10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2015

Or

 

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

For the transition period from                     to                     

Commission file number 1-11239

 

 

HCA Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-3865930

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

One Park Plaza

Nashville, Tennessee

   37203
(Address of principal executive offices)   (Zip Code)

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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

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

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

 

Large accelerated filer

  

x

   

Accelerated filer

  

¨

Non-accelerated filer

  

¨  (Do not check if a smaller reporting company)

   

Smaller reporting company

  

¨

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

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

 

Class of Common Stock

  

Outstanding at October 23, 2015

Voting common stock, $.01 par value   407,667,700 shares

 

 

 

Table of Contents

HCA HOLDINGS, INC.

Form 10-Q

September 30, 2015

 

         Page of
Form 10-Q		  

Part I.

   Financial Information   

Item 1.

   Financial Statements (Unaudited):   
 

Condensed Consolidated Income Statements — for the quarters and nine months ended September  30, 2015 and 2014

      2   
 

Condensed Consolidated Comprehensive Income Statements — for the quarters and nine months ended September 30, 2015 and 2014

      3   
 

Condensed Consolidated Balance Sheets — September 30, 2015 and December 31, 2014

      4   
 

Condensed Consolidated Statements of Cash Flows — for the nine months ended September 30, 2015 and 2014

     5   
 

Notes to Condensed Consolidated Financial Statements

      6   

Item 2.

  

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

      29   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

      48   

Item 4.

  

Controls and Procedures

      48   

Part II.

   Other Information   

Item 1.

  

Legal Proceedings

      48   

Item 1A.

  

Risk Factors

      50   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

      51   

Item 6.

  

Exhibits

      52   

Signatures

      53   

 

1

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Nine Months  
     2015     2014     2015     2014  

Revenues before provision for doubtful accounts

    $ 11,014      $ 9,978      $ 32,268      $ 29,619   

Provision for doubtful accounts

      1,158        758        2,839        2,337   
  

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      9,856        9,220        29,429        27,282   

Salaries and benefits

      4,619        4,211        13,509        12,359   

Supplies

      1,644        1,539        4,952        4,603   

Other operating expenses

      1,796        1,688        5,268        4,977   

Electronic health record incentive income

      (9 )      (32 )      (46 )      (97 ) 

Equity in earnings of affiliates

      (9 )      (14 )      (38 )      (32 ) 

Depreciation and amortization

      482        460        1,424        1,361   

Interest expense

      411        427        1,255        1,314   

Losses (gains) on sales of facilities

      2        12        (2 )      (20 ) 

Losses on retirement of debt

      —        —        125        226   

Legal claim costs

      77        —        77        78   
  

 

 

    

 

 

    

 

 

    

 

 

  
     9,013        8,291        26,524        24,769   
  

 

 

    

 

 

    

 

 

    

 

 

  

Income before income taxes

      843        929        2,905        2,513   

Provision for income taxes

      270        318        947        816   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income

      573        611        1,958        1,697   

Net income attributable to noncontrolling interests

      124        93        411        349   
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income attributable to HCA Holdings, Inc.

    $ 449      $ 518      $ 1,547      $ 1,348   
  

 

 

    

 

 

    

 

 

    

 

 

  

Per share data:

         

Basic earnings per share

    $ 1.08      $ 1.20      $ 3.71      $ 3.08   

Diluted earnings per share

    $ 1.05      $ 1.16      $ 3.60      $ 2.98   

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

         

Basic

      414.939        432.617        417.146        437.832   

Diluted

      426.441        447.260        430.354        452.538   

See accompanying notes.

 

2

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Unaudited

(Dollars in millions)

 

     Quarter     Nine Months  
     2015     2014     2015     2014  

Net income

    $ 573      $ 611      $ 1,958      $ 1,697   

Other comprehensive income (loss) before taxes:

         

Foreign currency translation

      (54 )      (58 )      (41 )      (18 ) 

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

      2        2        (2 )      10   

Defined benefit plans

      —        —        —        —   

Pension costs included in salaries and benefits

      6        3        17        11   
  

 

 

    

 

 

    

 

 

    

 

 

  
     6        3        17        11   

Change in fair value of derivative financial instruments

      (17 )      8        (47 )      (21 ) 

Interest costs included in interest expense

      31        34        93        99   
  

 

 

    

 

 

    

 

 

    

 

 

  
     14        42        46        78   
  

 

 

    

 

 

    

 

 

    

 

 

  

Other comprehensive income (loss) before taxes

      (32 )      (11 )      20        81   

Income taxes (benefits) related to other comprehensive income items

      (13 )      (4 )      6        30   
  

 

 

    

 

 

    

 

 

    

 

 

  

Other comprehensive income (loss)

      (19 )      (7 )      14        51   
  

 

 

    

 

 

    

 

 

    

 

 

  

Comprehensive income

      554        604        1,972        1,748   

Comprehensive income attributable to noncontrolling interests

      124        93        411        349   
  

 

 

    

 

 

    

 

 

    

 

 

  

Comprehensive income attributable to HCA Holdings, Inc.

    $ 430      $ 511      $ 1,561      $ 1,399   
  

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes.

 

3

Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

     September  30,
2015		     December  31,
2014		  
ASSETS     

Current assets:

     

Cash and cash equivalents

    $ 588      $ 566   

Accounts receivable, less allowance for doubtful accounts of $5,111 and $5,011

      5,827        5,694   

Inventories

      1,379        1,279   

Deferred income taxes

      412        366   

Other

      1,015        1,025   
  

 

 

    

 

 

  
     9,221        8,930   

Property and equipment, at cost

      34,207        32,980   

Accumulated depreciation

      (19,503 )      (18,625 ) 
  

 

 

    

 

 

  
     14,704        14,355   

Investments of insurance subsidiaries

      409        494   

Investments in and advances to affiliates

      186        165   

Goodwill and other intangible assets

      6,540        6,416   

Other

      836        620   
  

 

 

    

 

 

  
   $ 31,896      $ 30,980   
  

 

 

    

 

 

  
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

     

Accounts payable

    $ 1,877      $ 2,035   

Accrued salaries

      1,358        1,370   

Other accrued expenses

      1,701        1,737   

Long-term debt due within one year

      1,377        338   
  

 

 

    

 

 

  
     6,313        5,480   

Long-term debt, less net debt issuance costs of $160 and $219

      28,375        29,088   

Professional liability risks

      1,117        1,078   

Income taxes and other liabilities

      1,903        1,832   

Stockholders’ deficit:

     

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 412,638,300 shares in 2015 and 420,477,900 shares in 2014

      4        4   

Accumulated other comprehensive loss

      (309 )      (323 ) 

Retained deficit

      (6,989 )      (7,575 ) 
  

 

 

    

 

 

  

Stockholders’ deficit attributable to HCA Holdings, Inc.

