from operations for the quarters and nine months ended September 30, 2011 and 2010 (dollars in millions):

 

     Quarter  
     2011     2010  
     Amount     Ratio     Amount     Ratio  

Revenues before provision for doubtful accounts

   $ 8,050        $ 7,647     

Provision for doubtful accounts

     740          721     
  

 

 

     

 

 

   

Revenues

     7,310        100.0        6,926        100.0   

Salaries and benefits

     3,333        45.6        3,134        45.2   

Supplies

     1,263        17.3        1,234        17.8   

Other operating expenses

     1,370        18.7        1,268        18.4   

Equity in earnings of affiliates

     (68     (0.9     (67     (1.0

Depreciation and amortization

     362        4.9        352        5.2   

Interest expense

     519        7.1        525        7.6   

Losses on sales of facilities

     2               2          

Impairments of long-lived assets

                   10        0.1   

Losses on retirement of debt

     406        5.6                 
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,187        98.3        6,458        93.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     123        1.7        468        6.7   

Provision (benefit) for income taxes

     (23     (0.3     143        2.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     146        2.0        325        4.7   

Net income attributable to noncontrolling interests

     85        1.2        82        1.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 61        0.8      $ 243        3.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

% changes from prior year:

        

Revenues

     5.5       4.6  

Income before income taxes

     (73.7       15.2     

Net income attributable to HCA Holdings, Inc.

     (75.0       24.3     

Admissions(a)

     4.8          (1.0  

Equivalent admissions(b)

     5.4          0.4     

Revenue per equivalent admission

     0.2          4.1     

Same facility % changes from prior year(c):

        

Revenues

     3.7          4.7     

Admissions(a)

     3.2          (0.6  

Equivalent admissions(b)

     3.8          0.7     

Revenue per equivalent admission

     (0.1       3.9     

 

34


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Operating Results Summary (continued)

 

     Nine Months  
     2011     2010  
     Amount     Ratio     Amount     Ratio  

Revenues before provision for doubtful accounts

   $ 24,168        $ 22,947     

Provision for doubtful accounts

     2,164          2,073     
  

 

 

     

 

 

   

Revenues

     22,004        100.0        20,874        100.0   

Salaries and benefits

     9,948        45.2        9,282        44.5   

Supplies

     3,833        17.4        3,685        17.7   

Other operating expenses

     4,018        18.3        3,696        17.6   

Equity in earnings of affiliates

     (217     (1.0     (210     (1.0

Depreciation and amortization

     1,078        5.0        1,062        5.1   

Interest expense

     1,572        7.1        1,571        7.5   

Losses on sales of facilities

     3               2          

Impairments of long-lived assets

                   119        0.6   

Losses on retirement of debt

     481        2.2                 

Termination of management agreement

     181        0.8                 
  

 

 

   

 

 

   

 

 

   

 

 

 
     20,897        95.0        19,207        92.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,107        5.0        1,667        8.0   

Provision for income taxes

     307        1.4        488        2.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     800        3.6        1,179        5.6   

Net income attributable to noncontrolling interests

     270        1.2        255        1.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 530        2.4      $ 924        4.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

% changes from prior year:

        

Revenues

     5.4       5.1  

Income before income taxes

     (33.6       7.5     

Net income attributable to HCA Holdings, Inc.

     (42.6       10.3     

Admissions(a)

     3.3          (0.3  

Equivalent admissions(b)

     4.2          0.9     

Revenue per equivalent admission

     1.2          4.2     

Same facility % changes from prior year(c):

        

Revenues

     4.1          5.1     

Admissions(a)

     2.2              

Equivalent admissions(b)

     3.0          1.1     

Revenue per equivalent admission

     1.0          3.9     

 

(a)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

 

(b)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.

 

(c)

Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.

 

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Quarters Ended September 30, 2011 and 2010

Net income attributable to HCA Holdings, Inc. totaled $61 million, or $0.11 per diluted share, for the third quarter of 2011 compared to $243 million, or $0.55 per diluted share, for the third quarter of 2010. Third quarter 2011 results include losses on sales of facilities of $2 million and losses on retirement of debt of $406 million (pretax), or $256 million (net of tax), and $0.49 per diluted share. Third quarter 2010 results include losses on sales of facilities of $2 million and impairments of long-lived assets of $10 million (pretax), or $6 million (net of tax), and $0.02 per diluted share. (All “per diluted share” disclosures are based upon amounts net of the applicable income taxes.) Shares used for diluted earnings per share were 527.515 million shares and 439.032 million shares for the quarters ended September 30, 2011 and 2010, respectively.

For the third quarter of 2011, consolidated and same facility admissions increased 4.8% and 3.2%, respectively, compared to the third quarter of 2010. Consolidated and same facility outpatient surgical volumes increased 0.1% and declined 1.2%, respectively, during the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility inpatient surgeries declined 0.5% and 0.9%, respectively, in the third quarter of 2011, compared to the third quarter of 2010. Consolidated and same facility emergency department visits increased 5.7% and 4.9%, respectively, during the quarter ended September 30, 2011, compared to the quarter ended September 30, 2010.

