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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, 2012

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 Nashville, Tennessee		37203
(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		x		Accelerated filer		¨
Non-accelerated filer		¨ (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, 2012
Voting common stock, $.01 par value		441,493,600 shares

 

 

 

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HCA HOLDINGS, INC.

Form 10-Q

September 30, 2012

 

				Page of Form 10-Q
Part I.		Financial Information
Item 1.		Financial Statements (Unaudited):
		Condensed Consolidated Comprehensive Statements of Operations  — for the quarters and nine months ended September 30, 2012 and 2011			2
		Condensed Consolidated Balance Sheets — September 30, 2012 and December 31, 2011			3
		Condensed Consolidated Statements of Cash Flows — for the nine months ended September  30, 2012 and 2011			4
		Notes to Condensed Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			50
Item 4.		Controls and Procedures			50
Part II.		Other Information
Item 1.		Legal Proceedings			50
Item 1A.		Risk Factors			52
Item 6.		Exhibits			52
Signatures					54

 

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HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Unaudited

(Dollars in millions, except per share amounts)

 

		Quarter								Nine Months
		2012				2011				2012				2011
Revenues before provision for doubtful accounts		$	8,893			$	7,998			$	27,245			$	24,077
Provision for doubtful accounts			831				740				2,666				2,164
Revenues			8,062				7,258				24,579				21,913
Salaries and benefits			3,781				3,333				11,224				9,948
Supplies			1,375				1,263				4,216				3,833
Other operating expenses			1,510				1,369				4,496				4,017
Electronic health record incentive income			(131	)			(51	)			(256	)			(90	)
Equity in earnings of affiliates			(6	)			(68	)			(26	)			(217	)
Depreciation and amortization			417				362				1,254				1,078
Interest expense			446				519				1,336				1,572
Losses (gains) on sales of facilities			(7	)			2				(4	)			3
Losses on retirement of debt			—				406				—				481
Termination of management agreement			—				—				—				181
			7,385				7,135				22,240				20,806
Income before income taxes			677				123				2,339				1,107
Provision (benefit) for income taxes			222				(23	)			760				307
Net income			455				146				1,579				800
Net income attributable to noncontrolling interests			95				85				288				270
Net income attributable to HCA Holdings, Inc.		$	360			$	61			$	1,291			$	530
Per share data:
Basic earnings per share		$	0.82			$	0.12			$	2.94			$	1.08
Diluted earnings per share		$	0.78			$	0.11			$	2.81			$	1.04
Cash dividends declared per share		$	—			$	—			$	2.00			$	—
Shares used in earnings per share calculations (in thousands):
Basic			440,899				508,417				439,441				489,924
Diluted			459,515				527,515				458,822				509,583
Comprehensive income (loss) attributable to HCA Holdings, Inc.		$	369			$	(24	)		$	1,291			$	534

 

See accompanying notes.

 

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HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

		September 30, 2012				December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	472			$	373
Accounts receivable, less allowance for doubtful accounts of $4,475 and $4,106			4,598				4,533
Inventories			1,052				1,054
Deferred income taxes			322				594
Other			828				679
			7,272				7,233
Property and equipment, at cost			29,145				28,075
Accumulated depreciation			(16,185	)			(15,241	)
			12,960				12,834
Investments of insurance subsidiaries			473				548
Investments in and advances to affiliates			103				101
Goodwill and other intangible assets			5,460				5,251
Deferred loan costs			266				290
Other			768				641
		$	27,302			$	26,898
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	1,585			$	1,597
Accrued salaries			1,027				965
Other accrued expenses			1,498				1,585
Long-term debt due within one year			1,751				1,407
			5,861				5,554
Long-term debt			25,182				25,645
Professional liability risks			962				993
Income taxes and other liabilities			1,860				1,720
Stockholders’ deficit:
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 441,383,000 shares in 2012 and 437,477,900 shares in 2011			4				4
Capital in excess of par value			1,680				1,601
Accumulated other comprehensive loss			(440	)			(440	)
Retained deficit			(9,103	)			(9,423	)
Stockholders’ deficit attributable to HCA Holdings, Inc.			(7,859	)			(8,258	)
Noncontrolling interests			1,296				1,244
			(6,563	)			(7,014	)
		$	27,302			$	26,898

 

See accompanying notes.