      (7,294 )      (7,894 ) 

Noncontrolling interests

      1,482        1,396   
  

 

 

    

 

 

  
     (5,812 )      (6,498 ) 
  

 

 

    

 

 

  
   $ 31,896      $ 30,980   
  

 

 

    

 

 

  

See accompanying notes.

 

4

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HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Unaudited

(Dollars in millions)

 

     2015     2014  

Cash flows from operating activities:

     

Net income

    $ 1,958      $ 1,697   

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

     

Decrease in cash from operating assets and liabilities:

     

Accounts receivable

      (2,976 )      (2,655 ) 

Provision for doubtful accounts

      2,839        2,337   
  

 

 

    

 

 

  

Accounts receivable, net

      (137 )      (318 ) 

Inventories and other assets

      (205 )      (248 ) 

Accounts payable and accrued expenses

      (152 )      (42 ) 

Depreciation and amortization

      1,424        1,361   

Income taxes

      (148 )      (61 ) 

Gains on sales of facilities

      (2 )      (20 ) 

Losses on retirement of debt

      125        226   

Legal claim costs

      77        78   

Amortization of debt issuance costs

      27        33   

Share-based compensation

      171        118   

Other

      38        (3 ) 
  

 

 

    

 

 

  

Net cash provided by operating activities

      3,176        2,821   
  

 

 

    

 

 

  

Cash flows from investing activities:

     

Purchase of property and equipment

      (1,571 )      (1,482 ) 

Acquisition of hospitals and health care entities

      (184 )      (97 ) 

Disposal of hospitals and health care entities

      27        38   

Change in investments

      94        22   

Other

      3        7   
  

 

 

    

 

 

  

Net cash used in investing activities

      (1,631 )      (1,512 ) 
  

 

 

    

 

 

  

Cash flows from financing activities:

     

Issuances of long-term debt

      4,048        3,502   

Net change in revolving bank credit facilities

      (270 )      (160 ) 

Repayment of long-term debt

      (3,702 )      (3,525 ) 

Distributions to noncontrolling interests

      (367 )      (325 ) 

Payment of debt issuance costs

      (34 )      (49 ) 

Repurchases of common stock

      (1,386 )      (750 ) 

Income tax benefits

      231        119   

Other

      (43 )      (20 ) 
  

 

 

    

 

 

  

Net cash used in financing activities

      (1,523 )      (1,208 ) 
  

 

 

    

 

 

  

Change in cash and cash equivalents

      22        101   

Cash and cash equivalents at beginning of period

      566        414   
  

 

 

    

 

 

  

Cash and cash equivalents at end of period

    $ 588      $ 515   
  

 

 

    

 

 

  

Interest payments

    $ 1,349      $ 1,441   

Income tax payments, net

    $ 864      $ 758   

See accompanying notes.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Holdings, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Holdings, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2015, these affiliates owned and operated 168 hospitals, 114 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Holdings, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Holdings, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

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

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $79 million and $71 million for the quarters ended September 30, 2015 and 2014, respectively, and $237 million and $206 million for the nine months ended September 30, 2015 and 2014, respectively. Operating results for the quarter and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. 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, 2014.

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

Revenues

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under Medicare, Medicaid and other programs), managed care health plans (includes the health insurance exchanges), commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self-pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers, the uninsured and other payers for the quarters and nine months ended September 30, 2015 and 2014 are summarized in the following table (dollars in millions):

 

     Quarter  
     2015      Ratio     2014      Ratio  

Medicare

    $ 2,122         21.5 %    $ 2,120         23.0 % 

Managed Medicare

      1,031         10.5        901         9.8   

Medicaid

      402         4.1        372         4.0   

Managed Medicaid

      553         5.6        510         5.5   

Managed care and other insurers

      5,457         55.4        5,073         55.0   

International (managed care and other insurers)

      316         3.2        323         3.5   
  

 

 

     

 

 

    

 

 

     

 

 

  
     9,881         100.3        9,299         100.8   

Uninsured

      695         7.0        313         3.4   

Other

      438         4.4        366         4.0   
  

 

 

     

 

 

    

 

 

     

 

 

  

Revenues before provision for doubtful accounts

      11,014         111.7        9,978         108.2   

Provision for doubtful accounts

      (1,158 )       (11.7 )      (758 )       (8.2 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Revenues

    $     9,856         100.0 %    $     9,220         100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  
     Nine Months  
     2015      Ratio     2014      Ratio  

Medicare

    $ 6,500         22.1 %    $ 6,285         23.0 % 

Managed Medicare

      3,099         10.5        2,706         9.9   

Medicaid

      1,262         4.3        1,404         5.1   

Managed Medicaid

      1,673         5.7        1,383         5.1   

Managed care and other insurers

      16,134         54.8        14,742         54.0   

International (managed care and other insurers)

      964         3.3        983         3.6   
  

 

 

     

 

 

    

 

 

     

 

 

  
     29,632         100.7        27,503         100.7   

Uninsured

      1,321         4.5        1,019         3.7   

Other

      1,315         4.5        1,097         4.0   
  

 

 

     

 

 

    

 

 

     

 

 

  

Revenues before provision for doubtful accounts

      32,268         109.7        29,619         108.4   

Provision for doubtful accounts

      (2,839 )       (9.7 )      (2,337 )       (8.4 ) 
  

