Form 424b3
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-159511 and 333-159511-01 to 333-159511-184
HCA INC.
SUPPLEMENT
NO. 1 TO
MARKET MAKING PROSPECTUS DATED
JULY 10, 2009
THE
DATE OF THIS SUPPLEMENT IS AUGUST 14, 2009
On
August 14, 2009, HCA Inc. filed the attached
Form 8-K/A
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 14, 2009
HCA INC.
(Exact Name of Registrant as Specified in Charter)
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Delaware
(State or Other
Jurisdiction
of Incorporation)
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1-11239
(Commission File Number)
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75-2497104
(I.R.S. Employer
Identification No.) |
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One Park Plaza,
Nashville, Tennessee
(Address of Principal Executive
Offices)
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37203
(Zip Code) |
Registrants telephone number, including area code: (615) 344-9551
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 4.02(a). Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
Effective January 1, 2009, HCA Inc. (the Company) adopted the provisions of Statement of
Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51 (SFAS 160). On May 27, 2009, the Company filed with
the Securities and Exchange Commission a Current Report on Form 8-K (the Original Form 8-K) to
retrospectively apply the provisions of SFAS 160 to the financial statements included in the
Companys annual report on Form 10-K for the fiscal year ended
December 31, 2008 (the 2008 Form 10-K).
On August 14, 2009, the Company concluded, and the Audit Committee of the Board of Directors
approved, that the Companys application of certain
presentation provisions of SFAS 160 in the previously filed consolidated statements of cash flows for the years ended
December 31, 2008, 2007 and 2006 contained in the Original Form 8-K should no longer be relied upon
due to errors in the presentation of cash flows related to noncontrolling interests.
The
Company determined that it incorrectly included distributions to and
certain other transactions
with noncontrolling interests in operating activities rather than financing activities in its
consolidated statements of cash flows. Accordingly, the Company concluded that its consolidated
statements of cash flows for the years ended December 31, 2008, 2007 and 2006 contained in the
Original Form 8-K require restatement. As a result of the restatement,
distributions to and certain other transactions with noncontrolling
interests of $193 million, $168 million and $143 million for the
years ended December 31, 2008, 2007 and 2006, respectively, have been
reclassified from operating activities to financing activities in the
consolidated statements of cash flows. The impact of these
reclassifications was to increase net cash provided by operating
activities and increase net cash used in financing activities by the
amount reclassified for each respective year. The restatement will not have any impact on the Companys
consolidated income statements, balance sheets or statements of changes in stockholders (deficit)
equity for the periods presented in the Original Form 8-K.
Management and the Companys Audit Committee discussed these matters with the Companys
independent registered public accounting firm.
Item 8.01. Other Events.
Effective January 1, 2009, the Company adopted the provisions of
SFAS 160. This standard requires retrospective
application of its presentation and disclosure requirements. The Company filed the Original Form 8-K to retrospectively apply the provisions of SFAS 160 to the financial
statements included in the 2008 Form 10-K. This Amendment No. 1 to the Original Form 8-K amends certain information in the Original Form 8-K
as a result of the Companys determination that it incorrectly included in its consolidated statements of cash flows for the years ended December 31, 2008,
2007 and 2006 distributions to and certain other transactions with noncontrolling interests in cash flows from operating activities rather than financing
activities. As a result of retrospectively applying the provisions of SFAS
160, the previously presented minority interests in equity of consolidated entities in the
consolidated balance sheets have been reclassified to noncontrolling interests. Net income in the
consolidated income statements has been adjusted to include the
net income attributable to noncontrolling interests. Additionally, a reconciliation of the beginning and end of period equity
attributable to noncontrolling interests is presented in the consolidated statements of
stockholders (deficit) equity. The following Items of the 2008 Form 10-K are being adjusted
retrospectively to reflect the adoption of the presentation and disclosure provisions of SFAS 160 as described above, and the correction of the error
described above and in Item 4.02 of this Amendment No. 1 to the
Original Form 8-K (which
Items, as adjusted, are attached as Exhibit 99.1 through Exhibit 99.3 hereto and hereby
incorporated by reference herein):
Item 6 Selected Financial Data
Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations
Item 8 Financial Statements and Supplementary Data
No Items of the 2008 Form 10-K other than those identified above are being adjusted or
otherwise revised by this filing.
This Amendment No. 1 to the Original Form 8-K should be read in conjunction with the 2008 Form 10-K and the
Companys quarterly report on Form 10-Q for the quarter ended June 30, 2009 and other filings with
the Securities and Exchange Commission. Information in the 2008 Form 10-K is generally stated as of
December 31, 2008, and this filing does not reflect any subsequent information or events other than
the adoption of the presentation and disclosure provisions of SFAS 160 described above. Without limitation of the
foregoing, this filing does not purport to update the Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in the 2008 Form 10-K for any information,
uncertainties, transactions, risks, events or trends that subsequently occurred or became known to
the Company. More current information is contained in the
Companys quarterly report on Form 10-Q
for the quarter ended June 30, 2009 and other filings with the Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
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Exhibit Number |
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Exhibit |
Exhibit 23.1
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Consent
of Ernst & Young LLP. |
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Exhibit 99.1
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Item 6 Selected Financial Data to the Companys
annual report on Form 10-K for the fiscal year ended
December 31, 2008. |
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Exhibit 99.2
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Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations to the
Companys annual report on Form 10-K for the fiscal year
ended December 31, 2008. |
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Exhibit 99.3
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Item 8 Financial Statements and Supplementary
Data to the Companys annual report on Form 10-K for the
fiscal year ended December 31, 2008. |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HCA INC.
(Registrant)
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By: |
/s/ R. Milton Johnson
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R. Milton Johnson |
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Executive Vice President and
Chief Financial Officer |
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Date: August 14, 2009
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INDEX TO EXHIBITS
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Exhibit Number |
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Exhibit |
Exhibit 23.1
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Consent
of Ernst & Young LLP. |
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Exhibit 99.1
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Item 6 Selected Financial Data to the Companys
annual report on Form 10-K for the fiscal year ended
December 31, 2008. |
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Exhibit 99.2
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Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations to the
Companys annual report on Form 10-K for the fiscal year
ended December 31, 2008. |
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Exhibit 99.3
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Item 8 Financial Statements and Supplementary
Data to the Companys annual report on Form 10-K for the
fiscal year ended December 31, 2008. |
3
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We
consent to the incorporation by reference into the Registration
Statement on Form S-8 (File No.
333-150714) of HCA Inc. and into the Registration Statement on Form
S-1 (File No. 333-159511 and 333-159511-01 to 333-159511-184) of HCA
Inc. and certain of its subsidiaries of our report dated March 3, 2009, except for paragraphs 6 and 31 of Note
1, as to which the date is May 21, 2009, and except for Note 18,
as to which the date is August 14, 2009, with respect to the consolidated financial statements of
HCA Inc., included in this Form 8-K/A, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Nashville, Tennessee
August 14, 2009
EXHIBIT
99.1
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Item 6.
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Selected
Financial Data
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HCA
INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(Dollars in millions)
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2008
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2007
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2006
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2005
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2004
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Summary of Operations:
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Revenues
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$
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28,374
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$
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26,858
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$
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25,477
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$
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24,455
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$
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23,502
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Salaries and benefits
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11,440
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10,714
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10,409
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9,928
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9,419
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Supplies
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4,620
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4,395
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4,322
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4,126
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3,901
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Other operating expenses
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4,554
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4,241
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4,056
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4,034
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3,769
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Provision for doubtful accounts
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3,409
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3,130
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2,660
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2,358
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2,669
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Equity in earnings of affiliates
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(223
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)
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(206
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(197
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(221
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(194
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Gains on sales of investments
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(8
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(243
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(53
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(56
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Depreciation and amortization
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1,416
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1,426
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1,391
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1,374
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1,250
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Interest expense
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2,021
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2,215
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955
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655
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563
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Gains on sales of facilities
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(97
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(471
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(205
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(78
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)
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Impairment of long-lived assets
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64
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24
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24
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12
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Transaction costs
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442
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27,204
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25,460
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23,614
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22,123
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21,333
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Income before income taxes
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1,170
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1,398
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1,863
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2,332
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2,169
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Provision for income taxes
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268
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316
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626
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730
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755
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Net income
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902
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1,082
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1,237
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1,602
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1,414
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Net income attributable to noncontrolling interests
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229
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208
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201
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178
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168
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Net income attributable to HCA Inc.
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$
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673
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$
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874
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$
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1,036
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$
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1,424
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$
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1,246
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Financial Position:
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Assets
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$
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24,280
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$
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24,025
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$
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23,675
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$
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22,225
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$
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21,840
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Working capital
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2,391
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2,356
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2,502
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1,320
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1,509
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Long-term debt, including amounts due within one year
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26,989
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27,308
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28,408
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10,475
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10,530
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Equity securities with contingent redemption rights
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155
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164
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125
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Noncontrolling interests
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995
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938
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907
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828
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809
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Stockholders (deficit) equity
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(9,260
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)
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(9,600
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)
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(10,467
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)
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5,691
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5,216
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Cash Flow Data:
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Cash provided by operating activities
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$
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1,990
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$
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1,564
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$
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1,988
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$
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3,162
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$
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3,013
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Cash used in investing activities
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(1,467
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(479
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(1,307
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(1,681
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(1,688
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)
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Cash used in financing activities
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(451
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)
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(1,326
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)
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(383
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)
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(1,403
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)
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(1,406
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3
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2008
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2007
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2006
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2005
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2004
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Operating Data:
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Number of hospitals at end of period(a)
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158
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161
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166
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175
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182
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Number of freestanding outpatient surgical centers at end of
period(b)
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97
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99
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98
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87
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|
84
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Number of licensed beds at end of period(c)
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38,504
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38,405
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39,354
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41,265
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41,852
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Weighted average licensed beds(d)
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38,422
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39,065
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40,653
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41,902
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41,997
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Admissions(e)
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1,541,800
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1,552,700
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1,610,100
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1,647,800
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1,659,200
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Equivalent admissions(f)
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2,363,600
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2,352,400
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2,416,700
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2,476,600
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|
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2,454,000
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Average length of stay (days)(g)
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4.9
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|
|
4.9
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4.9
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4.9
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5.0
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Average daily census(h)
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20,795
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|
|
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21,049
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|
|
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21,688
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|
|
|
22,225
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|
|
|
22,493
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Occupancy(i)
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54
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%
|
|
|
54
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%
|
|
|
53
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%
|
|
|
53
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%
|
|
|
54
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%
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Emergency room visits(j)
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5,246,400
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|
|
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5,116,100
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|
|
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5,213,500
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|
|
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5,415,200
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|
|
|
5,219,500
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Outpatient surgeries(k)
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797,400
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|
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|
804,900
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|
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|
820,900
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|
|
|
836,600
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|
|
|
834,800
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Inpatient surgeries(l)
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493,100
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|
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516,500
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|
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533,100
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|
|
|
541,400
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|
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|
541,000
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Days revenues in accounts receivable(m)
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49
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53
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|
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53
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|
|
|
50
|
|
|
|
48
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Gross patient revenues(n)
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$
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102,843
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|
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$
|
92,429
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|
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$
|
84,913
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|
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$
|
78,662
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|
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$
|
71,279
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Outpatient revenues as a % of patient revenues(o)
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|
37
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%
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|
|
37
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%
|
|
|
36
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%
|
|
|
36
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%
|
|
|
37
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%
|
|
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(a)
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Excludes eight facilities in 2008
and 2007 and seven facilities in 2006, 2005 and 2004 that are
not consolidated (accounted for using the equity method) for
financial reporting purposes.
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(b)
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Excludes eight facilities in 2008,
nine facilities in 2007 and 2006, seven facilities in 2005 and
eight facilities in 2004 that are not consolidated (accounted
for using the equity method) for financial reporting purposes.
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(c)
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Licensed beds are those beds for
which a facility has been granted approval to operate from the
applicable state licensing agency.
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(d)
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Weighted average licensed beds
represents the average number of licensed beds, weighted based
on periods owned.
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(e)
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Represents the total number of
patients admitted to our hospitals and is used by management and
certain investors as a general measure of inpatient volume.
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(f)
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Equivalent admissions are used by
management and certain investors as a general measure of
combined inpatient and outpatient volume. Equivalent admissions
are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and
then dividing the resulting amount by gross inpatient revenue.
The equivalent admissions computation equates
outpatient revenue to the volume measure (admissions) used to
measure inpatient volume, resulting in a general measure of
combined inpatient and outpatient volume.
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(g)
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Represents the average number of
days admitted patients stay in our hospitals.
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|
(h)
|
|
Represents the average number of
patients in our hospital beds each day.
|
|
(i)
|
|
Represents the percentage of
hospital licensed beds occupied by patients. Both average daily
census and occupancy rate provide measures of the utilization of
inpatient rooms.
|
|
(j)
|
|
Represents the number of patients
treated in our emergency rooms.
|
|
(k)
|
|
Represents the number of surgeries
performed on patients who were not admitted to our hospitals.
Pain management and endoscopy procedures are not included in
outpatient surgeries.
|
|
(l)
|
|
Represents the number of surgeries
performed on patients who have been admitted to our hospitals.
Pain management and endoscopy procedures are not included in
inpatient surgeries.
|
|
(m)
|
|
Revenues per day is calculated by
dividing the revenues for the period by the days in the period.
Days revenues in accounts receivable is then calculated as
accounts receivable, net of the allowance for doubtful accounts,
at the end of the period divided by revenues per day.
|
|
(n)
|
|
Gross patient revenues are based
upon our standard charge listing. Gross charges/revenues
typically do not reflect what our hospital facilities are paid.
Gross charges/revenues are reduced by contractual adjustments,
discounts and charity care to determine reported revenues.
|
|
(o)
|
|
Represents the percentage of
patient revenues related to patients who are not admitted to our
hospitals.
|
4
EXHIBIT
99.2
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The selected financial data and the accompanying consolidated
financial statements present certain information with respect to
the financial position, results of operations and cash flows of
HCA Inc. which should be read in conjunction with the following
discussion and analysis. The terms HCA,
Company, we, our, or
us, as used herein, refer to HCA Inc. and our
affiliates unless otherwise stated or indicated by context. The
term affiliates means direct and indirect
subsidiaries of HCA Inc. and partnerships and joint ventures in
which such subsidiaries are partners.
Forward-Looking
Statements
This annual report on
Form 10-K
includes certain disclosures which contain forward-looking
statements. Forward-looking statements include all
statements that do not relate solely to historical or current
facts, and can be identified by the use of words like
may, believe, will,
expect, project, estimate,
anticipate, plan, initiative
or continue. These forward-looking statements are
based on our current plans and expectations and are subject to a
number of known and unknown uncertainties and risks, many of
which are beyond our control, that could significantly affect
current plans and expectations and our future financial position
and results of operations. These factors include, but are not
limited to, (1) the ability to recognize the benefits of
the Recapitalization, (2) the impact of the substantial
indebtedness incurred to finance the Recapitalization and the
ability to refinance such indebtedness on acceptable terms,
(3) increases, particularly in the current economic
downturn, in the amount and risk of collectibility of uninsured
accounts and deductibles and copayment amounts for insured
accounts, (4) the ability to achieve operating and
financial targets, and attain expected levels of patient volumes
and control the costs of providing services, (5) possible
changes in the Medicare, Medicaid and other state programs,
including Medicaid supplemental payments pursuant to upper
payment limit (UPL) programs, that may impact
reimbursements to health care providers and insurers,
(6) the highly competitive nature of the health care
business, (7) changes in revenue mix, including potential
declines in the population covered under managed care agreements
due to the current economic downturn and the ability to enter
into and renew managed care provider agreements on acceptable
terms, (8) the efforts of insurers, health care providers
and others to contain health care costs, (9) the outcome of
our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures,
(10) changes in federal, state or local laws or regulations
affecting the health care industry, (11) increases in wages
and the ability to attract and retain qualified management and
personnel, including affiliated physicians, nurses and medical
and technical support personnel, (12) the possible
enactment of federal or state health care reform, (13) the
availability and terms of capital to fund the expansion of our
business and improvements to our existing facilities,
(14) changes in accounting practices, (15) changes in
general economic conditions nationally and regionally in our
markets, (16) future divestitures which may result in
charges, (17) changes in business strategy or development
plans, (18) delays in receiving payments for services
provided, (19) the outcome of pending and any future tax
audits, appeals and litigation associated with our tax
positions, (20) potential liabilities and other claims that
may be asserted against us, and (21) other risk factors
described in this annual report on
Form 10-K.
As a consequence, current plans, anticipated actions and future
financial position and results of operations may differ from
those expressed in any forward-looking statements made by or on
behalf of HCA. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in this report.
2008
Operations Summary
Net income attributable to HCA Inc. totaled $673 million
for the year ended December 31, 2008 compared to
$874 million for the year ended December 31, 2007. The
2008 results include gains on sales of facilities of
$97 million and impairments of long-lived assets of
$64 million. The 2007 results include gains on investments
of $8 million, gains on sales of facilities of
$471 million and an impairment of long-lived assets of
$24 million.
5
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
2008
Operations Summary (Continued)
Revenues increased 5.6% on a consolidated basis and 7.0% on a
same facility basis for the year ended December 31, 2008
compared to the year ended December 31, 2007. The
consolidated revenues increase can be attributed to the combined
impact of a 5.2% increase in revenue per equivalent admission
and a 0.5% increase in equivalent admissions. The same facility
revenues increase resulted from a 5.1% increase in same facility
revenue per equivalent admission and a 1.9% increase in same
facility equivalent admissions.