 

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HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Unaudited

(Dollars in millions)

 

		2012				2011
Cash flows from operating activities:
Net income		$	1,579			$	800
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in operating assets and liabilities			(2,923	)			(2,336	)
Provision for doubtful accounts			2,666				2,164
Depreciation and amortization			1,254				1,078
Income taxes			250				348
Losses (gains) on sales of facilities			(4	)			3
Losses on retirement of debt			—				481
Amortization of deferred loan costs			44				56
Share-based compensation			39				24
Pay-in-kind interest			—				(78	)
Other			7				6
Net cash provided by operating activities			2,912				2,546
Cash flows from investing activities:
Purchase of property and equipment			(1,268	)			(1,170	)
Acquisition of hospitals and health care entities			(167	)			(209	)
Disposition of hospitals and health care entities			17				55
Change in investments			73				80
Other			5				4
Net cash used in investing activities			(1,340	)			(1,240	)
Cash flows from financing activities:
Issuance of long-term debt			1,350				5,000
Net change in revolving credit facilities			(875	)			(414	)
Repayment of long-term debt			(689	)			(6,583	)
Distributions to noncontrolling interests			(303	)			(281	)
Payment of debt issuance costs			(20	)			(84	)
Issuance of common stock			—				2,506
Repurchase of common stock			—				(1,503	)
Distributions to stockholders			(983	)			(31	)
Income tax benefits			82				54
Other			(35	)			(22	)
Net cash used in financing activities			(1,473	)			(1,358	)
Change in cash and cash equivalents			99				(52	)
Cash and cash equivalents at beginning of period			373				411
Cash and cash equivalents at end of period		$	472			$	359
Interest payments		$	1,404			$	1,635
Income tax payments (refunds), net		$	428			$	(95	)

 

See accompanying notes.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reporting Entity

On November 17, 2006, HCA Inc. was acquired by a private investor group, including affiliates of, or funds sponsored by Bain Capital Partners, LLC, Kohlberg Kravis Roberts & Co., BAML Capital Partners and HCA founder, Dr. Thomas F. Frist Jr. (collectively, the “Investors”) and by members of management and certain other investors. The transaction was accounted for as a recapitalization in our financial statements, with no adjustments to the historical basis of our assets and liabilities.

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. became HCA Holdings, Inc.’s wholly-owned direct subsidiary. As part of the Corporate Reorganization, HCA Inc.’s outstanding shares of common stock were automatically converted, on a share for share basis, into identical shares of HCA Holdings, Inc.’s common stock. As a result of the Corporate Reorganization, HCA Holdings, Inc. was deemed the successor registrant to HCA Inc. under the Exchange Act.

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 traded on the New York Stock Exchange (symbol “HCA”).

The Investors 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 during March 2011, and the Company paid the Investors a final fee of $181 million.

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, 2012, these affiliates owned and operated 162 hospitals, 112 freestanding surgery centers and provided extensive outpatient and ancillary services. 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.

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 “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $62 million and $53 million for the quarters

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Basis of Presentation (continued)

 

ended September 30, 2012 and 2011, respectively, and $174 million and $162 million for the nine months ended September 30, 2012 and 2011, respectively. Operating results for the quarter and the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 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 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 third-party payers, the uninsured and other revenues for the quarters and nine months ended September 30, 2012 and 2011 are summarized in the following tables (dollars in millions):

 

		Quarter
		2012				Ratio				2011				Ratio
Medicare		$	1,949				24.2	%		$	1,844				25.4	%
Managed Medicare			720				8.9				610				8.4
Medicaid			378				4.7				453				6.2
Managed Medicaid			380				4.7				311				4.3
Managed care and other insurers			4,422				54.8				3,855				53.1
International (managed care and other insurers)			253				3.1				232				3.2
			8,102				100.4				7,305				100.6
Uninsured			576				7.1				508				7.0
Other			215				2.7				185				2.5
Revenues before provision for doubtful accounts			8,893				110.2				7,998				110.1
Provision for doubtful accounts			(831	)			(10.2	)			(740	)			(10.1	)
Revenues		$	8,062				100.0	%		$	7,258				100.0	%
		Nine Months
		2012				Ratio				2011				Ratio
Medicare		$	6,251				25.4	%		$	5,715				26.1	%
Managed Medicare			2,199				8.9				1,806				8.2
Medicaid			1,188				4.8				1,440				6.6
Managed Medicaid			1,080				4.4				946				4.3
Managed care and other insurers			13,340				54.3				11,486				52.4
International (managed care and other insurers)			779				3.2				698				3.2
			24,837				101.0				22,091				100.8
Uninsured			1,757				7.1				1,390				6.3
Other			651				2.7				596				2.7
Revenues before provision for doubtful accounts			27,245				110.8				24,077				109.8
Provision for doubtful accounts			(2,666	)			(10.8	)			(2,164	)			(9.8	)
Revenues		$	24,579				100.0	%		$	21,913				100.0	%

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

Basis of Presentation (continued)

 

The increase in revenues for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 includes two adjustments (Rural Floor Provision Settlement and Supplemental Security Income (“SSI”) ratios) related to Medicare revenues for prior periods. The net effect of the Medicare adjustments was an increase of $188 million to revenues. The Rural Floor Provision Settlement was signed on April 5, 2012. As a result of the agreement, we received additional Medicare payments of approximately $271 million during June 2012. This amount was recorded as an increase to Medicare revenues for the quarter ended March 31, 2012. During March 2012, the Centers for Medicare & Medicaid Services (“CMS”) issued new SSI ratios used for calculating Medicare Disproportionate Share Hospital (“DSH”) reimbursement for federal fiscal years ending September 30, 2006 through September 30, 2009. As a result, we recalculated our DSH reimbursement for all applicable periods. The cumulative impact of this retroactive adjustment was a reduction in Medicare revenues of approximately $83 million. This adjustment was recorded as a reduction to Medicare revenues during the quarter ended March 31, 2012. The net effect of these adjustments (and related expenses) added $170 million to income before income taxes, or $0.22 per diluted share, for the nine months ended September 30, 2012.

