10-Q 1 d807076d10q.htm 10-Q 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, 2014

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, 2014

Voting common stock, $.01 par value   433,563,800 shares

 

 

 

Table of Contents

HCA HOLDINGS, INC.

Form 10-Q

September 30, 2014

 

         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, 2014 and 2013

      2   
 

Condensed Consolidated Comprehensive Income Statements — for the quarters and nine months ended September 30, 2014 and 2013

      3   
 

Condensed Consolidated Balance Sheets — September 30, 2014 and December 31, 2013

      4   
 

Condensed Consolidated Statements of Cash Flows — for the nine months ended September 30, 2014 and 2013

     5   
 

Notes to Condensed Consolidated Financial Statements

      6   

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      49   

Item 6.

   Exhibits      50   

Signatures

     51   

 

1

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Nine Months  
     2014     2013     2014     2013  

Revenues before provision for doubtful accounts

    $ 9,978      $ 9,411      $ 29,619      $ 28,078   

Provision for doubtful accounts

      758        955        2,337        2,732   
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      9,220        8,456        27,282        25,346   

Salaries and benefits

      4,211        3,916        12,359        11,681   

Supplies

      1,539        1,457        4,603        4,406   

Other operating expenses

      1,688        1,564        4,977        4,594   

Electronic health record incentive income

      (32 )      (75 )      (97 )      (166 ) 

Equity in earnings of affiliates

      (14 )      (9 )      (32 )      (29 ) 

Depreciation and amortization

      460        443        1,361        1,292   

Interest expense

      427        458        1,314        1,392   

Losses (gains) on sales of facilities

      12        1        (20 )      13   

Losses on retirement of debt

      —        —        226        17   

Legal claim costs

      —        —        78        —   
  

 

 

    

 

 

    

 

 

    

 

 

  
     8,291        7,755        24,769        23,200   
  

 

 

    

 

 

    

 

 

    

 

 

  

Income before income taxes

      929        701        2,513        2,146   

Provision for income taxes

      318        234        816        704   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

      611        467        1,697        1,442   

Net income attributable to noncontrolling interests

      93        102        349        310   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income attributable to HCA Holdings, Inc.

    $ 518      $ 365      $ 1,348      $ 1,132   
  

 

 

    

 

 

    

 

 

    

 

 

  

Per share data:

         

Basic earnings per share

    $ 1.20      $ 0.82      $ 3.08      $ 2.54   

Diluted earnings per share

    $ 1.16      $ 0.79      $ 2.98      $ 2.44   

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

         

Basic

      432,617        447,329        437,832        446,125   

Diluted

      447,260        463,569        452,538        463,051   

See accompanying notes.

 

2

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

Unaudited

(Dollars in millions)

 

     Quarter     Nine Months  
     2014     2013     2014     2013  

Net income

    $ 611      $ 467      $ 1,697      $ 1,442   

Other comprehensive (loss) income before taxes:

         

Foreign currency translation

      (58 )      60        (18 )      —   

Unrealized gains (losses) on available-for-sale securities

      2        1        10        (7 ) 

Defined benefit plans

      —        8        —        8   

Pension costs included in salaries and benefits

      3        9        11        24   
  

 

 

    

 

 

    

 

 

    

 

 

  
     3        17        11        32   

Change in fair value of derivative financial instruments

      8        (31 )      (21 )      9   

Interest costs included in interest expense

      34        33        99        97   
  

 

 

    

 

 

    

 

 

    

 

 

  
     42        2        78        106   
  

 

 

    

 

 

    

 

 

    

 

 

  

Other comprehensive (loss) income before taxes

      (11 )      80        81        131   

Income taxes (benefits) related to other comprehensive income items

      (4 )      28        30        48   
  

 

 

    

 

 

    

 

 

    

 

 

  

Other comprehensive (loss) income

      (7 )      52        51        83   
  

 

 

    

 

 

    

 

 

    

 

 

  

Comprehensive income

      604        519        1,748        1,525   

Comprehensive income attributable to noncontrolling interests

      93        102        349        310   
  

 

 

    

 

 

    

 

 

    

 

 

  

Comprehensive income attributable to HCA Holdings, Inc.

    $ 511      $ 417      $ 1,399      $ 1,215   
  

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

3

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

     September 30,
2014		     December 31,
2013		  
ASSETS     

Current assets:

     

Cash and cash equivalents

    $ 515      $ 414   

Accounts receivable, less allowance for doubtful accounts of $5,103 and $5,488

      5,524        5,208   

Inventories

      1,258        1,179   

Deferred income taxes

      320        489   

Other

      910        747   
  

 

 

    

 

 

  
     8,527        8,037   

Property and equipment, at cost

      32,301        31,073   

Accumulated depreciation

      (18,423 )      (17,454 ) 
  

 

 

    

 

 

  
     13,878        13,619   

Investments of insurance subsidiaries

      441        448   

Investments in and advances to affiliates

      167        121   

Goodwill and other intangible assets

      5,899        5,903   

Deferred loan costs

      221        237   

Other

      692        466   
  

 

 

    

 

 

  
   $ 29,825      $ 28,831   
  

 

 

    

 

 

  
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

     

Accounts payable

    $ 1,787      $ 1,803   

Accrued salaries

      1,238        1,193   

Other accrued expenses

      1,563        1,913   

Long-term debt due within one year

      1,044        786   
  

 

 

    

 

 

  
     5,632        5,695   

Long-term debt

      27,426        27,590   

Professional liability risks

      1,045        949   

Income taxes and other liabilities

      1,740        1,525   

Stockholders’ deficit:

     

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 433,378,700 shares in 2014 and 439,604,000 shares in 2013

      4        4   

Capital in excess of par value

      872        1,386   

Accumulated other comprehensive loss

      (206 )      (257 ) 

Retained deficit

      (8,054 )      (9,403 ) 
  

 

 

    

 

 

  

Stockholders’ deficit attributable to HCA Holdings, Inc.

