Edgar Filing: HCA Holdings, Inc.

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Form 10-Q

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 June 30, 2012

¨	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.

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 July 31, 2012
Voting common stock, $.01 par value		440,652,700 shares

HCA HOLDINGS, INC.

Form 10-Q

June 30, 2012


		Page of Form 10-Q

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Comprehensive Income Statements — for the quarters and six months ended June 30, 2012 and 2011		2

	Condensed Consolidated Balance Sheets — June 30, 2012 and December 31, 2011		3

	Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2012 and 2011		4

	Notes to Condensed Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49

Item 4.	Controls and Procedures		49

Part II.	Other Information

Item 1.	Legal Proceedings		49

Item 1A.	Risk Factors		51

Item 6.	Exhibits		55

Signatures			56

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

Unaudited

(Dollars in millions, except per share amounts)


	Quarter						Six Months
	2012			2011			2012			2011
Revenues before provision for doubtful accounts	$	9,153		$	8,024		$	18,352		$	16,079
Provision for doubtful accounts		1,041			775			1,835			1,424

Revenues		8,112			7,249			16,517			14,655

Salaries and benefits		3,707			3,320			7,443			6,615
Supplies		1,422			1,295			2,841			2,570
Other operating expenses		1,493			1,326			2,986			2,648
Electronic health record incentive income		(70	)		(39	)		(125	)		(39	)
Equity in earnings of affiliates		(9	)		(73	)		(20	)		(149	)
Depreciation and amortization		420			358			837			716
Interest expense		448			520			890			1,053
Losses on sales of facilities		2			—			3			1
Losses on retirement of debt		—			75			—			75
Termination of management agreement		—			—			—			181

		7,413			6,782			14,855			13,671

Income before income taxes		699			467			1,662			984
Provision for income taxes		214			147			538			330

Net income		485			320			1,124			654
Net income attributable to noncontrolling interests		94			91			193			185

Net income attributable to HCA Holdings, Inc.	$	391		$	229		$	931		$	469

Per share data:
Basic earnings per share	$	0.89		$	0.44		$	2.12		$	0.98
Diluted earnings per share	$	0.85		$	0.43		$	2.03		$	0.94
Cash dividends declared per share	$	—		$	—		$	2.00		$	—
Shares used in earnings per share calculations (in thousands):
Basic		439,473			516,448			438,705			480,525
Diluted		458,621			538,557			458,467			500,463

Comprehensive income attributable to HCA Holdings, Inc.	$	353		$	234		$	922		$	558

See accompanying notes.

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)


	June 30, 2012			December 31, 2011
ASSETS

Current assets:
Cash and cash equivalents	$	518		$	373
Accounts receivable, less allowance for doubtful accounts of $4,416 and $4,106		4,485			4,533
Inventories		1,055			1,054
Deferred income taxes		323			594
Other		756			679

		7,137			7,233

Property and equipment, at cost		28,742			28,075
Accumulated depreciation		(15,896	)		(15,241	)

		12,846			12,834

Investments of insurance subsidiaries		495			548
Investments in and advances to affiliates		102			101
Goodwill and other intangible assets		5,431			5,251
Deferred loan costs		281			290
Other		840			641

	$	27,132		$	26,898

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	1,517		$	1,597
Accrued salaries		970			965
Other accrued expenses		1,651			1,585
Long-term debt due within one year		1,309			1,407

		5,447			5,554

Long-term debt		25,732			25,645
Professional liability risks		1,039			993
Income taxes and other liabilities		1,857			1,720

Stockholders’ deficit:
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 440,483,600 shares in 2012 and 437,477,900 shares in 2011		4			4
Capital in excess of par value		1,665			1,601
Accumulated other comprehensive loss		(449	)		(440	)
Retained deficit		(9,463	)		(9,423	)

Stockholders’ deficit attributable to HCA Holdings, Inc.		(8,243	)		(8,258	)
Noncontrolling interests		1,300			1,244

		(6,943	)		(7,014	)

	$	27,132		$	26,898

See accompanying notes.

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

Unaudited

(Dollars in millions)


	2012			2011
Cash flows from operating activities:
Net income	$	1,124		$	654
Adjustments to reconcile net income to net cash provided by operating activities:
Changes in operating assets and liabilities		(1,927	)		(1,576	)
Provision for doubtful accounts		1,835			1,424
Depreciation and amortization		837			716
Income taxes		326			317
Losses on sales of facilities		3			1
Losses on retirement of debt		—			75
Amortization of deferred loan costs		29			39
Share-based compensation		23			16
Other		7			—

Net cash provided by operating activities		2,257			1,666

Cash flows from investing activities:
Purchase of property and equipment		(784	)		(776	)
Acquisition of hospitals and health care entities		(139	)		(168	)
Disposition of hospitals and health care entities		6			54
Change in investments		35			76
Other		(4	)		2

Net cash used in investing activities		(886	)		(812	)