We previously reported $51 million and $90 million of Medicaid and Medicare electronic health record (“EHR”) incentives for the quarter and nine months ended September 30, 2011, respectively, in the line item “Revenues” in our condensed consolidated income statements. These amounts have been reclassified and are now included in the line item “Electronic health record incentive income” in our condensed consolidated comprehensive statements of operations for the quarter and nine months ended September 30, 2011.

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

NOTE 2 — INCOME TAXES

At September 30, 2012, we were contesting 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. The IRS Examination Division began an audit of HCA Inc.’s 2007, 2008 and 2009 federal income tax returns in 2010. During the quarter ended September 30, 2011, we finalized a settlement with the IRS Examination Division resolving all outstanding issues for our 1997 through 2001 tax years.

Our liability for unrecognized tax benefits was $519 million, including accrued interest of $47 million, as of September 30, 2012 ($494 million and $62 million, respectively, as of December 31, 2011). Unrecognized tax benefits of $158 million ($173 million as of December 31, 2011) would affect the effective rate, if recognized. The provision for income taxes reflects $1 million and $66 million (none and $42 million, respectively, net of tax) of interest expense and reductions in interest expense, respectively, related to taxing authority examinations for the quarters ended September 30, 2012 and 2011, respectively, and $20 million and $92 million ($13 million and $58 million, respectively, net of tax) of reductions in interest expense related to taxing authority examinations for the nine months ended September 30, 2012 and 2011, 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, stock appreciation rights and restricted share units, computed using the treasury stock method. During September 2011, we repurchased 80.8 million shares of our common stock.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2012 and 2011 (dollars in millions, except per share amounts, and shares in thousands):

 

		Quarter								Nine Months
		2012				2011				2012				2011
Net income attributable to HCA Holdings, Inc.		$	360			$	61			$	1,291			$	530
Weighted average common shares outstanding			440,899				508,417				439,441				489,924
Effect of dilutive securities			18,616				19,098				19,381				19,659
Shares used for diluted earnings per share			459,515				527,515				458,822				509,583
Earnings per share:
Basic earnings per share		$	0.82			$	0.12			$	2.94			$	1.08
Diluted earnings per share		$	0.78			$	0.11			$	2.81			$	1.04

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2012 and December 31, 2011 follows (dollars in millions):

 

		September 30, 2012
		Amortized Cost				Unrealized Amounts								Fair Value
						Gains				Losses
Debt securities:
States and municipalities		$	349			$	24			$	—			$	373
Auction rate securities			76				—				(5	)			71
Asset-backed securities			15				—				—				15
Money market funds			67				—				—				67
			507				24				(5	)			526
Equity securities			7				1				—				8
		$	514			$	25			$	(5	)			534
Amounts classified as current assets															(61	)
Investment carrying value														$	473

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

 

		December 31, 2011
		Amortized Cost				Unrealized Amounts								Fair Value
						Gains				Losses
Debt securities:
States and municipalities		$	398			$	19			$	—			$	417
Auction rate securities			139				—				(8	)			131
Asset-backed securities			20				—				—				20
Money market funds			53				—				—				53
			610				19				(8	)			621
Equity securities			7				1				(1	)			7
		$	617			$	20			$	(9	)			628
Amounts classified as current assets															(80	)
Investment carrying value														$	548

At September 30, 2012 and December 31, 2011, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income. At both September 30, 2012 and December 31, 2011, $19 million 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, 2012 were as follows (dollars in millions):

 

		Amortized Cost				Fair Value
Due in one year or less		$	72			$	72
Due after one year through five years			140				149
Due after five years through ten years			111				119
Due after ten years			93				100
			416				440
Auction rate securities			76				71
Asset-backed securities			15				15
		$	507			$	526

The average expected maturity of the investments in debt securities at September 30, 2012 was 4.6 years, compared to the average scheduled maturity of 8.9 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, 2012, the average expected maturities for our auction rate and asset-backed securities were 5.2 years and 4.1 years, respectively, compared to average scheduled maturities of 24.4 years and 24.1 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, 2012 and December 31, 2011, including related interest rates at September 30, 2012, follows (dollars in millions):

 