      (7,384 )      (8,270 ) 

Noncontrolling interests

      1,366        1,342   
  

 

 

    

 

 

  
     (6,018 )      (6,928 ) 
  

 

 

    

 

 

  
   $ 29,825      $ 28,831   
  

 

 

    

 

 

  

See accompanying notes.

 

4

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

Unaudited

(Dollars in millions)

 

     2014     2013  

Cash flows from operating activities:

     

Net income

    $ 1,697      $ 1,442   

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

     

Changes in operating assets and liabilities

      (2,945 )      (3,319 ) 

Provision for doubtful accounts

      2,337        2,732   

Depreciation and amortization

      1,361        1,292   

Income taxes

      (61 )      158   

Losses (gains) on sales of facilities

      (20 )      13   

Losses on retirement of debt

      226        17   

Legal claim costs

      78        —   

Amortization of deferred loan costs

      33        41   

Share-based compensation

      118        81   

Other

      (3 )      (3 ) 
  

 

 

    

 

 

  

Net cash provided by operating activities

      2,821        2,454   
  

 

 

    

 

 

  

Cash flows from investing activities:

     

Purchase of property and equipment

      (1,482 )      (1,347 ) 

Acquisition of hospitals and health care entities

      (97 )      (463 ) 

Disposition of hospitals and health care entities

      38        31   

Change in investments

      22        97   

Other

      7        8   
  

 

 

    

 

 

  

Net cash used in investing activities

      (1,512 )      (1,674 ) 
  

 

 

    

 

 

  

Cash flows from financing activities:

     

Issuance of long-term debt

      3,502        —   

Net change in revolving credit facilities

      (160 )      630   

Repayment of long-term debt

      (3,525 )      (1,300 ) 

Distributions to noncontrolling interests

      (325 )      (308 ) 

Payment of debt issuance costs

      (49 )      (5 ) 

Repurchase of common stock

      (750 )      —   

Distributions to stockholders

      (7 )      (13 ) 

Income tax benefits

      119        70   

Other

      (13 )      (75 ) 
  

 

 

    

 

 

  

Net cash used in financing activities

      (1,208 )      (1,001 ) 
  

 

 

    

 

 

  

Change in cash and cash equivalents

      101        (221 ) 

Cash and cash equivalents at beginning of period

      414        705   
  

 

 

    

 

 

  

Cash and cash equivalents at end of period

    $ 515      $ 484   
  

 

 

    

 

 

  

Interest payments

    $ 1,441      $ 1,464   

Income tax payments, net

    $ 758      $ 476   

See accompanying notes.

 

5

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

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, 2014, these affiliates owned and operated 165 hospitals, 113 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 Holdings, Inc. and its affiliates. 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 $71 million and $76 million for the quarters ended September 30, 2014 and 2013, respectively, and $206 million and $207 million for the nine months ended September 30, 2014 and 2013, respectively. Operating results for the quarter and the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

 

6

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues

 

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 (includes the health insurance exchanges, beginning with the first quarter of 2014), 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 revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and the uninsured for the quarters and nine months ended September 30, 2014 and 2013 are summarized in the following table (dollars in millions):

 

     Quarter  
     2014     Ratio     2013     Ratio  

Medicare

    $ 2,120        23.0 %    $ 1,847        21.8 % 

Managed Medicare

      901        9.8        794        9.4   

Medicaid

      372        4.0        401        4.7   

Managed Medicaid

      510        5.5        386        4.6   

Managed care and other insurers

      5,073        55.0        4,636        54.8   

International (managed care and other insurers)

      323        3.5        287        3.4   
  

 

 

    

 

 

    

 

 

    

 

 

  
     9,299        100.8        8,351        98.7   

Uninsured

      313        3.4        717        8.5   

Other

      366        4.0        343        4.1   
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues before provision for doubtful accounts

      9,978        108.2        9,411        111.3   

Provision for doubtful accounts

      (758 )      (8.2 )      (955 )      (11.3 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

    $     9,220        100.0 %    $     8,456        100.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

 

     Nine Months  
     2014     Ratio     2013     Ratio  

Medicare

    $ 6,285        23.0 %    $ 5,961        23.5 % 

Managed Medicare

      2,706        9.9        2,441        9.6   

Medicaid

      1,404        5.1        1,098        4.3   

Managed Medicaid

      1,383        5.1        1,165        4.6   

Managed care and other insurers

      14,742        54.0        13,777        54.4   

International (managed care and other insurers)

      983        3.6        868        3.4   
  

 

 

    

 

 

    

 

 

    

 

 

  
     27,503        100.7        25,310        99.8   

Uninsured

      1,019        3.7        1,809        7.1   

Other

      1,097        4.0        959        3.8   
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues before provision for doubtful accounts

      29,619        108.4        28,078        110.7   

Provision for doubtful accounts

      (2,337 )      (8.4 )      (2,732 )      (10.7 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

    $     27,282        100.0 %    $     25,346        100.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

 

7

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

 

During the quarter ended September 30, 2014, we recorded two changes in estimates which had the net effect of increasing revenues $26 million. We recorded $94 million, or $0.13 per diluted share, of Medicare revenues as the estimated settlement amount for certain claims denied by Recovery Audit Contractors (“RAC”) entities conducting reviews on behalf of the Centers for Medicare and Medicaid Services (“CMS”) and currently in the pending appeals process. CMS is offering an administrative agreement to providers willing to withdraw their pending appeals in exchange for a timely partial payment (generally, 68% of the claim amount, subject to certain adjustments). We also recorded a reduction of $68 million, or $0.09 per diluted share, to Medicaid revenues related to the Texas Medicaid Waiver Program. On October 1, 2014, the Texas Health and Human Services Commission (“THHSC”) issued a notice to hospitals participating in the Texas Medicaid Waiver Program. According to the notice, a review conducted by CMS identified certain local government/hospital affiliations it believes may be inconsistent with the waiver. As a result of these findings, CMS notified THHSC that it is deferring the federal portion of the Medicaid payments associated with these affiliations while it completes its review.