Revenues before provision for doubtful accounts increased 5.3% for the third quarter of 2011 compared to the third quarter of 2010. Provision for doubtful accounts increased $19 million from $721 million in the third quarter of 2010 to $740 million in the third quarter of 2011. With our adoption of ASU 2011-07, the provision for doubtful accounts has been reclassified from an operating expense to a deduction from patient service revenues. The provision for doubtful accounts relates primarily to uninsured amounts due directly from patients, including copayment and deductible amounts for patients who have health care coverage. The self-pay revenue deductions for charity care and uninsured discounts increased $96 million and $279 million, respectively, during the third quarter of 2011, compared to the third quarter of 2010. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 28.3% for the third quarter of 2011, compared to 26.4% for the third quarter of 2010.

Revenues increased 5.5% due to the combined impact of revenue per equivalent admission growth of 0.2% and an increase of 5.4% in equivalent admissions for the third quarter of 2011 compared to the third quarter of 2010. Revenues for the third quarter of 2011 included $34 million and $17 million, respectively, of Medicaid and Medicare incentive revenues related to certain of our eligible hospitals becoming able to attest to their adoption, implementation or demonstration of meaningful use of certified electronic health record technology.

Salaries and benefits, as a percentage of revenues, were 45.6% in the third quarter of 2011 and 45.2% in the third quarter of 2010. Salaries and benefits per equivalent admission increased 0.9% in the third quarter of 2011 compared to the third quarter of 2010. Same facility labor rate increases averaged 2.0% for the third quarter of 2011 compared to the third quarter of 2010.

Supplies, as a percentage of revenues, were 17.3% in the third quarter of 2011 and 17.8% in the third quarter of 2010. Supply cost per equivalent admission declined 2.9% in the third quarter of 2011 compared to the third quarter of 2010. Supply costs per equivalent admission increased 1.4% for general medical and surgical items and declined 5.3% for medical devices and 4.0% for pharmacy supplies in the third quarter of 2011 compared to the third quarter of 2010.

Other operating expenses, as a percentage of revenues, increased to 18.7% in the third quarter of 2011 from 18.4% in the third quarter of 2010. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Other operating expenses include $78 million and $87 million of indigent care

 

36


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Quarters Ended September 30, 2011 and 2010 (continued)

 

costs in certain Texas markets during the third quarters of 2011 and 2010, respectively. Provisions for losses related to professional liability risks were $62 million and $56 million for the third quarters of 2011 and 2010, respectively.

Equity in earnings of affiliates was $68 million and $67 million in the third quarters of 2011 and 2010, respectively. Equity in earnings of affiliates relates primarily to our Denver, Colorado market joint venture.

Depreciation and amortization increased $10 million, from $352 million in the third quarter of 2010 to $362 million in the third quarter of 2011.

Interest expense declined from $525 million in the third quarter of 2010 to $519 million in the third quarter of 2011 due primarily to a decline in the average debt balance. Our average debt balance was $25.600 billion for the third quarter of 2011 compared to $26.446 billion for the third quarter of 2010. The average effective interest rate for our long term debt increased from 7.9% for the quarter ended September 30, 2010 to 8.0% for the quarter ended September 30, 2011.

During the third quarter of both 2011 and 2010, we recorded net losses on sales of facilities of $2 million.

During the third quarter of 2010, we recorded impairments of long-lived assets of $10 million to adjust the carrying values to estimated fair value. There were no impairments of long-lived assets during the third quarter of 2011.

During the third quarter of 2011, we recorded losses on retirement of debt of $406 million related to the redemptions of all of our outstanding $1.578 billion 9 5/8%/10  3/8% second lien toggle notes due 2016, at a redemption price of 106.783% and all of our outstanding $3.200 billion 9 1/4% second lien notes due 2016, at a redemption price of 106.513%.

The effective tax rates were a benefit of 60.0% for the third quarter of 2011 and a provision of 37.0% for the third quarter of 2010. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provision for income taxes for the third quarter of 2011 was reduced by $42 million related to reductions in interest expense related to taxing authority examinations and an increase of $5 million related to certain state tax adjustments. Excluding the effect of these adjustments, the effective tax rate for the third quarter of 2011 would have been 36.7%.

Net income attributable to noncontrolling interests increased from $82 million for the third quarter of 2010 to $85 million for the third quarter of 2011.

Nine Months Ended September 30, 2011 and 2010

Net income attributable to HCA Holdings, Inc. totaled $530 million, or $1.04 per diluted share, in the nine months ended September 30, 2011 compared to $924 million, or $2.11 per diluted share, in the nine months ended September 30, 2010. A large component of the $394 million decline in net income attributable to HCA Holdings, Inc. in the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010, relates to the termination of management agreement charge of $181 million (pretax), or $149 million (net of taxes) and $0.29 per diluted share and the losses on retirement of debt of $481 million (pretax), or $303 million (net of taxes) and $0.60 per diluted share, in the nine months ended September 30, 2011.