		September 30, 2012				December 31, 2011
Senior secured asset-based revolving credit facility (effective interest rate of 1.7%)		$	1,280			$	2,155
Senior secured term loan facilities (effective interest rate of 5.0%)			7,183				7,425
Senior secured first lien notes (effective interest rate of 7.4%)			8,436				7,081
Other senior secured debt (effective interest rate of 6.8%)			394				350
First lien debt			17,293				17,011
Senior secured notes (effective interest rate of 11.0%)			197				197
Senior unsecured notes (effective interest rate of 7.3%)			9,443				9,844
Total debt (average life of 6.6 years, rates averaging 6.5%)			26,933				27,052
Less amounts due within one year			1,751				1,407
		$	25,182			$	25,645

During April 2012, we extended $75 million of our term loan A-1 facility with a final maturity of November 2012 and $651 million of our term loan B-1 facility with a final maturity of November 2013 to term loan A-3 with a final maturity of February 2016.

During February 2012, we issued $1.350 billion aggregate principal amount of 5.875% senior secured first lien notes due 2022. After the payment of related fees and expenses, we used the proceeds for general corporate purposes.

During August 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. 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% senior secured 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% senior secured 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.

During June 2011, we redeemed all $1.000 billion aggregate principal amount of our 9 ¹/₈% senior secured second lien 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 second lien notes due 2017, at a redemption price of 109.875% of the principal amount. The pretax losses on retirement of debt related to these redemptions were $75 million.

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. 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

 

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NOTE 6 — FINANCIAL INSTRUMENTS (continued)

 

Interest Rate Swap Agreements (continued)

 

match the timing of the related liabilities. 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, 2012 (dollars in millions):

 

		Notional Amount				Maturity Date				Fair Value
Pay-fixed interest rate swaps		$	500				December 2014			$	(10	)
Pay-fixed interest rate swaps			3,000				December 2016				(376	)
Pay-fixed interest rate swaps			1,000				December 2017				(80	)

During the next 12 months, we estimate $126 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 enter into various cross currency swaps. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

Our cross currency swap is not designated as a hedge, and changes in fair value are recognized in results of operations. The following table sets forth our cross currency swap agreement at September 30, 2012 (amounts in millions):

 

Notional Amount

Maturity Date

Fair Value

Euro — United States dollar currency swap

266 Euro

November 2013

$

(22

)

Derivatives — Results of Operations

The following tables present the effect of our interest rate and cross currency swaps on our results of operations for the nine months ended September 30, 2012 (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		$	100				Interest expense			$	90

 

Derivatives Not Designated as Hedging Instruments		Location of Loss Recognized in Operations on Derivatives				Amount of Loss Recognized in Operations on Derivatives
Cross currency swap			Other operating expenses			$	6

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

 

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, 2012, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2012, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $513 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 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. The transaction price is initially used as the best estimate of fair value.

Our wholly-owned insurance subsidiaries had investments in tax-exempt auction rate securities (“ARS”), which are backed by student loans substantially guaranteed by the federal government, of $71 million ($76 million par value) at September 30, 2012. We do not currently intend to attempt to sell the ARS as the

 

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

 

Cash Traded Investments (continued)

 

liquidity needs of our insurance subsidiaries are expected to be met by other investments in their investment portfolios. During 2011 and the nine months ended September 30, 2012, certain issuers and their broker/dealers redeemed or repurchased $112 million and $63 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 and ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), we incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. We have made the accounting policy election to use the exception under ASU 2011-04 (commonly referred to as the “portfolio exception”) with respect to measuring counterparty credit risk for derivative instruments.

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, 2012 and December 31, 2011, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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

 

The following table summarizes our assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

		September 30, 2012
						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 subsidiaries:
Debt securities:
States and municipalities		$	373			$	—			$	373			$	—
Auction rate securities			71				—				—				71
Asset-backed securities			15				—				15				—
Money market funds			67				67				—				—
			526				67				388				71
Equity securities			8				2				5				1
Investments of insurance subsidiaries			534				69				393				72
Less amounts classified as current assets			(61	)			(61	)			—				—
		$	473			$	8			$	393			$	72
Liabilities:
Cross currency swap (Income taxes and other liabilities)		$	22			$	—			$	22			$	—
Interest rate swaps (Income taxes and other liabilities)			466				—				466				—

 

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

 

		December 31, 2011
		Fair Value				Fair Value Measurements Using
						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 subsidiaries:
Debt securities:
States and municipalities		$	417			$	—			$	417			$	—
Auction rate securities			131				—				—				131
Asset-backed securities			20				—				20				—
Money market funds			53				53				—				—
			621				53				437				131
Equity securities			7				1				5				1
Investments of insurance subsidiaries			628				54				442				132
Less amounts classified as current assets			(80	)			(54	)			(26	)			—
		$	548			$	—			$	416			$	132
Liabilities:
Cross currency swap (Income taxes and other liabilities)		$	16			$	—			$	16			$	—
Interest rate swaps (Income taxes and other liabilities)			399				—				399				—

The following table summarizes the activity related to the auction rate and equity securities investments of our insurance subsidiaries which have fair value measurements based on significant unobservable inputs (Level 3) during the nine months ended September 30, 2012 (dollars in millions):

 

Asset balances at December 31, 2011		$	132
Unrealized gains included in other comprehensive income			3
Settlements			(63	)
Asset balances at September 30, 2012		$	72

The estimated fair value of our long-term debt was $28.706 billion and $27.199 billion at September 30, 2012 and December 31, 2011, respectively, compared to carrying amounts aggregating $26.933 billion and $27.052 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.