Cash flows from financing activities:
Issuance of long-term debt		1,350			—
Net change in revolving credit facilities		(820	)		(1,524	)
Repayment of long-term debt		(608	)		(1,508	)
Distributions to noncontrolling interests		(191	)		(185	)
Payment of debt issuance costs		(19	)		(12	)
Issuance of common stock		—			2,506
Distributions to stockholders		(982	)		(30	)
Income tax benefits		71			49
Other		(27	)		(22	)

Net cash used in financing activities		(1,226	)		(726	)

Change in cash and cash equivalents		145			128
Cash and cash equivalents at beginning of period		373			411

Cash and cash equivalents at end of period	$	518		$	539

Interest payments	$	854		$	1,043
Income tax payments (refunds), net	$	141		$	(36	)

See accompanying notes.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reporting Entity

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

On November 22, 2010, HCA Inc. reorganized by creating a new holding company structure (the “Corporate Reorganization”). HCA Holdings, Inc. became the new parent company, and HCA Inc. became HCA Holdings, Inc.’s wholly-owned direct subsidiary. As part of the Corporate Reorganization, HCA Inc.’s outstanding shares of common stock were automatically converted, on a share for share basis, into identical shares of HCA Holdings, Inc.’s common stock. As a result of the Corporate Reorganization, HCA Holdings, Inc. was deemed the successor registrant to HCA Inc. under the Exchange Act.

During March 2011, we completed the initial public offering of 87,719,300 shares of our common stock at a price of $30.00 per share (before deducting underwriter discounts, commissions and other related offering expenses). Certain of our stockholders also sold 57,410,700 shares of our common stock in this offering. We did not receive any proceeds from the shares sold by the selling stockholders. Our common stock is traded on the New York Stock Exchange (symbol “HCA”).

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

HCA Holdings, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Holdings, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2012, these affiliates owned and operated 163 hospitals, 110 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Holdings, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Inc. and its affiliates prior to the Corporate Reorganization and to HCA Holdings, Inc. and its affiliates after the Corporate Reorganization. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

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

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $59 million and $55 million for the quarters ended June 30, 2012 and 2011, respectively, and $112 million and $109 million for the six months ended

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Basis of Presentation (continued)

June 30, 2012 and 2011, respectively. Operating results for the quarter and the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2011.

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

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under the Medicare, Medicaid and other programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay accounts receivable at the estimated amounts we expect to collect. Our revenues from our third-party payers, the uninsured and other revenues for the quarters and six months ended June 30, 2012 and 2011 are summarized in the following tables (dollars in millions):


	Quarter
	2012			Ratio			2011			Ratio
Medicare	$	1,989			24.5	%	$	1,871			25.8	%
Managed Medicare		729			9.0			584			8.1
Medicaid		380			4.7			479			6.6
Managed Medicaid		358			4.4			316			4.4
Managed care and other insurers		4,473			55.1			3,853			53.1
International (managed care and other insurers)		266			3.3			233			3.2

		8,195			101.0			7,336			101.2
Uninsured		739			9.1			492			6.8
Other		219			2.7			196			2.7

Revenues before provision for doubtful accounts		9,153			112.8			8,024			110.7
Provision for doubtful accounts		(1,041	)		(12.8	)		(775	)		(10.7	)

Revenues	$	8,112			100.0	%	$	7,249			100.0	%

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Basis of Presentation (continued)


	Six Months
	2012			Ratio			2011			Ratio
Medicare	$	4,302			26.0	%	$	3,871			26.4	%
Managed Medicare		1,479			9.0			1,196			8.2
Medicaid		810			4.9			987			6.7
Managed Medicaid		700			4.2			635			4.3
Managed care and other insurers		8,918			54.0			7,631			52.1
International (managed care and other insurers)		526			3.2			466			3.2

		16,735			101.3			14,786			100.9
Uninsured		1,181			7.2			882			6.0
Other		436			2.6			411			2.8

Revenues before provision for doubtful accounts		18,352			111.1			16,079			109.7
Provision for doubtful accounts		(1,835	)		(11.1	)		(1,424	)		(9.7	)

Revenues	$	16,517			100.0	%	$	14,655			100.0	%

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

We previously reported $39 million of Medicaid electronic health record (“EHR”) incentives for the quarter and six months ended June 30, 2011 in the line item “Revenues” in our condensed consolidated income statements. This amount has been reclassified and is now included in the line item “Electronic health record incentive income” in our condensed consolidated comprehensive income statements for the quarter and six months ended June 30, 2011.