For the first nine months of 2011, consolidated and same facility admissions increased 3.3% and 2.2%, respectively, compared to the first nine months of 2010. Consolidated and same facility outpatient surgical volumes increased 0.5% and declined 0.4%, respectively, during the first nine months of 2011, compared to the first nine months of 2010. Consolidated and same facility inpatient surgeries declined 1.3% and 1.5%,

 

37


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Nine Months Ended September 30, 2011 and 2010 (continued)

 

respectively, in the first nine months of 2011, compared to the first nine months of 2010. Consolidated and same facility emergency department visits increased 7.5% and 6.8%, respectively, during the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010.

Revenues before provision for doubtful accounts increased 5.3% for the first nine months of 2011 compared to the first nine months of 2010. Provision for doubtful accounts increased $91 million from $2.073 billion in the first nine months of 2010 to $2.164 billion in the first nine months of 2011. With our adoption of ASU 2011-07, the provision for doubtful accounts has been reclassified from an operating expense to a deduction from patient service revenues. The provision for doubtful accounts relates primarily to uninsured amounts due directly from patients, including copayment and deductible amounts for patients who have health care coverage. The self-pay revenue deductions for charity care and uninsured discounts increased $244 million and $787 million, respectively, during the first nine months of 2011, compared to the first nine months of 2010. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 27.2% for the first nine months of 2011, compared to 25.3% for the first nine months of 2010.

Revenues increased 5.4% due to the combined impact of revenue per equivalent admission growth of 1.2% and an increase of 4.2% in equivalent admissions for the first nine months of 2011 compared to the first nine months of 2010.

Salaries and benefits, as a percentage of revenues, were 45.2% in the first nine months of 2011 and 44.5% in the first nine months of 2010. Salaries and benefits per equivalent admission increased 2.9% in the first nine months of 2011 compared to the first nine months of 2010. Same facility labor rate increases averaged 2.5% for the first nine months of 2011 compared to the first nine months of 2010.

Supplies, as a percentage of revenues, were 17.4% in the first nine months of 2011 and 17.7% in the first nine months of 2010. Supply cost per equivalent admission declined 0.2% in the first nine months of 2011 compared to the first nine months of 2010. Supply costs per equivalent admission increased 0.8% for blood products and 3.4% for general medical and surgical items and declined 0.5% for pharmacy supplies and 2.9% for medical devices in the first nine months of 2011 compared to the first nine months of 2010.

Other operating expenses, as a percentage of revenues, increased to 18.3% in the first nine months of 2011 from 17.6% in the first nine months of 2010. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Each of contract services and professional fees increased 20 basis points in the first nine months of 2011 compared to the first nine months of 2010. Other operating expenses include $248 million and $268 million of indigent care costs in certain Texas markets during the first nine months of 2011 and 2010, respectively. Provisions for losses related to professional liability risks were $183 million and $167 million for the first nine months of 2011 and 2010, respectively.

Equity in earnings of affiliates was $217 million and $210 million in the first nine months of 2011 and 2010, respectively. Equity in earnings of affiliates relates primarily to our Denver, Colorado market joint venture.

Depreciation and amortization increased $16 million, from $1.062 billion in the first nine months of 2010 to $1.078 billion in the first nine months of 2011.

Interest expense was $1.571 billion in the first nine months of 2010 and $1.572 billion in the first nine months of 2011. Our average debt balance was $26.289 billion for the first nine months of 2011 compared to $26.525 billion for the first nine months of 2010. The average effective interest rate for our long term debt increased from 7.9% for the first nine months of 2010 to 8.0% for the first nine months of 2011.

 

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Results of Operations (continued)

 

Nine Months Ended September 30, 2011 and 2010 (continued)

 

During the first nine months of 2011 and 2010, we recorded net losses on sales of facilities of $3 million and $2 million, respectively.

During the first nine months of 2010, we recorded impairments of long-lived assets of $119 million, including impairment charges of $73 million for two hospital facilities and $35 million for capitalized engineering and design costs related to certain building safety requirements (California earthquake standards) that have been revised, to adjust the carrying values to estimated fair value. There were no impairments of long-lived assets during the first nine months of 2011.

During the first nine months of 2011, we recorded losses on retirement of debt of $481 million related to the redemptions of all $1.000 billion aggregate principal amount of our 9 1/8% Senior Secured Notes due 2014, at a redemption price of 104.563% of the principal amount; $108 million aggregate principal amount of our 9 7/8% Senior Secured Notes due 2017, at a redemption price of 109.875% of the principal amount; all of our outstanding $1.578 billion 9 5/8%/10  3/8% second lien toggle notes due 2016, at a redemption price of 106.783% and all of our outstanding $3.200 billion 9 1/4% second lien notes due 2016, at a redemption price of 106.513%. There were no losses on retirement of debt during the first nine months of 2010.

