UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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 Healthcare, 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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Voting common stock, $.01 par value	HCA	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

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

Class of Common Stock	Outstanding at July 26, 2021
Voting common stock, $.01 par value	320,141,900 shares

HCA HEALTHCARE, INC.

Form 10-Q

June 30, 2021

		Page of Form 10-Q
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Income Statements — for the quarters and six months ended June 30, 2021 and 2020		2
	Condensed Consolidated Comprehensive Income Statements — for the quarters and six months ended June 30, 2021 and 2020		3
	Condensed Consolidated Balance Sheets — June 30, 2021 and December 31, 2020		4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) — for the quarters and six months ended June 30, 2021 and 2020		5
	Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2021 and 2020		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.	Controls and Procedures		38
Part II.	Other Information
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 6.	Exhibits		40
Signatures			41

1

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Unaudited

(Dollars in millions, except per share amounts)

	Quarter						Six Months
	2021			2020			2021			2020
Revenues	$	14,435		$	11,068		$	28,412		$	23,929
Salaries and benefits		6,385			5,330			12,686			11,448
Supplies		2,380			1,748			4,604			3,871
Other operating expenses		2,473			2,147			4,894			4,574
Government stimulus income		—			(822	)		—			(822	)
Equity in earnings of affiliates		(22	)		(1	)		(43	)		(8	)
Depreciation and amortization		712			691			1,409			1,365
Interest expense		386			388			770			816
Losses (gains) on sales of facilities		(8	)		27			(10	)		20
Losses on retirement of debt		12			—			12			295
		12,318			9,508			24,322			21,559
Income before income taxes		2,117			1,560			4,090			2,370
Provision for income taxes		453			344			846			456
Net income		1,664			1,216			3,244			1,914
Net income attributable to noncontrolling interests		214			137			371			254
Net income attributable to HCA Healthcare, Inc.	$	1,450		$	1,079		$	2,873		$	1,660
Per share data:
Basic earnings	$	4.42		$	3.20		$	8.62		$	4.91
Diluted earnings	$	4.36		$	3.16		$	8.50		$	4.84
Shares used in earnings per share calculations (in millions):
Basic		328.171			337.760			333.119			338.001
Diluted		332.613			341.599			337.940			342.848

The accompanying notes are an integral part of the condensed consolidated financial statements.

2

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Unaudited

(Dollars in millions)

	Quarter						Six Months
	2021			2020			2021			2020
Net income	$	1,664		$	1,216		$	3,244		$	1,914
Other comprehensive income (loss) before taxes:
Foreign currency translation		3			(8	)		11			(81	)
Unrealized gains (losses) on available-for-sale securities		2			17			(9	)		12
Defined benefit plans		—			—			—			—
Pension costs included in salaries and benefits		7			4			14			8
		7			4			14			8
Change in fair value of derivative financial instruments		(1	)		(6	)		—			(66	)
Interest costs included in interest expense		9			7			18			6
		8			1			18			(60	)
Other comprehensive income (loss) before taxes		20			14			34			(121	)
Income taxes (benefits) related to other comprehensive income items		4			5			7			(19	)
Other comprehensive income (loss)		16			9			27			(102	)
Comprehensive income		1,680			1,225			3,271			1,812
Comprehensive income attributable to noncontrolling interests		214			137			371			254
Comprehensive income attributable to HCA Healthcare, Inc.	$	1,466		$	1,088		$	2,900		$	1,558

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

	June 30, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,120		$	1,793
Accounts receivable		7,636			7,051
Inventories		2,027			2,025
Other		1,692			1,464
		12,475			12,333
Property and equipment, at cost		50,698			49,317
Accumulated depreciation		(27,227	)		(26,118	)
		23,471			23,199
Investments of insurance subsidiaries		410			388
Investments in and advances to affiliates		382			422
Goodwill and other intangible assets		8,680			8,578
Right-of-use operating lease assets		2,118			2,024
Other		628			546
	$	48,164		$	47,490
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,531		$	3,535
Accrued salaries		1,896			1,720
Other accrued expenses		2,935			3,240
Long-term debt due within one year		253			209
		8,615			8,704
Long-term debt, less debt issuance costs and discounts of $255 and $236		32,319			30,795
Professional liability risks		1,585			1,486
Right-of-use operating lease obligations		1,767			1,673
Income taxes and other liabilities		2,088			1,940
Stockholders’ equity:
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 322,824,800 shares — 2021 and 339,425,600 shares — 2020		3			3
Capital in excess of par value		—			294
Accumulated other comprehensive loss		(475	)		(502	)
Retained (deficit) earnings		(121	)		777
Stockholders’ (deficit) equity attributable to HCA Healthcare, Inc.		(593	)		572
Noncontrolling interests		2,383			2,320
		1,790			2,892
	$	48,164		$	47,490