 

 

     

 

 

    

 

 

     

 

 

  

Revenues

    $     29,429         100.0 %    $     27,282         100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

The decline in Medicaid revenues for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 was primarily due to our recording of an adjustment to increase Medicaid revenues during the quarter ended June 30, 2014 by $142 million, or $0.20 per diluted share, related to the receipt of reimbursements in excess of our estimates for the indigent care component of the Texas Medicaid Waiver Program for the program year ended September 30, 2013.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing United States Generally Accepted Accounting Principles (“US GAAP”) and International Financial Reporting Standards revenue recognition guidance, will require significant management judgment in addition to changing the way many companies recognize revenue in their financial statements. The standard was originally scheduled to become effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption was originally not to be permitted under US GAAP. In July 2015, the FASB decided to defer the effective date of the new revenue standard by one year, but will permit entities to adopt one year earlier if they choose (i.e., the original effective date). The FASB decided, based on its outreach to various stakeholders and forthcoming exposure drafts, which amend the new revenue standard, that a deferral was necessary to provide adequate time to effectively implement the new standard. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. We elected to adopt the new presentation in the first quarter of 2015, and the applicable prior year amounts have been reclassified in accordance with ASU 2015-03.

Reclassifications

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

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2015, we paid $15 million to acquire a hospital and $169 million to acquire other nonhospital health care entities. During the nine months ended September 30, 2014, we paid $14 million to acquire a hospital and $83 million to acquire other nonhospital health care entities.

During the nine months ended September 30, 2015, we received proceeds of $27 million and recognized net pretax gains of $2 million related to sales of real estate and other investments. During the nine months ended September 30, 2014, we received proceeds of $38 million and recognized net pretax gains of $20 million related to sales of real estate and other investments.

NOTE 3 — INCOME TAXES

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

Our liability for unrecognized tax benefits was $541 million, including accrued interest of $69 million, as of September 30, 2015 ($548 million and $58 million, respectively, as of December 31, 2014). Unrecognized tax benefits of $228 million ($205 million as of December 31, 2014) would affect the effective rate, if recognized. The provision for income taxes reflects $2 million and $3 million ($1 million and $2 million, respectively, net of tax) of interest expense related to taxing authority examinations for the quarters ended September 30, 2015 and

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3 — INCOME TAXES (continued)

 

2014, respectively. The provision for income taxes reflects $6 million and $11 million ($4 million and $7 million, net of tax) of interest expense related to taxing authority examinations for the nine months ended September 30, 2015 and 2014, respectively.

Depending on the resolution of any IRS, 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 stock options, stock appreciation rights and restricted share units, computed using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2015 and 2014 (dollars and shares in millions, except per share amounts):

 

     Quarter      Nine Months  
     2015      2014      2015      2014  

Net income attributable to HCA Holdings, Inc.

    $ 449       $ 518       $ 1,547       $ 1,348   

Weighted average common shares outstanding

      414.939         432.617         417.146         437.832   

Effect of dilutive incremental shares

      11.502         14.643         13.208         14.706   
  

 

 

     

 

 

     

 

 

     

 

 

  

Shares used for diluted earnings per share

      426.441         447.260         430.354         452.538   
  

 

 

     

 

 

     

 

 

     

 

 

  

Earnings per share:

            

Basic earnings per share

    $ 1.08       $ 1.20       $ 3.71       $ 3.08   

Diluted earnings per share

    $ 1.05       $ 1.16       $ 3.60       $ 2.98   

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2015 and December 31, 2014 follows (dollars in millions):

 

     September 30, 2015  
     Amortized
Cost		      Unrealized
Amounts		     Fair
Value		  
        Gains      Losses    

Debt securities:

           

States and municipalities

    $ 429       $ 16       $ (1 )    $ 444   

Money market funds

      13         —         —        13   
  

 

 

     

 

 

     

 

 

    

 

 

  
     442         16         (1 )      457   

Equity securities

      1         2         —        3   
  

 

 

     

 

 

     

 

 

    

 

 

  
   $ 443       $ 18       $ (1 )      460   
  

 

 

     

 

 

     

 

 

    

Amounts classified as current assets

              (51 ) 
          

 

 

  

Investment carrying value

            $ 409   
          

 

 

  

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

 

     December 31, 2014  
     Amortized
Cost		      Unrealized
Amounts		     Fair
Value		  
        Gains      Losses    

Debt securities:

           

States and municipalities

    $ 477       $ 18       $ (1 )    $ 494   

Money market funds

      61         —         —        61   
  

 

 

     

 

 

     

 

 

    

 

 

  
     538         18         (1 )      555   

Equity securities

      1         2         —        3   
  

 

 

     

 

 

     

 

 

    

 

 

  
   $ 539       $ 20       $ (1 )      558   
  

 

 

     

 

 

     

 

 

    

Amounts classified as current assets

              (64 ) 
          

 

 

  

Investment carrying value

            $ 494   
          

 

 

  

At September 30, 2015 and December 31, 2014, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).

Scheduled maturities of investments in debt securities at September 30, 2015 were as follows (dollars in millions):

 

     Amortized
Cost		      Fair
Value		  

Due in one year or less

    $ 61       $ 61   

Due after one year through five years

      172         177   

Due after five years through ten years

      108         114   

Due after ten years

      101         105   
  

 

 

     

 

 

  
   $ 442       $ 457   
  

 

 

     

 

 

  

The average expected maturity of the investments in debt securities at September 30, 2015 was 4.2 years, compared to the average scheduled maturity of 5.8 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

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

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

Interest Rate Swap Agreements (continued)

 

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at September 30, 2015 (dollars in millions):

 

     Notional
Amount		      Maturity Date      Fair
Value		  

Pay-fixed interest rate swaps

    $ 3,000         December 2016       $ (118 ) 

Pay-fixed interest rate swaps

      1,000         December 2017         (35 ) 

During the next 12 months, we estimate $115 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the nine months ended September 30, 2015 (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

    $ 30         Interest expense       $ 93   

Credit-risk-related Contingent Features

We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of September 30, 2015, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2015, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $155 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, 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

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Cash Traded Investments

Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. The valuation of these securities involves management’s judgment, after consideration of market factors and the absence of market transparency, market liquidity and observable inputs. Our valuation models derived fair market values compared to tax-equivalent yields of other securities of similar credit worthiness and similar effective maturities.