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing United States Generally Accepted Accounting Principles (“US GAAP”) and International Financial Reporting Standards revenue recognition guidance, will require significant management judgment in addition to changing the way many companies recognize revenue in their financial statements. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under US GAAP. We are evaluating the effects the adoption of this standard will have on our financial statements and financial disclosures.

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2014, we paid $14 million to acquire a hospital and $83 million to acquire other nonhospital health care entities. During the nine months ended September 30, 2013, we paid $317 million and recorded goodwill and identifiable intangible assets of $176 million and $125 million, respectively, related to the acquisitions of nonhospital health care entities and $146 million related to the acquisition of three hospitals.

During the nine months ended September 30, 2014, we received proceeds of $38 million and recognized net pretax gains of $20 million related to sales of real estate and other investments. During the nine months ended September 30, 2013, we received proceeds of $31 million and recognized net pretax losses of $13 million related to sales of a hospital facility and real estate and other investments.

NOTE 3 — INCOME TAXES

The IRS Examination Division began an audit of HCA Holdings, Inc.’s 2011 and 2012 federal income tax returns during 2014. We are also subject to examination by state and foreign taxing authorities.

Our liability for unrecognized tax benefits was $503 million, including accrued interest of $43 million, as of September 30, 2014 ($462 million and $30 million, respectively, as of December 31, 2013). Unrecognized tax

 

8

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3 — INCOME TAXES (continued)

 

benefits of $180 million ($160 million as of December 31, 2013) would affect the effective rate, if recognized. The provision for income taxes reflects $3 million and $7 million ($2 million and $4 million, respectively, net of tax) of interest expense related to taxing authority examinations for the quarters ended September 30, 2014 and 2013, respectively. The provision for income taxes reflects $11 million ($7 million, net of tax) of interest expense related to taxing authority examinations and $8 million ($5 million, net of tax) of reductions in interest expense related to taxing authority examinations for the nine months ended September 30, 2014 and 2013, respectively.

Depending on the completion of examinations by federal, state or foreign taxing authorities, the resolution of any tax disputes, 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.

NOTE 4 — 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.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2014 and 2013 (dollars in millions, except per share amounts, and shares in thousands):

 

     Quarter      Nine Months  
     2014      2013      2014      2013  

Net income attributable to HCA Holdings, Inc.

    $ 518       $ 365       $ 1,348       $ 1,132   

Weighted average common shares outstanding

      432,617         447,329         437,832         446,125   

Effect of dilutive incremental shares

      14,643         16,240         14,706         16,926   
  

 

 

     

 

 

     

 

 

     

 

 

  

Shares used for diluted earnings per share

      447,260         463,569         452,538         463,051   
  

 

 

     

 

 

     

 

 

     

 

 

  

Earnings per share:

            

Basic earnings per share

    $ 1.20       $ 0.82       $ 3.08       $ 2.54   

Diluted earnings per share

    $ 1.16       $ 0.79       $ 2.98       $ 2.44   

 

9

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2014 and December 31, 2013 follows (dollars in millions):

 

     September 30, 2014  
     Amortized
Cost		      Unrealized
Amounts		     Fair
Value		  
        Gains      Losses    

Debt securities:

           

States and municipalities

    $ 449       $ 19       $ (1 )    $ 467   

Money market funds

      37         —         —        37   
  

 

 

     

 

 

     

 

 

    

 

 

  
     486         19         (1 )      504   

Equity securities

      1         2         —        3   
  

 

 

     

 

 

     

 

 

    

 

 

  
   $ 487       $ 21       $ (1 )      507   
  

 

 

     

 

 

     

 

 

    

Amounts classified as current assets

              (66 ) 
          

 

 

  

Investment carrying value

            $ 441   
          

 

 

  

 

     December 31, 2013  
     Amortized
Cost		      Unrealized
Amounts		     Fair
Value		  
        Gains      Losses    

Debt securities:

           

States and municipalities

    $ 404       $ 11       $ (3 )    $ 412   

Money market funds

      94         —         —        94   
  

 

 

     

 

 

     

 

 

    

 

 

  
     498         11         (3 )      506   

Equity securities

      2         2         —        4   
  

 

 

     

 

 

     

 

 

    

 

 

  
   $ 500       $ 13       $ (3 )      510   
  

 

 

     

 

 

     

 

 

    

Amounts classified as current assets

              (62 ) 
          

 

 

  

Investment carrying value

            $ 448   
          

 

 

  

At September 30, 2014 and December 31, 2013, 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 (loss).

Scheduled maturities of investments in debt securities at September 30, 2014 were as follows (dollars in millions):

 

     Amortized
Cost		      Fair
Value		  

Due in one year or less

    $ 59       $ 60   

Due after one year through five years

      207         212   

Due after five years through ten years

      97         104   

Due after ten years

      123         128   
  

 

 

     

 

 

  
   $ 486       $ 504   
  

 

 

     

 

 

  

 

10

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

 

The average expected maturity of the investments in debt securities at September 30, 2014 was 4.1 years, compared to the average scheduled maturity of 6.1 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 their scheduled maturity date.