During the year ended December 31, 2008, consolidated
admissions declined 0.7% and same facility admissions increased
0.9% compared to the year ended December 31, 2007.
Inpatient surgical volumes declined 4.5% on a consolidated basis
and declined 0.5% on a same facility basis during the year ended
December 31, 2008, compared to the year ended
December 31, 2007. Outpatient surgical volumes declined
0.9% on a consolidated basis and declined 0.2% on a same
facility basis during the year ended December 31, 2008,
compared to the year ended December 31, 2007.
For the year ended December 31, 2008, the provision for
doubtful accounts increased to 12.0% of revenues from 11.7% of
revenues for the year ended December 31, 2007. Same
facility uninsured admissions increased 1.7% and same facility
uninsured emergency room visits increased 4.5% for the year
ended December 31, 2008 compared to the year ended
December 31, 2007.
Interest expense totaled $2.021 billion for the year ended
December 31, 2008 compared to $2.215 billion for the
year ended December 31, 2007. The $194 million
decrease in interest expense for 2008 was due to reductions in
both the average debt balance and average interest rate during
2008.
Business
Strategy
We are committed to providing the communities we serve high
quality, cost-effective health care while complying fully with
our ethics policy, governmental regulations and guidelines and
industry standards. As a part of this strategy, management
focuses on the following principal elements:
Maintain Our Dedication to the Care and Improvement of Human
Life. Our business is built on putting patients
first and providing high quality health care services in the
communities we serve. Our dedicated professionals oversee our
Quality Review System, which measures clinical outcomes,
satisfaction and regulatory compliance to improve hospital
quality and performance. We are implementing hospitalist
programs in some facilities, evidence-based medicine programs
and infection reduction initiatives. In addition, we continue to
implement advanced health information technology to improve the
quality and convenience of services to our communities. We are
using our advanced electronic medication administration record,
which uses bar coding technology to ensure that each patient
receives the right medication, to build toward a fully
electronic health record that will provide convenient access,
electronic order entry and decision support for physicians.
These technologies improve patient safety, quality and
efficiency.
Maintain Our Commitment to Ethics and
Compliance. We are committed to a corporate
culture highlighted by the following values
compassion, honesty, integrity, fairness, loyalty, respect and
kindness. Our comprehensive ethics and compliance program
reinforces our dedication to these values.
Leverage Our Leading Local Market
Positions. We strive to maintain and enhance the
leading positions that we enjoy in the majority of our markets.
We believe that the broad geographic presence of our facilities
across a range of markets, in combination with the breadth and
quality of services provided by our facilities, increases our
attractiveness to patients and large employers and positions us
to negotiate more favorable terms from commercial payers and
increase the number of payers with whom we contract. We also
intend to strategically enhance our outpatient presence in our
communities to attract more patients to our facilities.
6
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Business
Strategy (Continued)
Expand Our Presence in Key Markets. We seek to
grow our business in key markets, focusing on large, high growth
urban and suburban communities, primarily in the southern and
western regions of the United States. We seek to strategically
invest in new and expanded services at our existing hospitals
and surgery centers to increase our revenues at those facilities
and provide the benefits of medical technology advances to our
communities. We intend to continue to expand high volume and
high margin specialty services, such as cardiology and
orthopedic services, and increase the capacity, scope and
convenience of our outpatient facilities. To complement this
intrinsic growth, we intend to continue to opportunistically
develop and acquire new hospitals and outpatient facilities.
Continue to Leverage Our Scale. We will
continue to obtain price efficiencies through our group
purchasing organization and build on the cost savings and
efficiencies in billing, collection and other processes we have
achieved through our regional service centers. We are
increasingly taking advantage of our national scale by
contracting for services on a multistate basis. We will expand
our successful shared services model for additional clinical and
support functions, such as physician credentialing, medical
transcription and electronic medical recordkeeping, across
multiple markets.
Continue to Develop Enduring Physician
Relationships. We depend on the quality and
dedication of the physicians who serve at our facilities, and we
recruit both primary care physicians and specialists to meet
community needs. We often assist recruited physicians with
establishing and building a practice or joining an existing
practice in compliance with regulatory standards. We intend to
improve both service levels and revenues in our markets by:
|
|
|
|
|
expanding the number of high quality specialty services, such as
cardiology, orthopedics, oncology and neonatology;
|
|
|
|
continuing to use joint ventures with physicians to further
develop our outpatient business, particularly through ambulatory
surgery centers and outpatient diagnostic centers;
|
|
|
|
developing medical office buildings to provide convenient
facilities for physicians to locate their practices and serve
their patients; and
|
|
|
|
continuing our focus on improving hospital quality and
performance and implementing advanced technologies in our
facilities to attract physicians to our facilities.
|
Become the Health Care Employer of Choice. We
will continue to use a number of industry-leading practices to
help ensure our hospitals are a health care employer of choice
in their respective communities. Our staffing initiatives for
both care providers and hospital management provide strategies
for recruitment, compensation and productivity to increase
employee retention and operating efficiency at our hospitals.
For example, we maintain an internal contract nursing agency to
supply our hospitals with high quality staffing at a lower cost
than external agencies. In addition, we have developed several
proprietary training and career development programs for our
physicians and hospital administrators, including an executive
development program designed to train the next generation of
hospital leadership. We believe our continued investment in the
training and retention of employees improves the quality of
care, enhances operational efficiency and fosters employee
loyalty.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Our estimates are based on historical
experience and various other assumptions we believe are
reasonable under the circumstances. We evaluate our estimates on
an ongoing basis and make changes to the estimates and related
disclosures as experience develops or new information becomes
known. Actual results may differ from these estimates.
7
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services
are provided, based upon the estimated amounts due from payers.
Estimates of contractual allowances under managed care health
plans are based upon the payment terms specified in the related
contractual agreements. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to
interpretation. The estimated reimbursement amounts are made on
a payer-specific basis and are recorded based on the best
information available regarding managements interpretation
of the applicable laws, regulations and contract terms.
Management continually reviews the contractual estimation
process to consider and incorporate updates to laws and
regulations and the frequent changes in managed care contractual
terms resulting from contract renegotiations and renewals. We
have invested significant resources to refine and improve our
computerized billing systems and the information system data
used to make contractual allowance estimates. We have developed
standardized calculation processes and related training programs
to improve the utility of our patient accounting systems.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, the provision of services to patients who are
financially unable to pay for the health care services they
receive.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify as charity care; therefore, they
are not reported in revenues. Patients treated at our hospitals
for nonelective care, who have income at or below 200% of the
federal poverty level, are eligible for charity care. The
federal poverty level is established by the federal government
and is based on income and family size. We provide discounts
from our gross charges to uninsured patients who do not qualify
for Medicaid or charity care. These discounts are similar to
those provided to many local managed care plans.
Due to the complexities involved in the classification and
documentation of health care services authorized and provided,
the estimation of revenues earned and the related reimbursement
are often subject to interpretations that could result in
payments that are different from our estimates. A hypothetical
1% change in net receivables that are subject to contractual
discounts at December 31, 2008 would result in an impact on
pretax earnings of approximately $34 million.
Provision
for Doubtful Accounts and the Allowance for Doubtful
Accounts
The collection of outstanding receivables from Medicare, managed
care payers, other third-party payers and patients is our
primary source of cash and is critical to our operating
performance. The primary collection risks relate to uninsured
patient accounts, including patient accounts for which the
primary insurance carrier has paid the amounts covered by the
applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to amounts due directly from patients. An
estimated allowance for doubtful accounts is recorded for all
uninsured accounts, regardless of the aging of those accounts.
Accounts are written off when all reasonable internal and
external collection efforts have been performed. Prior to 2007,
we considered the return of an account from the
8
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful Accounts
(Continued)
primary external collection agency to be the culmination of our
reasonable collection efforts and the timing basis for writing
off the account balance. During 2007, we modified our collection
policies to establish a review of all accounts against certain
standard collection criteria, upon completion of our internal
collection efforts. Accounts determined to possess positive
collectibility attributes are forwarded to a secondary external
collection agency and the other accounts are written off. The
accounts that are not collected by the secondary external
collection agency are written off when they are returned to us
by the collection agency (usually within 18 months). Our
collection policy change results in a delay in writing off the
accounts forwarded to the secondary external collection agency
compared to our previous policy, and during 2007 and 2008, we
incurred increases in both our gross accounts receivable and the
allowance for doubtful accounts due to this delay in recording
writeoffs. Writeoffs are based upon specific identification and
the writeoff process requires a writeoff adjustment entry to the
patient accounting system. We do not pursue collection of
amounts related to patients that meet our guidelines to qualify
as charity care. Charity care is not reported in revenues and
does not have an impact on the provision for doubtful accounts.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical writeoffs and
expected net collections, business and economic conditions,
trends in federal, state, and private employer health care
coverage and other collection indicators. Management relies on
the results of detailed reviews of historical writeoffs and
recoveries at facilities that represent a majority of our
revenues and accounts receivable (the hindsight
analysis) as a primary source of information in estimating
the collectibility of our accounts receivable. We perform the
hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. At
December 31, 2008, the allowance for doubtful accounts
represented approximately 93% of the $5.838 billion patient
due accounts receivable balance, including accounts, net of the
related estimated contractual discounts, related to patients for
which eligibility for Medicaid assistance or charity was being
evaluated (pending Medicaid accounts). At
December 31, 2007, the allowance for doubtful accounts
represented approximately 89% of the $4.825 billion patient
due accounts receivable balance, including pending Medicaid
accounts, net of the related estimated contractual discounts.
Days revenues in accounts receivable were 49 days,
53 days and 53 days at December 31, 2008, 2007
and 2006, respectively. Management expects a continuation of the
challenges related to the collection of the patient due
accounts. Adverse changes in the percentage of our patients
having adequate health care coverage, general economic
conditions, patient accounting service center operations, payer
mix, or trends in federal, state, and private employer health
care coverage could affect the collection of accounts
receivable, cash flows and results of operations.
9
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful Accounts
(Continued)
The approximate breakdown of accounts receivable by payer
classification as of December 31, 2008 and 2007 is set
forth in the following table:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
Under 91 Days
|
|
91180 Days
|
|
Over 180 Days
|
|
Accounts receivable aging at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
10
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
Managed care and other insurers
|
|
|
17
|
|
|
|
4
|
|
|
|
3
|
|
Uninsured
|
|
|
21
|
|
|
|
9
|
|
|
|
33
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Total
|
|
|
48
|
%
|
|
|
14
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable aging at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
11
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
Managed care and other insurers
|
|
|
19
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
20
|
|
|
|
11
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50
|
%
|
|
|
16
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Liability Claims
We, along with virtually all health care providers, operate in
an environment with professional liability risks. Since
January 1, 2007, our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence, subject to a $5 million
per occurrence self-insured retention. Prior to 2007, our
facilities coverage with our insurance subsidiary was not
subject to the $5 million self-insured retention and a
substantial portion of our professional liability risks was
insured through our wholly-owned insurance subsidiary. Reserves
for professional liability risks were $1.387 billion and
$1.513 billion at December 31, 2008 and 2007,
respectively. The current portion of these reserves,
$279 million and $280 million at December 31,
2008 and 2007, respectively, is included in other accrued
expenses. Obligations covered by reinsurance contracts are
included in the reserves for professional liability risks, as
the insurance subsidiary remains liable to the extent reinsurers
do not meet their obligations. Reserves for professional
liability risks (net of $57 million and $44 million
receivable under reinsurance contracts at December 31, 2008
and 2007, respectively) were $1.330 billion and
$1.469 billion at December 31, 2008 and 2007,
respectively. Reserves and provisions for professional liability
risks are based upon actuarially determined estimates. The
estimated reserve ranges, net of amounts receivable under
reinsurance contracts, were $1.102 billion to
$1.332 billion at December 31, 2008 and
$1.224 billion to $1.471 billion at December 31,
2007. Reserves for professional liability risks represent the
estimated ultimate cost of all reported and unreported losses
incurred through the respective consolidated balance sheet
dates. The reserves are estimated using individual case-basis
valuations and actuarial analyses. Those estimates are subject
to the effects of trends in loss severity and frequency. The
estimates are continually reviewed and adjustments are recorded
as experience develops or new information becomes known. Changes
to the estimated reserve amounts are included in current
operating results. Provisions for losses related to professional
liability risks were $175 million, $163 million and
$217 million for the years ended December 31, 2008,
2007 and 2006, respectively.
The reserves for professional liability risks cover
approximately 2,800 and 2,600 individual claims at
December 31, 2008 and 2007, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. The estimation of the
timing of payments beyond a year can vary significantly. Due to
the considerable variability that is
10
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
inherent in such estimates, there can be no assurance that the
ultimate liability will not exceed managements estimates.
Income
Taxes
We calculate our provision for income taxes using the asset and
liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary
differences that arise from the recognition of items in
different periods for tax and accounting purposes. Deferred tax
assets generally represent the tax effects of amounts expensed
in our income statement for which tax deductions will be claimed
in future periods.
Although we believe that we have properly reported taxable
income and paid taxes in accordance with applicable laws,
federal, state or international taxing authorities may challenge
our tax positions upon audit. We account for uncertain tax
positions in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes.
Accordingly, we report a liability for unrecognized tax benefits
from uncertain tax positions taken or expected to be taken in
our income tax return. Final audit results may vary from our
estimates.
Results
of Operations
Revenue/Volume
Trends
Our revenues depend upon inpatient occupancy levels, the
ancillary services and therapy programs ordered by physicians
and provided to patients, the volume of outpatient procedures
and the charge and negotiated payment rates for such services.
Gross charges typically do not reflect what our facilities are
actually paid. Our facilities have entered into agreements with
third-party payers, including government programs and managed
care health plans, under which the facilities are paid based
upon the cost of providing services, predetermined rates per
diagnosis, fixed per diem rates or discounts from gross charges.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify for charity care; therefore, they
are not reported in revenues. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care that
are similar to the discounts provided to many local managed care
plans.
Revenues increased 5.6% to $28.374 billion for the year
ended December 31, 2008 from $26.858 billion for the
year ended December 31, 2007 and increased 5.4% for the
year ended December 31, 2007 from $25.477 billion for
the year ended December 31, 2006. The increase in revenues
in 2008 can be primarily attributed to the combined impact of a
5.2% increase in revenue per equivalent admission and a 0.5%
increase in equivalent admissions compared to the prior year.
The increase in revenues in 2007 can be primarily attributed to
an 8.3% increase in revenue per equivalent admission, offsetting
a 2.7% decline in equivalent admissions compared to 2006.
Admissions declined 0.7% in 2008 compared to 2007 and declined
3.6% in 2007 compared to 2006. Inpatient surgeries declined 4.5%
and outpatient surgeries declined 0.9% during 2008 compared to
2007. Inpatient surgeries declined 3.1% and outpatient surgeries
declined 2.0% during 2007 compared to 2006. Emergency room
visits increased 2.5% during 2008 compared to 2007 and declined
1.9% during 2007 compared to 2006.
Same facility revenues increased 7.0% for the year ended
December 31, 2008 compared to the year ended
December 31, 2007 and increased 7.4% for the year ended
December 31, 2007 compared to the year ended
December 31, 2006. The 7.0% increase for 2008 can be
primarily attributed to the combined impact of a 5.1% increase
in same facility revenue per equivalent admission and a 1.9%
increase in same facility equivalent admissions. The 7.4%
increase for 2007 can be primarily attributed to an 8.1%
increase in same facility revenue per equivalent admission,
offsetting a 0.7% decline in equivalent admissions.
Same facility admissions increased 0.9% in 2008 compared to 2007
and declined 1.3% in 2007 compared to 2006. Same facility
inpatient surgeries declined 0.5% and same facility outpatient
surgeries declined 0.2% during
11
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
2008 compared to 2007. Same facility inpatient surgeries
declined 1.0% and same facility outpatient surgeries declined
1.1% during 2007 compared to 2006. Same facility emergency room
visits increased 3.6% during 2008 compared to 2007 and increased
0.7% during 2007 compared to 2006.
Same facility uninsured emergency room visits increased 4.5% and
same facility uninsured admissions increased 1.7% during 2008
compared to 2007. Same facility uninsured emergency room visits
increased 7.3% and same facility uninsured admissions increased
9.4% during 2007 compared to 2006. Management believes same
facility uninsured emergency room visits and same facility
uninsured admissions could continue to increase during 2009 if
the adverse general economic and unemployment trends continue.
Admissions related to Medicare, managed Medicare, Medicaid,
managed Medicaid, managed care and other insurers and the
uninsured for the years ended December 31, 2008, 2007 and
2006 are set forth below.
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|
|
Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Medicare
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
37
|
%
|
Managed Medicare
|
|
|
9
|
|
|
|
7
|
|
|
|
6
|
|
Medicaid
|
|
|
8
|
|
|
|
8
|
|
|
|
9
|
|
Managed Medicaid
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
Managed care and other insurers
|
|
|
35
|
|
|
|
37
|
|
|
|
36
|
|
Uninsured
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Several factors negatively affected patient volumes in 2008 and
2007. More stringent enforcement of case management guidelines
led to certain patient services being classified as outpatient
observation visits instead of
one-day
admissions. Unit closures and changes in Medicare admission
guidelines led to reductions in rehabilitation and skilled
nursing admissions. Cardiac admissions have been affected by
competition from physician-owned heart hospitals.