Derivative Financial Instruments

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

Although we determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions, and at September 30, 2015 and December 31, 2014, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Derivative Financial Instruments (continued)

 

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

    September 30, 2015  
    Fair Value     Fair Value Measurements Using  
      Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)		     Significant Other
Observable Inputs
(Level 2)		     Significant
Unobservable Inputs
(Level 3)		  

Assets:

        

Investments of insurance subsidiaries:

        

Debt securities:

        

States and municipalities

   $ 444      $ —      $ 438      $ 6   

Money market funds

     13        13        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  
    457        13        438        6   

Equity securities

     3        3        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  

Investments of insurance subsidiaries

     460        16        438        6   

Less amounts classified as current assets

     (51 )      (13 )      (38 )      —   
 

 

 

    

 

 

    

 

 

    

 

 

  
  $ 409      $ 3      $ 400      $ 6   
 

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 153      $ —      $ 153      $ —   
    December 31, 2014  
          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

   $ 494      $ —      $ 488      $ 6   

Money market funds

     61        61        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  
    555        61        488        6   

Equity securities

     3        3        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

  

Investments of insurance subsidiaries

     558        64        488        6   

Less amounts classified as current assets

     (64 )      (61 )      (3 )      —   
 

 

 

    

 

 

    

 

 

    

 

 

  
  $ 494      $ 3      $ 485      $ 6   
 

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 199      $ —      $ 199      $  —   

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Derivative Financial Instruments (continued)

 

The estimated fair value of our long-term debt was $30.765 billion and $30.861 billion at September 30, 2015 and December 31, 2014, respectively, compared to carrying amounts, excluding net debt issuance costs, aggregating $29.912 billion and $29.645 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2015 and December 31, 2014, including related interest rates at September 30, 2015, follows (dollars in millions):

 

     September 30,
2015		     December 31,
2014		  

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

    $ 2,610      $ 2,880   

Senior secured revolving credit facility

      —        —   

Senior secured term loan facilities (effective interest rate of 4.9%)

      5,668        5,517   

Senior secured first lien notes (effective interest rate of 5.5%)

      11,100        11,100   

Other senior secured debt (effective interest rate of 5.9%)

      632        573   
  

 

 

    

 

 

  

First lien debt

      20,010        20,070   

Senior unsecured notes (effective interest rate of 6.6%)

      9,902        9,575   

Less net debt issuance costs

      (160 )      (219 ) 
  

 

 

    

 

 

  

Total debt (average life of 6.1 years, rates averaging 5.4%)

      29,752        29,426   

Less amounts due within one year

      1,377        338   
  

 

 

    

 

 

  
   $ 28,375      $ 29,088   
  

 

 

    

 

 

  

2015 Activity

During June 2015, we entered into a joinder agreement to retire certain of our existing senior secured term loans using proceeds from a new $1.400 billion senior secured term loan credit facility maturing on June 10, 2020. The pretax loss on retirement of debt was $3 million.

During May 2015, we issued $1.600 billion aggregate principal amount of 5.375% senior notes due 2025. We used the net proceeds to redeem all $1.525 billion aggregate principal amount of 7 3/4% senior notes due 2021 of HCA Holdings, Inc. The pretax loss on retirement of debt related to this redemption was $122 million.

During January 2015, we issued $1.000 billion aggregate principal amount of 5.375% senior notes due 2025. We used a portion of the net proceeds to repay at maturity $750 million aggregate principal amount of 6.375% senior unsecured notes due 2015.

2014 Activity

During October 2014, we issued $600 million aggregate principal amount of 4.25% senior secured notes due 2019 and $1.400 billion aggregate principal amount of 5.25% senior secured notes due 2025. During November

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8 — LONG-TERM DEBT (continued)

2014 Activity (continued)

 

2014, we used a portion of the proceeds from the October 2014 debt issuances to redeem all $1.400 billion aggregate principal amount of our outstanding 7 1/4% senior secured notes due 2020. The pretax loss on retirement of debt related to this redemption was $109 million.

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

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are subject to claims 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 or financial position.

Government Investigations, Claims and Litigation

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

In July 2012, the Civil Division of the U.S. Attorney’s Office in Miami requested information on reviews assessing the medical necessity of interventional cardiology services provided at any Company facility (other than peer reviews). The Company cooperated with the government’s request and produced medical records associated with particular reviews at eight hospitals, located primarily in Florida. On February 24, 2015, the United States District Court for the Southern District of Florida unsealed a qui tam action which had been filed under seal on February 16, 2012 and alleges particular FCA violations relating to two specific facilities that were among the subjects of the Miami U.S. Attorney’s Office investigation. On January 30, 2015, the U.S. Attorney’s Office filed with the District Court a formal notice that the Department of Justice had declined to intervene in that action. The relator subsequently dismissed this qui tam action without prejudice. An additional qui tam action relating to these topics was unsealed and voluntarily dismissed by the relator. The U.S. Attorney’s Office in Miami is continuing its evaluation of the medical necessity of certain interventional cardiology services at the other hospitals for which the Company produced records. At this time, we cannot predict what effect, if any, the

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

Government Investigations, Claims and Litigation (continued)

 

qui tam actions, or any claims that might result from the U.S. Attorney’s continued review, including any potential claims under the federal FCA, other statutes, regulations or laws, could have on the Company.