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Unaudited

(Dollars in millions)

	Equity (Deficit) Attributable to HCA Healthcare, Inc.														Equity Attributable to Noncontrolling Interests			Total
	Common Stock					Capital in Excess of Par Value			Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)
	Shares (in millions)			Par Value
Balances, December 31, 2019		338.446		$	3	$	—		$	(460	)	$	(2,351	)	$	2,243		$	(565	)
Comprehensive income										(111	)		581			117			587
Repurchase of common stock		(3.287	)										(441	)					(441	)
Share-based benefit plans		2.449					2						(35	)					(33	)
Cash dividends declared ($0.43 per share)													(148	)					(148	)
Distributions																(154	)		(154	)
Other							(2	)								53			51
Balances, March 31, 2020		337.608			3		—			(571	)		(2,394	)		2,259			(703	)
Comprehensive income										9			1,079			137			1,225
Share-based benefit plans		0.352					93												93
Distributions																(45	)		(45	)
Other							(5	)								3			(2	)
Balances, June 30, 2020		337.960			3		88			(562	)		(1,315	)		2,354			568
Comprehensive income										47			668			111			826
Share-based benefit plans		0.410					97												97
Distributions																(194	)		(194	)
Other																2			2
Balances, September 30, 2020		338.370			3		185			(515	)		(647	)		2,273			1,299
Comprehensive income										13			1,426			268			1,707
Share-based benefit plans		1.056					108												108
Cash dividends declared ($0.43 per share)													(2	)					(2	)
Distributions																(233	)		(233	)
Other							1									12			13
Balances, December 31, 2020		339.426			3		294			(502	)		777			2,320			2,892
Comprehensive income										11			1,423			157			1,591
Repurchase of common stock		(8.477	)				(225	)					(1,302	)					(1,527	)
Share-based benefit plans		2.765					(75	)											(75	)
Cash dividends declared ($0.48 per share)													(163	)					(163	)
Distributions																(234	)		(234	)
Other							6									(8	)		(2	)
Balances, March 31, 2021		333.714			3		—			(491	)		735			2,235			2,482
Comprehensive income										16			1,450			214			1,680
Repurchase of common stock		(11.261	)				(142	)					(2,145	)					(2,287	)
Share-based benefit plans		0.372					140												140
Cash dividends declared ($0.48 per share)													(161	)					(161	)
Distributions																(123	)		(123	)
Other							2									57			59
Balances, June 30, 2021		322.825		$	3	$	—		$	(475	)	$	(121	)	$	2,383		$	1,790

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

Unaudited

(Dollars in millions)

	2021			2020
Cash flows from operating activities:
Net income	$	3,244		$	1,914
Adjustments to reconcile net income to net cash provided by operating activities:
Increase (decrease) in cash from operating assets and liabilities:
Accounts receivable		(567	)		1,215
Inventories and other assets		(213	)		(57	)
Accounts payable and accrued expenses		49			(336	)
Contract liabilities-deferred revenues		—			4,999
Depreciation and amortization		1,409			1,365
Income taxes		2			472
Losses (gains) on sales of facilities		(10	)		20
Losses on retirement of debt		12			295
Amortization of debt issuance costs and discounts		14			14
Share-based compensation		226			148
Other		73			49
Net cash provided by operating activities		4,239			10,098
Cash flows from investing activities:
Purchase of property and equipment		(1,496	)		(1,598	)
Acquisition of hospitals and health care entities		(98	)		(346	)
Sales of hospitals and health care entities		30			39
Change in investments		(12	)		(11	)
Other		7			(37	)
Net cash used in investing activities		(1,569	)		(1,953	)
Cash flows from financing activities:
Issuances of long-term debt		4,337			2,700
Net change in revolving credit facilities		800			(2,480	)
Repayment of long-term debt		(3,731	)		(3,364	)
Distributions to noncontrolling interests		(357	)		(199	)
Payment of debt issuance costs		(32	)		(35	)
Payment of dividends		(325	)		(153	)
Repurchase of common stock		(3,814	)		(441	)
Other		(224	)		(144	)
Net cash used in financing activities		(3,346	)		(4,116	)
Effect of exchange rate changes on cash and cash equivalents		3			(12	)
Change in cash and cash equivalents		(673	)		4,017
Cash and cash equivalents at beginning of period		1,793			621
Cash and cash equivalents at end of period	$	1,120		$	4,638
Interest payments	$	755		$	854
Income tax payments (refunds), net	$	844		$	(16	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Healthcare, 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 Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2021, these affiliates owned and operated 187 hospitals, 122 freestanding surgery centers, 21 freestanding endoscopy centers and provided extensive outpatient and ancillary services. HCA Healthcare, 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 Healthcare, 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 $127 million and $76 million for the quarters ended June 30, 2021 and 2020, respectively, and $214 million and $172 million for the six months ended June 30, 2021 and 2020, respectively. Operating results for the quarter and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted during the latter portion of the first quarter and the first half of the second quarter of 2020 and have continued to be impacted in 2021 as various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic. During the second quarter of 2021, our patient volumes experienced a strong rebound as the effects of the pandemic moderated and certain pandemic-related restrictions and policies were eased. We believe the extent of the COVID-19 pandemic’s impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of these uncertainties, we cannot estimate how long or to what extent the pandemic will impact our operations.