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 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, 2014 (dollars in millions):

 

     Notional
Amount		      Maturity Date      Fair

Value		  

Pay-fixed interest rate swaps

    $ 500         December 2014       $ (1 ) 

Pay-fixed interest rate swaps

      3,000         December 2016         (183 ) 

Pay-fixed interest rate swaps

      1,000         December 2017         (33 ) 

During the next 12 months, we estimate $121 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the nine months ended September 30, 2014 (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

    $ 13         Interest expense       $ 99   

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, 2014, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2014, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $224 million.

 

11

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“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 valuation of these securities involves management’s judgment, after consideration of market factors and the absence of market transparency, market liquidity and observable inputs. Our valuation models derived fair market values compared to tax-equivalent yields of other securities of similar credit worthiness and similar effective maturities.

Derivative Financial Instruments

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. 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 and implied volatilities. 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, 2014 and December 31, 2013, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

12

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

    September 30, 2014  
    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

   $ 467      $ —      $ 461      $ 6   

Money market funds

     37        37        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  
    504        37        461        6   

Equity securities

     3        3        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  

Investments of insurance subsidiaries

     507        40        461        6   

Less amounts classified as current assets

     (66 )      (37 )      (29 )      —   
 

 

 

    

 

 

    

 

 

    

 

 

  
  $ 441      $ 3      $ 432      $ 6   
 

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 217      $ —      $ 217      $ —   

 

    December 31, 2013  
          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

   $ 412      $ —      $ 405      $ 7   

Money market funds

     94        94        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  
    506        94        405        7   

Equity securities

     4        3        —        1   
 

 

 

    

 

 

    

 

 

    

 

 

  

Investments of insurance subsidiaries

     510        97        405        8   

Less amounts classified as current assets

     (62 )      (62 )      —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  
  $ 448      $ 35      $ 405      $ 8   
 

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 295      $ —      $ 295      $  —   

 

13

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

The following table summarizes the activity related to the investments of our insurance subsidiaries which have fair value measurements based on significant unobservable inputs (Level 3) during the nine months ended September 30, 2014 (dollars in millions):

 

Asset balances at December 31, 2013

    $ 8   

Settlements

      (2 ) 
  

 

 

  

Asset balances at September 30, 2014

    $ 6   
  

 

 

  

The estimated fair value of our long-term debt was $29.369 billion and $29.603 billion at September 30, 2014 and December 31, 2013, respectively, compared to carrying amounts aggregating $28.470 billion and $28.376 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 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2014 and December 31, 2013, including related interest rates at September 30, 2014, follows (dollars in millions):

 

    September 30,
2014		     December 31,
2013		  

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

   $ 2,280      $ 2,440   

Senior secured revolving credit facility

     —        —   

Senior secured term loan facilities (effective interest rate of 5.3%)

     5,538        5,598   

Senior secured first lien notes (effective interest rate of 5.8%)

     10,492        9,695   

Other senior secured debt (effective interest rate of 6.6%)

     464        448   
 

 

 

    

 

 

  

First lien debt

     18,774        18,181   

Senior unsecured notes (effective interest rate of 7.2%)

     9,696        10,195   
 

 

 

    

 

 

  

Total debt (average life of 6.2 years, rates averaging 5.9%)

     28,470        28,376   

Less amounts due within one year

     1,044        786   
 

 

 

    

 

 

  
  $ 27,426      $ 27,590   
 

 

 

    

 

 

  

2014 Activity

During March 2014, we issued $3.500 billion aggregate principal amount of notes, comprised of $1.500 billion aggregate principal amount of 3.75% senior secured notes due 2019 and $2.000 billion aggregate principal amount of 5.00% senior secured notes due 2024, and repaid at maturity all $500 million aggregate principal amount of our outstanding 5.75% senior unsecured notes. During April 2014, we used proceeds from the March 2014 debt issuance to redeem all $1.500 billion aggregate principal amount of our outstanding 8  1/2% senior secured notes due 2019 and all $1.250 billion aggregate principal amount of our outstanding 7 7/8% senior secured notes due 2020. The pretax loss on retirement of debt related to these redemptions was $226 million.

2013 Activity

During March 2013, we redeemed all $201 million aggregate principal amount of our 9 7/8% senior secured second lien notes due 2017. The pretax loss on retirement of debt related to this redemption was $17 million.

 

14

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS

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. We are also 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. 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.

Government Investigations, Claims and Litigation

Health care companies are subject to numerous investigations by various governmental agencies. Further, 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, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. 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 financial position, results of operations and liquidity.

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 across the country 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 has produced 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 federal FCA, other statutes, regulations or laws, could have on the Company.

On April 2, 2014, the UK Competition and Markets Authority (“Authority”) issued a final report on its investigation of the private health care market in London. It concluded, among other things, that many private hospitals face little competition in central London, and that there are high barriers to entry. As part of its remedies package, the Authority ordered HCA to sell either: (a) its London Bridge and Princess Grace hospitals; or (b) its Wellington Hospital, including the Hospital Platinum Medical Centre. It also imposed other remedial conditions on HCA and other private health care providers, including: regulation of incentives to referring physicians; increased access to information about fees and performance; and restrictions on future arrangements between private providers and National Health Service private patient units. HCA disagrees with the Authority’s assessment of the competitive conditions for hospitals in London, as well as its proposed divestiture remedy, and has appealed the decision to the Competition Appeal Tribunal. The appeal is expected to be decided in 2015.