On April 2, 2014, the UK Competition and Markets Authority (“Authority”) issued a final report on its investigation of the private health care market in London. It concluded, among other things, that many private hospitals face little competition in central London, and that there are high barriers to entry. As part of its remedies package, the Authority ordered HCA to sell either: (a) its London Bridge and Princess Grace hospitals; or (b) its Wellington Hospital, including the Hospital Platinum Medical Centre. It also imposed other remedial conditions on HCA and other private health care providers, including: regulation of incentives to referring physicians; increased access to information about fees and performance; and restrictions on future arrangements between private providers and National Health Service private patient units. HCA disagrees with the Authority’s assessment of the competitive conditions for hospitals in London, as well as its proposed divestiture remedy, and appealed the decision to the Competition Appeal Tribunal. The Competition Appeal Tribunal overturned certain of the Authority’s findings and sent the matter back to the Authority for further proceedings, which are ongoing. A decision is anticipated in early 2016.

Securities Class Action Litigation

On October 28, 2011, a shareholder action, Schuh v. HCA Holdings, Inc. et al., was filed in the United States District Court for the Middle District of Tennessee seeking monetary relief. The case sought to include as a class all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration Statement issued in connection with the March 9, 2011 initial public offering. The lawsuit asserted a claim under Section 11 of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserted a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors. The action alleged various deficiencies in the Company’s disclosures in the Registration Statement. Subsequently, two additional class action complaints, Kishtah v. HCA Holdings, Inc. et al. and Daniels v. HCA Holdings, Inc. et al., setting forth substantially similar claims against substantially the same defendants were filed in the same federal court on November 16, 2011 and December 12, 2011, respectively. All three of the cases were consolidated. On May 3, 2012, the court appointed New England Teamsters & Trucking Industry Pension Fund as Lead Plaintiff for the consolidated action. On July 13, 2012, the lead plaintiff filed an amended complaint asserting claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors and Hercules Holding II, LLC, a majority shareholder of the Company at the time of the initial public offering. The consolidated complaint alleges deficiencies in the Company’s disclosures in the Registration Statement and Prospectus relating to: (1) the accounting for the Company’s 2006 recapitalization and 2010 reorganization; (2) the Company’s failure to maintain effective internal controls relating to its accounting for such transactions; and (3) the Company’s Medicare and Medicaid revenue growth rates. The Company and other defendants moved to dismiss the amended complaint on September 11, 2012. The court granted the motion in part on May 28, 2013. The action proceeded to discovery on the remaining claims. The plaintiffs’ motion for class certification was granted on September 22, 2014. The court certified a class consisting of all persons that acquired HCA stock on or before October 28, 2011 (the date of the lawsuit) pursuant to the Registration Statement issued in connection with the March 9, 2011 initial public offering. A request to the court of appeals to hear an immediate appeal of this ruling was denied. Plaintiffs and defendants have each filed motions for summary judgment and to strike certain of the expert witnesses. If the case is not otherwise resolved, trial is likely to occur in 2016.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

Securities Class Action Litigation (continued)

 

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

Health Midwest Litigation

In October 2009, the Health Care Foundation of Greater Kansas City, a nonprofit health foundation, filed suit against HCA Inc. in the Circuit Court of Jackson County, Missouri and alleged that HCA did not fund the level of capital expenditures and uncompensated care agreed to in connection with HCA’s purchase of hospitals from Health Midwest in 2003. The central issue in the case was whether HCA’s construction of new hospitals counted towards its $450 million five-year capital commitments. In addition, the plaintiff alleged that HCA did not make its required capital expenditures in a timely fashion. On January 24, 2013, the court ruled in favor of the plaintiff and awarded at least $162 million. The court also ordered a court-supervised accounting of HCA’s capital expenditures, as well as of expenditures on charity and uncompensated care during the ten years following the purchase. The court also indicated it would award plaintiff attorneys fees, which the parties have stipulated are approximately $12 million for the trial phase. HCA recorded $175 million of legal claim costs in the fourth quarter of 2012 related to this ruling, and consistent with the judge’s order, has been accruing interest on that sum at 9% per annum. On April 25, 2014, the parties stipulated to an additional $78 million shortfall relating to the capital expenditures issue. HCA recorded $78 million of legal claims costs in the first quarter of 2014 as a result of the stipulation, and is accruing interest on that amount at 9% per annum. Pursuant to the terms of the stipulation, the parties have preserved their respective rights to contest the judge’s underlying ruling, whether through motions in the trial court or on appeal. On February 9, 2015, the parties reached an agreement to settle the part of their dispute relating to charity and uncompensated care for $15 million. The foundation is required to use that amount, net of attorneys fees, for charitable activities in the Kansas City area. The parties also agreed on an additional amount for attorneys fees for the plaintiff for the accounting phase of the case. The parties filed post-trial motions, on which the court ruled on October 21, 2015. The court denied defendants’ motion to have the court change its rulings on liability and damages related to the capital expenditures issue, and granted the plaintiff’s motion for an award of additional pre-judgment interest. As a result of the court’s ruling on pre-judgment interest, the Company recognized $77 million of legal claim costs in its condensed consolidated income statements for the quarter and nine months ended September 30, 2015, and will continue to accrue

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

Health Midwest Litigation (continued)

 

interest at 9% per annum until the matter is resolved. At September 30, 2015, the Company had an accrued liability of $382 million in connection with this litigation. Once final judgment is entered, the Company plans to pursue an appeal.

NOTE 10 — CAPITAL STRUCTURE

The changes in stockholders’ deficit, including changes in stockholders’ deficit attributable to HCA Holdings, Inc. and changes in equity attributable to noncontrolling interests, are as follows (dollars and shares 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     Par Value            

Balances at December 31, 2014

     420.478      $ 4      $ —      $ (323 )    $ (7,575 )    $ 1,396      $ (6,498 ) 

Comprehensive income

     —        —        —        14        1,547        411        1,972   

Repurchase of common stock

     (17.629 )      —        (425 )      —        (961 )      —        (1,386 ) 

Distributions

     —        —        —        —        —        (367 )      (367 ) 

Share-based benefit plans

     9.789        —        433        —        —        —        433   

Other

     —        —        (8 )      —        —        42        34   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balances at September 30, 2015

     412.638      $ 4      $ —      $ (309 )    $ (6,989 )    $ 1,482      $ (5,812 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