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

NOTE 2 — INCOME TAXES

At June 30, 2012, we were contesting certain claimed deficiencies and adjustments proposed by the IRS Examination Division in connection with its audit of HCA Inc.’s 2005 and 2006 federal income tax returns. The disputed items include the timing of recognition of certain patient service revenues, the deductibility of certain debt retirement costs and our method for calculating the tax allowance for doubtful accounts. The IRS Examination Division began an audit of HCA Inc.’s 2007, 2008 and 2009 federal income tax returns in 2010.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2 — INCOME TAXES (continued)

Our liability for unrecognized tax benefits was $518 million, including accrued interest of $46 million, as of June 30, 2012 ($494 million and $62 million, respectively, as of December 31, 2011). Unrecognized tax benefits of $157 million ($173 million as of December 31, 2011) would affect the effective rate, if recognized. The provision for income taxes reflects $18 million and $2 million ($11 million and $1 million, respectively, net of tax) in reductions in interest expense related to taxing authority examinations for the quarters ended June 30, 2012 and 2011, respectively, and $21 million and $26 million ($13 million and $16 million, respectively, net of tax) in reductions in interest expense related to taxing authority examinations for the six months ended June 30, 2012 and 2011, respectively.

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

NOTE 3 — EARNINGS PER SHARE

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

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


	Quarter				Six Months
	2012		2011		2012		2011
Net income attributable to HCA Holdings, Inc.	$	391	$	229	$	931	$	469

Weighted average common shares outstanding		439,473		516,448		438,705		480,525
Effect of dilutive securities		19,148		22,109		19,762		19,938

Shares used for diluted earnings per share		458,621		538,557		458,467		500,463

Earnings per share:
Basic earnings per share	$	0.89	$	0.44	$	2.12	$	0.98
Diluted earnings per share	$	0.85	$	0.43	$	2.03	$	0.94

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARIES

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


	June 30, 2012
	Amortized Cost		Unrealized Amounts					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
Debt securities:
States and municipalities	$	377	$	20	$	—		$	397
Auction rate securities		76		—		(6	)		70
Asset-backed securities		17		—		—			17
Money market funds		129		—		—			129

		599		20		(6	)		613
Equity securities		7		1		—			8

	$	606	$	21	$	(6	)		621

Amounts classified as current assets									(126	)

Investment carrying value								$	495


	December 31, 2011
	Amortized Cost		Unrealized Amounts					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
Debt securities:
States and municipalities	$	398	$	19	$	—		$	417
Auction rate securities		139		—		(8	)		131
Asset-backed securities		20		—		—			20
Money market funds		53		—		—			53

		610		19		(8	)		621
Equity securities		7		1		(1	)		7

	$	617	$	20	$	(9	)		628

Amounts classified as current assets									(80	)

Investment carrying value								$	548

At June 30, 2012 and December 31, 2011, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income. At both June 30, 2012 and December 31, 2011, $19 million of our investments were subject to restrictions included in insurance bond collateralization and assumed reinsurance contracts.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

Scheduled maturities of investments in debt securities at June 30, 2012 were as follows (dollars in millions):


	Amortized Cost		Fair Value
Due in one year or less	$	161	$	161
Due after one year through five years		115		123
Due after five years through ten years		132		140
Due after ten years		98		102

		506		526
Auction rate securities		76		70
Asset-backed securities		17		17

	$	599	$	613

The average expected maturity of the investments in debt securities at June 30, 2012 was 3.8 years, compared to the average scheduled maturity of 8.1 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 the scheduled maturity date. The average expected maturities for our auction rate and asset-backed securities were derived from valuation models of expected cash flows and involved management’s judgment. At June 30, 2012, the average expected maturities for our auction rate and asset-backed securities were 4.9 years and 4.4 years, respectively, compared to average scheduled maturities of 24.6 years and 24.3 years, respectively.

NOTE 5 — LONG-TERM DEBT

A summary of long-term debt at June 30, 2012 and December 31, 2011, including related interest rates at June 30, 2012, follows (dollars in millions):


	June 30, 2012		December 31, 2011
Senior secured asset-based revolving credit facility (effective interest rate of 1.7%)	$	1,335	$	2,155
Senior secured term loan facilities (effective interest rate of 5.0%)		7,242		7,425
Senior secured first lien notes (effective interest rate of 7.4%)		8,434		7,081
Other senior secured debt (effective interest rate of 6.8%)		391		350

First lien debt		17,402		17,011
Senior secured notes (effective interest rate of 11.0%)		197		197
Senior unsecured notes (effective interest rate of 7.3%)		9,442		9,844

Total debt (average life of 6.8 years, rates averaging 6.5%)		27,041		27,052
Less amounts due within one year		1,309		1,407

	$	25,732	$	25,645

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

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

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 — LONG-TERM DEBT (continued)

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

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

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

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at June 30, 2012 (dollars in millions):


	Notional Amount		Maturity Date		Fair Value
Pay-fixed interest rate swaps	$	500		December 2014	$	(8	)
Pay-fixed interest rate swaps		3,000		December 2016		(362	)
Pay-fixed interest rate swaps		1,000		December 2017		(70	)

During the next 12 months, we estimate $118 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Cross Currency Swaps

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

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

Notional
Amount

Maturity Date

Fair
Value

Euro — United States dollar currency swap

266 Euro

November 2013

(26

)

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

Derivatives — Results of Operations

The following tables present the effect of our interest rate and cross currency swaps on our results of operations for the six months ended June 30, 2012 (dollars in millions):


Derivatives in Cash Flow Hedging Relationships	Amount of Loss Recognized in OCI on Derivatives, Net of Tax		Location of Loss Reclassified from Accumulated OCI into Operations		Amount of Loss Reclassified from Accumulated OCI into Operations
Interest rate swaps	$	64		Interest expense	$	60


Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Operations on Derivatives		Amount of Loss Recognized in Operations on Derivatives
Cross currency swap		Other operating expenses	$	10

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, 2012, we have not been required to post any collateral related to these agreements. If we had breached these provisions at June 30, 2012, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $494 million.