Our Investors have provided management and advisory services to the Company, pursuant to a management agreement among HCA and the Investors executed in connection with the Investors’ acquisition of HCA in November 2006. In March 2011, the management agreement was terminated pursuant to its terms upon completion of the initial public offering of our common stock, and the Investors were paid a final fee of $181 million.

The effective tax rates were 36.7% and 34.6% for the first nine months of 2011 and 2010, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provision for income taxes for the first nine months of 2010 was reduced by $50 million related to reductions in interest expense related to taxing authority examinations. Excluding the effect of these adjustments, the effective tax rate for the first nine months of 2010 would have been 38.1%.

Net income attributable to noncontrolling interests increased from $255 million for the first nine months of 2010 to $270 million for the first nine months of 2011.

Liquidity and Capital Resources

Cash provided by operating activities totaled $2.546 billion in the first nine months of 2011 compared to $2.551 billion in the first nine months of 2010. Cash provided by operating activities in the first nine months of 2011 was basically equal to the first nine months of 2010 as the negative impact from changes in working capital items and interest payments for the first nine months of 2011 was offset by the decline in income tax payments. The combined interest payments and net tax (refunds) payments in the first nine months of 2011 and 2010 were $1.540 billion and $1.897 billion, respectively. Working capital totaled $2.422 billion at September 30, 2011 and $2.650 billion at December 31, 2010.

Cash used in investing activities was $1.240 billion in the first nine months of 2011 compared to $398 million in the first nine months of 2010. Excluding acquisitions, capital expenditures were $1.170 billion in the first nine months of 2011 and $860 million in the first nine months of 2010. We expended $136 million for the acquisition of a hospital facility and $73 million to acquire nonhospital health care facilities during the first nine months of 2011. We paid $35 million for acquisitions of nonhospital health care facilities during the first

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources (continued)

 

nine months of 2010. Capital expenditures are expected to approximate $1.6 billion in 2011. At September 30, 2011, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $1.550 billion. We expect to finance capital expenditures with internally generated and borrowed funds. We received $55 million and $26 million from sales of hospitals and health care entities during the first nine months of 2011 and 2010, respectively. We received net cash flows from our investments of $80 million and $473 million in the first nine months of 2011 and 2010, respectively. During the first nine months of 2010, we liquidated certain investments of the insurance subsidiary in order to distribute $500 million of excess capital to the Company.

Cash used in financing activities totaled $1.358 billion during the first nine months of 2011 compared to $2.088 billion during the first nine months of 2010. During the first nine months of 2011, net cash flows used in financing activities included reductions in net borrowings of $1.997 billion, net proceeds of $2.506 billion related to the issuance of common stock in conjunction with our initial public offering, repurchases of common stock of $1.503 billion, distributions to noncontrolling interests of $281 million, distributions to stockholders of $31 million, payments of debt issuance costs of $84 million and receipts of $54 million of income tax benefits for certain items (primarily related to our stock options). During the first nine months of 2010, cash flows used in financing activities included payment of cash distributions to stockholders of $2.251 billion ($4.99 per common share), increases in net borrowings of $402 million, payments of debt issuance costs of $25 million, distributions to noncontrolling interests of $282 million and receipts of $60 million of income tax benefits million for certain items (primarily related to our stock options).

We are a highly leveraged company with significant debt service requirements. Our debt totaled $26.596 billion at September 30, 2011. Our interest expense was $1.572 billion for the first nine months of 2011 and $1.571 billion for the first nine months of 2010.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($1.929 billion and $1.275 billion available as of September 30, 2011 and October 31, 2011, respectively) and anticipated access to public and private debt markets.

On May 4, 2011, we completed amendments to our senior secured credit agreement and senior secured asset-based revolving credit agreement, as well as extensions of certain of our term loans. The amendments extend $594 million of our term loan A facility with a final maturity of November 2012 to a final maturity of May 2016 and $2.373 billion of our term loan A and term loan B-1 facilities with final maturities of November 2012 and November 2013, respectively, to a final maturity of May 2018.

On June 2, 2011, we redeemed all $1.000 billion aggregate principal amount of our 9 1/8% senior secured notes due 2014, at a redemption price of 104.563% of the principal amount, and $108 million aggregate principal amount of our 9 7/8% senior secured notes due 2017, at a redemption price of 109.875% of the principal amount. The pretax loss on retirement of debt related to these redemptions was $75 million.

On August 1, 2011, we issued $5.000 billion aggregate principal amount of notes, comprised of $3.000 billion of 6 1/2% senior secured first lien notes due 2020 and $2.000 billion of 7 1/2% senior unsecured notes due 2022. On August 26, 2011, after the payment of related fees and expenses, we used the net proceeds from these debt issuances to redeem all of our outstanding $1.578 billion 9 5/8%/10 3/8% second lien toggle notes due 2016, at a redemption price of 106.783% of the principal amount, and all of our outstanding $3.200 billion 9 1/4% second lien notes due 2016, at a redemption price of 106.513% of the principal amount. The pretax debt retirement charge related to these redemptions was $406 million.