 

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NOTE 8 — CONTINGENCIES (continued)

 

Health care companies are subject to numerous investigations by various governmental agencies. Under the Federal False Claims act (“FCA”) 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.

As initially disclosed in 2010, 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 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. In August 2012, HCA, along with non-HCA hospitals subject to the DOJ’s review, received from the DOJ a proposed framework for resolving the DOJ’s review of ICDs. The Company is cooperating in the review. The review could potentially give rise to claims against the Company under the federal FCA 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.

In July 2012, the Civil Division of the U.S. Attorney’s Office in Miami requested information on reviews assessing the medical necessity of interventional cardiology services provided at any Company facility (other than peer reviews). The Company is cooperating with the government’s request and is currently producing medical records associated with particular reviews at eight hospitals, located primarily in Florida. At this time, we cannot predict what effect, if any, the request or any resulting claims, including any potential claims under the FCA, other statutes, regulations or laws, could have on the Company.

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 alleged various deficiencies in the Company’s disclosures in the Registration Statement. Subsequently, two additional class action complaints setting forth substantially similar claims were filed in the same federal court. All three cases were consolidated. On July 13, 2012, the lead plaintiff filed an amended complaint asserting claims under Sections 11 and 12(a)(2) 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 and Hercules Holdings II, LLC, a majority shareholder of the Company. The consolidated complaint alleges deficiencies in the Company’s disclosures in the Registration Statement and Prospectus relating to: (1) the accounting for the Company’s 2006 recapitalization and 2010 reorganization; (2) the Company’s failure to maintain effective

 

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NOTE 8 — CONTINGENCIES (continued)

 

internal controls relating to its accounting for such transactions; and (3) the Company’s Medicare and Medicaid revenue growth rates. The Company and other defendants moved to dismiss the amended complaint on September 11, 2012.

NOTE 9 — COMPREHENSIVE INCOME AND CAPITAL STRUCTURE

The components of comprehensive income, net of related taxes, for the quarters and nine months ended September 30, 2012 and 2011 are only attributable to HCA Holdings, Inc. and are as follows (dollars in millions):

 

		Quarter								Nine Months
		2012				2011				2012				2011
Net income attributable to HCA Holdings, Inc.		$	360			$	61			$	1,291			$	530
Change in fair value of derivative instruments			(17	)			(72	)			(42	)			(3	)
Change in fair value of available-for-sale securities			2				1				5				—
Foreign currency translation adjustments			20				(18	)			24				(4	)
Defined benefit plans			4				4				13				11
Comprehensive income (loss)		$	369			$	(24	)		$	1,291			$	534

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

 

		September 30, 2012				December 31, 2011
Change in fair value of derivative instruments		$	(295)			$	(253)
Change in fair value of available-for-sale securities			12				7
Foreign currency translation adjustments			(1)				(25)
Defined benefit plans			(156)				(169)
Accumulated other comprehensive loss		$	(440)			$	(440)

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, 2011			437,478			$	4			$	1,601			$	(440	)		$	(9,423	)		$	1,244			$	(7,014	)
Net income			—				—				—				—				1,291				288				1,579
Other comprehensive loss			—				—				—				—				—				—				—
Distributions			—				—				—				—				(971	)			(303	)			(1,274	)
Share-based benefit plans			3,905				—				83				—				—				—				83
Adjustment to the acquired controlling interest in equity investment			—				—				—				—				—				30				30
Other			—				—				(4	)			—				—				37				33
Balances, September 30, 2012			441,383			$	4			$	1,680			$	(440	)		$	(9,103	)		$	1,296			$	(6,563	)

On February 3, 2012, our Board of Directors declared a distribution to the Company’s stockholders and holders of vested stock awards. The distribution was $2.00 per share and vested stock award, or $971 million in the aggregate, and was paid on February 29, 2012 to holders of record on February 16, 2012. The distribution was funded using funds available under our senior secured credit facilities.