The approximate percentages of our inpatient revenues related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care plans and other insurers and the uninsured for the years
ended December 31, 2008, 2007 and 2006 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Medicare
|
|
|
31
|
%
|
|
|
32
|
%
|
|
|
34
|
%
|
Managed Medicare
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
Medicaid
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Managed care and other insurers
|
|
|
44
|
|
|
|
44
|
|
|
|
46
|
|
Uninsured
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, we owned and operated 38 hospitals
and 33 surgery centers in the state of Florida. Our Florida
facilities revenues totaled $7.099 billion and
$6.732 billion for the years ended December 31, 2008
and 2007, respectively. At December 31, 2008, we owned and
operated 34 hospitals and 23 surgery centers in the state of
12
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
Texas. Our Texas facilities revenues totaled
$7.351 billion and $6.911 billion for the years ended
December 31, 2008 and 2007, respectively. During 2008 and
2007, 55% of our admissions and 51% of our revenues were
generated by our Florida and Texas facilities. Uninsured
admissions in Florida and Texas represented 63% and 62% of our
uninsured admissions during 2008 and 2007, respectively.
We provided $1.747 billion, $1.530 billion and
$1.296 billion of charity care (amounts are based upon our
gross charges) during the years ended December 31, 2008,
2007 and 2006, respectively. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care. These
discounts are similar to those provided to many local managed
care plans and totaled $1.853 billion, $1.474 billion
and $1.095 billion for the years ended December 31,
2008, 2007 and 2006, respectively.
We receive a significant portion of our revenues from government
health programs, principally Medicare and Medicaid, which are
highly regulated and subject to frequent and substantial
changes. We have increased the indigent care services we provide
in several communities in the state of Texas, in affiliation
with other hospitals. The state of Texas has been involved in
the effort to increase the indigent care provided by private
hospitals. As a result of this additional indigent care provided
by private hospitals, public hospital districts or counties in
Texas have available funds that were previously devoted to
indigent care. The public hospital districts or counties are
under no contractual or legal obligation to provide such
indigent care. The public hospital districts or counties have
elected to transfer some portion of these newly available funds
to the states Medicaid program. Such action is at the sole
discretion of the public hospital districts or counties. It is
anticipated that these contributions to the state will be
matched with federal Medicaid funds. The state then may make
supplemental payments to hospitals in the state for Medicaid
services rendered. Hospitals receiving Medicaid supplemental
payments may include those that are providing additional
indigent care services. Such payments must be within the federal
UPL established by federal regulation.
During 2007, based upon a review of certain expenditures claimed
for federal Medicaid matching funds by the state of Texas, the
Centers for Medicare and Medicaid Services (CMS)
deferred a portion of claimed amounts. CMS completed its review
of the claimed expenditures and released the previously deferred
amounts during 2008. Our Texas Medicaid revenues included
$262 million and $232 million during 2008 and 2007,
respectively, of Medicaid supplemental payments pursuant to UPL
programs. We expect to continue to recognize net benefits
related to the Texas Medicaid supplemental payment program based
upon the routine incurrence of indigent care expenditures and
expected processing of Medicaid supplemental payments.
13
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Operating
Results Summary
The following are comparative summaries of operating results for
the years ended December 31, 2008, 2007 and 2006 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
28,374
|
|
|
|
100.0
|
|
|
$
|
26,858
|
|
|
|
100.0
|
|
|
$
|
25,477
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
11,440
|
|
|
|
40.3
|
|
|
|
10,714
|
|
|
|
39.9
|
|
|
|
10,409
|
|
|
|
40.9
|
|
Supplies
|
|
|
4,620
|
|
|
|
16.3
|
|
|
|
4,395
|
|
|
|
16.4
|
|
|
|
4,322
|
|
|
|
17.0
|
|
Other operating expenses
|
|
|
4,554
|
|
|
|
16.1
|
|
|
|
4,241
|
|
|
|
15.7
|
|
|
|
4,056
|
|
|
|
16.0
|
|
Provision for doubtful accounts
|
|
|
3,409
|
|
|
|
12.0
|
|
|
|
3,130
|
|
|
|
11.7
|
|
|
|
2,660
|
|
|
|
10.4
|
|
Equity in earnings of affiliates
|
|
|
(223
|
)
|
|
|
(0.8
|
)
|
|
|
(206
|
)
|
|
|
(0.8
|
)
|
|
|
(197
|
)
|
|
|
(0.8
|
)
|
Gains on sales of investments
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(243
|
)
|
|
|
(1.0
|
)
|
Depreciation and amortization
|
|
|
1,416
|
|
|
|
5.0
|
|
|
|
1,426
|
|
|
|
5.4
|
|
|
|
1,391
|
|
|
|
5.5
|
|
Interest expense
|
|
|
2,021
|
|
|
|
7.1
|
|
|
|
2,215
|
|
|
|
8.2
|
|
|
|
955
|
|
|
|
3.7
|
|
Gains on sales of facilities
|
|
|
(97
|
)
|
|
|
(0.3
|
)
|
|
|
(471
|
)
|
|
|
(1.8
|
)
|
|
|
(205
|
)
|
|
|
(0.8
|
)
|
Impairment of long-lived assets
|
|
|
64
|
|
|
|
0.2
|
|
|
|
24
|
|
|
|
0.1
|
|
|
|
24
|
|
|
|
0.1
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,204
|
|
|
|
95.9
|
|
|
|
25,460
|
|
|
|
94.8
|
|
|
|
23,614
|
|
|
|
92.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,170
|
|
|
|
4.1
|
|
|
|
1,398
|
|
|
|
5.2
|
|
|
|
1,863
|
|
|
|
7.3
|
|
Provision for income taxes
|
|
|
268
|
|
|
|
0.9
|
|
|
|
316
|
|
|
|
1.1
|
|
|
|
626
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
902
|
|
|
|
3.2
|
|
|
|
1,082
|
|
|
|
4.1
|
|
|
|
1,237
|
|
|
|
4.9
|
|
Net income attributable to noncontrolling interests
|
|
|
229
|
|
|
|
0.8
|
|
|
|
208
|
|
|
|
0.8
|
|
|
|
201
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
673
|
|
|
|
2.4
|
|
|
$
|
874
|
|
|
|
3.3
|
|
|
$
|
1,036
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
5.6
|
%
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
4.2
|
%
|
|
|
|
|
Income before income taxes
|
|
|
(16.3
|
)
|
|
|
|
|
|
|
(25.0
|
)
|
|
|
|
|
|
|
(20.1
|
)
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
|
(23.0
|
)
|
|
|
|
|
|
|
(15.7
|
)
|
|
|
|
|
|
|
(27.2
|
)
|
|
|
|
|
Admissions(a)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
0.5
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
Revenue per equivalent admission
|
|
|
5.2
|
|
|
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
6.8
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7.0
|
|
|
|
|
|
|
|
7.4
|
|
|
|
|
|
|
|
6.2
|
|
|
|
|
|
Admissions(a)
|
|
|
0.9
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.9
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
5.1
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
|
(b) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(c) |
|
Same facility information excludes the operations of hospitals
and their related facilities that were either acquired, divested
or removed from service during the current and prior year. |
14
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2008 and 2007
Net income attributable to HCA Inc. totaled $673 million
for the year ended December 31, 2008 compared to
$874 million for the year ended December 31, 2007.
Financial results for 2008 include gains on sales of facilities
of $97 million and asset impairment charges of
$64 million. Financial results for 2007 include gains on
sales of facilities of $471 million and an asset impairment
charge of $24 million.
Revenues increased 5.6% to $28.374 billion for 2008 from
$26.858 billion for 2007. The increase in revenues was due
primarily to the combined impact of a 5.2% increase in revenue
per equivalent admission and a 0.5% increase in equivalent
admissions compared to 2007. Same facility revenues increased
7.0% due primarily to the combined impact of a 5.1% increase in
same facility revenue per equivalent admission and a 1.9%
increase in same facility equivalent admissions compared to 2007.
During 2008, same facility admissions increased 0.9%, compared
to 2007. Inpatient surgical volumes declined 4.5% on a
consolidated basis and same facility inpatient surgeries
declined 0.5% during 2008 compared to 2007. Outpatient surgical
volumes declined 0.9% on a consolidated basis and same facility
outpatient surgeries declined 0.2% during 2008 compared to 2007.
Salaries and benefits, as a percentage of revenues, were 40.3%
in 2008 and 39.9% in 2007. Salaries and benefits per equivalent
admission increased 6.3% in 2008 compared to 2007. Same facility
labor rate increases averaged 5.1% for 2008 compared to 2007.
Supplies, as a percentage of revenues, were 16.3% in 2008 and
16.4% in 2007. Supply costs per equivalent admission increased
4.5% in 2008 compared to 2007. Same facility supply costs
increased 8.0% for medical devices, 2.8% for pharmacy supplies,
18.7% for blood products and 6.6% for general medical and
surgical items in 2008 compared to 2007.
Other operating expenses, as a percentage of revenues, increased
to 16.1% in 2008 from 15.7% in 2007. Other operating expenses
are primarily comprised of contract services, professional fees,
repairs and maintenance, rents and leases, utilities, insurance
(including professional liability insurance) and nonincome
taxes. Increases in professional fees paid to hospitalists,
emergency room physicians and anesthesiologists represented
20 basis points of the 2008 increase in other operating
expenses. Other operating expenses include $143 million and
$187 million of indigent care costs in certain Texas
markets during 2008 and 2007, respectively. Provisions for
losses related to professional liability risks were
$175 million and $163 million for 2008 and 2007,
respectively.
Provision for doubtful accounts, as a percentage of revenues,
increased to 12.0% for 2008 from 11.7% in 2007. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to uninsured amounts due directly from
patients. The increase in the provision for doubtful accounts,
as a percentage of revenues, can be attributed to an increasing
amount of patient financial responsibility under certain managed
care plans and same facility increases in uninsured emergency
room visits of 4.5% and uninsured admissions of 1.7% in 2008
compared to 2007. At December 31, 2008, our allowance for
doubtful accounts represented approximately 93% of the $5.838
billion total patient due accounts receivable balance, including
accounts, net of estimated contractual discounts, related to
patients for which eligibility for Medicaid coverage was being
evaluated.
Equity in earnings of affiliates increased from
$206 million for 2007 to $223 million for 2008. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
No net gains on investments were recognized during 2008 and net
gains on investments for 2007 of $8 million relate to sales
of investment securities by our wholly-owned insurance
subsidiary. Net unrealized losses on investment securities were
$48 million at December 31, 2008, representing a
$69 million decline from a net unrealized gain position of
$21 million at December 31, 2007.
15
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2008 and 2007 (Continued)
Depreciation and amortization decreased, as a percentage of
revenues, to 5.0% in 2008 from 5.4% in 2007. Depreciation
expense was $1.412 billion for 2008 and $1.421 billion
for 2007.
Interest expense decreased to $2.021 billion for 2008 from
$2.215 billion for 2007. The decrease in interest expense
was due to reductions in both the average debt balance and the
average effective interest rate on long-term debt. Our average
debt balance was $27.211 billion for 2008 compared to
$27.732 billion for 2007. The average interest rate for our
long-term debt decreased from 7.6% at December 31, 2007 to
6.9% at December 31, 2008.
Gains on sales of facilities were $97 million for 2008 and
included $81 million of net gains on the sales of two
hospital facilities and $16 million of net gains on sales
of real estate and other health care entity investments. Gains
on sales of facilities were $471 million for 2007 and
included a $312 million gain on the sale of our two
Switzerland hospitals, a $131 million gain on the sale of a
facility in Florida and $28 million of net gains on sales
of real estate and other health care entity investments.
The effective tax rate was 22.9% for 2008 and 22.6% for 2007,
which include reductions of 5.6% and 4.0%, respectively, related
to income attributable to noncontrolling interests from
consolidated partnerships. Primarily as a result of reaching a
settlement with the IRS Appeals Division and the revision of the
amount of a proposed IRS adjustment related to prior taxable
periods, we reduced our provision for income taxes by
$69 million in 2008. Our 2007 provision for income taxes
was reduced by $85 million, principally based on receiving
new information related to tax positions taken in a prior
taxable year, and by an additional $39 million to adjust
2006 state tax accruals to the amounts reported on completed tax
returns and based upon an analysis of the Recapitalization
costs. Excluding the effect of these adjustments, the effective
tax rates for 2008 and 2007 would have been 28.8% and 31.5%,
respectively.
Net income attributable to noncontrolling interests increased
from $208 million for 2007 to $229 million for 2008.
The increase relates primarily to our Austin, Texas market
partnership and our group purchasing organization.
Years
Ended December 31, 2007 and 2006
Net income attributable to HCA Inc. totaled $874 million
for the year ended December 31, 2007 compared to
$1.036 billion for the year ended December 31, 2006.
Financial results for 2007 include gains on sales of facilities
of $471 million, gains on investments of $8 million
and an asset impairment charge of $24 million. Financial
results for 2006 include gains on sales of facilities of
$205 million, gains on investments of $243 million,
expenses related to the Recapitalization of $442 million
and an asset impairment charge of $24 million.
Revenues increased 5.4% to $26.858 billion for 2007 from
$25.477 billion for 2006. The increase in revenues was due
primarily to an 8.3% increase in revenue per equivalent
admission, offsetting a 2.7% decline in equivalent admissions
compared to the prior year. Same facility revenues increased
7.4% due to an 8.1% increase in same facility revenue per
equivalent admission, offsetting a 0.7% decline in same facility
equivalent admissions compared to the prior year.
During 2007, same facility admissions declined 1.3% compared to
2006. Inpatient surgical volumes declined 3.1% on a consolidated
basis and same facility inpatient surgeries declined 1.0% during
2007 compared to 2006. Outpatient surgical volumes declined 2.0%
on a consolidated basis and same facility outpatient surgeries
declined 1.1% during 2007 compared to 2006.
Salaries and benefits, as a percentage of revenues, were 39.9%
in 2007 and 40.9% in 2006. Salaries and benefits per equivalent
admission increased 5.8% in 2007 compared to 2006. Labor rate
increases averaged 5.0% for 2007 compared to 2006.
16
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2007 and 2006 (Continued)
Supplies, as a percentage of revenues, were 16.4% in 2007 and
17.0% in 2006. Supply costs per equivalent admission increased
4.5% in 2007 compared to 2006. Same facility supply costs
increased 6.4% for medical devices, primarily for orthopedic
supplies, 13.1% for blood products, and 5.6% for general medical
and surgical items.
Other operating expenses, as a percentage of revenues, decreased
to 15.7% in 2007 from 16.0% in 2006. Other operating expenses
are primarily comprised of contract services, professional fees,
repairs and maintenance, rents and leases, utilities, insurance
(including professional liability insurance) and nonincome
taxes. Other operating expenses include $187 million and
$11 million of indigent care costs in certain Texas markets
during 2007 and 2006, respectively. Provisions for losses
related to professional liability risks were $163 million
and $217 million for 2007 and 2006, respectively. The
reduction in the provision for professional liability risks
reflects the recognition by our actuaries of improving frequency
and severity claim trends at our facilities.
Provision for doubtful accounts, as a percentage of revenues,
increased to 11.7% for 2007 from 10.4% in 2006. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to uninsured amounts due directly from
patients. The increase in the provision for doubtful accounts,
as a percentage of revenues, can be attributed to an increasing
amount of patient financial responsibility under certain managed
care plans and same facility increases in uninsured emergency
room visits of 7.3% and uninsured admissions of 9.4% in 2007
compared to 2006. At December 31, 2007, our allowance for
doubtful accounts represented approximately 89% of the
$4.825 billion total patient due accounts receivable
balance, including accounts, net of estimated contractual
discounts, related to patients for which eligibility for
Medicaid coverage was being evaluated.
Equity in earnings of affiliates increased from
$197 million for 2006 to $206 million for 2007. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
Gains on investments for 2007 and 2006 of $8 million and
$243 million, respectively, relate to sales of investment
securities by our wholly-owned insurance subsidiary. The
decrease in realized gains for 2007 was primarily due to the
decision to liquidate our equity investment portfolio and
reinvest in debt and interest-bearing investments during the
fourth quarter of 2006. Net unrealized gains on investment
securities declined from $25 million at December 31,
2006 to $21 million at December 31, 2007.
Depreciation and amortization decreased, as a percentage of
revenues, to 5.4% in 2007 from 5.5% in 2006. Purchases of
property and equipment of $1.444 billion during 2007 were
generally equivalent to depreciation expense for 2007 of
$1.421 billion.
Interest expense increased to $2.215 billion for 2007 from
$955 million for 2006. The increase in interest expense is
primarily due to the increased debt related to the
Recapitalization. Our average debt balance was
$27.732 billion for 2007 compared to $13.811 billion
for 2006. The average interest rate for our long-term debt
decreased from 7.9% at December 31, 2006 to 7.6% at
December 31, 2007.
Gains on sales of facilities were $471 million for 2007 and
included a $312 million gain on the sale of our two
Switzerland hospitals and a $131 million gain on the sale
of a facility in Florida. Gains on sales of facilities were
$205 million for 2006 and included a $92 million gain
on the sale of four hospitals in West Virginia and Virginia and
a $93 million gain on the sale of two hospitals in Florida.
The effective tax rate was 22.6% for 2007 and 33.6% for 2006,
which include reductions of 4.0% for each year related to income
attributable to noncontrolling interests from consolidated
partnerships. Based on new information received in 2007 related
primarily to tax positions taken in prior taxable periods, we
reduced our provision for income taxes by $85 million, and
by an additional $39 million to adjust 2006 state tax
accruals to the amounts reported on completed tax returns and
based upon an analysis of the Recapitalization costs. Excluding
the effect of these adjustments, the effective tax rate for 2007
would have been 31.5%.