On September 21, 2011, HCA Holdings, Inc. repurchased 80,771,143 shares of its common stock beneficially owned by affiliates of Bank of America Corporation at a purchase price of $18.61 per share, the closing price of the Company’s common stock on the New York Stock Exchange on September 14, 2011. The

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources (continued)

 

repurchase was financed using a combination of cash on hand and borrowings under available credit facilities. The shares repurchased represented approximately 15.6% of the Company’s total shares outstanding and will reduce our weighted average common shares outstanding for future periods.

On September 30, 2011, we refinanced our $2.000 billion asset-based revolving credit facility maturing on November 16, 2012 to increase the total capacity to $2.500 billion and extend the maturity to 2016.

On October 3, 2011, we issued $500 million aggregate principal amount of 8.00% senior unsecured notes due 2018. After the payment of related fees and expenses, we used the net proceeds for general corporate purposes, which included funding a portion of the acquisition of the Colorado Health Foundation’s approximate 40% remaining ownership interest in the HCA-HealthONE LLC joint venture, which was purchased on October 14, 2001 for $1.450 billion.

Investments of our professional liability insurance subsidiary, to maintain statutory equity and pay claims, totaled $630 million and $742 million at September 30, 2011 and December 31, 2010, respectively. The insurance subsidiary maintained net reserves for professional liability risks of $422 million and $452 million at September 30, 2011 and December 31, 2010, respectively. Our facilities are insured by our wholly-owned insurance subsidiary for losses up to $50 million per occurrence; however, this coverage is subject to a $5 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $831 million and $796 million at September 30, 2011 and December 31, 2010, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $283 million. We estimate that approximately $198 million of the expected net claim payments during the next 12 months will relate to claims in the self-insured retention.

Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.

Market Risk

We are exposed to market risk related to changes in market values of securities. The investments in debt and equity securities of our wholly-owned insurance subsidiary were $622 million and $8 million, respectively, at September 30, 2011. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At September 30, 2011, we had a net unrealized gain of $10 million on the insurance subsidiary’s investment securities.

We are exposed to market risk related to market illiquidity. Liquidity of the investments in debt and equity securities of our wholly-owned insurance subsidiary could be impaired by the inability to access the capital markets. Should the wholly-owned insurance subsidiary require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. At September 30, 2011, our wholly-owned insurance subsidiary had invested $145 million ($149 million par value) in tax-exempt student loan auction rate securities that continue to experience market illiquidity. It is uncertain if auction-related market liquidity will resume for these securities. We may be required to recognize other-than-temporary impairments on these long-term investments in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue specific factors.

We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources (continued)

 

Market Risk (continued)

 

notional principal amounts and maturity dates. The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions. The interest payments under these agreements are settled on a net basis. These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income, and changes in the fair value of derivatives which have not been designated as hedges are recorded in operations.

With respect to our interest-bearing liabilities, approximately $2.565 billion of long-term debt at September 30, 2011 was subject to variable rates of interest, while the remaining balance in long-term debt of $24.031 billion at September 30, 2011 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% and (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our long-term debt increased from 7.9% for the nine months ended September 30, 2010 to 8.0% for the nine months ended September 30, 2011.

The estimated fair value of our total long-term debt was $25.989 billion at September 30, 2011. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $26 million. To mitigate the impact of fluctuations in interest rates, we generally target a portion of our debt portfolio to be maintained at fixed rates.

Our international operations and foreign currency denominated loans expose us to market risks associated with foreign currencies. In order to mitigate the currency exposure related to foreign currency denominated debt service obligations, we have entered into cross currency swap agreements. A cross currency swap is an agreement between two parties to exchange a stream of principal and interest payments in one currency for a stream of principal and interest payments in another currency over a specified period. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

Pending IRS Disputes

At September 30, 2011, we were contesting, before the IRS Appeals Division, certain claimed deficiencies and adjustments proposed by the IRS Examination Division in connection with its audit of HCA Inc.’s 2005 and 2006 federal income tax returns. The disputed items include the timing of recognition of certain patient service revenues, the deductibility of certain debt retirement costs and our method for calculating the tax allowance for doubtful accounts. In addition, 2002, 2003 and 2004 taxable periods of HCA Inc., for which the primary remaining issue is the computation of the tax allowance for doubtful accounts, were pending before the IRS Examination Division as of September 30, 2011. The IRS Examination Division began an audit of HCA Inc.’s 2007, 2008 and 2009 federal income tax returns in 2010.