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

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

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

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

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Cash Traded Investments

Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. The transaction price is initially used as the best estimate of fair value.

Our wholly-owned insurance subsidiaries had investments in tax-exempt auction rate securities (“ARS”), which are backed by student loans substantially guaranteed by the federal government, of $70 million ($76 million par value) at June 30, 2012. We do not currently intend to attempt to sell the ARS as the liquidity needs of our insurance subsidiaries are expected to be met by other investments in their investment portfolios. During 2011 and the six months ended June 30, 2012, certain issuers and their broker/dealers redeemed or repurchased $112 million and $63 million, respectively, of our ARS at par value. The valuation of these securities involved management’s judgment, after consideration of market factors and the absence of market transparency, market liquidity and observable inputs. Our valuation models derived a fair market value compared to tax-equivalent yields of other student loan backed variable rate securities of similar credit worthiness and similar effective maturities.

Derivative Financial Instruments

We have entered into interest rate and cross currency swap agreements to manage our exposure to fluctuations in interest rates and foreign currency risks. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. To comply with the provisions of ASC 820 and ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), we incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. We have made the accounting policy election to use the exception under ASU 2011-04 (commonly referred to as the “portfolio exception”) with respect to measuring counterparty credit risk for derivative instruments.

Although we determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions, and at June 30, 2012 and December 31, 2011, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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


	June 30, 2012
				Fair Value Measurements Using
	Fair Value			Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments of insurance subsidiaries:
Debt securities:
States and municipalities	$	397		$	—		$	397	$	—
Auction rate securities		70			—			—		70
Asset-backed securities		17			—			17		—
Money market funds		129			129			—		—

		613			129			414		70
Equity securities		8			2			5		1

Investments of insurance subsidiaries		621			131			419		71
Less amounts classified as current assets		(126	)		(126	)		—		—

	$	495		$	5		$	419	$	71

Liabilities:
Cross currency swap (Income taxes and other liabilities)	$	26		$	—		$	26	$	—
Interest rate swaps (Income taxes and other liabilities)		440			—			440		—

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	December 31, 2011
	Fair Value			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	$	417		$	—		$	417		$	—
Auction rate securities		131			—			—			131
Asset-backed securities		20			—			20			—
Money market funds		53			53			—			—

		621			53			437			131
Equity securities		7			1			5			1

Investments of insurance subsidiaries		628			54			442			132
Less amounts classified as current assets		(80	)		(54	)		(26	)		—

	$	548		$	—		$	416		$	132

Liabilities:
Cross currency swap (Income taxes and other liabilities)	$	16		$	—		$	16		$	—
Interest rate swaps (Income taxes and other liabilities)		399			—			399			—

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


Asset balances at December 31, 2011	$	132
Unrealized gains included in other comprehensive income		2
Settlements		(63	)

Asset balances at June 30, 2012	$	71

The estimated fair value of our long-term debt was $28.146 billion and $27.199 billion at June 30, 2012 and December 31, 2011, respectively, compared to carrying amounts aggregating $27.041 billion and $27.052 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — CONTINGENCIES

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

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

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

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. 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). Based upon the Company’s review to date, which is not yet complete, the Company believes that such reviews have occurred at approximately 10 of its affiliated 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 False Claims Act, other statutes, regulations or laws, could have on the Company.

On October 28, 2011, a shareholder action was filed in the United States District Court for the Middle District of Tennessee. The case seeks to include, as a class, all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration Statement and Prospectus issued in connection with the March 9, 2011 initial public offering. The lawsuit asserts a claim under Section 11 of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors. The action alleged various deficiencies in the Company’s disclosures in the Registration Statement. Subsequently, two additional class action complaints setting forth substantially similar claims were filed in the same federal court. All three cases were consolidated. On July 13, 2012, the lead plaintiff filed an amended complaint asserting claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors and Hercules Holdings II, LLC, a majority shareholder of the Company. The consolidated complaint alleges deficiencies in the Company’s disclosures in the Registration

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — CONTINGENCIES (continued)

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.