17
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2007 and 2006 (Continued)
Net income attributable to noncontrolling interests increased
from $201 million for 2006 to $208 million for 2007.
The increase relates primarily to the operations of surgery
centers and other outpatient services entities.
Liquidity
and Capital Resources
Our primary cash requirements are paying our operating expenses,
servicing of our debt, capital expenditures on our existing
properties and acquisitions of hospitals and other health care
entities. Our primary cash sources are cash flow from operating
activities, issuances of debt and equity securities and
dispositions of hospitals and other health care entities.
Cash provided by operating activities totaled
$1.990 billion in 2008 compared to $1.564 billion in
2007 and $1.988 billion in 2006. Working capital totaled
$2.391 billion at December 31, 2008 and
$2.356 billion at December 31, 2007. The
$426 million increase in cash provided by operating
activities for 2008, compared to 2007, relates primarily to
changes in working capital items. The changes in accounts
receivable (net of the provision for doubtful accounts),
inventories and other assets, and accounts payable and accrued
expenses contributed $42 million to cash provided by
operating activities for 2008 while changes in these items
decreased cash provided by operating activities by
$485 million for 2007. The $424 million decrease in
cash provided by operating activities for 2007, compared to
2006, relates primarily to the combined impact of a
$604 million increase in net cash payments for interest and
income taxes and a $205 million increase from changes in
working capital items. The net impact of the cash payments for
interest and income taxes was an increase in cash payments of
$111 million for 2008 compared to 2007 and an increase of
$604 million for 2007 compared to 2006.
Cash used in investing activities was $1.467 billion,
$479 million and $1.307 billion in 2008, 2007 and
2006, respectively. Excluding acquisitions, capital expenditures
were $1.600 billion in 2008, $1.444 billion in 2007
and $1.865 billion in 2006. We expended $85 million,
$32 million and $112 million for acquisitions of
hospitals and health care entities during 2008, 2007 and 2006,
respectively. Expenditures for acquisitions in all three years
were generally comprised of outpatient and ancillary services
entities and were funded by a combination of cash flows from
operations and the issuance or incurrence of debt. Planned
capital expenditures are expected to approximate
$1.5 billion in 2009. At December 31, 2008, there were
projects under construction which had an estimated additional
cost to complete and equip over the next five years of
$1.450 billion. We expect to finance capital expenditures
with internally generated and borrowed funds.
During 2008, we received cash proceeds of $143 million from
dispositions of two hospitals, and $50 million from sales
of other health care entities and real estate investments.
During 2007, we sold three hospitals for cash proceeds of
$661 million, and we also received cash proceeds of
$106 million related primarily to the sales of real estate
investments. The sales of nine hospitals were completed during
2006 for cash proceeds of $560 million, and we also
received cash proceeds of $91 million on the sales of real
estate investments and our equity investment in a hospital joint
venture.
Cash used in financing activities totaled $451 million in
2008, $1.326 billion in 2007 and $383 million in 2006.
During 2008 and 2007, we used cash proceeds from sales of
facilities and available cash provided by operations to make net
debt repayments of $260 million and $1.270 billion,
respectively. During 2008, 2007 and 2006, we made distributions
to noncontrolling interests of $178 million,
$152 million and $148 million, respectively. The
Recapitalization included the issuance of $19.964 billion
of long-term debt, the receipt of $3.782 billion of equity
contributions, the repurchase of $20.364 billion of common
stock, the payment of $745 million for Recapitalization
related fees and expenses, and the retirement of
$3.182 billion of existing long-term debt. We may in the
future repurchase portions of our debt securities, subject to
certain limitations, from time to time in either the open market
or through privately negotiated transactions, in accordance with
applicable SEC and other legal requirements. The
18
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Liquidity
and Capital Resources (Continued)
timing, prices, and sizes of purchases depend upon prevailing
trading prices, general economic and market conditions, and
other factors, including applicable securities laws. Funds for
the repurchase of debt securities have, and are expected to,
come primarily from cash generated from operations and borrowed
funds.
In addition to cash flows from operations, available sources of
capital include amounts available under our senior secured
credit facilities ($1.858 billion as of December 31,
2008 and $2.038 billion as of February 28,
2009) and anticipated access to public and private debt
markets.
Investments of our professional liability insurance subsidiary,
to maintain statutory equity and pay claims incurred prior to
2007, totaled $1.622 billion and $1.899 billion at
December 31, 2008 and 2007, respectively. The insurance
subsidiary maintained reserves for professional liability risks
of $816 million and $1.165 billion at December 31, 2008 and
2007, respectively. Our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence; however, since January 2007,
this coverage is subject to a $5 million per occurrence
self-insured retention. Claims payments, net of reinsurance
recoveries, during the next twelve months are expected to
approximate $250 million. We estimate that approximately
$50 million of the expected net claim payments during the
next twelve months will relate to claims incurred subsequent to
2006.
Financing
Activities
Due to the Recapitalization, we are a highly leveraged company
with significant debt service requirements. Our debt totaled
$26.989 billion and $27.308 billion at
December 31, 2008 and 2007, respectively. Our interest
expense was $2.021 billion for 2008 and $2.215 billion
for 2007.
In connection with the Recapitalization, we entered into
(i) a $2.000 billion senior secured asset-based
revolving credit facility with a borrowing base of 85% of
eligible accounts receivable, subject to customary reserves and
eligibility criteria (fully utilized at December 31, 2008)
(the ABL credit facility) and (ii) a senior
secured credit agreement (the cash flow credit
facility and, together with the ABL credit facility, the
senior secured credit facilities), consisting of a
$2.000 billion revolving credit facility
($1.858 billion available at December 31, 2008 after
giving effect to certain outstanding letters of credit), a
$2.750 billion term loan A ($2.525 billion outstanding
at December 31, 2008), a $8.800 billion term loan B
($8.624 billion outstanding at December 31,
2008) and a 1.000 billion European term loan
(611 million, or $853 million, outstanding at
December 31, 2008).
Also in connection with the Recapitalization, we issued
$4.200 billion of senior secured notes (comprised of
$1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016) and $1.500 billion of
95/8%
cash/103/8%
in-kind senior secured toggle notes (which allow us, at our
option, to pay interest
in-kind
during the first five years) due 2016, which are subject to
certain standard covenants. In November 2008, we elected to make
an interest payment for the interest period ending in May 2009
by paying in-kind instead of paying interest in cash.
The senior secured credit facilities and senior secured notes
are fully and unconditionally guaranteed by substantially all
existing and future, direct and indirect, wholly-owned material
domestic subsidiaries that are Unrestricted
Subsidiaries under our Indenture dated as of
December 16, 1993 (except for certain special purpose
subsidiaries that only guarantee and pledge their assets under
our ABL credit facility). In addition, borrowings under the
European term loan are guaranteed by all material, wholly-owned
European subsidiaries.
Management believes that cash flows from operations, amounts
available under our senior secured credit facilities and our
anticipated access to public and private debt markets will be
sufficient to meet expected liquidity needs during the next
twelve months.
19
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Contractual
Obligations and Off-Balance Sheet Arrangements
As of December 31, 2008, maturities of contractual
obligations and other commercial commitments are presented in
the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations(a)
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt including interest, excluding the senior secured
credit facilities(b)
|
|
$
|
22,500
|
|
|
$
|
1,175
|
|
|
$
|
3,291
|
|
|
$
|
3,842
|
|
|
$
|
14,192
|
|
Loans outstanding under the senior secured credit facilities,
including interest(b)
|
|
|
17,337
|
|
|
|
1,157
|
|
|
|
2,492
|
|
|
|
13,688
|
|
|
|
|
|
Operating leases(c)
|
|
|
1,255
|
|
|
|
225
|
|
|
|
352
|
|
|
|
224
|
|
|
|
454
|
|
Purchase and other obligations(c)
|
|
|
36
|
|
|
|
30
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
41,128
|
|
|
$
|
2,587
|
|
|
$
|
6,141
|
|
|
$
|
17,754
|
|
|
$
|
14,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments Not Recorded on the
|
|
Commitment Expiration by Period
|
|
Consolidated Balance Sheet
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Surety bonds(d)
|
|
$
|
141
|
|
|
$
|
134
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
Letters of credit(e)
|
|
|
92
|
|
|
|
12
|
|
|
|
|
|
|
|
50
|
|
|
|
30
|
|
Physician commitments(f)
|
|
|
39
|
|
|
|
16
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Guarantees(g)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
274
|
|
|
$
|
162
|
|
|
$
|
30
|
|
|
$
|
50
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We have not included obligations to pay estimated professional
liability claims ($1.387 billion at December 31,
2008) in this table. The estimated professional liability
claims, which have occurred prior to 2007, are expected to be
funded by the designated investment securities that are
restricted for this purpose ($1.622 billion at
December 31, 2008). We also have not included obligations
related to unrecognized tax benefits of $625 million at
December 31, 2008, as we cannot reasonably estimate the
timing or amounts of additional cash payments, if any, at this
time. |
|
(b) |
|
Estimates of interest payments assumes that interest rates,
borrowing spreads and foreign currency exchange rates at
December 31, 2008, remain constant during the period
presented. |
|
(c) |
|
Future operating lease obligations and purchase obligations are
not recorded in our consolidated balance sheet. |
|
(d) |
|
Amounts relate primarily to instances in which we have agreed to
indemnify various commercial insurers who have provided surety
bonds to cover damages for malpractice cases which were awarded
to plaintiffs by the courts. These cases are currently under
appeal and the bonds will not be released by the courts until
the cases are closed. |
|
(e) |
|
Amounts relate primarily to instances in which we have letters
of credit outstanding with insurance companies that issued
workers compensation insurance policies to us in prior years.
The letters of credit serve as security to the insurance
companies for payment obligations we retained. |
|
(f) |
|
In consideration for physicians relocating to the communities in
which our hospitals are located and agreeing to engage in
private practice for the benefit of the respective communities,
we make advances to physicians, normally over a period of one
year, to assist in establishing the physicians practices.
The actual amount of these commitments to be advanced often
depends upon the financial results of the physicians
private practices during the recruitment agreement payment
period. The physician commitments reflected were based on our
maximum exposure on effective agreements at December 31,
2008. |
|
(g) |
|
We have entered into guarantee agreements related to certain
leases. |
20
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Market
Risk
We are exposed to market risk related to changes in market
values of securities. The investments in debt and equity
securities of our wholly-owned insurance subsidiary were
$1.614 billion and $8 million, respectively, at
December 31, 2008. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2008, we had a net unrealized loss of
$48 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2008, our
wholly-owned insurance subsidiary had invested $536 million
($573 million par value) in municipal, tax-exempt student
loan auction rate securities which were classified as long-term
investments. The auction rate securities (ARS) are
publicly issued securities with long-term stated maturities for
which the interest rates are reset through a Dutch auction every
seven to 35 days. With the liquidity issues experienced in
global credit and capital markets, the ARS held by our
wholly-owned insurance subsidiary have experienced multiple
failed auctions, beginning on February 11, 2008, as the
amount of securities submitted for sale exceeded the amount of
purchase orders. There is a very limited market for the ARS at
this time. We do not currently intend to attempt to sell the ARS
as the liquidity needs of our insurance subsidiary are expected
to be met by other investments in its investment portfolio.
These securities continue to accrue and pay interest
semi-annually based on the failed auction maximum rate formulas
stated in their respective Official Statements. During the
failed auction period beginning February 11, 2008 and
ending December 31, 2008, certain issuers of our ARS have
redeemed $93 million of our securities at par value. If
uncertainties in the credit and capital markets continue or
there are ratings downgrades on the ARS held by our insurance
subsidiary, we may be required to recognize other-than-temporary
impairments on these long-term investments in future periods.
We are also exposed to market risk related to changes in
interest rates and we periodically enter into interest rate swap
agreements to manage our exposure to these fluctuations. Our
interest rate swap agreements involve the exchange of fixed and
variable rate interest payments between two parties, based on
common notional principal amounts and maturity dates. The
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions. The interest payments under these
agreements are settled on a net basis. These derivatives have
been recognized in the financial statements at their respective
fair values. Changes in the fair value of these derivatives are
included in other comprehensive income.
With respect to our interest-bearing liabilities, approximately
$5.055 billion of long-term debt at December 31, 2008
is subject to variable rates of interest, while the remaining
balance in long-term debt of $21.934 billion at
December 31, 2008 is subject to fixed rates of interest.
Both the general level of interest rates and, for the senior
secured credit facilities, our leverage affect our variable
interest rates. Our variable rate debt is comprised primarily of
amounts outstanding under the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to an applicable margin plus, at our
option, either (a) a base rate determined by reference to
the higher of (1) the federal funds rate plus
1/2
of 1% and (2) the prime rate of Bank of America or
(b) a LIBOR rate for the currency of such borrowing for the
relevant interest period. The applicable margin for borrowings
under the senior secured credit facilities, with the exception
of term loan B where the margin is static, may be reduced
subject to attaining certain leverage ratios. The average rate
for our long-term debt decreased from 7.6% at December 31,
2007 to 6.9% at December 31, 2008. On February 16,
2007, we amended the cash flow credit facility to reduce the
applicable margins with respect to the term borrowings
thereunder. On June 20, 2007, we amended the ABL credit
facility to reduce the applicable margin with respect to
borrowings thereunder.
21
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Market
Risk (Continued)
The estimated fair value of our total long-term debt was
$20.225 billion at December 31, 2008. The estimates of
fair value are based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities.
Based on a hypothetical 1% increase in interest rates, the
potential annualized reduction to future pretax earnings would
be approximately $51 million. To mitigate the impact of
fluctuations in interest rates, we generally target a portion of
our debt portfolio to be maintained at fixed rates.
Our international operations and the European term loan expose
us to market risks associated with foreign currencies. In order
to mitigate the currency exposure related to debt service
obligations through December 31, 2011 under the European
term loan, we have entered into cross currency swap agreements.
A cross currency swap is an agreement between two parties to
exchange a stream of principal and interest payments in one
currency for a stream of principal and interest payments in
another currency over a specified period.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including foreign currency and interest rate exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income, depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies
as a fair value hedge or a cash flow hedge. Gains and losses on
derivatives designated as cash flow hedges, to the extent they
are effective, are recorded in other comprehensive income, and
subsequently reclassified to earnings to offset the impact of
the hedged items when they occur. Changes in the fair value of
derivatives not qualifying as hedges, and for any portion of a
hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to expense over the
remaining period of the debt originally covered by the
terminated swap.
Effects
of Inflation and Changing Prices
Various federal, state and local laws have been enacted that, in
certain cases, limit our ability to increase prices. Revenues
for general, acute care hospital services rendered to Medicare
patients are established under the federal governments
prospective payment system. Total fee-for-service Medicare
revenues approximated 23% in 2008, 24% in 2007 and 25% in 2006
of our total patient revenues.
Management believes that hospital industry operating margins
have been, and may continue to be, under significant pressure
because of changes in payer mix and growth in operating expenses
in excess of the increase in prospective payments under the
Medicare program. In addition, as a result of increasing
regulatory and competitive pressures, our ability to maintain
operating margins through price increases to non-Medicare
patients is limited.
IRS
Disputes
We are currently contesting before the Appeals Division of the
Internal Revenue Service (the IRS) certain claimed
deficiencies and adjustments proposed by the IRS in connection
with its examinations of the 2003 and 2004 federal income
returns for HCA and 17 affiliates that are treated as
partnerships for federal income tax purposes (affiliated
partnerships). The disputed items include the timing of
recognition of certain patient service revenues and our method
for calculating the tax allowance for doubtful accounts.
22
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
IRS
Disputes (Continued)
Eight taxable periods of HCA and its predecessors ended in 1995
through 2002 and the 2002 taxable year of 13 affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, are
pending before the IRS Examination Division or the United States
Tax Court as of December 31, 2008. The IRS began an audit
of the 2005 and 2006 federal income tax returns for HCA and
seven affiliated partnerships during 2008.
Management believes that HCA, its predecessors and affiliates
properly reported taxable income and paid taxes in accordance
with applicable laws and agreements established with the IRS and
that final resolution of these disputes will not have a
material, adverse effect on our results of operations or
financial position. However, if payments due upon final
resolution of these issues exceed our recorded estimates, such
resolutions could have a material, adverse effect on our results
of operations or financial position.
23
EXHIBIT
99.3
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
HCA
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-43
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Inc.
We have audited the accompanying consolidated balance sheets of
HCA Inc. as of December 31, 2008 and 2007, and the related
consolidated statements of income, stockholders (deficit)
equity, and cash flows for each of the three years in the period
ended December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HCA Inc. at December 31, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 18, the accompanying consolidated
statements of cash flows have been restated to correct the
presentation of distributions to and certain other transactions
with noncontrolling interests in the Companys
retrospective adoption of the presentation and disclosure
requirements of FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160).