Management believes that HCA, its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS and that final resolution of these disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of these issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Operating Data

 

             2011                      2010          

CONSOLIDATING

     

Number of hospitals in operation at:

     

March 31

     156         154   

June 30

     157         154   

September 30

     157         154   

December 31

        156   

Number of freestanding outpatient surgical centers in operation at:

     

March 31

     98         98   

June 30

     98         98   

September 30

     98         96   

December 31

        97   

Licensed hospital beds at(a):

     

March 31

     39,075         38,719   

June 30

     39,472         38,636   

September 30

     39,526         38,636   

December 31

        38,827   

Weighted average licensed beds(b):

     

Quarter:

     

First

     39,061         38,687   

Second

     39,356         38,607   

Third

     39,509         38,645   

Fourth

        38,680   

Year

        38,655   

Average daily census(c):

     

Quarter:

     

First

     22,002         21,696   

Second

     20,764         20,418   

Third

     20,528         19,848   

Fourth

        20,155   

Year

        20,523   

Admissions(d):

     

Quarter:

     

First

     406,900         398,900   

Second

     397,500         385,200   

Third

     402,300         383,800   

Fourth

        386,500   

Year

        1,554,400   

Equivalent admissions(e):

     

Quarter:

     

First

     638,400         615,500   

Second

     638,900         617,900   

Third

     650,900         617,700   

Fourth

        617,300   

Year

        2,468,400   

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Operating Data — (Continued)

 

             2011                      2010          

Average length of stay (days)(f):

     

Quarter:

     

First

     4.9         4.9   

Second

     4.8         4.8   

Third

     4.7         4.8   

Fourth

        4.8   

Year

        4.8   

Emergency room visits(g):

     

Quarter:

     

First

     1,527,600         1,367,100   

Second

     1,512,000         1,436,200   

Third

     1,539,500         1,457,100   

Fourth

        1,445,800   

Year

        5,706,200   

Outpatient surgeries(h):

     

Quarter:

     

First

     193,000         190,700   

Second

     199,100         198,600   

Third

     194,300         194,100   

Fourth

        200,200   

Year

        783,600   

Inpatient surgeries(i):

     

Quarter:

     

First

     119,700         122,500   

Second

     120,200         121,800   

Third

     121,100         121,600   

Fourth

        121,200   

Year

        487,100   

Days revenues in accounts receivable(j):

     

Quarter:

     

First

     49         50   

Second

     49         49   

Third

     49         48   

Fourth

        49   

Year

        50   

Gross patient revenues(k) (dollars in millions):

     

Quarter:

     

First

   $ 34,764       $ 31,054   

Second

     34,242         30,731   

Third

     34,288         30,647   

Fourth

        33,208   

Year

        125,640   

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Operating Data — (Continued)

 

             2011                     2010          

Outpatient revenues as a % of patient revenues(l):

    

Quarter:

    

First

     36     35

Second

     37     37

Third

     37     37

Fourth

       37

Year

       36

NONCONSOLIDATING(m)

    

Number of hospitals in operation at:

    

March 31

     7        8   

June 30

     7        8   

September 30

     7        8   

December 31

       8   

Number of freestanding outpatient surgical centers in operation at:

    

March 31

     9        8   

June 30

     13        8   

September 30

     14        8   

December 31

       9   

Licensed hospital beds at:

    

March 31

     2,259        2,369   

June 30

     2,259        2,369   

September 30

     2,259        2,369   

December 31

       2,369   

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Operating Data — (Continued)

 

BALANCE SHEET DATA

 

     % of Accounts Receivable  
     Under 91 Days     91 — 180 Days     Over 180 Days  

Accounts receivable aging at September 30, 2011(n):

      

Medicare and Medicaid

     13     2     1

Managed care and other discounted

     21        4        5   

Uninsured

     20        7        27   
  

 

 

   

 

 

   

 

 

 

Total

     54     13     33
  

 

 

   

 

 

   

 

 

 

 

(a)

Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.

 

(b)

Represents the average number of licensed beds, weighted based on periods owned.

 

(c)

Represents the average number of patients in our hospital beds each day.

 

(d)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

 

(e)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.

 

(f)

Represents the average number of days admitted patients stay in our hospitals.

 

(g)

Represents the number of patients treated in our emergency rooms.

 

(h)

Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.

 

(i)

Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.

 

(j)

Revenues per day is calculated by dividing the revenues for the period by the days in the period. Days revenues in accounts receivable is then calculated as accounts receivable, net of allowance for doubtful accounts, at the end of the period divided by the revenues per day. With our adoption of ASU 2011-07 during the third quarter of 2011, “revenues” used in this computation are net of the provision for doubtful accounts and the computations for all prior periods presented have been restated.

 

(k)

Gross patient revenues are based upon our standard charge listing. Gross charges/revenues typically do not reflect what our hospital facilities are paid. Gross charges/revenues are reduced by contractual adjustments, discounts and charity care to determine reported revenues.

 

(l)

Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.

 

(m)

The nonconsolidating facilities include facilities operated through 50/50 joint ventures which we do not control and are accounted for using the equity method of accounting.

 

(n)

Accounts receivable aging data is based upon consolidated gross accounts receivable of $7.919 billion (each 1% is equivalent to approximately $79 million of gross accounts receivable).

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption “Market Risk” under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

HCA’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of HCA’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on that evaluation, the chief executive officer and chief financial officer have concluded HCA’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Part II: Other Information

 

Item 1: Legal Proceedings

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. The resolution of any such lawsuits, claims or legal and regulatory proceedings could materially and adversely affect our results of operations and financial position in a given period.