NOTE 9 — COMPREHENSIVE INCOME AND CAPITAL STRUCTURE

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


	Quarter					Six Months
	2012			2011		2012			2011
Net income attributable to HCA Holdings, Inc.	$	391		$	229	$	931		$	469
Change in fair value of derivative instruments		(29	)		2		(25	)		69
Change in fair value of available-for-sale securities		—			—		3			(1	)
Foreign currency translation adjustments		(14	)		—		4			14
Defined benefit plans		5			3		9			7

Comprehensive income	$	353		$	234	$	922		$	558

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


	June 30, 2012			December 31, 2011
Change in fair value of derivative instruments	$	(278	)	$	(253	)
Change in fair value of available-for-sale securities		10			7
Foreign currency translation adjustments		(21	)		(25	)
Defined benefit plans		(160	)		(169	)

Accumulated other comprehensive loss	$	(449	)	$	(440	)

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


	Equity (Deficit) Attributable to HCA Holdings, Inc.													Equity Attributable to Noncontrolling Interests			Total
	Common Stock				Capital in Excess of Par Value			Accumulated Other Comprehensive Loss			Retained Deficit
	Shares (000)		Par Value		Capital in Excess of Par Value			Accumulated Other Comprehensive Loss			Retained Deficit
Balances, December 31, 2011		437,478	$	4	$	1,601		$	(440	)	$	(9,423	)	$	1,244		$	(7,014	)
Net income		—		—		—			—			931			193			1,124
Other comprehensive loss		—		—		—			(9	)		—			—			(9	)
Distributions		—		—		—			—			(971	)		(191	)		(1,162	)
Share-based benefit plans		3,006		—		65			—			—			—			65
Adjustment to the acquired controlling interest in equity investment		—		—		—			—			—			30			30
Other		—		—		(1	)		—			—			24			23

Balances, June 30, 2012		440,484	$	4	$	1,665		$	(449)		$	(9,463)		$	1,300		$	(6,943)

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9 — COMPREHENSIVE INCOME AND CAPITAL STRUCTURE (continued)

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

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. Our operations are structured into three geographically organized groups: the National, Southwest and Central Groups. At June 30, 2012, the National Group includes 64 hospitals located in Florida, South Carolina, southern Georgia, Alaska, California, Nevada, Utah and Idaho, the Southwest Group includes 47 hospitals located in Colorado, Texas, Oklahoma and the Wichita, Kansas market, and the Central Group includes 46 hospitals located in Louisiana, Indiana, Kentucky, Tennessee, Virginia, New Hampshire, northern Georgia and the Kansas City market. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses on sales of facilities, losses on retirement of debt, termination of management agreement, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The Southwest Group’s increases in revenues, adjusted segment EBITDA and depreciation and amortization, and the declines in equity in earnings of affiliates, for the quarter and six months ended June 30, 2012 compared to the quarter and six months ended June 30, 2011 are primarily attributable to the financial consolidation of our 2011 acquisition of our partner’s interest in the HCA-HealthONE LLC venture for periods subsequent to our acquisition of controlling interests during October 2011. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and six months ended June 30, 2012 and 2011 are summarized in the following table (dollars in millions):


	Quarter						Six Months
	2012			2011			2012			2011
Revenues:
National Group	$	3,143		$	3,013		$	6,431		$	6,117
Southwest Group		2,840			2,220			5,754			4,485
Central Group		1,789			1,735			3,664			3,486
Corporate and other		340			281			668			567

	$	8,112		$	7,249		$	16,517		$	14,655

Equity in earnings of affiliates:
National Group	$	(3	)	$	(1	)	$	(7	)	$	(2	)
Southwest Group		(7	)		(73	)		(14	)		(148	)
Central Group		—			—			(1	)		—
Corporate and other		1			1			2			1

	$	(9	)	$	(73	)	$	(20	)	$	(149	)

Adjusted segment EBITDA:
National Group	$	663		$	576		$	1,409		$	1,248
Southwest Group		650			567			1,397			1,162
Central Group		331			318			733			651
Corporate and other		(75	)		(41	)		(147	)		(51	)

	$	1,569		$	1,420		$	3,392		$	3,010

Depreciation and amortization:
National Group	$	143		$	127		$	283		$	252
Southwest Group		147			110			296			221
Central Group		87			89			175			177
Corporate and other		43			32			83			66

	$	420		$	358		$	837		$	716

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)


	Quarter				Six Months
	2012		2011		2012		2011

Adjusted segment EBITDA	$	1,569	$	1,420	$	3,392	$	3,010
Depreciation and amortization		420		358		837		716
Interest expense		448		520		890		1,053
Losses on sales of facilities		2		—		3		1
Losses on retirement of debt		—		75		—		75
Termination of management agreement		—		—		—		181

Income before income taxes	$	699	$	467	$	1,662	$	984

NOTE 11 — ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2012, we paid $58 million, assumed liabilities of $33 million and recorded goodwill of $53 million related to the acquisition of a hospital facility in the Southwest Group. During the six months ended June 30, 2011, we paid $136 million to acquire a hospital in the National Group. During the six months ended June 30, 2012 and 2011, we paid $81 million and $32 million, respectively, to acquire nonhospital health care entities. During the six months ended June 30, 2012, we recorded final adjustments to the purchase price allocation related to our 2011 acquisition of our partner’s interest in the HCA-HealthONE LLC joint venture. These adjustments resulted in a $30 million increase to noncontrolling interests, a $26 million reduction to property and equipment and a $56 million increase to goodwill.