 

15

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

 

Securities Class Action Litigation

On October 28, 2011, a shareholder action, Schuh v. HCA Holdings, Inc. et al., was filed in the United States District Court for the Middle District of Tennessee seeking monetary relief. The case sought to include as a class all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration Statement issued in connection with the March 9, 2011 initial public offering. The lawsuit asserted 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 asserted 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, Kishtah v. HCA Holdings, Inc. et al. and Daniels v. HCA Holdings, Inc. et al., setting forth substantially similar claims against substantially the same defendants were filed in the same federal court on November 16, 2011 and December 12, 2011, respectively. All three of the cases were consolidated. On May 3, 2012, the court appointed New England Teamsters & Trucking Industry Pension Fund as Lead Plaintiff for the consolidated action. 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 at the time of the initial public offering. 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 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. The Court granted the motion in part on May 28, 2013. The action proceeded to discovery on the remaining claims. The plaintiffs’ motion for class certification was granted on September 22, 2014. The court certified a class consisting of all persons that acquired HCA stock on or before October 28, 2011 (the date of the lawsuit) pursuant to the Registration Statement issued in connection with the March 9, 2011 initial public offering. We have requested permission from the trial court of appeals to immediately appeal this ruling.

In addition to the above described shareholder class actions, on December 8, 2011, a federal shareholder derivative action, Sutton v. Bracken, et al., putatively initiated in the name of the Company, was filed in the United States District Court for the Middle District of Tennessee against certain officers and present and former directors of the Company seeking monetary relief. The action alleges breaches of fiduciary duties by the named officers and directors in connection with the accounting and earnings claims set forth in the shareholder class actions. Setting forth substantially similar claims against substantially the same defendants, an additional federal derivative action, Schroeder v. Bracken, et al., was filed in the United States District Court for the Middle District of Tennessee on December 16, 2011, and a state derivative action, Bagot v. Bracken, et al., was filed in Tennessee state court in the Davidson County Circuit Court on December 20, 2011. The federal derivative actions were consolidated in the Middle District of Tennessee and stayed pending developments in the shareholder class actions. The state derivative action had also been stayed pending developments in the shareholder class actions, but that stay has expired. The plaintiff in the state derivative action subsequently filed an amended complaint on September 9, 2013 that added additional allegations made in the shareholder class actions. On September 24, 2013, an additional state derivative action, Steinberg v. Bracken, et al., was filed in Tennessee state court in the Davidson County Circuit Court. This action against our board of directors has been consolidated with the earlier filed state derivative action. The plaintiffs in the consolidated action filed a consolidated complaint on December 4, 2013. The Company has filed a motion to again stay the state derivative action pending developments in the class action, but the Court has not yet acted on that motion.

 

16

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

 

Health Midwest Litigation

In October 2009, the Health Care Foundation of Greater Kansas City, a nonprofit health foundation, filed suit against HCA Inc. in the Circuit Court of Jackson County, Missouri and alleged that HCA did not fund the level of capital expenditures and uncompensated care agreed to in connection with HCA’s purchase of hospitals from Health Midwest in 2003. The central issue in the case was whether HCA’s construction of new hospitals counted towards its $450 million five-year capital commitments. In addition, the plaintiff alleged that HCA did not make its required capital expenditures in a timely fashion. On January 24, 2013, the Court ruled in favor of the plaintiff and awarded at least $162 million. The Court also ordered a court-supervised accounting of HCA’s capital expenditures, as well as of expenditures on charity and uncompensated care during the ten years following the purchase. The Court also indicated it would award plaintiff attorneys fees, which the parties have stipulated are approximately $12 million for the trial phase. HCA recorded $175 million of legal claim costs in the fourth quarter of 2012 related to this ruling, and consistent with the judge’s order, has been accruing interest on that sum at 9% per annum. On April 25, 2014, the parties stipulated to an additional $78 million shortfall relating to the capital expenditures issue. HCA recorded $78 million of legal claims costs in the first quarter of 2014 as a result of the stipulation, and is accruing interest on that amount at 9% per annum. Pursuant to the terms of the stipulation, the parties have preserved their respective rights to contest the judge’s underlying ruling, whether through motions in the trial court or on appeal. The accounting for charity and other uncompensated care is ongoing. Final judgment in the case currently is not anticipated before 2015. At this time, we cannot predict what effect, if any, the final judgment could have on the Company. HCA plans to appeal the trial court’s ruling on the breach of contract claim and order for the accounting once the trial court rules on the accounting and enters judgment.

NOTE 10 — CAPITAL STRUCTURE

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 at December 31, 2013

     439,604      $ 4      $ 1,386      $ (257 )    $ (9,403 )    $ 1,342      $ (6,928 ) 

Net income

     —        —        —        —        1,348        349        1,697   

Repurchase of common stock

     (14,555 )      —        (750 )      —        —        —        (750 ) 

Other comprehensive income

     —        —        —        51        —        —        51   

Distributions

     —        —        —        —        —        (325 )      (325 ) 

Share-based benefit plans

     8,330        —        242        —        —        —        242   

Other

     —        —        (6 )      —        1        —        (5 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balances at September 30, 2014

     433,379      $ 4      $ 872      $ (206 )    $ (8,054 )    $ 1,366      $ (6,018 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

During May 2014, we repurchased 14,554,628 shares of our common stock at a price of $51.53 per share.

 

17

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10 — CAPITAL STRUCTURE (continued)

 

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

 

     Unrealized

Gains on

Available-

for-Sale

Securities 		     Foreign

Currency

Translation

Adjustments		     Defined

Benefit

Plans		     Change

in Fair

Value of

Derivative

Instruments		     Total  

Balances at December 31, 2013

    $ 7       $ 11      $ (88 )    $ (187 )    $ (257 ) 

Unrealized gains on available-for-sale securities, net of $4 of income taxes

      6         —        —        —        6   

Foreign currency translation adjustments, net of $6 income tax benefits

      —         (12 )      —        —        (12 ) 

Change in fair value of derivative instruments, net of $8 income tax benefits

      —         —        —        (13 )      (13 ) 

Expense reclassified into operations from other comprehensive income, net of $4 and $36, respectively, income tax benefits

      —         —        7        63        70   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Balances at September 30, 2014

    $ 13       $ (1 )    $ (81 )    $ (137 )    $ (206 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. Effective January 1, 2013, we reorganized our operational groups into two geographically organized groups: the National and American Groups. The National Group includes 81 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia, and the American Group includes 77 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. We also operate seven hospitals in England, and these facilities are included in the Corporate and other group.