Government Investigations, Claims and Litigation

Health care companies are subject to numerous investigations by various governmental agencies. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received government inquiries from federal and state agencies and our facilities may receive such inquiries in future periods. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations or financial position.

The Civil Division of the Department of Justice (“DOJ”) has contacted the Company in connection with its nationwide review of whether, in certain cases, hospital charges to the federal government relating to implantable cardio-defibrillators (“ICDs”) met the Centers for Medicare & Medicaid Services (“CMS”) criteria. In connection with this nationwide review, the DOJ has indicated that it will be reviewing certain ICD billing and medical records at 95 HCA hospitals; the review covers the period from October 2003 to the present. The review could potentially give rise to claims against the Company under the federal False Claims Act or other statutes, regulations or laws. At this time, we cannot predict what effect, if any, this review or any resulting claims could have on the Company.

New Hampshire Hospital Litigation

In 2006, the Foundation for Seacoast Health (the “Foundation”) filed suit against HCA in state court in New Hampshire. The Foundation alleged that both the 2006 recapitalization transaction and a prior 1999 intra-corporate transaction violated a 1983 agreement that placed certain restrictions on transfers of the Portsmouth Regional Hospital. In May 2007, the trial court ruled against the Foundation on all its claims. On

 

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appeal, the New Hampshire Supreme Court affirmed the ruling on the 2006 recapitalization, but remanded to the trial court the claims based on the 1999 intra-corporate transaction. The trial court ruled in December 2009 that the 1999 intra-corporate transaction breached the transfer restriction provisions of the 1983 agreement. In September of 2011, the trial court issued its remedies phase decision and held that the only remedy to which the Foundation was entitled was rescission of the intra-corporate transfer that breached the transfer restriction (the Company has complied with the Court’s order, and it is not expected that such compliance will have any material effect on our operations or financial position). The Court awarded the Foundation, under the terms of the Asset Purchase Agreement, a “fraction” of its attorney fees. The Foundation appealed the remedy phase ruling, and the Company cross-appealed the liability determination. On October 31, 2011, the New Hampshire Supreme Court, on its own, raised the question whether the appeal needed to await the trial court’s further ruling on attorney fees. The parties will brief that issue on November 14, 2011.

Securities Class Action Litigation

On October 28, 2011, a shareholder action was filed in the United States District Court for the Middle District of Tennessee. The case seeks to include as a class all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration Statement and Prospectus issued in connection with the March 9, 2011 initial public offering. The lawsuit asserts a claim under Section 11 of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors. The action alleges deficiencies in the Company’s disclosures in the Registration Statement relating to: (1) accounting for its 2006 recapitalization and 2010 reorganization; (2) the Company’s failure to maintain effective internal controls relating to its accounting for such transactions; and (3) the Company’s revenue growth rate. The complaint has recently been filed and no further proceedings have been scheduled at this time.

General Liability and Other Claims

We are a party to certain proceedings relating to claims for income taxes and related interest before the IRS Appeals Division. For a description of those proceedings, see Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Pending IRS Disputes” and Note 2 to our condensed consolidated financial statements.

We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or for wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants have asked for punitive damages against us, which may not be covered by insurance. In the opinion of management, the ultimate resolution of these pending claims and legal proceedings will not have a material, adverse effect on our results of operations or financial position.

 

Item 1A: Risk Factors

Reference is made to the factors set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and other risk factors described in our annual report on Form 10-K for the year ended December 31, 2010 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, which are incorporated herein by reference. There have not been any material changes to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2010 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, except as set forth below.

Changes in government health care programs may reduce our revenues.

A significant portion of our patient volume is derived from government health care programs, principally Medicare and Medicaid. Specifically, we derived approximately 41% of our revenues from the Medicare and Medicaid programs in 2010. Changes in government health care programs may reduce the reimbursement we receive and could adversely affect our business and results of operations.

 

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In recent years, legislative and regulatory changes have resulted in limitations on and, in some cases, reductions in levels of payments to health care providers for certain services under the Medicare program. The recently enacted Budget Control Act of 2011 (“BCA”) provides for approximately $900 billion in deficit reduction, which would be achieved by applying caps to federal discretionary spending, but not including Medicare and Medicaid programs. However, the BCA also provides for new spending on program integrity initiatives intended to reduce fraud and abuse under the Medicare program. Further, the BCA requires the creation of a bipartisan joint congressional committee with a goal of identifying at least $1.5 trillion in additional deficit reductions over ten years, which is expected to consider entitlement program reforms including Medicare. If Congress does not enact deficit reductions greater than $1.2 trillion by January 15, 2012, the BCA requires automatic spending reductions of $1.2 trillion for federal fiscal years 2013 through 2021, minus any deficit reductions enacted by Congress and debt service costs. However, the percentage reduction for Medicare may not be more than 2% for a fiscal year, with a uniform percentage reduction across all Medicare programs. We are unable to predict how these spending reductions will be structured. These reductions will be in addition to the Health Reform Law, which provides for material reductions in the growth of Medicare program spending, including reductions in Medicare market basket updates and Medicare disproportionate share hospital (“DSH”) funding. Medicare payments in federal fiscal year 2011 for inpatient hospital services were slightly lower than payments for the same services in federal fiscal year 2010. CMS has issued a final rule that provides for an increase (approximately 1%) in Medicare payments for inpatient hospital services in federal fiscal year 2012 compared to federal fiscal year 2011. These adjustments to inpatient hospital payments do not take into account the impact of the BCA, but result from a combination of a market basket update reduction required by the Health Reform Law and the implementation of the Medicare severity diagnosis-related group (“MS-DRG”) system, which represents a refinement to the previous diagnosis related system. From time to time, CMS revises the reimbursement systems used to reimburse health care providers, which may include additional changes to the MS-DRG system and other payment systems. These changes may result in reduced Medicare payments.