As discussed in paragraphs 6 and 31 of Note 1, effective
January 1, 2009, the Company retrospectively adopted the
presentation and disclosure requirements of SFAS 160.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HCA
Inc.s internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 3, 2009 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 3, 2009, except for paragraphs 6 and 31 of
Note 1, as to which the date is May 21, 2009, and
except for Note 18, as to which the date is August 14, 2009
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
$
|
25,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
11,440
|
|
|
|
10,714
|
|
|
|
10,409
|
|
Supplies
|
|
|
4,620
|
|
|
|
4,395
|
|
|
|
4,322
|
|
Other operating expenses
|
|
|
4,554
|
|
|
|
4,241
|
|
|
|
4,056
|
|
Provision for doubtful accounts
|
|
|
3,409
|
|
|
|
3,130
|
|
|
|
2,660
|
|
Equity in earnings of affiliates
|
|
|
(223
|
)
|
|
|
(206
|
)
|
|
|
(197
|
)
|
Gains on sales of investments
|
|
|
|
|
|
|
(8
|
)
|
|
|
(243
|
)
|
Depreciation and amortization
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
Interest expense
|
|
|
2,021
|
|
|
|
2,215
|
|
|
|
955
|
|
Gains on sales of facilities
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
Impairment of long-lived assets
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,204
|
|
|
|
25,460
|
|
|
|
23,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,170
|
|
|
|
1,398
|
|
|
|
1,863
|
|
Provision for income taxes
|
|
|
268
|
|
|
|
316
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
902
|
|
|
|
1,082
|
|
|
|
1,237
|
|
Net income attributable to noncontrolling interests
|
|
|
229
|
|
|
|
208
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
673
|
|
|
$
|
874
|
|
|
$
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
465
|
|
|
$
|
393
|
|
Accounts receivable, less allowance for doubtful accounts of
$5,435 and $4,289
|
|
|
3,780
|
|
|
|
3,895
|
|
Inventories
|
|
|
737
|
|
|
|
710
|
|
Deferred income taxes
|
|
|
914
|
|
|
|
592
|
|
Other
|
|
|
405
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,301
|
|
|
|
6,205
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,189
|
|
|
|
1,240
|
|
Buildings
|
|
|
8,670
|
|
|
|
8,518
|
|
Equipment
|
|
|
12,833
|
|
|
|
12,088
|
|
Construction in progress
|
|
|
1,022
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,714
|
|
|
|
22,579
|
|
Accumulated depreciations
|
|
|
(12,185
|
)
|
|
|
(11,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,529
|
|
|
|
11,442
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
1,422
|
|
|
|
1,669
|
|
Investments in and advances to affiliates
|
|
|
842
|
|
|
|
688
|
|
Goodwill
|
|
|
2,580
|
|
|
|
2,629
|
|
Deferred loan costs
|
|
|
458
|
|
|
|
539
|
|
Other
|
|
|
1,148
|
|
|
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,370
|
|
|
$
|
1,370
|
|
Accrued salaries
|
|
|
854
|
|
|
|
780
|
|
Other accrued expenses
|
|
|
1,282
|
|
|
|
1,391
|
|
Long-term debt due within one year
|
|
|
404
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,910
|
|
|
|
3,849
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
26,585
|
|
|
|
27,000
|
|
Professional liability risks
|
|
|
1,108
|
|
|
|
1,233
|
|
Income taxes and other liabilities
|
|
|
1,782
|
|
|
|
1,379
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
155
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock $0.01 par; authorized
125,000,000 shares 2008 and 2007; outstanding
94,367,500 shares 2008 and
94,182,400 shares 2007
|
|
|
1
|
|
|
|
1
|
|
Capital in excess of par value
|
|
|
165
|
|
|
|
112
|
|
Accumulated other comprehensive loss
|
|
|
(604
|
)
|
|
|
(172
|
)
|
Retained deficit
|
|
|
(9,817
|
)
|
|
|
(10,479
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders deficit attributable to HCA Inc.
|
|
|
(10,255
|
)
|
|
|
(10,538
|
)
|
Noncontrolling interests
|
|
|
995
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,260
|
)
|
|
|
(9,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit) Equity Attributable to HCA Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
Other
|
|
|
Retained
|
|
|
Attributable to
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Earnings
|
|
|
Noncontrolling
|
|
|
|
|
|
|
(000)
|
|
|
Value
|
|
|
Par Value
|
|
|
Income (Loss)
|
|
|
(Deficit)
|
|
|
Interests
|
|
|
Total
|
|
|
Balances, December 31, 2005
|
|
|
417,513
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
130
|
|
|
$
|
4,729
|
|
|
$
|
828
|
|
|
$
|
5,691
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
201
|
|
|
|
1,237
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
1,036
|
|
|
|
201
|
|
|
|
1,181
|
|
Recapitalization repurchase of common stock
|
|
|
(411,957
|
)
|
|
|
(4
|
)
|
|
|
(5,005
|
)
|
|
|
|
|
|
|
(16,364
|
)
|
|
|
|
|
|
|
(21,373
|
)
|
Recapitalization new equity
|
|
|
92,218
|
|
|
|
1
|
|
|
|
4,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,477
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
(139
|
)
|
Stock repurchases
|
|
|
(13,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(653
|
)
|
|
|
|
|
|
|
(653
|
)
|
Stock options exercised, net
|
|
|
3,970
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Employee benefit plan issuances
|
|
|
3,531
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
Adjustment to initially apply FAS 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
(148
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
92,218
|
|
|
|
1
|
|
|
|
|
|
|
|
16
|
|
|
|
(11,391
|
)
|
|
|
907
|
|
|
|
(10,467
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
874
|
|
|
|
208
|
|
|
|
1,082
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains on investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
|
|
874
|
|
|
|
208
|
|
|
|
894
|
|
Equity contributions
|
|
|
1,961
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Share-based benefit plans
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Adjustment to initially apply FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
(152
|
)
|
Other
|
|
|
3
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
94,182
|
|
|
|
1
|
|
|
|
112
|
|
|
|
(172
|
)
|
|
|
(10,479
|
)
|
|
|
938
|
|
|
|
(9,600
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
229
|
|
|
|
902
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains and losses on investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432
|
)
|
|
|
673
|
|
|
|
229
|
|
|
|
470
|
|
Share-based benefit plans
|
|
|
185
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(178
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
94,367
|
|
|
$
|
1
|
|
|
$
|
165
|
|
|
$
|
(604
|
)
|
|
$
|
(9,817
|
)
|
|
$
|
995
|
|
|
$
|
(9,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
As Restated (See Note 18)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
902
|
|
|
$
|
1,082
|
|
|
$
|
1,237
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
3,409
|
|
|
|
3,130
|
|
|
|
2,660
|
|
Depreciation and amortization
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
Income taxes
|
|
|
(448
|
)
|
|
|
(105
|
)
|
|
|
(552
|
)
|
Gains on sales of facilities
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
Impairment of long-lived assets
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
Amortization of deferred loan costs
|
|
|
79
|
|
|
|
78
|
|
|
|
18
|
|
Share-based compensation
|
|
|
32
|
|
|
|
24
|
|
|
|
324
|
|
Increase (decrease) in cash from operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,328
|
)
|
|
|
(3,345
|
)
|
|
|
(3,043
|
)
|
Inventories and other assets
|
|
|
159
|
|
|
|
(241
|
)
|
|
|
(12
|
)
|
Accounts payable and accrued expenses
|
|
|
(198
|
)
|
|
|
(29
|
)
|
|
|
115
|
|
Other
|
|
|
|
|
|
|
(9
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,990
|
|
|
|
1,564
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,600
|
)
|
|
|
(1,444
|
)
|
|
|
(1,865
|
)
|
Acquisition of hospitals and health care entities
|
|
|
(85
|
)
|
|
|
(32
|
)
|
|
|
(112
|
)
|
Disposal of hospitals and health care entities
|
|
|
193
|
|
|
|
767
|
|
|
|
651
|
|
Change in investments
|
|
|
21
|
|
|
|
207
|
|
|
|
26
|
|
Other
|
|
|
4
|
|
|
|
23
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,467
|
)
|
|
|
(479
|
)
|
|
|
(1,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
|
|
|
|
|
|
|
|
21,758
|
|
Net change in revolving bank credit facility
|
|
|
700
|
|
|
|
(520
|
)
|
|
|
(435
|
)
|
Repayment of long-term debt
|
|
|
(960
|
)
|
|
|
(750
|
)
|
|
|
(3,728
|
)
|
Distributions to noncontrolling interests
|
|
|
(178
|
)
|
|
|
(152
|
)
|
|
|
(148
|
)
|
Issuances of common stock
|
|
|
|
|
|
|
100
|
|
|
|
108
|
|
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
|
(653
|
)
|
Recapitalization-repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(20,364
|
)
|
Recapitalization-equity contributions
|
|
|
|
|
|
|
|
|
|
|
3,782
|
|
Payment of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(586
|
)
|
Payment of cash dividends
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
Other
|
|
|
(13
|
)
|
|
|
(4
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(451
|
)
|
|
|
(1,326
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
72
|
|
|
|
(241
|
)
|
|
|
298
|
|
Cash and cash equivalents at beginning of period
|
|
|
393
|
|
|
|
634
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
465
|
|
|
$
|
393
|
|
|
$
|
634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
1,979
|
|
|
$
|
2,163
|
|
|
$
|
893
|
|
Income tax payments, net of refunds
|
|
$
|
716
|
|
|
$
|
421
|
|
|
$
|
1,087
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1
|
ACCOUNTING
POLICIES
|
Merger,
Recapitalization and Reporting Entity
On November 17, 2006 HCA Inc. (the Company)
completed its merger (the Merger) with Hercules
Acquisition Corporation, pursuant to which the Company was
acquired by Hercules Holding II, LLC, a Delaware limited
liability company owned by a private investor group including
affiliates of Bain Capital Partners, Kohlberg Kravis
Roberts & Co., Merrill Lynch Global Private Equity
(each a Sponsor) and affiliates of HCA founder,
Dr. Thomas F. Frist Jr., (the Frist Entities,
and together with the Sponsors, the Investors), and
by members of management and certain other investors. The
Merger, the financing transactions related to the Merger and
other related transactions are collectively referred to in this
annual report as the Recapitalization. The Merger
was accounted for as a recapitalization in our financial
statements, with no adjustments to the historical basis of our
assets and liabilities. As a result of the Recapitalization, our
outstanding capital stock is owned by the Investors, certain
members of management and key employees and certain other
investors. On April 29, 2008, we registered our common
stock pursuant to Section 12(g) of the Securities Exchange
Act of 1934, thus subjecting us to the reporting requirements of
Section 13(a) of the Securities Exchange Act of 1934. Our
common stock is not traded on a national securities exchange.
HCA 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 Inc. and partnerships and joint ventures in which such
subsidiaries are partners. At December 31, 2008, these
affiliates owned and operated 158 hospitals, 97 freestanding
surgery centers and provided extensive outpatient and ancillary
services. Affiliates of HCA are also partners in joint ventures
that own and operate eight hospitals and eight freestanding
surgery centers, which are accounted for using the equity
method. The Companys facilities are located in
20 states and England. The terms HCA,
Company, we, our or
us, as used in this annual report on
Form 10-K,
refer to HCA Inc. and its affiliates unless otherwise stated or
indicated by context.
Basis of
Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries
and entities controlled by HCA. We generally define
control as ownership of a majority of the voting
interest of an entity. The consolidated financial statements
include entities in which we absorb a majority of the
entitys expected losses, receive a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. Significant intercompany transactions have been
eliminated. Investments in entities that we do not control, but
in which we have a substantial ownership interest and can
exercise significant influence, are accounted for using the
equity method.
We have completed various acquisitions and joint venture
transactions. The accounts of these entities have been included
in our consolidated financial statements for periods subsequent
to our acquisition of controlling interests. The majority of our
expenses are cost of revenue items. Costs that could
be classified as general and administrative include our
corporate office costs, which were $174 million,
$169 million and $187 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
As discussed in Recent Pronouncements, we have
adopted the provisions of FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB No. 51,
effective January 1, 2009. All periods presented in this
Form 8-K have been reclassified in accordance with the
presentation and disclosure provisions of this pronouncement.
F-7
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Revenues
Revenues consist primarily of net patient service revenues that
are recorded based upon established billing rates less
allowances for contractual adjustments. Revenues are recorded
during the period the health care services are provided, based
upon the estimated amounts due from the patients and third-party
payers. Third-party payers include federal and state agencies
(under the Medicare and Medicaid programs), managed care health
plans, commercial insurance companies and employers. Estimates
of contractual allowances under managed care health plans are
based upon the payment terms specified in the related
contractual agreements. Contractual payment terms in managed
care agreements are generally based upon predetermined rates per
diagnosis, per diem rates or discounted fee-for-service rates.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. As a result,
there is at least a reasonable possibility that recorded
estimates will change by a material amount. The estimated
reimbursement amounts are adjusted in subsequent periods as cost
reports are prepared and filed and as final settlements are
determined (in relation to certain government programs,
primarily Medicare, this is generally referred to as the
cost report filing and settlement process). The
adjustments to estimated reimbursement amounts, which resulted
in net increases to revenues, related primarily to cost reports
filed during the respective year were $32 million,
$47 million and $55 million in 2008, 2007 and 2006,
respectively. The adjustments to estimated reimbursement
amounts, which resulted in net increases to revenues, related
primarily to cost reports filed during previous years were
$35 million, $83 million and $62 million in 2008,
2007 and 2006, respectively.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, us to provide services to patients who are
financially unable to pay for the health care services they
receive. Because we do not pursue collection of amounts
determined to qualify as charity care, they are not reported in
revenues. Patients treated at hospitals for nonelective care,
who have income at or below 200% of the federal poverty level,
are eligible for charity care. The federal poverty level is
established by the federal government and is based on income and
family size. We provide discounts to uninsured patients who do
not qualify for Medicaid or charity care. These discounts are
similar to those provided to many local managed care plans. In
implementing the discount policy, we first attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care. If an uninsured patient does not
qualify for these programs, the uninsured discount is applied.
Cash and
Cash Equivalents
Cash and cash equivalents include highly liquid investments with
a maturity of three months or less when purchased. Our insurance
subsidiarys cash equivalent investments in excess of the
amounts required to pay estimated professional liability claims
during the next twelve months are not included in cash and cash
equivalents as these funds are not available for general
corporate purposes. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these
instruments.
Our cash management system provides for daily investment of
available balances and the funding of outstanding checks when
presented for payment. Outstanding, but unpresented, checks
totaling $382 million and $370 million at
December 31, 2008 and 2007, respectively, have been
included in accounts payable in the
F-8
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Cash and
Cash Equivalents (Continued)
consolidated balance sheets. Upon presentation for payment,
these checks are funded through available cash balances or our
credit facility.
Accounts
Receivable
We receive payments for services rendered from federal and state
agencies (under the Medicare and Medicaid programs), managed
care health plans, commercial insurance companies, employers and
patients. During the years ended December 31, 2008, 2007
and 2006, 23%, 24% and 25%, respectively, of our revenues
related to patients participating in the fee-for-service
Medicare program and 6%, 5% and 5%, respectively, of our
revenues related to patients participating in managed Medicare
programs. We recognize that revenues and receivables from
government agencies are significant to our operations, but do
not believe there are significant credit risks associated with
these government agencies. We do not believe there are any other
significant concentrations of revenues from any particular payer
that would subject us to any significant credit risks in the
collection of our accounts receivable.
Additions to the allowance for doubtful accounts are made by
means of the provision for doubtful accounts. Accounts written
off as uncollectible are deducted from the allowance for
doubtful accounts and subsequent recoveries are added. The
amount of the provision for doubtful accounts is based upon
managements assessment of historical and expected net
collections, business and economic conditions, trends in
federal, state and private employer health care coverage and
other collection indicators. The provision for doubtful accounts
and the allowance for doubtful accounts relate primarily to
uninsured amounts (including copayment and
deductible amounts from patients who have health care coverage)
due directly from patients. Accounts are written off when all
reasonable internal and external collection efforts have been
performed. We consider the return of an account from the
secondary external collection agency to be the culmination of
our reasonable collection efforts and the timing basis for
writing off the account balance (prior to 2007, we wrote
accounts off upon their return from the primary external
agency). Writeoffs are based upon specific identification and
the writeoff process requires a writeoff adjustment entry to the
patient accounting system. Management relies on the results of
detailed reviews of historical writeoffs and recoveries at
facilities that represent a majority of our revenues and
accounts receivable (the hindsight analysis) as a
primary source of information to utilize in estimating the
collectibility of our accounts receivable. We perform the
hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. At
December 31, 2008 and 2007, our allowance for doubtful
accounts represented approximately 93% and 89%, respectively, of
the $5.838 billion and $4.825 billion, respectively,
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage was being evaluated
(pending Medicaid accounts). Revenue days in
accounts receivable were 49 days, 53 days and
53 days at December 31, 2008, 2007 and 2006,
respectively. Adverse changes in general economic conditions,
patient accounting service center operations, payer mix or
trends in federal or state governmental health care coverage
could affect our collection of accounts receivable, cash flows
and results of operations.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market.
Property
and Equipment and Amortizable Intangibles
Depreciation expense, computed using the straight-line method,
was $1.412 billion in 2008, $1.421 billion in 2007,
and $1.384 billion in 2006. Buildings and improvements are
depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary
generally from four to 10 years.
F-9
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Property
and Equipment and Amortizable Intangibles (Continued)
Debt issuance costs are amortized based upon the terms of the
respective debt obligations. The gross carrying amount of
deferred loan costs at December 31, 2008 and 2007 was
$650 million and $652 million, respectively, and
accumulated amortization was $192 million and
$113 million, respectively. Amortization of deferred loan
costs is included in interest expense and was $79 million,
$78 million and $18 million for 2008, 2007 and 2006,
respectively.