Revenues

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer

7

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revenues (continued)

(Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Our revenues for the six months ended June 30, 2021 and 2020 included $33 million and $55 million, respectively, related to the settlement of Medicare outlier calculations for prior periods. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for non-elective care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters and six months ended June 30, 2021 and 2020 are summarized in the following table (dollars in millions):

	Quarter
	2021		Ratio			2020		Ratio
Medicare	$	2,612		18.1	%	$	2,272		20.5	%
Managed Medicare		2,104		14.6			1,488		13.4
Medicaid		503		3.5			564		5.1
Managed Medicaid		831		5.8			531		4.8
Managed care and insurers		7,417		51.3			5,631		50.9
International (managed care and insurers)		338		2.3			239		2.2
Other		630		4.4			343		3.1
Revenues	$	14,435		100.0	%	$	11,068		100.0	%

8

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revenues (continued)

	Six Months
	2021		Ratio			2020		Ratio
Medicare	$	5,171		18.2	%	$	5,015		21.0	%
Managed Medicare		4,157		14.6			3,314		13.8
Medicaid		1,030		3.6			978		4.1
Managed Medicaid		1,556		5.5			1,197		5.0
Managed care and insurers		14,302		50.4			12,276		51.4
International (managed care and insurers)		671		2.4			531		2.2
Other		1,525		5.3			618		2.5
Revenues	$	28,412		100.0	%	$	23,929		100.0	%

To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and six months ended June 30, 2021 and 2020 follows (dollars in millions):

	Quarter						Six Months
	2021			2020			2021			2020
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	11,950		$	9,916		$	23,593		$	21,258
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		11.1	%		12.6	%		11.2	%		12.2	%
Total uncompensated care	$	7,696		$	6,729		$	14,517		$	14,602
Multiply by the cost-to-charges ratio		11.1	%		12.6	%		11.2	%		12.2	%
Estimated cost of total uncompensated care	$	848		$	844		$	1,626		$	1,781

The total uncompensated care amounts include charity care of $3.684 billion and $3.077 billion, respectively, and the related estimated costs of charity care were $407 million and $387 million, respectively, for the quarters ended June 30, 2021 and 2020. The total uncompensated care amounts include charity care of $6.626 billion and $6.812 billion, respectively, and the related estimated costs of charity care were $742 million and $831 million, respectively, for the six months ended June 30, 2021 and 2020.

Reclassifications

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

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2021, we paid $98 million to acquire a hospital in Georgia and nonhospital health care entities. Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. During the six months ended June 30, 2020, we paid $346 million to acquire a hospital in New Hampshire and nonhospital health care entities. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.

9

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2 — ACQUISITIONS AND DISPOSITIONS (continued)

During the six months ended June 30, 2021, we received proceeds of $30 million and recognized a pretax gain of $10 million related to sales of real estate and other investments. During the six months ended June 30, 2020, we received proceeds of $39 million and recognized a pretax loss of $20 million related to the sale of a hospital facility in Mississippi and sales of real estate and other investments.