On April 18, 2015, the Company entered into an agreement to repurchase 3,806,460 shares of its common stock beneficially owned by affiliates of Bain Capital Investors, LLC (“the Bain Entities”) and certain charitable organizations that received shares of common stock as charitable contributions from certain partners and other employees of the Bain Entities at a purchase price of $77.26 per share, the closing price of the Company’s common stock on the New York Stock Exchange on April 17, 2015, less a discount of 1% (the “Share Repurchase”). The Share Repurchase was made pursuant to the authorization of our Board of Directors in February 2015 to repurchase up to $1.0 billion of our outstanding common stock. During May 2015, our Board of Directors authorized an additional share repurchase program for up to $1.0 billion of our outstanding common stock. During the nine months ended September 30, 2015, we repurchased 13,822,818 shares of our common stock at an average price of $78.96 per share through market purchases, resulting in total repurchases pursuant to the February 2015 and May 2015 authorizations of 17,629,278 shares of our common stock at an average price of $78.60 per share. At September 30, 2015, we had no repurchase authorization remaining under the $1.0 billion February 2015 authorization and $614 million of repurchase authorization available under the $1.0 billion May 2015 authorization.

 

18

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10 — CAPITAL STRUCTURE (continued)

 

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

 

     Unrealized
Gains on
Available-
for-Sale
Securities		     Foreign
Currency
Translation
Adjustments		     Defined
Benefit
Plans		     Change
in Fair
Value of
Derivative
Instruments		     Total  

Balances at December 31, 2014

    $ 13      $ (36 )    $ (174 )    $ (126 )    $ (323 ) 

Unrealized losses on available-for-sale securities, net of income tax benefit

      (2 )      —        —        —        (2 ) 

Foreign currency translation adjustments, net of $17 income tax benefit

      —        (24 )      —        —        (24 ) 

Change in fair value of derivative instruments, net of $17 income tax benefit

      —        —        —        (30 )      (30 ) 

Expense reclassified into operations from other comprehensive income, net of $6 and $34, respectively, income tax benefits

      —        —        11        59        70   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balances at September 30, 2015

    $ 11      $ (60 )    $ (163 )    $ (97 )    $ (309 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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 83 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia, and the American Group includes 79 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

 

19

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, losses on retirement of debt, legal claim costs, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and nine months ended September 30, 2015 and 2014 are summarized in the following table (dollars in millions):

 

     Quarter      Nine Months  
     2015      2014      2015      2014  

Revenues:

            

National Group

    $ 4,580       $ 4,334       $ 13,928       $ 12,766   

American Group

      4,772         4,350         13,972         12,949   

Corporate and other

      504         536         1,529         1,567   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 9,856       $ 9,220       $ 29,429       $ 27,282   
  

 

 

     

 

 

     

 

 

     

 

 

  

Equity in earnings of affiliates:

            

National Group

    $ (1 )     $ (6 )     $ (8 )     $ (12 ) 

American Group

      (9 )       (8 )       (25 )       (23 ) 

Corporate and other

      1         —         (5 )       3   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ (9 )     $ (14 )     $ (38 )     $ (32 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Adjusted segment EBITDA:

            

National Group

    $ 919       $ 952       $ 3,084       $ 2,755   

American Group

      1,035         959         3,026         2,942   

Corporate and other

      (139 )       (83 )       (326 )       (225 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 1,815       $ 1,828       $ 5,784       $ 5,472   
  

 

 

     

 

 

     

 

 

     

 

 

  

Depreciation and amortization:

            

National Group

    $ 195       $ 187       $ 572       $ 564   

American Group

      219         212         662         627   

Corporate and other

      68         61         190         170   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 482       $ 460       $ 1,424       $ 1,361   
  

 

 

     

 

 

     

 

 

     

 

 

  

Adjusted segment EBITDA

    $ 1,815       $ 1,828       $ 5,784       $ 5,472   

Depreciation and amortization

      482         460         1,424         1,361   

Interest expense

      411         427         1,255         1,314   

Losses (gains) on sales of facilities

      2         12         (2 )       (20 ) 

Losses on retirement of debt

      —         —         125         226   

Legal claim costs

      77         —         77         78   
  

 

 

     

 

 

     

 

 

     

 

 

  

Income before income taxes

    $ 843       $ 929       $ 2,905       $ 2,513   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

20

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

During November 2010, HCA Holdings, Inc. issued $1.525 billion aggregate principal amount of 7 3/4% senior unsecured notes due 2021. During May 2015, we redeemed all $1.525 billion aggregate principal amount of 7 3/4% unsecured senior notes due 2021. During December 2012, HCA Holdings, Inc. issued $1.000 billion aggregate principal amount of 6.25% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

HCA Inc., a direct wholly-owned subsidiary of HCA Holdings, Inc., is the obligor under a significant portion of our other indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes (other than the senior unsecured notes issued by HCA Holdings, Inc.). The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed by HCA Holdings, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility).

Our summarized condensed consolidating comprehensive income statements for the quarters and nine months ended September 30, 2015 and 2014, condensed consolidating balance sheets at September 30, 2015 and December 31, 2014 and condensed consolidating statements of cash flows for the nine months ended September 30, 2015 and 2014, segregating HCA Holdings, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow:

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

   $ —      $ —      $ 5,721      $ 5,293      $ —      $ 11,014   

Provision for doubtful accounts

     —        —        689        469        —        1,158   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

     —        —        5,032        4,824        —        9,856   

Salaries and benefits

     —        —        2,357        2,262        —        4,619   

Supplies

     —        —        853        791        —        1,644   

Other operating expenses

     7        —        865        924        —        1,796   

Electronic health record incentive income

     —        —        (6 )      (3 )      —        (9 ) 

Equity in earnings of affiliates

     (464 )      —        (1 )      (8 )      464        (9 ) 

Depreciation and amortization

     —        —        230        252        —        482   

Interest expense

     16        608        (156 )      (57 )      —        411   

Losses (gains) on sales of facilities

     —        —        (1 )      3        —        2   

Legal claim costs

     —        77        —        —        —        77   

Management fees

     —        —        (178 )      178        —        —   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (441 )      685        3,963        4,342        464        9,013   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