When events, circumstances or operating results indicate the
carrying values of certain long-lived assets and related
identifiable intangible assets (excluding goodwill) expected to
be held and used, might be impaired, we prepare projections of
the undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the
projections indicate the recorded amounts are not expected to be
recoverable, such amounts are reduced to estimated fair value.
Fair value may be estimated based upon internal evaluations that
include quantitative analyses of revenues and cash flows,
reviews of recent sales of similar facilities and independent
appraisals.
Long-lived assets to be disposed of are reported at the lower of
their carrying amounts or fair value less costs to sell or
close. The estimates of fair value are usually based upon recent
sales of similar assets and market responses based upon
discussions with and offers received from potential buyers.
Investments
of Insurance Subsidiary
At December 31, 2008 and 2007, the investments of our
wholly-owned insurance subsidiary were classified as
available-for-sale as defined in Statement of
Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities and
are recorded at fair value. The investment securities are held
for the purpose of providing the funding source to pay
professional liability claims covered by the insurance
subsidiary. We perform a quarterly assessment of individual
investment securities to determine whether declines in market
value are temporary or other-than-temporary. Our investment
securities evaluation process involves multiple subjective
judgments, often involves estimating the outcome of future
events, and requires a significant level of professional
judgment in determining whether an impairment has occurred. We
evaluate, among other things, the financial position and near
term prospects of the issuer, conditions in the issuers
industry, liquidity of the investment, changes in the amount or
timing of expected future cash flows from the investment, and
recent downgrades of the issuer by a rating agency, to determine
if, and when, a decline in the fair value of an investment below
amortized cost is considered other-than-temporary. The length of
time and extent to which the fair value of the investment is
less than amortized cost and our ability and intent to retain
the investment, to allow for any anticipated recovery of the
investments fair value, are important components of our
investment securities evaluation process.
Goodwill
Goodwill is not amortized, but is subject to annual impairment
tests. In addition to the annual impairment review, impairment
reviews are performed whenever circumstances indicate a possible
impairment may exist. Impairment testing for goodwill is done at
the reporting unit level. Reporting units are one level below
the business segment level, and our impairment testing is
performed at the operating division or market level. We compare
the fair value of the reporting unit assets to the carrying
amount, on at least an annual basis, to determine if there is
potential impairment. If the fair value of the reporting unit
assets is less than their carrying value, we compare the fair
value of the goodwill to its carrying value. If the fair value
of the goodwill is less than its carrying value, an impairment
loss is recognized. Fair value of goodwill is estimated based
upon internal evaluations of the related long-lived assets for
each reporting unit that include quantitative analyses of
revenues and cash flows and reviews of recent sales of similar
facilities. We recognized goodwill impairments of
$48 million during 2008. No goodwill impairments were
recognized during 2007 and 2006.
F-10
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Goodwill
(Continued)
During 2008, goodwill increased by $43 million related to
acquisitions, decreased by $14 million related to facility
sales, decreased by $48 million related to impairments and
decreased by $30 million related to foreign currency
translation and other adjustments. During 2007, goodwill
increased by $44 million related to acquisitions, decreased
by $45 million related to facility sales and increased by
$29 million related to foreign currency translation and
other adjustments.
Physician
Recruiting Agreements
In order to recruit physicians to meet the needs of our
hospitals and the communities they serve, we enter into minimum
revenue guarantee arrangements to assist the recruited
physicians during the period they are relocating and
establishing their practices. A guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the stand-ready obligation undertaken in issuing
the guarantee. We expense the total estimated guarantee
liability amount at the time the physician recruiting agreement
becomes effective as we are not able to justify recording a
contract-based asset based upon our analysis of the related
control, regulatory and legal considerations.
The physician recruiting liability amounts of $27 million
and $22 million at December 31, 2008 and 2007,
respectively, represent the amount of expense recognized in
excess of payments made through December 31, 2008 and 2007,
respectively. At December 31, 2008 the maximum amount of
all effective minimum revenue guarantees that could be paid
prospectively was $66 million.
Professional
Liability Claims
Reserves for professional liability risks were
$1.387 billion and $1.513 billion at December 31,
2008 and 2007, respectively. The current portion of the
reserves, $279 million and $280 million at
December 31, 2008 and 2007, respectively, is included in
other accrued expenses in the consolidated balance
sheet. Provisions for losses related to professional liability
risks were $175 million, $163 million and
$217 million for 2008, 2007 and 2006, respectively, and are
included in other operating expenses in our
consolidated income statement. Provisions for losses related to
professional liability risks are based upon actuarially
determined estimates. Loss and loss expense reserves represent
the estimated ultimate net cost of all reported and unreported
losses incurred through the respective consolidated balance
sheet dates. The reserves for unpaid losses and loss expenses
are estimated using individual case-basis valuations and
actuarial analyses. Those estimates are subject to the effects
of trends in loss severity and frequency. The estimates are
continually reviewed and adjustments are recorded as experience
develops or new information becomes known. Adjustments to the
estimated reserve amounts are included in current operating
results. The reserves for professional liability risks cover
approximately 2,800 and 2,600 individual claims at
December 31, 2008 and 2007, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. During 2008 and 2007,
$314 million and $236 million, respectively, of net
payments were made for professional and general liability
claims. The estimation of the timing of payments beyond a year
can vary significantly. Although considerable variability is
inherent in professional liability reserve estimates, we believe
the reserves for losses and loss expenses are adequate; however,
there can be no assurance that the ultimate liability will not
exceed our estimates.
A portion of our professional liability risks is insured through
a wholly-owned insurance subsidiary. Subject to a
$5 million per occurrence self-insured retention (in place
since January 1, 2007), our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence. The insurance subsidiary has
obtained reinsurance for professional liability risks generally
above a retention level of $15 million per occurrence.
F-11
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Professional
Liability Claims (Continued)
We also maintain professional liability insurance with unrelated
commercial carriers for losses in excess of amounts insured by
our insurance subsidiary.
The obligations covered by reinsurance contracts are included in
the reserves for professional liability risks, as the insurance
subsidiary remains liable to the extent the reinsurers do not
meet their obligations under the reinsurance contracts. The
amounts receivable under the reinsurance contracts include
$28 million and $14 million at December 31, 2008
and 2007, respectively, recorded in other assets and
$29 million and $30 million at December 31, 2008
and 2007, respectively, recorded in other current
assets.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including interest rate and foreign currency exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income, depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies
as a fair value hedge or a cash flow hedge. Generally, changes
in fair values of derivatives accounted for as fair value hedges
are recorded in earnings, along with the changes in the fair
value of the hedged items that relate to the hedged risk. Gains
and losses on derivatives designated as cash flow hedges, to the
extent they are effective, are recorded in other comprehensive
income, and subsequently reclassified to earnings to offset the
impact of the forecasted transactions when they occur. In the
event the forecasted transaction to which a cash flow hedge
relates is no longer likely, the amount in other comprehensive
income is recognized in earnings and generally the derivative is
terminated. Changes in the fair value of derivatives not
qualifying as hedges, and for any portion of a hedge that is
ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to interest expense over
the remaining term of the debt originally covered by the
terminated swap.
Noncontrolling
Interests in Consolidated Entities
The consolidated financial statements include all assets,
liabilities, revenues and expenses of less than 100% owned
entities that we control. Accordingly, we have recorded
noncontrolling interests in the earnings and equity of such
entities.
Recent
Pronouncements
In December 2007, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting
Standards No. 141(R), Business Combinations
(SFAS 141(R)). This new standard will change
the financial accounting and reporting of business combination
transactions in consolidated financial statements. SFAS 141(R)
replaces FASB Statement No. 141, Business
Combinations (SFAS 141). SFAS 141(R)
retains the fundamental requirements in SFAS 141 that the
acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations and for
an acquirer to be identified for each business combination.
SFAS 141(R) defines the acquirer as the entity that obtains
control of one or more businesses in the business combination
and establishes the acquisition date as the date the acquirer
achieves control. The scope of SFAS 141(R) is broader than
that of SFAS 141, which applied only to business
combinations in which control was obtained by transferring
consideration. SFAS 141(R) applies the acquisition method
to all transactions and other events in which one entity obtains
control over one or more other businesses. SFAS 141(R) is
effective for business
F-12
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Recent
Pronouncements (Continued)
combination transactions for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of
ARB No. 51 (SFAS 160). This new
standard will change the financial accounting and reporting of
noncontrolling (or minority) interests in consolidated financial
statements. SFAS 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit
organizations. SFAS 160 amends certain of ARB
No. 51s consolidation procedures to provide
consistency with the requirements of SFAS 141(R).
SFAS 160 is required to be adopted concurrently with
SFAS 141(R) and is effective for fiscal years and interim
periods beginning on or after December 15, 2008. SFAS 160
applies prospectively, except for the presentation and
disclosure requirements, which are applied retrospectively. We
adopted SFAS 160 effective January 1, 2009. Under
SFAS 160, we report minority interests (now called
noncontrolling interests) in equity of consolidated entities as
a separate component of stockholders (deficit) equity in
the consolidated financial statements and present both net
income attributable to noncontrolling interests and net income
attributable to HCA Inc. in the consolidated income statements.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB
Statement No. 133 (SFAS 161). This
new standard will require entities to provide enhanced
disclosures about (a) how and why an entity uses
derivatives instruments, (b) how derivative instruments and
related hedged items are accounted for and (c) how
derivative instruments and related hedged items affect an
entitys financial position, financial performance and cash
flows. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. We do not expect the adoption of
SFAS 161 to have a material effect on our financial
position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the 2008 presentation.
|
|
NOTE 2
|
MERGER
AND RECAPITALIZATION
|
On July 24, 2006, we entered into an Agreement and Plan of
Merger (the Merger Agreement) with Hercules Holding
II, LLC, a Delaware limited liability company (Hercules
Holding), and Hercules Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Hercules Holding
(Merger Sub). Our board of directors approved the
Merger Agreement on the unanimous recommendation of a special
committee comprised entirely of disinterested directors. The
Merger was approved by a majority of HCAs shareholders at
a special meeting of shareholders held on November 16, 2006.
On November 17, 2006, pursuant to the terms of the Merger
Agreement, the Investors consummated the acquisition of the
Company through the merger of Merger Sub with and into the
Company. The Company was the surviving corporation in the
Merger. At December 31, 2008, 97.3% of our common stock is
owned by the Investors and certain other investors, with the
remainder being owned by certain members of management and
employees of the Company.
Rollover
and Stockholder Agreements And Equity Securities with Contingent
Redemption Rights
In connection with the Merger, the Frist Entities and certain
members of our management entered into agreements with the
Company
and/or
Hercules Holding, pursuant to which they elected to invest in
the Company, as the surviving corporation in the Merger, through
a rollover of employee stock options, a rollover of shares of
F-13
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
MERGER
AND RECAPITALIZATION (Continued)
|
Rollover
and Stockholder Agreements And Equity Securities with Contingent
Redemption Rights (Continued)
common stock of the Company, or a combination thereof. Pursuant
to the rollover agreements the Frist Entities and management
team made rollover investments of $885 million and
$125 million, respectively.
The stockholder agreements, among other things, contain
agreements among the parties with respect to restrictions on the
transfer of shares, including tag along rights and drag along
rights, registration rights (including customary indemnification
provisions) and other rights. Pursuant to the management
stockholder agreements, the applicable employees can elect to
have the Company redeem their common stock and vested stock
options in the events of death or permanent disability, prior to
the consummation of the initial public offering of common stock
by the Company. At December 31, 2008, 1,698,400 common
shares and 2,937,000 vested stock options were subject to these
contingent redemption terms.
Management
Agreement
Affiliates of the Investors entered into a management agreement
with us pursuant to which such affiliates will provide us with
management services. Under the management agreement, the
affiliates of the Investors are entitled to receive an aggregate
annual management fee of $15 million, which amount will
increase annually, beginning in 2008, at a rate equal to the
percentage increase in Adjusted EBITDA (as defined in the
Management Agreement) in the applicable year compared to the
preceding year, and reimbursement of out-of-pocket expenses
incurred in connection with the provision of services pursuant
to the agreement. The management agreement has an initial term
expiring on December 31, 2016, provided that the term will
be extended annually for one additional year unless we or the
Investors provide notice to the other of their desire not to
automatically extend the term. In addition, the management
agreement provides that the affiliates of the Investors are
entitled to receive a fee equal to 1% of the gross transaction
value in connection with certain financing, acquisition,
disposition, and change of control transactions, as well as a
termination fee based on the net present value of future payment
obligations under the management agreement in the event of an
initial public offering or under certain other circumstances.
The agreement also contains customary exculpation and
indemnification provisions in favor of the Investors and their
affiliates.
Recapitalization
Transaction Costs
For the year ended December 31, 2006, our results of
operations include the following expenses related to the
Recapitalization (dollars in millions):
|
|
|
|
|
Compensation expense related to accelerated vesting of stock
options and restricted stock, and other employee benefits
|
|
$
|
258
|
|
Consulting, legal, accounting and other transaction costs
|
|
|
131
|
|
Loss on extinguishment of debt
|
|
|
53
|
|
|
|
|
|
|
Total
|
|
$
|
442
|
|
|
|
|
|
|
In addition to these amounts, approximately $77 million of
transaction costs were recorded directly to shareholders
deficit, and an additional $568 million of transaction
costs were capitalized as deferred loan costs.
|
|
NOTE 3
|
SHARE-BASED
COMPENSATION
|
Effective January 1, 2006, we adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based Payment (SFAS 123(R)),
using the modified prospective application transition method.
Under this method, compensation cost is recognized, beginning
January 1, 2006, based on the requirements of
SFAS 123(R) for all share-based awards granted after the
effective date, and based on Statement of Financial Accounting
F-14
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3
|
SHARE-BASED
COMPENSATION (Continued)
|
Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), for all awards
granted to employees prior to January 1, 2006 that were
unvested on the effective date.
Upon consummation of the Merger, all outstanding stock options
(other than certain options held by certain rollover
shareholders) became fully vested, were cancelled and converted
into the right to receive a cash payment equal to the number of
shares underlying the options multiplied by the amount (if any)
by which $51.00 exceeded the option exercise price. The
acceleration of vesting of stock options resulted in the
recognition of $42 million of additional share-based
compensation expense for 2006.
Certain management holders of outstanding HCA stock options were
permitted to retain certain of their stock options (the
Rollover Options) in lieu of receiving the merger
consideration (the amount, if any, by which $51.00 exceeded the
option exercise price). The Rollover Options remain outstanding
in accordance with the terms of the governing stock incentive
plans and grant agreements pursuant to which the holder
originally received the stock option grants, except the exercise
price and number of shares subject to the rollover option
agreement were adjusted so that the aggregate intrinsic value
for each applicable option holder was maintained and the
exercise price for substantially all the options was adjusted to
$12.75 per option. Pursuant to the rollover option agreement,
10,967,500 prerecapitalization HCA stock options were converted
into 2,285,200 Rollover Options, of which 1,797,200 are
outstanding and exercisable at December 31, 2008.
SFAS 123(R) requires that the benefits of tax deductions in
excess of amounts recognized as compensation cost be reported as
a financing cash flow. Tax benefits of $7 million,
$1 million and $97 million from tax deductions in
excess of amounts recognized as compensation cost were reported
as financing cash flows in 2008, 2007 and 2006, respectively.
2006
Stock Incentive Plan
In connection with the Recapitalization, the 2006 Stock
Incentive Plan for Key Employees of HCA Inc. and its Affiliates
(the 2006 Plan) was established. The 2006 Plan is
designed to promote the long term financial interests and growth
of the Company and its subsidiaries by attracting and retaining
management and other personnel and key service providers and to
motivate management personnel by means of incentives to achieve
long range goals and further the alignment of interests of
participants with those of our stockholders through
opportunities for increased stock, or stock-based, ownership in
the Company. A portion of the options under the 2006 Plan vests
solely based upon continued employment over a specific period of
time, and a portion of the options vests based both upon
continued employment over a specific period of time and upon the
achievement of predetermined financial and Investor return
targets over time. We granted 357,500 and 9,328,000 options
under the 2006 Plan during 2008 and 2007, respectively. As of
December 31, 2008, 1,186,200 options granted under the 2006
Plan have vested, and there were 1,788,300 shares available
for future grants under the 2006 Plan.
2005
Equity Incentive Plan
Prior to the Recapitalization, the HCA 2005 Equity Incentive
Plan was the primary plan under which stock options and
restricted stock were granted to officers, employees and
directors. Upon consummation of the Recapitalization, all shares
of restricted stock became fully vested, were cancelled and
converted into the right to receive a cash payment of $51.00 per
restricted share. During 2006, we recognized $247 million
of compensation costs related to restricted share grants. The
acceleration of vesting of restricted stock resulted in the
recognition of $201 million of the total compensation
expense related to restricted stock for 2006.
F-15
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3
|
SHARE-BASED
COMPENSATION (Continued)
|
2005
Equity Incentive Plan (Continued)
A summary of restricted share activity during 2006 follows
(share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Restricted shares, December 31, 2005
|
|
|
3,748
|
|
|
$
|
43.42
|
|
Granted
|
|
|
2,979
|
|
|
|
49.11
|
|
Vested
|
|
|
(494
|
)
|
|
|
41.40
|
|
Cancelled
|
|
|
(232
|
)
|
|
|
45.98
|
|
Settled in Recapitalization
|
|
|
(6,001
|
)
|
|
|
46.31
|
|
|
|
|
|
|
|
|
|
|
Restricted shares, December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option Activity All Plans
The fair value of each stock option award is estimated on the
grant date, using option valuation models and the weighted
average assumptions indicated in the following table. Awards
under the 2006 Plan generally vest based on continued employment
and based upon achievement of certain financial and Investor
return-based targets. Each grant is valued as a single award
with an expected term equal to the average expected term of the
component vesting tranches. We use historical option exercise
behavior data and other factors to estimate the expected term of
the options. The expected term of the option is limited by the
contractual term, and employee post-vesting termination behavior
is incorporated in the historical option exercise behavior data.