NOTE 3 — INCOME TAXES

Our provisions for income taxes for the quarters ended June 30, 2021 and 2020 were $453 million and $344 million, respectively, and the effective tax rates were 23.8% and 24.2%, respectively. Our provisions for income taxes for the six months ended June 30, 2021 and 2020 were $846 million and $456 million, respectively, and the effective tax rates were 22.7% and 21.6%, respectively. Our provisions for income taxes included tax benefits related to settlements of employee equity awards of $85 million and $54 million for the six months ended June 30, 2021 and 2020, respectively.

Our liability for unrecognized tax benefits was $606 million, including accrued interest of $92 million, as of June 30, 2021 ($508 million and $73 million, respectively, as of December 31, 2020). Unrecognized tax benefits of $187 million ($157 million as of December 31, 2020) would affect the effective rate, if recognized.

The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at June 30, 2021. We are also subject to examination by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease 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 equity awards, computed using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and six months ended June 30, 2021 and 2020 (dollars and shares in millions, except per share amounts):

	Quarter				Six Months
	2021		2020		2021		2020
Net income attributable to HCA Healthcare, Inc.	$	1,450	$	1,079	$	2,873	$	1,660
Weighted average common shares outstanding		328.171		337.760		333.119		338.001
Effect of dilutive incremental shares		4.442		3.839		4.821		4.847
Shares used for diluted earnings per share		332.613		341.599		337.940		342.848
Earnings per share:
Basic earnings	$	4.42	$	3.20	$	8.62	$	4.91
Diluted earnings	$	4.36	$	3.16	$	8.50	$	4.84

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at June 30, 2021 and December 31, 2020 follows (dollars in millions):

	June 30, 2021
	Amortized Cost		Unrealized Amounts					Fair Value
			Gains		Losses
Debt securities	$	377	$	24	$	(1	)	$	400
Money market funds and other		125		—		—			125
	$	502	$	24	$	(1	)		525
Amounts classified as current assets									(115	)
Investment carrying value								$	410

	December 31, 2020
	Amortized Cost		Unrealized Amounts				Fair Value
			Gains		Losses
Debt securities	$	384	$	32	$	—	$	416
Money market funds and other		88		—		—		88
	$	472	$	32	$	—		504
Amounts classified as current assets								(116	)
Investment carrying value							$	388

At June 30, 2021 and December 31, 2020, the investments in debt securities of our insurance subsidiaries were classified as “available-for-sale.” Changes in unrealized gains and losses that are not credit-related are recorded as adjustments to other comprehensive income (loss).

Scheduled maturities of investments in debt securities at June 30, 2021 were as follows (dollars in millions):

	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		98		104
Due after five years through ten years		194		208
Due after ten years		85		88
	$	377	$	400

The average expected maturity of the investments in debt securities at June 30, 2021 was 5.0 years, compared to the average scheduled maturity of 9.0 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.

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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 us and our counterparties based on common notional principal amounts and maturity dates. Pay-fixed interest rate swaps effectively convert 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 June 30, 2021 (dollars in millions):

	Notional Amount		Maturity Date		Fair Value
Pay-fixed interest rate swaps	$	2,000		December 2021	$	(14	)
Pay-fixed interest rate swaps		500		December 2022		(14	)

During the next 12 months, we estimate $23 million will be reclassified from other comprehensive income (“OCI”) and will be included in interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the six months ended June 30, 2021 (dollars in millions):

Derivatives in Cash Flow Hedging Relationships	Amount 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	$	—		Interest expense	$	18

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 June 30, 2021, we have not been required to post any collateral related to these agreements. If we had breached these provisions at June 30, 2021, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $28 million.

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, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources

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

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.

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.

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 of these instruments.

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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 June 30, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

	June 30, 2021
				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	$	400		$	—		$	400		$	—
Money market funds and other		125			125			—			—
Investments of insurance subsidiaries		525			125			400			—
Less amounts classified as current assets		(115	)		(73	)		(42	)		—
	$	410		$	52		$	358		$	—
Liabilities:
Interest rate swaps (Income taxes and other liabilities)	$	28		$	—		$	28		$	—

	December 31, 2020
				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	$	416		$	—		$	416		$	—
Money market funds and other		88			88			—			—
Investments of insurance subsidiaries		504			88			416			—
Less amounts classified as current assets		(116	)		(87	)		(29	)		—
	$	388		$	1		$	387		$	—
Liabilities:
Interest rate swaps (Income taxes and other liabilities)	$	46		$	—		$	46		$	—