 

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18

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. At September 30, 2012, the National Group includes 63 hospitals located in Florida, South Carolina, southern Georgia, Alaska, California, Nevada, Utah and Idaho, the Southwest Group includes 47 hospitals located in Colorado, Texas, Oklahoma and the Wichita, Kansas market, and the Central Group includes 46 hospitals located in Louisiana, Indiana, Kentucky, Tennessee, Virginia, New Hampshire, northern Georgia and the Kansas City market. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, 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 Southwest Group’s increases in revenues, adjusted segment EBITDA and depreciation and amortization, and the declines in equity in earnings of affiliates, for the quarter and nine months ended September 30, 2012 compared to the quarter and nine months ended September 30, 2011 are primarily attributable to the financial consolidation of our 2011 acquisition of our partner’s interest in the HCA-HealthONE LLC venture for periods subsequent to our acquisition of controlling interests during October 2011. 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, 2012 and 2011 are summarized in the following table (dollars in millions):

 

		Quarter								Nine Months
		2012				2011				2012				2011
Revenues:
National Group		$	3,108			$	3,002			$	9,539			$	9,119
Southwest Group			2,864				2,239				8,618				6,724
Central Group			1,765				1,730				5,429				5,216
Corporate and other			325				287				993				854
		$	8,062			$	7,258			$	24,579			$	21,913
Equity in earnings of affiliates:
National Group		$	1			$	(3	)		$	(6	)		$	(5	)
Southwest Group			(6	)			(64	)			(20	)			(212	)
Central Group			—				—				(1	)			—
Corporate and other			(1	)			(1	)			1				—
		$	(6	)		$	(68	)		$	(26	)		$	(217	)
Adjusted segment EBITDA:
National Group		$	630			$	587			$	2,031			$	1,835
Southwest Group			656				552				2,049				1,714
Central Group			323				298				1,052				949
Corporate and other			(76	)			(25	)			(207	)			(76	)
		$	1,533			$	1,412			$	4,925			$	4,422

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

		Quarter								Nine Months
		2012				2011				2012				2011
Depreciation and amortization:
National Group		$	136			$	129			$	419			$	381
Southwest Group			151				111				447				332
Central Group			90				86				265				263
Corporate and other			40				36				123				102
		$	417			$	362			$	1,254			$	1,078
Adjusted segment EBITDA		$	1,533			$	1,412			$	4,925			$	4,422
Depreciation and amortization			417				362				1,254				1,078
Interest expense			446				519				1,336				1,572
Losses (gains) on sales of facilities			(7	)			2				(4	)			3
Losses on retirement of debt			—				406				—				481
Termination of management agreement			—				—				—				181
Income before income taxes		$	677			$	123			$	2,339			$	1,107

NOTE 11 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2012, we paid $58 million, assumed liabilities of $33 million and recorded goodwill of $53 million related to the acquisition of a hospital facility in the Southwest Group. During the nine months ended September 30, 2011, we paid $136 million to acquire a hospital in the National Group. During the nine months ended September 30, 2012 and 2011, we paid $109 million and $73 million, respectively, to acquire nonhospital health care entities. During the nine months ended September 30, 2012, we recorded final adjustments to the purchase price allocation related to our 2011 acquisition of our partner’s interest in the HCA-HealthONE LLC joint venture. These adjustments resulted in a $30 million increase to noncontrolling interests, a $26 million reduction to property and equipment and a $56 million increase to goodwill.

During the nine months ended September 30, 2012, we received proceeds of $17 million and recognized a net pretax gain of $4 million related to sales of real estate investments. 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.

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).

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

Our summarized condensed consolidating comprehensive income statements for the quarters and nine months ended September 30, 2012 and 2011, condensed consolidating balance sheets at September 30, 2012 and December 31, 2011 and condensed consolidating statements of cash flows for the nine months ended September 30, 2012 and 2011, segregating HCA Holdings, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow:

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

(Dollars in millions)

 

		HCA Holdings, Inc. Issuer				HCA Inc. Issuer				Subsidiary Guarantors				Subsidiary Non- Guarantors				Eliminations				Condensed Consolidated
Revenues before provision for doubtful accounts		$	—			$	—			$	4,672			$	4,221			$	—			$	8,893
Provision for doubtful accounts			—				—				484				347				—				831
Revenues			—				—				4,188				3,874				—				8,062
Salaries and benefits			—				—				1,995				1,786				—				3,781
Supplies			—				—				711				664				—				1,375
Other operating expenses			—				3				761				746				—				1,510
Electronic health record incentive income			—				—				(85	)			(46	)			—				(131	)
Equity in earnings of affiliates			(379	)			—				(1	)			(5	)			379				(6	)
Depreciation and amortization			—				—				205				212				—				417
Interest expense			30				545				(98	)			(31	)			—				446
Gains on sales of facilities			—				—				—				(7	)			—				(7	)
Management fees			—				—				(170	)			170				—				—
			(349	)			548				3,318				3,489				379				7,385
Income (loss) before income taxes			349				(548	)			870				385				(379	)			677
Provision (benefit) for income taxes			(11	)			(208	)			325				116				—				222
Net income (loss)			360				(340	)			545				269				(379	)			455
Net income attributable to noncontrolling interests			—				—				18				77				—				95
Net income (loss) attributable to HCA Holdings, Inc.		$	360			$	(340	)		$	527			$	192			$	(379	)		$	360
Comprehensive income (loss) attributable to HCA Holdings, Inc.		$	360			$	(357	)		$	531			$	214			$	(379	)		$	369