During the six months ended June 30, 2012, we received proceeds of $6 million and recognized net pretax losses of $3 million related to sales of real estate investments. During the six months ended June 30, 2011, we received proceeds of $54 million and recognized a net pretax loss of $1 million related to the sales of a hospital facility and our investment in a hospital joint venture.

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On November 22, 2010, HCA Inc. reorganized by creating a new holding company structure. HCA Holdings, Inc. became the new parent company, and HCA Inc. is now HCA Holdings, Inc.’s wholly-owned direct subsidiary. On November 23, 2010, HCA Holdings, Inc. issued $1.525 billion aggregate principal amount of 7³/₄% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

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

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

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

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED JUNE 30, 2012

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Condensed Consolidated
Revenues before provision for doubtful accounts	$	—		$	—		$	4,753		$	4,400		$	—		$	9,153
Provision for doubtful accounts		—			—			558			483			—			1,041

Revenues		—			—			4,195			3,917			—			8,112

Salaries and benefits		—			—			1,951			1,756			—			3,707
Supplies		—			—			738			684			—			1,422
Other operating expenses		—			—			751			742			—			1,493
Electronic health record incentive income		—			—			(48	)		(22	)		—			(70	)
Equity in earnings of affiliates		(409	)		—			(1	)		(8	)		409			(9	)
Depreciation and amortization		—			—			209			211			—			420
Interest expense		30			529			(85	)		(26	)		—			448
Losses on sales of facilities		—			—			2			—			—			2
Management fees		—			—			(168	)		168			—			—

		(379	)		529			3,349			3,505			409			7,413

Income (loss) before income taxes		379			(529	)		846			412			(409	)		699
Provision (benefit) for income taxes		(12	)		(189	)		297			118			—			214

Net income (loss)		391			(340	)		549			294			(409	)		485
Net income attributable to noncontrolling interests		—			—			16			78			—			94

Net income (loss) attributable to HCA Holdings, Inc.	$	391		$	(340	)	$	533		$	216		$	(409	)	$	391

Comprehensive income (loss) attributable to HCA Holdings, Inc.	$	391		$	(369	)	$	538		$	202		$	(409	)	$	353

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 JUNE 30, 2011

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Condensed Consolidated
Revenues before provision for doubtful accounts	$	—		$	—		$	4,494		$	3,530		$	—		$	8,024
Provision for doubtful accounts		—			—			457			318			—			775

Revenues		—			—			4,037			3,212			—			7,249

Salaries and benefits		—			—			1,872			1,448			—			3,320
Supplies		—			—			720			575			—			1,295
Other operating expenses		—			2			686			638			—			1,326
Electronic health record incentive income		—			—			(21	)		(18	)		—			(39	)
Equity in earnings of affiliates		(246	)		—			(30	)		(43	)		246			(73	)
Depreciation and amortization		—			—			194			164			—			358
Interest expense		30			741			(153	)		(98	)		—			520
Losses on retirement of debt		—			75			—			—			—			75
Management fees		—			—			(129	)		129			—			—

		(216	)		818			3,139			2,795			246			6,782

Income (loss) before income taxes		216			(818	)		898			417			(246	)		467
Provision (benefit) for income taxes		(13	)		(323	)		347			136			—			147

Net income (loss)		229			(495	)		551			281			(246	)		320
Net income attributable to noncontrolling interests		—			—			18			73			—			91

Net income (loss) attributable to HCA Holdings, Inc.	$	229		$	(495	)	$	533		$	208		$	(246	)	$	229

Comprehensive income (loss) attributable to HCA Holdings, Inc.	$	229		$	(493	)	$	536		$	208		$	(246	)	$	234

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 SIX MONTHS ENDED JUNE 30, 2012

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer		Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations		Condensed Consolidated
Revenues before provision for doubtful accounts	$	—		$	—	$	9,656		$	8,696		$	—	$	18,352
Provision for doubtful accounts		—			—		1,021			814			—		1,835

Revenues		—			—		8,635			7,882			—		16,517

Salaries and benefits		—			—		3,933			3,510			—		7,443
Supplies		—			—		1,491			1,350			—		2,841
Other operating expenses		—			4		1,480			1,502			—		2,986
Electronic health record incentive income		—			—		(89	)		(36	)		—		(125	)
Equity in earnings of affiliates		(969	)		—		(3	)		(17	)		969		(20	)
Depreciation and amortization		—			—		409			428			—		837
Interest expense		60			1,058		(176	)		(52	)		—		890
Losses on sales of facilities		—			—		3			—			—		3
Management fees		—			—		(328	)		328			—		—