The estimated fair value of our long-term debt was $37.022 billion and $35.814 billion at June 30, 2021 and December 31, 2020, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $32.827 billion and $31.240 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at June 30, 2021 and December 31, 2020, including related interest rates at June 30, 2021, follows (dollars in millions):

	June 30, 2021			December 31, 2020
Senior secured asset-based revolving credit facility (effective interest rate of 2.2%)	$	800		$	—
Senior secured revolving credit facility		—			—
Senior secured term loan facilities (effective interest rate of 3.1%)		2,000			3,671
Senior secured notes (effective interest rate of 4.8%)		16,200			13,850
Other senior secured debt (effective interest rate of 4.3%)		875			767
Senior secured debt		19,875			18,288
Senior unsecured notes (effective interest rate of 5.5%)		12,952			12,952
Debt issuance costs and discounts		(255	)		(236	)
Total debt (average life of 9.7 years, rates averaging 4.9%)		32,572			31,004
Less amounts due within one year		253			209
	$	32,319		$	30,795

During June 2021, we issued $2.350 billion aggregate principal amount of senior secured notes comprised of $850 million aggregate principal amount of 2 3/8% notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the “June 2021 Notes”). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to $4.500 billion, extending the maturity date on both facilities to June 30, 2026 and entering into a new $1.500 billion term loan A-7 facility and a new $500 million term loan B-14 facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire the existing $1.071 billion term loan A-6 facility, the existing $1.455 billion term loan B-12 facility and the existing $1.131 billion term loan B-13 facility. The pretax loss on retirement of debt was $12 million.

NOTE 9 — 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. 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. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.

Health care companies are routinely subject to 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, 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 results of operations, financial position or liquidity.

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NOTE 9 — CONTINGENCIES (continued)

Texas operates a state Medicaid program pursuant to a waiver from the Centers for Medicare & Medicaid Services under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. In 2018, the Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas requested information about whether the Program, as operated in Harris County, complied with the laws and regulations applicable to provider related donations, and the Company cooperated with that request. On May 21, 2019, a qui tam lawsuit asserting violations of the FCA and the Texas Medicaid Fraud Prevention Act related to the Program, as operated in Harris County, was unsealed by the U.S. District Court for the Southern District of Texas. Both the federal and state governments declined to intervene in the qui tam lawsuit. The Company believes that our participation is and has been consistent with the requirements of the Program and is vigorously defending against the lawsuit being pursued by the relator. We cannot predict what effect, if any, the qui tam lawsuit could have on the Company.

NOTE 10 — SHARE REPURCHASE TRANSACTIONS AND OTHER COMPREHENSIVE LOSS

During January 2020 and 2019, our Board of Directors authorized share repurchase programs for up to $4 billion ($2 billion for each authorization) of our outstanding common stock. During February 2021, our Board of Directors authorized an additional $6 billion for repurchases of our outstanding common stock. During the six months ended June 30, 2021, we repurchased 19.738 million shares of our common stock at an average price of $193.21 per share through market purchases pursuant to the January 2019 authorization (which was completed during the first quarter of 2021), the January 2020 authorization (which was completed during the second quarter of 2021) and the February 2021 authorization. At June 30, 2021, we had $4.987 billion of repurchase authorization available under the February 2021 authorization.

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, 2020	$	25		$	(271	)	$	(220	)	$	(36	)	$	(502	)
Unrealized losses on available-for-sale securities, net of $2 income tax benefit		(7	)											(7	)
Foreign currency translation adjustments, net of $2 of income taxes					9									9
Expense reclassified into operations from other comprehensive income, net of $3 and $4 income tax benefits, respectively								11			14			25
Balances at June 30, 2021	$	18		$	(262	)	$	(209	)	$	(22	)	$	(475	)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. We operate in two geographically organized groups: the National and American Groups. The National Group includes 98 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, North Carolina, South Carolina, Utah and Virginia, and the American Group includes 82 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Missouri, Tennessee and

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NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

Texas. We also operate seven 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 and gains on sales of facilities, losses on retirement of debt, 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 six months ended June 30, 2021 and 2020 are summarized in the following table (dollars in millions):

	Quarter				Six Months
	2021		2020		2021		2020
Revenues:
National Group	$	7,300	$	5,546	$	14,356	$	12,020
American Group		6,504		5,103		12,795		10,847
Corporate and other		631		419		1,261		1,062