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE STATEMENT OF OPERATIONS

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		$	—			$	—			$	4,530			$	3,468			$	—			$	7,998
Provision for doubtful accounts			—				—				424				316				—				740
Revenues			—				—				4,106				3,152				—				7,258
Salaries and benefits			—				—				1,901				1,432				—				3,333
Supplies			—				—				702				561				—				1,263
Other operating expenses			—				1				697				671				—				1,369
Electronic health record incentive income			—				—				(39	)			(12	)			—				(51	)
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				3,059				2,873				77				7,135
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
Comprehensive income (loss) attributable to HCA Holdings, Inc.		$	61			$	(898	)		$	742			$	148			$	(77	)		$	(24	)

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(Dollars in millions)

 

		HCA Holdings, Inc. Issuer				HCA Inc. Issuer				Subsidiary Guarantors				Subsidiary Non- Guarantors				Eliminations				Condensed Consolidated
Revenues before provision for doubtful accounts		$	—			$	—			$	14,328			$	12,917			$	—			$	27,245
Provision for doubtful accounts			—				—				1,505				1,161				—				2,666
Revenues			—				—				12,823				11,756				—				24,579
Salaries and benefits			—				—				5,928				5,296				—				11,224
Supplies			—				—				2,202				2,014				—				4,216
Other operating expenses			—				7				2,241				2,248				—				4,496
Electronic health record incentive income			—				—				(174	)			(82	)			—				(256	)
Equity in earnings of affiliates			(1,348	)			—				(4	)			(22	)			1,348				(26	)
Depreciation and amortization			—				—				614				640				—				1,254
Interest expense			90				1,603				(274	)			(83	)			—				1,336
Losses (gains) on sales of facilities			—				—				3				(7	)			—				(4	)
Management fees			—				—				(498	)			498				—				—
			(1,258	)			1,610				10,038				10,502				1,348				22,240
Income (loss) before income taxes			1,258				(1,610	)			2,785				1,254				(1,348	)			2,339
Provision (benefit) for income taxes			(33	)			(597	)			1,014				376				—				760
Net income (loss)			1,291				(1,013	)			1,771				878				(1,348	)			1,579
Net income attributable to noncontrolling interests			—				—				51				237				—				288
Net income (loss) attributable to HCA Holdings, Inc.		$	1,291			$	(1,013	)		$	1,720			$	641			$	(1,348	)		$	1,291
Comprehensive income (loss) attributable to HCA Holdings, Inc.		$	1,291			$	(1,055	)		$	1,733			$	670			$	(1,348	)		$	1,291

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE 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		$	—			$	—			$	13,602			$	10,475			$	—			$	24,077
Provision for doubtful accounts			—				—				1,298				866				—				2,164
Revenues			—				—				12,304				9,609				—				21,913
Salaries and benefits			—				—				5,669				4,279				—				9,948
Supplies			—				—				2,133				1,700				—				3,833
Other operating expenses			—				5				2,064				1,948				—				4,017
Electronic health record incentive income			—				—				(60	)			(30	)			—				(90	)
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				9,380				8,471				581				20,806
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
Comprehensive income (loss) attributable to HCA Holdings, Inc.		$	530			$	(1,823	)		$	1,833			$	575			$	(581	)		$	534

 

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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, 2012

(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		$	—			$	—			$	149			$	323			$	—			$	472
Accounts receivable, net			—				—				2,392				2,206				—				4,598
Inventories			—				—				602				450				—				1,052
Deferred income taxes			322				—				—				—				—				322
Other			14				—				368				446				—				828
			336				—				3,511				3,425				—				7,272
Property and equipment, net			—				—				7,226				5,734				—				12,960
Investments of insurance subsidiaries			—				—				—				473				—				473
Investments in and advances to affiliates			—				—				16				87				—				103
Goodwill and other intangible assets			—				—				1,666				3,794				—				5,460
Deferred loan costs			21				245				—				—				—				266
Investments in and advances to subsidiaries			18,173				—				—				—				(18,173	)			—
Other			552				—				29				187				—				768
		$	19,082			$	245			$	12,448			$	13,700			$	(18,173	)		$	27,302
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	—			$	—			$	1,019			$	566			$	—			$	1,585
Accrued salaries			—				—				588				439				—				1,027
Other accrued expenses			44				237				453				764				—				1,498
Long-term debt due within one year			—				1,686				34				31				—				1,751
			44				1,923				2,094				1,800				—				5,861
Long-term debt			1,525				22,989				151				517				—				25,182
Intercompany balances			24,805				(11,642	)			(16,722	)			3,559				—				—
Professional liability risks			—				—				—				962				—				962
Income taxes and other liabilities			567				489				568				236				—				1,860
			26,941				13,759				(13,909	)			7,074				—				33,865
Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.			(7,859	)			(13,514	)			26,254				5,433				(18,173	)			(7,859	)
Noncontrolling interests			—				—				103				1,193				—				1,296
			(7,859	)			(13,514	)			26,357				6,626				(18,173	)			(6,563	)
		$	19,082			$	245			$	12,448			$	13,700			$	(18,173	)		$	27,302