 

18

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, losses on retirement of debt, legal claim costs, 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, 2014 and 2013 are summarized in the following table (dollars in millions):

 

     Quarter     Nine Months  
     2014     2013     2014     2013  

Revenues:

         

National Group

    $ 4,387      $ 3,930      $ 12,814      $ 11,875   

American Group

      4,319        4,082        12,918        12,181   

Corporate and other

      514        444        1,550        1,290   
  

 

 

    

 

 

    

 

 

    

 

 

  
   $ 9,220      $ 8,456      $ 27,282      $ 25,346   
  

 

 

    

 

 

    

 

 

    

 

 

  

Equity in earnings of affiliates:

         

National Group

    $ (6 )    $ (3 )    $ (12 )    $ (8 ) 

American Group

      (8 )      (6 )      (23 )      (19 ) 

Corporate and other

      —        —        3        (2 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  
   $ (14 )    $ (9 )    $ (32 )    $ (29 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted segment EBITDA:

         

National Group

    $ 1,008      $ 805      $ 2,810      $ 2,440   

American Group

      927        910        2,911        2,654   

Corporate and other

      (107 )      (112 )      (249 )      (234 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  
   $ 1,828      $ 1,603      $ 5,472      $ 4,860   
  

 

 

    

 

 

    

 

 

    

 

 

  

Depreciation and amortization:

         

National Group

    $ 187      $ 181      $ 564      $ 532   

American Group

      210        206        626        610   

Corporate and other

      63        56        171        150   
  

 

 

    

 

 

    

 

 

    

 

 

  
   $ 460      $ 443      $ 1,361      $ 1,292   
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted segment EBITDA

    $ 1,828      $ 1,603      $ 5,472      $ 4,860   

Depreciation and amortization

      460        443        1,361        1,292   

Interest expense

      427        458        1,314        1,392   

Losses (gains) on sales of facilities

      12        1        (20 )      13   

Losses on retirement of debt

      —        —        226        17   

Legal claim costs

      —        —        78        —   
  

 

 

    

 

 

    

 

 

    

 

 

  

Income before income taxes

    $ 929      $ 701      $ 2,513      $ 2,146   
  

 

 

    

 

 

    

 

 

    

 

 

  

 

19

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On November 23, 2010, HCA Holdings, Inc. issued $1.525 billion aggregate principal amount of 7 3/4% senior unsecured notes due 2021. On December 6, 2012, HCA Holdings, Inc. issued $1.000 billion aggregate principal amount of 6.25% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

HCA Inc., a direct wholly-owned subsidiary of HCA Holdings, Inc., is the obligor under a significant portion of our other indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes (other than the senior unsecured notes issued by HCA Holdings, Inc.). The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed by HCA Holdings, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% 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).

Our summarized condensed consolidating comprehensive income statements for the quarters and nine months ended September 30, 2014 and 2013, condensed consolidating balance sheets at September 30, 2014 and December 31, 2013 and condensed consolidating statements of cash flows for the nine months ended September 30, 2014 and 2013, 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, 2014

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

   $ —      $ —      $ 5,133      $ 4,845      $ —      $ 9,978   

Provision for doubtful accounts

     —        —        457        301        —        758   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

     —        —        4,676        4,544        —        9,220   

Salaries and benefits

     —        —        2,176        2,035        —        4,211   

Supplies

     —        —        797        742        —        1,539   

Other operating expenses

     4        —        804        880        —        1,688   

Electronic health record incentive income

     —        —        (22 )      (10 )      —        (32 ) 

Equity in earnings of affiliates

     (542 )      —        (3 )      (11 )      542        (14 ) 

Depreciation and amortization

     —        —        225        235        —        460   

Interest expense

     46        536        (115 )      (40 )      —        427   

Losses (gains) on sales of facilities

     —        —        16        (4 )      —        12   

Management fees

     —        —        (178 )      178        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (492 )      536        3,700        4,005        542        8,291   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

     492        (536 )      976        539        (542 )      929   

Provision (benefit) for income taxes

     (19 )      (205 )      365        177        —        318   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

     511        (331 )      611        362        (542 )      611   

Net income attributable to noncontrolling interests

     —        —        18        75        —        93   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

   $ 511      $ (331 )    $ 593      $ 287      $ (542 )    $ 518   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

   $ 511      $ (303 )    $ 595      $ 250      $ (542 )    $ 511   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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 COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

(Dollars in millions)

 

     HCA

Holdings,  Inc.

Issuer		     HCA  Inc.

Issuer		     Subsidiary

Guarantors 		    Subsidiary

Non-
Guarantors		     Eliminations     Condensed

Consolidated 		 

Revenues before provision for doubtful accounts

    $ —      $ —      $ 4,945      $ 4,466      $ —      $ 9,411   

Provision for doubtful accounts

      —        —        560        395        —        955   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      —        —        4,385        4,071        —        8,456   

Salaries and benefits

      —        —        2,090        1,826        —        3,916   

Supplies

      —        —        773        684        —        1,457   

Other operating expenses

      2        (1 )      771        792        —        1,564   

Electronic health record incentive income

      —        —        (53 )      (22 )      —        (75 ) 

Equity in earnings of affiliates

      (443 )      —        —        (9 )      443        (9 ) 

Depreciation and amortization

      —        —        216        227        —        443   

Interest expense

      41        549        (104 )      (28 )      —        458   

Losses on sales of facilities

      —        —        1        —        —        1   

Management fees

      —        —        (183 )      183        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (400 )      548        3,511        3,653        443        7,755   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      400        (548 )      874        418        (443 )      701   