     441        (685 )      1,069        482        (464 )      843   

Provision (benefit) for income taxes

     (8 )      (258 )      394        142        —        270   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

     449        (427 )      675        340        (464 )      573   

Net income attributable to noncontrolling interests

     —        —        21        103        —        124   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

   $ 449      $ (427 )    $ 654      $ 237      $ (464 )    $ 449   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

   $ 430      $ (418 )    $ 657      $ 206      $ (445 )    $ 430   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

21

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

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

Provision for doubtful accounts

      —        —        457        301        —        758   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

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

Salaries and benefits

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

Supplies

      —        —        797        742        —        1,539   

Other operating expenses

      4        —        804        880        —        1,688   

Electronic health record incentive income

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

Equity in earnings of affiliates

      (549 )      —        (3 )      (11 )      549        (14 ) 

Depreciation and amortization

      —        —        225        235        —        460   

Interest expense

      46        536        (115 )      (40 )      —        427   

Losses (gains) on sales of facilities

      —        —        16        (4 )      —        12   

Management fees

      —        —        (178 )      178        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (499 )      536        3,700        4,005        549        8,291   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      499        (536 )      976        539        (549 )      929   

Provision (benefit) for income taxes

      (19 )      (205 )      365        177        —        318   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      518        (331 )      611        362        (549 )      611   

Net income attributable to noncontrolling interests

      —        —        18        75        —        93   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 518      $ (331 )    $ 593      $ 287      $ (549 )    $ 518   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

22

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

    $ —      $ —      $ 16,519      $ 15,749      $ —      $ 32,268   

Provision for doubtful accounts

      —        —        1,535        1,304        —        2,839   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

      —        —        14,984        14,445        —        29,429   

Salaries and benefits

      —        —        6,824        6,685        —        13,509   

Supplies

      —        —        2,576        2,376        —        4,952   

Other operating expenses

      9        —        2,523        2,736        —        5,268   

Electronic health record incentive income

      —        —        (31 )      (15 )      —        (46 ) 

Equity in earnings of affiliates

      (1,690 )      —        (4 )      (34 )      1,690        (38 ) 

Depreciation and amortization

      —        —        683        741        —        1,424   

Interest expense

      100        1,807        (498 )      (154 )      —        1,255   

Losses (gains) on sales of facilities

      —        —        (5 )      3        —        (2 ) 

Losses on retirement of debt

      122        3        —        —        —        125   

Legal claim costs

      —        77        —        —        —        77   

Management fees

      —        —        (534 )      534        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (1,459 )      1,887        11,534        12,872        1,690        26,524   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      1,459        (1,887 )      3,450        1,573        (1,690 )      2,905   

Provision (benefit) for income taxes

      (88 )      (716 )      1,284        467        —        947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      1,547        (1,171 )      2,166        1,106        (1,690 )      1,958   

Net income attributable to noncontrolling interests

      —        —        68        343        —        411   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,547      $ (1,171 )    $ 2,098      $ 763      $ (1,690 )    $ 1,547   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,561      $ (1,142 )    $ 2,109      $ 737      $ (1,704 )    $ 1,561   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

23

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

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

Provision for doubtful accounts

      —        —        1,388        949        —        2,337   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Revenues

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

Salaries and benefits

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

Supplies

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

Other operating expenses

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

Electronic health record incentive income

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

Equity in earnings of affiliates

      (1,443 )      —        (5 )      (27 )      1,443        (32 ) 

Depreciation and amortization

      —        —        667        694        —        1,361   

Interest expense

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

Gains on sales of facilities

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

Losses on retirement of debt

      —        226        —        —        —        226   

Legal claim costs

      —        78        —        —        —        78   

Management fees

      —        —        (528 )      528        —        —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     (1,291 )      1,933        10,876        11,808        1,443        24,769   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income (loss) before income taxes

      1,291        (1,933 )      2,978        1,620        (1,443 )      2,513   

Provision (benefit) for income taxes

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net income (loss)

      1,348        (1,204 )      1,880        1,116        (1,443 )      1,697   

Net income attributable to noncontrolling interests

      —        —        65        284        —        349   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

    $ 1,348      $ (1,204 )    $ 1,815      $ 832      $ (1,443 )    $ 1,348   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

24

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

SEPTEMBER 30, 2015

(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

   $ —      $ —      $ 109      $ 479      $ —      $ 588   

Accounts receivable, net

     —        —        2,874        2,953        —        5,827   

Inventories

     —        —        821        558        —        1,379   

Deferred income taxes

     412        —        —        —        —        412   

Other

     13        —        428        574        —        1,015   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    425        —        4,232        4,564        —        9,221   

Property and equipment, net

     —        —        8,078        6,626        —        14,704   

Investments of insurance subsidiaries

     —        —        —        409        —        409   

Investments in and advances to affiliates

     23,674        —        17        169        (23,674 )      186   

Goodwill and other intangible assets

     —        —        1,703        4,837        —        6,540   

Other

     625        —        24        187        —        836   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 24,724      $ —      $ 14,054      $ 16,792      $ (23,674 )    $ 31,896   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

            

Current liabilities:

            

Accounts payable

   $ 9      $ —      $ 1,165      $ 703      $ —      $ 1,877   

Accrued salaries

     —        —        770        588        —        1,358   

Other accrued expenses

     14        245        540        902        —        1,701   

Long-term debt due within one year

     —        1,264        61        52        —        1,377   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    23        1,509        2,536        2,245        —        6,313   

Long-term debt, net

     982        26,874        222        297        —        28,375   

Intercompany balances

     30,472        (10,757 )      (22,877 )      3,162        —        —   

Professional liability risks

     —        —        —        1,117        —        1,117   

Income taxes and other liabilities

     541        534        428        400        —        1,903   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    32,018        18,160        (19,691 )      7,221        —        37,708   

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

     (7,294 )      (18,160 )      33,626        8,208        (23,674 )      (7,294 ) 