 

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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, 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		$	—			$	—			$	115			$	258			$	—			$	373
Accounts receivable, net			—				—				2,429				2,104				—				4,533
Inventories			—				—				602				452				—				1,054
Deferred income taxes			594				—				—				—				—				594
Other			50				—				184				445				—				679
			644				—				3,330				3,259				—				7,233
Property and equipment, net			—				—				7,088				5,746				—				12,834
Investments of insurance subsidiaries			—				—				—				548				—				548
Investments in and advances to affiliates			—				—				15				86				—				101
Goodwill and other intangible assets			—				—				1,605				3,646				—				5,251
Deferred loan costs			22				268				—				—				—				290
Investments in and advances to subsidiaries			16,825				—				—				—				(16,825	)			—
Other			450				—				21				170				—				641
		$	17,941			$	268			$	12,059			$	13,455			$	(16,825	)		$	26,898
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable		$	—			$	—			$	899			$	698			$	—			$	1,597
Accrued salaries			—				—				568				397				—				965
Other accrued expenses			15				367				449				754				—				1,585
Long-term debt due within one year			—				1,347				28				32				—				1,407
			15				1,714				1,944				1,881				—				5,554
Long-term debt			1,525				23,454				110				556				—				25,645
Intercompany balances			24,121				(12,814	)			(15,183	)			3,876				—				—
Professional liability risks			—				—				—				993				—				993
Income taxes and other liabilities			538				415				556				211				—				1,720
			26,199				12,769				(12,573	)			7,517				—				33,912
Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.			(8,258	)			(12,501	)			24,534				4,792				(16,825	)			(8,258	)
Noncontrolling interests			—				—				98				1,146				—				1,244
			(8,258	)			(12,501	)			24,632				5,938				(16,825	)			(7,014	)
		$	17,941			$	268			$	12,059			$	13,455			$	(16,825	)		$	26,898

 

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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, 2012

(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 (loss)		$	1,291			$	(1,013	)		$	1,771			$	878			$	(1,348	)		$	1,579
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Changes in operating assets and liabilities			30				(131	)			(1,475	)			(1,347	)			—				(2,923	)
Provision for doubtful accounts			—				—				1,505				1,161				—				2,666
Depreciation and amortization			—				—				614				640				—				1,254
Income taxes			250				—				—				—				—				250
Losses (gains) on sales of facilities			—				—				3				(7	)			—				(4	)
Amortization of deferred loan costs			1				43				—				—				—				44
Share-based compensation			39				—				—				—				—				39
Equity in earnings of affiliates			(1,348	)			—				—				—				1,348				—
Other			—				11				—				(4	)			—				7
Net cash provided by (used in) operating activities			263				(1,090	)			2,418				1,321				—				2,912
Cash flows from investing activities:
Purchase of property and equipment			—				—				(685	)			(583	)			—				(1,268	)
Acquisition of hospitals and health care entities			—				—				(72	)			(95	)			—				(167	)
Disposition of hospitals and health care entities			—				—				1				16				—				17
Change in investments			—				—				(9	)			82				—				73
Other			—				—				(1	)			6				—				5
Net cash used in investing activities			—				—				(766	)			(574	)			—				(1,340	)
Cash flows from financing activities:
Issuance of long-term debt			—				1,350				—				—				—				1,350
Net change in revolving bank credit facilities			—				(875	)			—				—				—				(875	)
Repayment of long-term debt			—				(604	)			(16	)			(69	)			—				(689	)
Distributions to noncontrolling interests			—				—				(46	)			(257	)			—				(303	)
Payment of debt issuance costs			—				(20	)			—				—				—				(20	)
Distributions to stockholders			(983	)			—				—				—				—				(983	)
Changes in intercompany balances with affiliates, net			675				1,239				(1,556	)			(358	)			—				—
Income tax benefits			82				—				—				—				—				82
Other			(37	)			—				—				2				—				(35	)
Net cash (used in) provided by financing activities			(263	)			1,090				(1,618	)			(682	)			—				(1,473	)
Change in cash and cash equivalents			—				—				34				65				—				99
Cash and cash equivalents at beginning of period			—				—				115				258				—				373
Cash and cash equivalents at end of period		$	—			$	—			$	149			$	323			$	—			$	472

 

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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 (loss)		$	530			$	(1,820	)		$	1,869			$	802			$	(581	)		$	800
Adjustments to reconcile net income (loss) 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			—				—				<