Provision (benefit) for income taxes

      (17 )      (214 )      334        131        —        234   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      417        (334 )      540        287        (443 )      467   

Net income attributable to noncontrolling interests

      —        —        19        83        —        102   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 417      $ (334 )    $ 521      $ 204      $ (443 )    $ 365   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 417      $ (331 )    $ 532      $ 242      $ (443 )    $ 417   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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 COMPREHENSIVE INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

    $ —      $ —      $ 15,242      $ 14,377      $ —      $ 29,619   

Provision for doubtful accounts

      —        —        1,388        949        —        2,337   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      —        —        13,854        13,428        —        27,282   

Salaries and benefits

      —        —        6,393        5,966        —        12,359   

Supplies

      —        —        2,416        2,187        —        4,603   

Other operating expenses

      14        —        2,366        2,597        —        4,977   

Electronic health record incentive income

      —        —        (68 )      (29 )      —        (97 ) 

Equity in earnings of affiliates

      (1,494 )      —        (5 )      (27 )      1,494        (32 ) 

Depreciation and amortization

      —        —        667        694        —        1,361   

Interest expense

      138        1,629        (349 )      (104 )      —        1,314   

Gains on sales of facilities

      —        —        (16 )      (4 )      —        (20 ) 

Losses on retirement of debt

      —        226        —        —        —        226   

Legal claim costs

      —        78        —        —        —        78   

Management fees

      —        —        (528 )      528        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (1,342 )      1,933        10,876        11,808        1,494        24,769   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      1,342        (1,933 )      2,978        1,620        (1,494 )      2,513   

Provision (benefit) for income taxes

      (57 )      (729 )      1,098        504        —        816   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      1,399        (1,204 )      1,880        1,116        (1,494 )      1,697   

Net income attributable to noncontrolling interests

      —        —        65        284        —        349   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,399      $ (1,204 )    $ 1,815      $ 832      $ (1,494 )    $ 1,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,399      $ (1,154 )    $ 1,822      $ 826      $ (1,494 )    $ 1,399   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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 COMPREHENSIVE INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

    $ —      $ —      $ 14,829      $ 13,249      $ —      $ 28,078   

Provision for doubtful accounts

      —        —        1,611        1,121        —        2,732   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      —        —        13,218        12,128        —        25,346   

Salaries and benefits

      —        —        6,275        5,406        —        11,681   

Supplies

      —        —        2,340        2,066        —        4,406   

Other operating expenses

      4        (1 )      2,260        2,331        —        4,594   

Electronic health record incentive income

      —        —        (115 )      (51 )      —        (166 ) 

Equity in earnings of affiliates

      (1,303 )      —        (2 )      (27 )      1,303        (29 ) 

Depreciation and amortization

      —        —        636        656        —        1,292   

Interest expense

      138        1,651        (319 )      (78 )      —        1,392   

Losses (gains) on sales of facilities

      —        —        20        (7 )      —        13   

Losses on retirement of debt

      —        17        —        —        —        17   

Management fees

      —        —        (547 )      547        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (1,161 )      1,667        10,548        10,843        1,303        23,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      1,161        (1,667 )      2,670        1,285        (1,303 )      2,146   

Provision (benefit) for income taxes

      (54 )      (639 )      1,005        392        —        704   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      1,215        (1,028 )      1,665        893        (1,303 )      1,442   

Net income attributable to noncontrolling interests

      —        —        48        262        —        310   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,215      $ (1,028 )    $ 1,617      $ 631      $ (1,303 )    $ 1,132   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,215      $ (961 )    $ 1,637      $ 627      $ (1,303 )    $ 1,215   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

SEPTEMBER 30, 2014

(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

   $ —      $ —      $ 113      $ 402      $ —      $ 515   

Accounts receivable, net

     —        —        2,671        2,853        —        5,524   

Inventories

     —        —        748        510        —        1,258   

Deferred income taxes

     320        —        —        —        —        320   

Other

     —        —        369        541        —        910   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    320        —        3,901        4,306        —        8,527   

Property and equipment, net

     —        —        7,762        6,116        —        13,878   

Investments of insurance subsidiaries

     —        —        —        441        —        441   

Investments in and advances to affiliates

     21,850        —        16        151        (21,850 )      167   

Goodwill and other intangible assets

     —        —        1,698        4,201        —        5,899   

Deferred loan costs

     27        194        —        —        —        221   

Other

     476        —        21        195        —        692   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 22,673      $ 194      $ 13,398      $ 15,410      $ (21,850 )    $ 29,825   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

            

Current liabilities:

            

Accounts payable

   $ 3      $ —      $ 1,132      $ 652      $ —      $ 1,787   

Accrued salaries

     —        —        721        517        —        1,238   

Other accrued expenses

     69        197        458        839        —        1,563   

Long-term debt due within one year

     —        952        51        41        —        1,044   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    72        1,149        2,362        2,049        —        5,632   

Long-term debt

     2,525        24,528        187        186        —        27,426   

Intercompany balances

     26,932        (9,497 )      (20,763 )      3,328        —        —   

Professional liability risks

     —        —        —        1,045        —        1,045   

Income taxes and other liabilities

     528        500        486        226        —        1,740   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    30,057        16,680        (17,728 )      6,834        —        35,843   

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

     (7,384 )      (16,486 )      31,007        7,329        (21,850 )      (7,384 ) 

Noncontrolling interests

     —        —        119        1,247        —        1,366   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (7,384 )      (16,486 )      31,126        8,576        (21,850 )      (6,018 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 22,673      $ 194      $ 13,398      $ 15,410      $ (21,850 )    $ 29,825   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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 BALANCE SHEET