Since most states must operate with balanced budgets and since the Medicaid program is often a state’s largest program, some states can be expected to enact or consider enacting legislation designed to reduce their Medicaid expenditures. The current economic environment has increased the budgetary pressures on many states, and these budgetary pressures have resulted, and likely will continue to result, in decreased spending, or decreased spending growth, for Medicaid programs and the Children’s Health Insurance Program in many states. For example, in May 2011, the Florida legislature passed a budget agreement for the fiscal year beginning July 1, 2011 that reduces Medicaid reimbursements to hospitals. As a result, we estimate that Florida Medicaid payments to our hospitals may be reduced by approximately $35 million during the second half of calendar year 2011 and by another approximately $35 million during the first half of calendar year 2012. Additionally, the Texas legislature passed a budget agreement effective September 1, 2011 that reduces Medicaid reimbursements to hospitals. As a result, we estimate that Texas Medicaid payments to our hospitals may be reduced by approximately $20 million in 2011 and by approximately $60 million in 2012. The Health Reform Law provides for material reductions to Medicaid DSH funding. Some states that provide Medicaid supplemental payments pursuant to UPL programs are reviewing these programs or have filed waiver requests with CMS to replace these programs, which could result in Medicaid supplemental payments being reduced or eliminated. Further, many states have also adopted, or are considering, legislation designed to reduce coverage, enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand the states’ Medicaid systems. Effective March 23, 2010, the Health Reform Law requires states to at least maintain Medicaid eligibility standards established prior to the enactment of the law for adults until January 1, 2014 and for children until October 1, 2019. However, states with budget deficits may seek a waiver from this requirement to address eligibility standards that apply to adults making more than 133% of the federal poverty level. The Health Reform Law also provides for significant expansions to the Medicaid program, but these changes are not required until 2014. In addition, the Health Reform Law will result in increased state legislative and regulatory changes in order for states to comply with new federal mandates, such as the requirement to establish Exchanges, and to participate in grants and other incentive opportunities.

 

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In some cases, commercial third-party payers rely on all or portions of the MS-DRG system to determine payment rates, which may result in decreased reimbursement from some commercial third-party payers. Other changes to government health care programs may negatively impact payments from commercial third-party payers.

Current or future health care reform and deficit reduction efforts, changes in laws or regulations regarding government health care programs, other changes in the administration of government health care programs and changes to commercial third-party payers in response to health care reform and other changes to government health care programs could have a material, adverse effect on our financial position and results of operations.

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides certain information with respect to our repurchases of common stock from July 1, 2011 through September 30, 2011.

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid per  Share
     Total Number
of  Shares
Purchased as
Part  of
Publicly
Announced
Plans  or
Programs
     Approximate
Dollar Value  of
Shares That
May Yet  Be
Purchased
Under  Publicly
Announced
Plans  or
Programs
 

July 1, 2011 through July 31, 2011

           $               $   

August 1, 2011 through August 31, 2011

                               

September 1, 2011 through September 30, 2011

     80,771,143         18.61                   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total for Third Quarter 2011

     80,771,143       $ 18.61               $   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the third quarter of 2011, we repurchased 80,771,143 shares of common stock beneficially owned by affiliates of Bank of America Corporation.

 

Item 6: Exhibits

(a) List of Exhibits:

 

10.1   

— Form Stock Option Agreement (2011).*

31.1   

— Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   

— Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32   

— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101   

— The following financial information from our quarterly report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on November 9, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the condensed consolidated balance sheets at September 30, 2011 and December 31, 2010, (ii) the condensed consolidated income statements for the quarters and nine months ended September 30, 2011 and 2010, (iii) the condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010, and (iv) the notes to condensed consolidated financial statements (tagged as blocks of text).(1)

 

(1)

The XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

*

Management compensatory plan or arrangement.

 

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SIGNATURES

Pursuant to the requirements 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.

 

HCA Holdings, Inc.

By:

 

/S/ R. MILTON JOHNSON      

  R. Milton Johnson
  President and Chief Financial Officer

Date: November 9, 2011

 

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