		(909	)		1,062		6,720			7,013			969		14,855

Income (loss) before income taxes		909			(1,062)		1,915			869			(969)		1,662
Provision (benefit) for income taxes		(22	)		(389)		689			260			—		538

Net income (loss)		931			(673)		1,226			609			(969)		1,124
Net income attributable to noncontrolling interests		—			—		33			160			—		193

Net income (loss) attributable to HCA Holdings, Inc.	$	931		$	(673)	$	1,193		$	449		$	(969)	$	931

Comprehensive income (loss) attributable to HCA Holdings, Inc.	$	931		$	(698)	$	1,202		$	456		$	(969)	$	922

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 SIX MONTHS ENDED JUNE 30, 2011

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Condensed Consolidated
Revenues before provision for doubtful accounts	$	—		$	—		$	9,072		$	7,007		$	—		$	16,079
Provision for doubtful accounts		—			—			874			550			—			1,424

Revenues		—			—			8,198			6,457			—			14,655

Salaries and benefits		—			—			3,768			2,847			—			6,615
Supplies		—			—			1,431			1,139			—			2,570
Other operating expenses		—			4			1,367			1,277			—			2,648
Electronic health record incentive income		—			—			(21	)		(18	)		—			(39	)
Equity in earnings of affiliates		(504	)		—			(60	)		(89	)		504			(149	)
Depreciation and amortization		—			—			389			327			—			716
Interest expense		60			1,432			(316	)		(123	)		—			1,053
Losses (gains) on sales of facilities		—			—			16			(15	)		—			1
Losses on retirement of debt		—			75			—			—			—			75
Termination of management agreement		—			181			—			—			—			181
Management fees		—			—			(253	)		253			—			—

		(444	)		1,692			6,321			5,598			504			13,671

Income (loss) before income taxes		444			(1,692	)		1,877			859			(504	)		984
Provision (benefit) for income taxes		(25	)		(698	)		762			291			—			330

Net income (loss)		469			(994	)		1,115			568			(504	)		654
Net income attributable to noncontrolling interests		—			—			31			154			—			185

Net income (loss) attributable to HCA Holdings, Inc.	$	469		$	(994	)	$	1,084		$	414		$	(504	)	$	469

Comprehensive income (loss) attributable to HCA Holdings, Inc.	$	469		$	(925	)	$	1,091		$	427		$	(504	)	$	558

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

JUNE 30, 2012

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors		Eliminations			Condensed Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	123		$	395	$	—		$	518
Accounts receivable, net		—			—			2,336			2,149		—			4,485
Inventories		—			—			611			444		—			1,055
Deferred income taxes		323			—			—			—		—			323
Other		—			—			349			407		—			756

		323			—			3,419			3,395		—			7,137

Property and equipment, net		—			—			7,146			5,700		—			12,846
Investments of insurance subsidiaries		—			—			—			495		—			495
Investments in and advances to affiliates		—			—			15			87		—			102
Goodwill and other intangible assets		—			—			1,666			3,765		—			5,431
Deferred loan costs		21			260			—			—		—			281
Investments in and advances to subsidiaries		17,794			—			—			—		(17,794	)		—
Other		590			—			29			221		—			840

	$	18,728		$	260		$	12,275		$	13,663	$	(17,794	)	$	27,132

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	—		$	—		$	1,000		$	517	$	—		$	1,517
Accrued salaries		—			—			546			424		—			970
Other accrued expenses		114			379			426			732		—			1,651
Long-term debt due within one year		—			1,242			33			34		—			1,309

		114			1,621			2,005			1,707		—			5,447

Long-term debt		1,525			23,548			140			519		—			25,732
Intercompany balances		24,766			(12,201	)		(16,285	)		3,720		—			—
Professional liability risks		—			—			—			1,039		—			1,039
Income taxes and other liabilities		566			466			593			232		—			1,857

		26,971			13,434			(13,547	)		7,217		—			34,075

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.		(8,243	)		(13,174	)		25,727			5,241		(17,794	)		(8,243	)
Noncontrolling interests		—			—			95			1,205		—			1,300

		(8,243	)		(13,174	)		25,822			6,446		(17,794	)		(6,943	)

	$	18,728		$	260		$	12,275		$	13,663	$	(17,794	)	$	27,132

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2011

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors		Eliminations			Condensed Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	115		$	258	$	—		$	373
Accounts receivable, net		—			—			2,429			2,104		—			4,533
Inventories		—			—			602			452		—			1,054
Deferred income taxes		594			—			—			—		—			594
Other		50			—			184			445		—			679

		644			—			3,330			3,259		—			7,233

Property and equipment, net		—			—			7,088			5,746		—			12,834
Investments of insurance subsidiaries		—			—			—			548		—			548
Investments in and advances to affiliates		—			—			15			86		—			101
Goodwill and other intangible assets		—			—			1,605			3,646		—			5,251
Deferred loan costs		22			268			—			—		—			290
Investments in and advances to subsidiaries		16,825			—			—			—		(16,825	)		—
Other		450			—			21			170		—			641