DECEMBER 31, 2013

(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

   $ —      $ —      $ 112      $ 302      $ —      $ 414   

Accounts receivable, net

     —        —        2,565        2,643        —        5,208   

Inventories

     —        —        692        487        —        1,179   

Deferred income taxes

     489        —        —        —        —        489   

Other

     —        —        301        446        —        747   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    489        —        3,670        3,878        —        8,037   

Property and equipment, net

     —        —        7,504        6,115        —        13,619   

Investments of insurance subsidiaries

     —        —        —        448        —        448   

Investments in and advances to affiliates

     20,356        —        13        108        (20,356 )      121   

Goodwill and other intangible assets

     —        —        1,695        4,208        —        5,903   

Deferred loan costs

     30        207        —        —        —        237   

Other

     250        —        48        168        —        466   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 21,125      $ 207      $ 12,930      $ 14,925      $ (20,356 )    $ 28,831   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY            

Current liabilities:

            

Accounts payable

   $ 1      $ —      $ 1,169      $ 633      $ —      $ 1,803   

Accrued salaries

     —        —        694        499        —        1,193   

Other accrued expenses

     272        353        464        824        —        1,913   

Long-term debt due within one year

     —        702        45        39        —        786   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    273        1,055        2,372        1,995        —        5,695   

Long-term debt

     2,525        24,701        181        183        —        27,590   

Intercompany balances

     26,107        (10,513 )      (19,428 )      3,834        —        —   

Professional liability risks

     —        —        —        949        —        949   

Income taxes and other liabilities

     490        296        521        218        —        1,525   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    29,395        15,539        (16,354 )      7,179        —        35,759   

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

     (8,270 )      (15,332 )      29,185        6,503        (20,356 )      (8,270 ) 

Noncontrolling interests

     —        —        99        1,243        —        1,342   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (8,270 )      (15,332 )      29,284        7,746        (20,356 )      (6,928 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 21,125      $ 207      $ 12,930      $ 14,925      $ (20,356 )    $ 28,831   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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, 2014

(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)

   $ 1,399      $ (1,204 )    $ 1,880      $ 1,116      $ (1,494 )    $ 1,697   

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

            

Changes in operating assets and liabilities

     18        (151 )      (1,660 )      (1,152 )      —        (2,945 ) 

Provision for doubtful accounts

     —        —        1,388        949        —        2,337   

Depreciation and amortization

     —        —        667        694        —        1,361   

Income taxes

     (61 )      —        —        —        —        (61 ) 

Gains on sales of facilities

     —        —        (16 )      (4 )      —        (20 ) 

Losses on retirement of debt

     —        226        —        —        —        226   

Legal claim costs

     —        78        —        —        —        78   

Amortization of deferred loan costs

     2        31        —        —        —        33   

Share-based compensation

     118        —        —        —        —        118   

Equity in earnings of affiliates

     (1,494 )      —        —        —        1,494        —   

Other

     —        3        —        (6 )      —        (3 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash (used in) provided by operating activities

     (18 )      (1,017 )      2,259        1,597        —        2,821   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from investing activities:

            

Purchase of property and equipment

     —        —        (893 )      (589 )      —        (1,482 ) 

Acquisition of hospitals and health care entities

     —        —        (7 )      (90 )      —        (97 ) 

Disposition of hospitals and health care entities

     —        —        31        7        —        38   

Change in investments

     —        —        22        —        —        22   

Other

     —        —        —        7        —        7   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash used in investing activities

     —        —        (847 )      (665 )      —        (1,512 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from financing activities:

            

Issuance of long-term debt

     —        3,502        —        —        —        3,502   

Net change in revolving credit facilities

     —        (160 )      —        —        —        (160 ) 

Repayment of long-term debt

     —        (3,462 )      (35 )      (28 )      —        (3,525 ) 

Distributions to noncontrolling interests

     —        —        (45 )      (280 )      —        (325 ) 

Payment of debt issuance costs

     —        (49 )      —        —        —        (49 ) 

Repurchase of common stock

     (750 )      —        —        —        —        (750 ) 

Distributions to stockholders

     (7 )      —        —        —        —        (7 ) 

Changes in intercompany balances with affiliates, net

     654        1,186        (1,331 )      (509 )      —        —   

Income tax benefits

     119        —        —        —        —        119   

Other

     2        —        —        (15 )      —        (13 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) financing activities

     18        1,017        (1,411 )      (832 )      —        (1,208 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Change in cash and cash equivalents

     —        —        1        100        —        101   

Cash and cash equivalents at beginning of period

     —        —        112        302        —        414   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash and cash equivalents at end of period

   $ —      $ —      $ 113      $ 402      $ —      $ 515   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

26

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, 2013

(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)

   $ 1,215      $ (1,028 )    $ 1,665      $ 893      $ (1,303 )    $ 1,442   

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

            

Changes in operating assets and liabilities

     47        (126 )      (1,848 )      (1,392 )      —       (3,319 ) 

Provision for doubtful accounts

     —       —       1,611        1,121        —       2,732   

Depreciation and amortization

     —       —       636        656        —       1,292   

Income taxes

     158        —       —       —       —       158   

Losses (gains) on sales of facilities

     —       —       20        (7 )      —       13   

Losses on retirement of debt

     —       17        —       —       —       17   

Amortization of deferred loan costs

     3        38        —       —       —       41   

Share-based compensation

     81        —       —       —       —       81   

Equity in earnings of affiliates

     (1,303 )      —       —       —       1,303        —   

Other

     —       7        —       (10 )      —       (3 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) operating activities

     201        (1,092 )      2,084        1,261        —       2,454   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from investing activities:

            

Purchase of property and equipment

     —       —       (684 )      (663 )      —       (1,347 ) 

Acquisition of hospitals and health care entities

     —       —       —