Compensation cost is recognized on the straight-line attribution
method. The straight-line attribution method requires that total
compensation expense recognized must at least equal the vested
portion of the grant-date fair value. The expected volatility is
derived using historical stock price information of certain peer
group companies for a period of time equal to the expected
option term. The risk-free interest rate is the approximate
yield on United States Treasury Strips having a life equal to
the expected option life on the date of grant. The expected life
is an estimate of the number of years an option will be held
before it is exercised.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
2.50
|
%
|
|
|
4.86
|
%
|
|
|
4.70
|
%
|
Expected volatility
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
24
|
%
|
Expected life, in years
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
1.09
|
%
|
F-16
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3
|
SHARE-BASED
COMPENSATION (Continued)
|
Stock
Option Activity All Plans (Continued)
Information regarding stock option activity during 2008, 2007
and 2006 is summarized below (share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Term
|
|
|
(dollars in millions)
|
|
|
Options outstanding, December 31, 2005
|
|
|
27,806
|
|
|
$
|
36.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,566
|
|
|
|
48.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,220
|
)
|
|
|
26.24
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,008
|
)
|
|
|
49.76
|
|
|
|
|
|
|
|
|
|
Settled in Recapitalization
|
|
|
(13,177
|
)
|
|
|
36.22
|
|
|
|
|
|
|
|
|
|
Rolled over in Recapitalization existing
|
|
|
(10,967
|
)
|
|
|
42.98
|
|
|
|
|
|
|
|
|
|
Rolled over in Recapitalization new
|
|
|
2,285
|
|
|
|
12.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006
|
|
|
2,285
|
|
|
|
12.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9,328
|
|
|
|
51.34
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(36
|
)
|
|
|
12.75
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(405
|
)
|
|
|
51.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2007
|
|
|
11,172
|
|
|
|
43.54
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
357
|
|
|
|
58.21
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(480
|
)
|
|
|
15.01
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(412
|
)
|
|
|
51.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008
|
|
|
10,637
|
|
|
|
45.02
|
|
|
|
7.5 years
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2008
|
|
|
2,937
|
|
|
$
|
27.55
|
|
|
|
5.6 years
|
|
|
$
|
83
|
|
The weighted average fair values of stock options granted during
2008, 2007 and 2006 were $14.01, $16.01 and $10.76 per share,
respectively. The total intrinsic value of stock options
exercised in the year ended December 31, 2008 was
$20 million.
|
|
NOTE 4
|
ACQUISITIONS
AND DISPOSITIONS
|
During 2008, we paid $18 million to acquire one hospital
and $67 million to acquire other health care entities.
During 2007, we did not acquire any hospitals, but paid
$32 million for other health care entities. During 2006, we
paid $63 million to acquire three hospitals and
$49 million to acquire other health care entities. Purchase
price amounts have been allocated to the related assets acquired
and liabilities assumed based upon their respective fair values.
The purchase price paid in excess of the fair value of
identifiable net assets of acquired entities aggregated
$43 million, $44 million and $38 million in 2008,
2007 and 2006, respectively. The consolidated financial
statements include the accounts and operations of the acquired
entities subsequent to the respective acquisition dates. The pro
forma effects of the acquired entities on our results of
operations for periods prior to the respective acquisition dates
were not significant.
During 2008, we received proceeds of $143 million and
recognized a net pretax gain of $81 million
($48 million after tax) on the sales of two hospitals. We
also received proceeds of $50 million and recognized a net
pretax gain of $16 million ($10 million after tax)
from sales of other health care entities and real estate
investments. During 2007, we received proceeds of
$661 million and recognized a net pretax gain of
$443 million ($272 million after tax) from sales of
three hospitals. We also received proceeds of $106 million
and recognized a
F-17
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 4
|
ACQUISITIONS
AND DISPOSITIONS (Continued)
|
net pretax gain of $28 million ($18 million after tax)
from sales of real estate investments. During 2006, we received
proceeds of $560 million and recognized a net pretax gain
of $176 million ($85 million after tax) on the sales
of nine hospitals. We also received proceeds of $91 million
and recognized a net pretax gain of $29 million
($18 million after tax) from sales of real estate
investments and our equity investment in a hospital joint
venture.
|
|
NOTE 5
|
IMPAIRMENTS
OF LONG-LIVED ASSETS
|
During 2008, we recorded pretax charges of $64 million to
reduce the carrying value of identified assets to estimated fair
value. The $64 million asset impairment includes
$55 million related to other health care entity investments
in our Eastern Group and $9 million related to certain
hospital facilities in our Central Group. During 2007, we
recorded a pretax charge of $24 million to adjust the value
of a building in our Central Group to estimated fair value.
During 2006, the carrying value for a closed hospital was
reduced to fair value, based upon estimates of sales value,
resulting in a pretax charge of $16 million that affected
our Corporate and Other Group. During 2006, we also decided to
terminate a construction project and incurred a pretax charge of
$8 million that affected our Corporate and Other Group.
The asset impairment charges did not have a significant impact
on our operations or cash flows and are not expected to
significantly impact cash flows for future periods. The
impairment charges affected our property and equipment asset
category by $16 million, $24 million and
$24 million in 2008, 2007 and 2006, respectively.
The provision for income taxes consists of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
699
|
|
|
$
|
566
|
|
|
$
|
993
|
|
State
|
|
|
56
|
|
|
|
37
|
|
|
|
62
|
|
Foreign
|
|
|
25
|
|
|
|
32
|
|
|
|
35
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(505
|
)
|
|
|
(391
|
)
|
|
|
(426
|
)
|
State
|
|
|
(29
|
)
|
|
|
(62
|
)
|
|
|
(43
|
)
|
Foreign
|
|
|
22
|
|
|
|
134
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
268
|
|
|
$
|
316
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal statutory rate to the effective
income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
3.7
|
|
|
|
0.2
|
|
|
|
0.4
|
|
Change in liability for uncertain tax positions
|
|
|
(7.4
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
Nondeductible intangible assets
|
|
|
0.4
|
|
|
|
|
|
|
|
1.5
|
|
Tax exempt interest income
|
|
|
(2.5
|
)
|
|
|
(2.1
|
)
|
|
|
(1.1
|
)
|
Income attributable to noncontrolling interests from
consolidated partnerships
|
|
|
(5.6
|
)
|
|
|
(4.0
|
)
|
|
|
(4.0
|
)
|
Other items, net
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
22.9
|
%
|
|
|
22.6
|
%
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
INCOME
TAXES (Continued)
|
As a result of a settlement reached with the Appeals Division of
the Internal Revenue Service (the IRS) and the
revision of a proposed IRS adjustment related to prior taxable
years, we reduced our provision for income taxes by
$69 million in 2008. Our 2007 provision for income taxes
was reduced by $85 million, principally based on new
information received related to tax positions taken in a prior
taxable year, and by an additional $39 million to adjust
2006 state tax accruals to the amounts reported on completed tax
returns and based upon an analysis of the Recapitalization costs.
A summary of the items comprising the deferred tax assets and
liabilities at December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Depreciation and fixed asset basis differences
|
|
$
|
|
|
|
$
|
324
|
|
|
$
|
|
|
|
$
|
329
|
|
Allowances for professional liability and other risks
|
|
|
244
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
Accounts receivable
|
|
|
1,263
|
|
|
|
|
|
|
|
884
|
|
|
|
|
|
Compensation
|
|
|
201
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
Other
|
|
|
786
|
|
|
|
287
|
|
|
|
633
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,494
|
|
|
$
|
611
|
|
|
$
|
1,870
|
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, state net operating loss
carryforwards (expiring in years 2009 through
2028) available to offset future taxable income
approximated $145 million. Utilization of net operating
loss carryforwards in any one year may be limited and, in
certain cases, result in an adjustment to intangible assets. Net
deferred tax assets related to such carryforwards are not
significant.
We are currently contesting before the IRS Appeals Division
certain claimed deficiencies and adjustments proposed by the IRS
in connection with its examination of the 2003 and 2004 federal
income tax returns for HCA and 17 affiliates that are treated as
partnerships for federal income tax purposes (affiliated
partnerships). The disputed items include the timing of
recognition of certain patient service revenues and our method
for calculating the tax allowance for doubtful accounts.
Eight taxable periods of HCA and its predecessors ended in 1995
through 2002 and the 2002 taxable year for 13 affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, are
pending before the IRS Examination Division or the United States
Tax Court as of December 31, 2008. The IRS began an audit
of the 2005 and 2006 federal income tax returns for HCA and
seven affiliated partnerships during 2008.
Effective January 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 creates a
single model to address uncertainty in income tax positions and
clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48
applies to all tax positions related to income taxes subject to
FASB Statement No. 109, Accounting for Income
Taxes. The provision for income taxes reflects a
$20 million ($12 million net of tax) reduction in
interest related to taxing authority examinations for the year
ended December 31, 2008 and interest expense of
$17 million ($11 million net of tax) for the year
ended December 31, 2007.
F-19
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
INCOME
TAXES (Continued)
|
The following table summarizes the activity related to our
unrecognized tax benefits (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
622
|
|
|
$
|
555
|
|
Additions based on tax positions related to the current year
|
|
|
32
|
|
|
|
70
|
|
Additions for tax positions of prior years
|
|
|
55
|
|
|
|
112
|
|
Reductions for tax positions of prior years
|
|
|
(57
|
)
|
|
|
(101
|
)
|
Settlements
|
|
|
(162
|
)
|
|
|
2
|
|
Lapse of applicable statutes of limitations
|
|
|
(8
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
482
|
|
|
$
|
622
|
|
|
|
|
|
|
|
|
|
|
During 2008, we reached a settlement with the IRS Appeals
Division relating to the deductibility of the 2001 government
settlement payment, the timing of recognition of certain patient
service revenues for 2001 and 2002, and the amount of insurance
expense deducted in 2001 and 2002. As a result of the
settlement, $111 million of the $215 million
refundable deposit made in 2006 has been applied to tax and
interest due for the 2001 and 2002 taxable years.
Our liability for unrecognized tax benefits was
$625 million, including accrued interest of
$156 million and excluding $13 million that was
recorded as reductions of the related deferred tax assets, as of
December 31, 2008 ($828 million, $218 million and
$12 million, respectively, as of December 31, 2007).
Unrecognized tax benefits of $264 million
($489 million as of December 31, 2007) would
affect the effective rate, if recognized. The liability for
unrecognized tax benefits does not reflect deferred tax assets
related to deductible interest and state income taxes or the
balance of a refundable deposit we made in 2006, which is
recorded in noncurrent assets.
Depending on the resolution of the IRS disputes, the completion
of examinations by federal, state or international taxing
authorities, or the expiration of statutes of limitation for
specific taxing jurisdictions, we believe it is reasonably
possible that our liability for unrecognized tax benefits may
significantly increase or decrease within the next twelve
months. However, we are currently unable to estimate the range
of any possible change.
F-20
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY
|
A summary of the insurance subsidiarys investments at
December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
808
|
|
|
$
|
20
|
|
|
$
|
(23
|
)
|
|
$
|
805
|
|
Auction rate securities
|
|
|
576
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
536
|
|
Asset-backed securities
|
|
|
51
|
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
47
|
|
Money market funds
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,661
|
|
|
|
21
|
|
|
|
(68
|
)
|
|
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
|
|
6
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
5
|
|
Common stocks and other equities
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,670
|
|
|
$
|
21
|
|
|
$
|
(69
|
)
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
944
|
|
|
$
|
23
|
|
|
$
|
(2
|
)
|
|
$
|
965
|
|
Auction rate securities
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
731
|
|
Asset-backed securities
|
|
|
59
|
|
|
|
1
|
|
|
|
|
|
|
|
60
|
|
Corporate
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Money market funds
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,845
|
|
|
|
24
|
|
|
|
(2
|
)
|
|
|
1,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
|
|
26
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
25
|
|
Common stocks and other equities
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,878
|
|
|
$
|
24
|
|
|
$
|
(3
|
)
|
|
|
1,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007 the investments of our
insurance subsidiary were classified as
available-for-sale. Changes in temporary unrealized
gains and losses are recorded as adjustments to other
comprehensive
F-21
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY (Continued)
|
income. At December 31, 2008 and 2007, $119 million
and $106 million, respectively, of our investments were
subject to the restrictions included in insurance bond
collateralization and assumed reinsurance contracts.
Scheduled maturities of investments in debt securities at
December 31, 2008 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
313
|
|
|
$
|
314
|
|
Due after one year through five years
|
|
|
305
|
|
|
|
311
|
|
Due after five years through ten years
|
|
|
252
|
|
|
|
254
|
|
Due after ten years
|
|
|
164
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
|
|
1,031
|
|
Auction rate securities
|
|
|
576
|
|
|
|
536
|
|
Asset-backed securities
|
|
|
51
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,661
|
|
|
$
|
1,614
|
|
|
|
|
|
|
|
|
|
|
The average expected maturity of the investments in debt
securities at December 31, 2008 was 3.9 years,
compared to the average scheduled maturity of 12.8 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. The average expected maturities for our auction
rate and asset-backed securities were derived from valuation
models of expected cash flows and involved managements
judgment. The average expected maturities for our auction rate
and asset-backed securities at December 31, 2008 were
5.5 years and 6.9 years, respectively, compared to
average scheduled maturities of 25.5 years and
26.2 years, respectively.
The cost of securities sold is based on the specific
identification method. Sales of securities for the years ended
December 31 are summarized below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
23
|
|
|
$
|
272
|
|
|
$
|
401
|
|
Gross realized gains
|
|
|
|
|
|
|
8
|
|
|
|
1
|
|
Gross realized losses
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
4
|
|
|
$
|
87
|
|
|
$
|
1,509
|
|
Gross realized gains
|
|
|
2
|
|
|
|
1
|
|
|
|
256
|
|
Gross realized losses
|
|
|
2
|
|
|
|
|
|
|
|
12
|
|
|
|
NOTE 8
|
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
instruments to fixed interest rate obligations. The net interest
payments, based on the notional amounts in these agreements,
generally match the timing of the related liabilities. The
notional amounts of the swap agreements represent amounts used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our
F-22
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS (Continued)
|
Interest
Rate Swap Agreements (Continued)
credit risk related to these agreements is considered low
because the swap agreements are with creditworthy financial
institutions. The interest payments under these agreements are
settled on a net basis.
The following table sets forth our interest rate swap
agreements, which have been designated as cash flow hedges, at
December 31, 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
Fair
|
|
|
Amount
|
|
Termination Date
|
|
Value
|
|
Pay-fixed interest rate swap
|
|
$
|
4,000
|
|
|
|
November 2011
|
|
|
$
|
(327
|
)
|
Pay-fixed interest rate swap
|
|
|
4,000
|
|
|
|
November 2011
|
|
|
|
(301
|
)
|
Pay-fixed interest rate swap
|
|
|
500
|
|
|
|
March 2011
|
|
|
|
(15
|
)
|
Pay-fixed interest rate swap
|
|
|
500
|
|
|
|
March 2011
|
|
|
|
(14
|
)
|
The fair value of the interest rate swaps at December 31,
2008 represents the estimated amounts we would pay upon
termination of these agreements.
Cross
Currency Swaps
The Company and certain subsidiaries have incurred obligations
and entered into various intercompany transactions where such
obligations are denominated in currencies (Great Britain
Pound and Euro), other than the functional currencies (United
States Dollar and Great Britain Pound) of the parties executing
the trade. In order to better match the cash flows of our
obligations and intercompany transactions with cash flows from
operations, we entered into various cross currency swaps. Our
credit risk related to these agreements is considered low
because the swap agreements are with creditworthy financial
institutions.
Certain of our cross currency swaps were not designated as
hedges, and changes in fair value are recognized in results of
operations. The following table sets forth these cross currency
swap agreements at December 31, 2008 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
Fair
|
|
|
Amount
|
|
Termination Date
|
|
Value
|
|
Euro United States Dollar Currency Swap
|
|
|
557 Euro
|
|
|
|
December 2011
|
|
|
$
|
81
|
|
Euro Great Britain Pound (GBP) Currency Swap
|
|
|
27 GBP
|
|
|
|
December 2011
|
|
|
|
16
|
|
The following table sets forth our cross currency swap
agreements, which have been designated as cash flow hedges, at
December 31, 2008 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
Fair
|
|
|
Amount
|
|
Termination Date
|
|
Value
|
|
GBP United States Dollar Currency Swap
|
|
|
50 GBP
|
|
|
|
November 2010
|
|
|
$
|
(13
|
)
|
GBP United States Dollar Currency Swap
|
|
|
50 GBP
|
|
|
|
November 2010
|
|
|
|
(13
|
)
|
The fair value of the cross currency swaps at December 31,
2008 represents the estimated amounts we would receive (pay)
upon termination of these agreements.
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE
|
On January 1, 2008, we adopted Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.
SFAS 157 applies to reported balances that are required or
permitted to be measured at fair value under existing accounting
pronouncements.