	$	17,941		$	268		$	12,059		$	13,455	$	(16,825	)	$	26,898

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	—		$	—		$	899		$	698	$	—		$	1,597
Accrued salaries		—			—			568			397		—			965
Other accrued expenses		15			367			449			754		—			1,585
Long-term debt due within one year		—			1,347			28			32		—			1,407

		15			1,714			1,944			1,881		—			5,554

Long-term debt		1,525			23,454			110			556		—			25,645
Intercompany balances		24,121			(12,814	)		(15,183	)		3,876		—			—
Professional liability risks		—			—			—			993		—			993
Income taxes and other liabilities		538			415			556			211		—			1,720

		26,199			12,769			(12,573	)		7,517		—			33,912

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.		(8,258	)		(12,501	)		24,534			4,792		(16,825	)		(8,258	)
Noncontrolling interests		—			—			98			1,146		—			1,244

		(8,258	)		(12,501	)		24,632			5,938		(16,825	)		(7,014	)

	$	17,941		$	268		$	12,059		$	13,455	$	(16,825	)	$	26,898

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 SIX MONTHS ENDED JUNE 30, 2012

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Condensed Consolidated
Cash flows from operating activities:
Net income (loss)	$	931		$	(673	)	$	1,226		$	609		$	(969	)	$	1,124
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Changes in operating assets and liabilities		—			12			(995	)		(944	)		—			(1,927	)
Provision for doubtful accounts		—			—			1,021			814			—			1,835
Depreciation and amortization		—			—			409			428			—			837
Income taxes		326			—			—			—			—			326
Losses on sales of facilities		—			—			3			—			—			3
Amortization of deferred loan costs		1			28			—			—			—			29
Share-based compensation		23			—			—			—			—			23
Equity in earnings of affiliates		(969	)		—			—			—			969			—
Other		—			8			(1	)		—			—			7

Net cash provided by (used in) operating activities		312			(625	)		1,663			907			—			2,257

Cash flows from investing activities:
Purchase of property and equipment		—			—			(408	)		(376	)		—			(784	)
Acquisition of hospitals and health care entities		—			—			(72	)		(67	)		—			(139	)
Disposition of hospitals and health care entities		—			—			1			5			—			6
Change in investments		—			—			(8	)		43			—			35
Other		—			—			(1	)		(3	)		—			(4	)

Net cash used in investing activities		—			—			(488	)		(398	)		—			(886	)

Cash flows from financing activities:
Issuance of long-term debt		—			1,350			—			—			—			1,350
Net change in revolving bank credit facilities		—			(820	)		—			—			—			(820	)
Repayment of long-term debt		—			(545	)		(16	)		(47	)		—			(608	)
Distributions to noncontrolling interests		—			—			(36	)		(155	)		—			(191	)
Payment of debt issuance costs		—			(19	)		—			—			—			(19	)
Distributions to stockholders		(982	)		—			—			—			—			(982	)
Changes in intercompany balances with affiliates, net		628			659			(1,115	)		(172	)		—			—
Income tax benefits		71			—			—			—			—			71
Other		(29	)		—			—			2			—			(27	)

Net cash (used in) provided by financing activities		(312	)		625			(1,167	)		(372	)		—			(1,226	)

Change in cash and cash equivalents		—			—			8			137			—			145
Cash and cash equivalents at beginning of period		—			—			115			258			—			373

Cash and cash equivalents at end of period	$	—		$	—		$	123		$	395		$	—		$	518

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 SIX MONTHS ENDED JUNE 30, 2011

(Dollars in millions)


	HCA Holdings, Inc. Issuer			HCA Inc. Issuer			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Condensed Consolidated
Cash flows from operating activities:
Net income (loss)	$	469		$	(994	)	$	1,115		$	568		$	(504	)	$	654
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Changes in operating assets and liabilities		4			(24	)		(916	)		(640	)		—			(1,576	)
Provision for doubtful accounts		—			—			874			550			—			1,424
Depreciation and amortization		—			—			389			327			—			716
Income taxes		317			—			—			—			—			317
Losses (gains) on sales of facilities		—			—			16			(15	)		—			1
Losses on retirement of debt		—			75			—			—			—			75
Amortization of deferred loan costs		—			39			—			—			—			39
Share-based compensation		16			—			—			—			—			16
Equity in earnings of affiliates		(504	)		—			—			—			504			—
Other		—			6			—			(6	)		—			—

Net cash provided by (used in) operating activities		302			(898	)		1,478			784			—			1,666

Cash flows from investing activities:
Purchase of property and equipment		—			—			(389	)		(387	)		—			(776	)
Acquisition of hospitals and health care entities		—			—			(136	)		(32	)		—			(168	)
Disposition of hospitals and health care entities		—			—			1			53			—			54
Change in investments		—			—			24			52			—			76
Other		—			—			—			2

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company