Noncontrolling interests

     —        —        119        1,363        —        1,482   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (7,294 )      (18,160 )      33,745        9,571        (23,674 )      (5,812 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 24,724      $ —      $ 14,054      $ 16,792      $ (23,674 )    $ 31,896   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

25

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2014

(Dollars in millions)

 

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

Current assets:

            

Cash and cash equivalents

   $ —      $ —      $ 87      $ 479      $ —      $ 566   

Accounts receivable, net

     —        —        2,812        2,882        —        5,694   

Inventories

     —        —        756        523        —        1,279   

Deferred income taxes

     366        —        —        —        —        366   

Other

     118        —        376        531        —        1,025   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    484        —        4,031        4,415        —        8,930   

Property and equipment, net

     —        —        7,871        6,484        —        14,355   

Investments of insurance subsidiaries

     —        —        —        494        —        494   

Investments in and advances to affiliates

     21,970        —        16        149        (21,970 )      165   

Goodwill and other intangible assets

     —        —        1,705        4,711        —        6,416   

Other

     435        —        27        158        —        620   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 22,889      $ —      $ 13,650      $ 16,411      $ (21,970 )    $ 30,980   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY            

Current liabilities:

            

Accounts payable

   $ 1      $ —      $ 1,272      $ 762      $ —      $ 2,035   

Accrued salaries

     —        —        783        587        —        1,370   

Other accrued expenses

     45        317        517        858        —        1,737   

Long-term debt due within one year

     —        231        56        51        —        338   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    46        548        2,628        2,258        —        5,480   

Long-term debt, net

     2,499        26,124        185        280        —        29,088   

Intercompany balances

     27,685        (10,141 )      (21,405 )      3,861        —        —   

Professional liability risks

     —        —        —        1,078        —        1,078   

Income taxes and other liabilities

     553        487        605        187        —        1,832   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    30,783        17,018        (17,987 )      7,664        —        37,478   

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

     (7,894 )      (17,018 )      31,516        7,472        (21,970 )      (7,894 ) 

Noncontrolling interests

     —        —        121        1,275        —        1,396   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    (7,894 )      (17,018 )      31,637        8,747        (21,970 )      (6,498 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 22,889      $ —      $ 13,650      $ 16,411      $ (21,970 )    $ 30,980   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

26

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(Dollars in millions)

 

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

Cash flows from operating activities:

            

Net income (loss)

   $ 1,547      $ (1,171 )    $ 2,166      $ 1,106      $ (1,690 )    $ 1,958   

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

            

Changes in operating assets and liabilities

     (22 )      (56 )      (1,959 )      (1,296 )      —        (3,333 ) 

Provision for doubtful accounts

     —        —        1,535        1,304        —        2,839   

Depreciation and amortization

     —        —        683        741        —        1,424   

Income taxes

     (148 )      —        —        —        —        (148 ) 

Losses (gains) on sales of facilities

     —        —        (5 )      3        —        (2 ) 

Losses on retirement of debt

     122        3        —        —        —        125   

Legal claim costs

     —        77        —        —        —        77   

Amortization of debt issuance costs

     3        24        —        —        —        27   

Share-based compensation

     171        —        —        —        —        171   

Equity in earnings of affiliates

     (1,690 )      —        —        —        1,690        —   

Other

     49        3        —        (14 )      —        38   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash provided by (used in) operating activities

     32        (1,120 )      2,420        1,844        —        3,176   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from investing activities:

            

Purchase of property and equipment

     —        —        (764 )      (807 )      —        (1,571 ) 

Acquisition of hospitals and health care entities

     —        —        (51 )      (133 )      —        (184 ) 

Disposition of hospitals and health care entities

     —        —        19        8        —        27   

Change in investments

     —        —        2        92        —        94   

Other

     —        —        (6 )      9        —        3   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash used in investing activities

     —        —        (800 )      (831 )      —        (1,631 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from financing activities:

            

Issuance of long-term debt

     —        4,048        —        —        —        4,048   

Net change in revolving credit facilities

     —        (270 )      —        —        —        (270 ) 

Repayment of long-term debt

     (1,632 )      (2,001 )      (45 )      (24 )      —        (3,702 ) 

Distributions to noncontrolling interests

     —        —        (70 )      (297 )      —        (367 ) 

Payment of debt issuance costs

     —        (34 )      —        —        —        (34 ) 

Repurchases of common stock

     (1,386 )      —        —        —        —        (1,386 ) 

Changes in intercompany balances with affiliates, net

     2,784        (623)        (1,483 )      (678 )      —        —   

Income tax benefits

     231        —        —        —        —        231   

Other

     (29 )      —        —        (14 )      —        (43 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash (used in) provided by financing activities

     (32 )      1,120        (1,598 )      (1,013 )      —        (1,523 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Change in cash and cash equivalents

     —        —        22        —        —        22   

Cash and cash equivalents at beginning of period

     —        —        87        479        —        566   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash and cash equivalents at end of period

   $ —      $ —      $ 109      $ 479      $ —      $ 588   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

27

Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(Dollars in millions)

 

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

Cash flows from operating activities:

            

Net income (loss)

   $ 1,348      $ (1,204 )    $ 1,880      $ 1,116      $ (1,443 )    $ 1,697   

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

            

Changes in operating assets and liabilities

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

Provision for doubtful accounts

     —        —        1,388        949        —        2,337   

Depreciation and amortization

     —        —        667        694        —        1,361   

Income taxes

     (61 )      —        —        —        —        (61 ) 

Gains on sales of facilities

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

Losses on retirement of debt

     —        226        —        —        —        226   

Legal claim costs

     —        78        —        —        —        78   

Amortization of deferred loan costs

     2        31        —        —        —        33   

Share-based compensation

     118        —        —        —        —        118   

Equity in earnings of affiliates

     (1,443 )      —        —        —        1,443        —   

Other

     —        3        —        (6 )      —        (3 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net cash (used in) provided by operating activities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Cash flows from investing activities:

            

Purchase of property and equipment

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

Acquisition of hospitals and health care entities

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