F-23
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a
fair value measurement should be determined based on the
assumptions that market participants would use in pricing the
asset or liability. As a basis for considering market
participant assumptions in fair value measurements,
SFAS 157 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 that are classified within
Levels 1 and 2 of the hierarchy) and the reporting
entitys 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 that are observable for the asset or liability (other
than quoted prices), such as interest rates, foreign exchange
rates, and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the
asset or liability, which are typically based on an
entitys own assumptions, as there is little, if any,
related market activity. In instances where the determination of
the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls
is based on the lowest level input that is 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. Such instruments include
auction rate securities (ARS) and limited
partnership investments. The transaction price is initially used
as the best estimate of fair value.
Our wholly-owned insurance subsidiary had investments in
municipal, tax-exempt ARS, that are backed by student loans
substantially guaranteed by the federal government, of
$536 million ($573 million par value) at
December 31, 2008. We do not currently intend to attempt to
sell the ARS as the liquidity needs of our insurance subsidiary
are expected to be met by other investments in its investment
portfolio. These securities continue to accrue and pay interest
semi-annually based on the failed auction maximum rate formulas
stated in their respective Official Statements. During 2008,
certain issuers of our ARS redeemed $93 million of our
securities at par value. The valuation of these securities
involved managements judgment, after consideration of
market factors and the absence of market transparency, market
liquidity and observable inputs. Our valuation models derived a
fair market value compared to tax-equivalent yields of other
student loan backed variable rate securities of similar credit
worthiness.
Derivative
Financial Instruments
We have entered into interest rate and cross currency swap
agreements to manage our exposure to fluctuations in interest
rates and foreign currency risks. The valuation of these
instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including
interest rate curves, foreign exchange rates and implied
volatilities. To comply with the provisions of SFAS 157, we
incorporate credit valuation adjustments to reflect both our own
nonperformance risk and the respective counterpartys
nonperformance risk in the fair value measurements.
F-24
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
Derivative
Financial Instruments (Continued)
Although we have determined that 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 have assessed the
significance of the impact of the credit valuation adjustments
on the overall valuation of our derivative positions and have
determined that the credit valuation adjustments are significant
to the overall valuation of our derivatives. As a result, we
have determined that our derivative valuations in their entirety
are classified in Level 3 of the fair value hierarchy at
December 31, 2008.
The following table summarizes our assets and liabilities
measured at fair value on a recurring basis as of
December 31, 2008, aggregated by the level in the fair
value hierarchy within which those measurements fall (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
$
|
1,622
|
|
|
$
|
227
|
|
|
$
|
857
|
|
|
$
|
538
|
|
Less amounts classified as current assets
|
|
|
(200
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,422
|
|
|
|
27
|
|
|
|
857
|
|
|
|
538
|
|
Cross currency swaps (Other assets)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
657
|
|
Cross currency swaps (Income taxes and other liabilities)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
The following table summarizes the activity related to the
investments of our insurance subsidiary and our cross currency
and interest rate swaps which have fair value measurements based
on significant unobservable inputs (Level 3) during
the year ended December 31, 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
Cross
|
|
|
Interest
|
|
|
|
of Insurance
|
|
|
Currency
|
|
|
Rate
|
|
|
|
Subsidiary
|
|
|
Swaps (net)
|
|
|
Swaps
|
|
|
Balance at December 31, 2007
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
Realized gains and losses included in earnings
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses included in other comprehensive
income
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
Transfers into Level 3
|
|
|
668
|
|
|
|
71
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
538
|
|
|
$
|
71
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of long-term debt at December 31, including
related interest rates at December 31, 2008, follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Senior secured asset-based revolving credit facility (effective
interest rate of 2.8%)
|
|
$
|
2,000
|
|
|
$
|
1,350
|
|
Senior secured revolving credit facility (effective interest
rate of 2.7%)
|
|
|
50
|
|
|
|
|
|
Senior secured term loan facilities (effective interest rate of
6.0%)
|
|
|
12,002
|
|
|
|
12,317
|
|
Other senior secured debt (effective interest rate of 6.8%)
|
|
|
406
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
|
14,458
|
|
|
|
14,094
|
|
|
|
|
|
|
|
|
|
|
Senior secured cash-pay notes (effective interest rate of 9.6%)
|
|
|
4,200
|
|
|
|
4,200
|
|
Senior secured toggle notes (effective interest rate of 10.0%)
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
|
5,700
|
|
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes payable through 2095 (effective interest
rate of 7.2%)
|
|
|
6,831
|
|
|
|
7,514
|
|
|
|
|
|
|
|
|
|
|
Total debt (average life of six years, rates averaging 6.9%)
|
|
|
26,989
|
|
|
|
27,308
|
|
Less amounts due within one year
|
|
|
404
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,585
|
|
|
$
|
27,000
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Credit Facilities
In connection with the Recapitalization, we entered into
(i) a $2.000 billion senior secured asset-based
revolving credit facility with a borrowing base of 85% of
eligible accounts receivable, subject to customary reserves and
eligibility criteria (fully utilized at December 31, 2008)
(the ABL credit facility) and (ii) a senior
secured credit agreement (the cash flow credit
facility and, together with the ABL credit facility, the
senior secured credit facilities), consisting of a
$2.000 billion revolving credit facility
($1.858 billion available at December 31, 2008 after
giving effect to certain outstanding letters of credit), a
$2.750 billion term loan A ($2.525 billion outstanding
at December 31, 2008), a $8.800 billion term loan B
($8.624 billion outstanding at December 31,
2008) and a 1.000 billion European term loan
(611 million, or $853 million, outstanding at
December 31, 2008) under which one of our European
subsidiaries is the borrower.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to, as determined by the type of
borrowing, either an applicable margin plus, at our option,
either (a) a base rate determined by reference to the
higher of (1) the federal funds rate plus
1/2
of 1% or (2) the prime rate of Bank of America or
(b) a LIBOR rate for the currency of such borrowing for the
relevant interest period, plus, in each case, an applicable
margin. The applicable margin for borrowings under the senior
secured credit facilities, with the exception of term loan B
where the margin is static, may be reduced subject to attaining
certain leverage ratios.
The ABL facility and the $2.000 billion revolving credit
facility portion of the cash flow credit facility expire
November 2012. The term loan facilities require quarterly
installment payments. The final payment under term loan A is in
November 2012. The final payments under term loan B and the
European term loan are in November 2013. The senior secured
credit facilities contain a number of covenants that restrict,
subject to certain exceptions, our (and some or all of our
subsidiaries) ability to incur additional indebtedness,
repay subordinated indebtedness, create liens on assets, sell
assets, make investments, loans or advances, engage in certain
transactions with affiliates, pay dividends and distributions,
and enter into sale and leaseback transactions. In addition, we
are required to satisfy and maintain a maximum total leverage
ratio covenant under the cash flow facility and, in certain
situations under the ABL credit facility, a minimum interest
coverage ratio covenant.
F-26
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
LONG-TERM
DEBT (Continued)
|
Senior
Secured Credit Facilities (Continued)
We use interest rate swap agreements to manage the floating rate
exposure of our debt portfolio. We entered into interest rate
swap agreements, in a total notional amount of $9 billion,
in order to hedge a portion of our exposure to variable rate
interest payments associated with the senior secured credit
facility. The effect of the interest rate swaps is reflected in
the effective interest rate for the senior secured credit
facilities.
Senior
Secured Notes
In November 2006, we issued $4.200 billion of senior
secured notes (comprised of $1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016), and $1.500 billion of
95/8%
cash/103/8%
in-kind senior secured toggle notes (which allow us, at our
option, to pay interest in-kind during the first five years) due
2016, which are subject to certain standard covenants. In
November 2008, we elected to make an interest payment for the
interest period ending in May 2009 by paying in-kind instead of
paying interest in cash.
General
Information
The senior secured credit facilities and senior secured notes
are fully and unconditionally guaranteed by substantially all
existing and future, direct and indirect, wholly-owned material
domestic subsidiaries that are Unrestricted
Subsidiaries under our Indenture dated December 16,
1993 (except for certain special purpose subsidiaries that only
guarantee and pledge their assets under our ABL credit
facility). In addition, borrowings under the European term loan
are guaranteed by all material, wholly-owned European
subsidiaries.
Maturities of long-term debt in years 2010 through 2013 are
$1.144 billion, $896 million, $4.707 billion and
$10.095 billion, respectively.
The estimated fair value of our long-term debt was
$20.225 billion and $26.127 billion at
December 31, 2008 and 2007, respectively, compared to
carrying amounts aggregating $26.989 billion and
$27.308 billion, respectively. The estimates of fair value
are generally based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities.
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could have a material,
adverse affect on our results of operations or financial
position in a given period.
We are subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
wrongful restriction of, or interference with, physicians
staff privileges. In certain of these actions the claimants may
seek punitive damages against us which may not be covered by
insurance. It is managements opinion that the ultimate
resolution of these pending claims and legal proceedings will
not have a material, adverse effect on our results of operations
or financial position.
|
|
NOTE 12
|
CAPITAL
STOCK AND STOCK REPURCHASES
|
Capital
Stock
The Companys certificate of incorporation and by-laws were
amended and restated, effective March 27, 2008 and
March 26, 2008, respectively. The amended and restated
certificate of incorporation authorizes the Company to issue up
to 125,000,000 shares of common stock, and the amended and
restated by-laws set the number of directors constituting the
board of directors of the Company at not less than one nor more
than 15.
F-27
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 12
|
CAPITAL
STOCK AND STOCK REPURCHASES (Continued)
|
Stock
Repurchase Program
In 2005, we announced the authorization of a modified
Dutch auction tender offer to purchase up to
$2.500 billion of our common stock. During 2006, we
repurchased 13.0 million shares of our common stock for
$653 million, through open market purchases, which
completed this authorization.
|
|
NOTE 13
|
EMPLOYEE
BENEFIT PLANS
|
We maintained a noncontributory, defined contribution retirement
plan which covered substantially all employees. Benefits were
determined as a percentage of a participants salary and
vest over specified periods of employee service. Retirement plan
expense was $46 million for 2008, $203 million for
2007 and $190 million for 2006. Amounts approximately equal
to retirement plan expense are funded annually. Effective
April 1, 2008, the noncontributory plan and the related
participant account balances were merged into the contributory
HCA 401(k) Plan.
We maintain contributory, defined contribution benefit plans
that are available to employees who meet certain minimum
requirements. Certain of the plans require that we match
specified percentages of participant contributions up to certain
maximum levels (generally, 100% of the first 3% to 9%, depending
upon years of vesting service, of compensation deferred by
participants for periods subsequent to March 31, 2008, and
50% of the first 3% of compensation deferred by participants for
periods prior to April 1, 2008). The cost of these plans
totaled $233 million for 2008, $86 million for 2007
and $71 million for 2006. Our contributions are funded
periodically during each year.
We maintain a Supplemental Executive Retirement Plan
(SERP) for certain executives. The plan is designed
to ensure that upon retirement the participant receives the
value of a prescribed life annuity from the combination of the
SERP and our other benefit plans. Compensation expense under the
plan was $20 million for 2008, $20 million for 2007
and $15 million for 2006. Accrued benefits liabilities
under this plan totaled $133 million at December 31,
2008 and $109 million at December 31, 2007.
We maintain defined benefit pension plans which resulted from
certain hospital acquisitions in prior years. Compensation
expense under these plans was $24 million for 2008,
$27 million for 2007, and $31 million for 2006.
Accrued benefits liabilities under these plans totaled
$142 million at December 31, 2008 and $48 million
at December 31, 2007.
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
We operate in one line of business, which is operating hospitals
and related health care entities. During the years ended
December 31, 2008, 2007 and 2006, approximately 23%, 24%
and 25%, respectively, of our revenues related to patients
participating in the fee-for-service Medicare program.
Our operations are structured into three geographically
organized groups: the Eastern Group includes 48 consolidating
hospitals located in the Eastern United States, the Central
Group includes 51 consolidating hospitals located in the Central
United States and the Western Group includes 53 consolidating
hospitals located in the Western United States. We also operate
six consolidating hospitals in England, and these facilities are
included in the Corporate and other group.
Adjusted segment EBITDA is defined as income before depreciation
and amortization, interest expense, gains on sales of
facilities, impairment of long-lived assets, transaction costs,
income taxes and 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
F-28
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
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, depreciation
and amortization, assets and goodwill are summarized in the
following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
8,570
|
|
|
$
|
8,204
|
|
|
$
|
7,775
|
|
Central Group
|
|
|
6,740
|
|
|
|
6,302
|
|
|
|
5,917
|
|
Western Group
|
|
|
12,118
|
|
|
|
11,378
|
|
|
|
10,495
|
|
Corporate and other
|
|
|
946
|
|
|
|
974
|
|
|
|
1,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
$
|
25,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(6
|
)
|
Central Group
|
|
|
(2
|
)
|
|
|
8
|
|
|
|
(3
|
)
|
Western Group
|
|
|
(219
|
)
|
|
|
(212
|
)
|
|
|
(187
|
)
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(223
|
)
|
|
$
|
(206
|
)
|
|
$
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
1,288
|
|
|
$
|
1,268
|
|
|
$
|
1,196
|
|
Central Group
|
|
|
1,061
|
|
|
|
1,082
|
|
|
|
975
|
|
Western Group
|
|
|
2,270
|
|
|
|
2,196
|
|
|
|
2,088
|
|
Corporate and other
|
|
|
(45
|
)
|
|
|
46
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,574
|
|
|
$
|
4,592
|
|
|
$
|
4,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
358
|
|
|
$
|
369
|
|
|
$
|
363
|
|
Central Group
|
|
|
359
|
|
|
|
364
|
|
|
|
329
|
|
Western Group
|
|
|
552
|
|
|
|
529
|
|
|
|
492
|
|
Corporate and other
|
|
|
147
|
|
|
|
164
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,416
|
|
|
$
|
1,426
|
|
|
$
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA
|
|
$
|
4,574
|
|
|
$
|
4,592
|
|
|
$
|
4,470
|
|
Depreciation and amortization
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
Interest expense
|
|
|
2,021
|
|
|
|
2,215
|
|
|
|
955
|
|
Gains on sales of facilities
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
Impairment of long-lived assets
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,170
|
|
|
$
|
1,398
|
|
|
$
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
4,906
|
|
|
$
|
4,928
|
|
Central Group
|
|
|
5,251
|
|
|
|
5,157
|
|
Western Group
|
|
|
8,597
|
|
|
|
8,152
|
|
Corporate and other
|
|
|
5,526
|
|
|
|
5,788
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
|
Central
|
|
|
Western
|
|
|
Corporate
|
|
|
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
and Other
|
|
|
Total
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
628
|
|
|
$
|
1,015
|
|
|
$
|
749
|
|
|
$
|
237
|
|
|
$
|
2,629
|
|
Acquisitions
|
|
|
38
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
43
|
|
Sales
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Impairments
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
Foreign currency translation and other
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
602
|
|
|
$
|
1,013
|
|
|
$
|
754
|
|
|
$
|
211
|
|
|
$
|
2,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 15
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
The components of accumulated other comprehensive income (loss)
are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
|
|
|
in Fair
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Currency
|
|
|
Defined
|
|
|
Value of
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Translation
|
|
|
Benefit
|
|
|
Derivative
|
|
|
|
|
|
|
Securities
|
|
|
Adjustments
|
|
|
Plans
|
|
|
Instruments
|
|
|
Total
|
|
|
Balances at December 31, 2005
|
|
$
|
118
|
|
|
$
|
30
|
|
|
$
|
(18
|
)
|
|
$
|
|
|
|
$
|
130
|
|
Unrealized gains on available-for-sale securities, net of $30 of
income taxes
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Gains reclassified into earnings from other comprehensive
income, net of $88 of income taxes
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
Foreign currency translation adjustments, net of $10 of income
taxes
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Defined benefit plans, net of $30 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
Change in fair value of derivative instruments, net of $10 of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
16
|
|
|
|
49
|
|
|
|
(67
|
)
|
|
|
18
|
|
|
|
16
|
|
Unrealized gains on available-for-sale securities, net of $1 of
income taxes
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Foreign currency translation adjustments, net of $3 income tax
benefit
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Gains reclassified into earnings from other comprehensive
income, net of $3 and $5, respectively, of income taxes
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
Defined benefit plans, net of $14 of income taxes
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
Change in fair value of derivative instruments, net of $112
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
14
|
|
|
|
34
|
|
|
|
(44
|
)
|
|
|
(176
|
)
|
|
|
(172
|
)
|
Unrealized losses on available-for-sale securities, net of $25
income tax benefit
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments, net of $33 income tax
benefit
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans, net of $36 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
(62
|
)
|
Change in fair value of derivative instruments, net of $152
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
$
|
(30
|
)
|
|
$
|
(28
|
)
|
|
$
|
(106
|
)
|
|
$
|
(440
|
)
|
|
$
|
(604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16
|
ACCRUED
EXPENSES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
A summary of other accrued expenses at December 31 follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Professional liability risks
|
|
$
|
279
|
|
|
$
|
280
|
|
Interest
|
|
|
212
|
|
|
|
223
|
|
Employee benefit plans
|
|
|
89
|
|
|
|
217
|
|
Income taxes
|
|
|
224
|
|
|
|
190
|
|
Taxes other than income
|
|
|
189
|
|
|
|
139
|
|
Other
|
|
|
289
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,282
|
|
|
$
|
1,391
|
|
|
|
|
|
|
|
|
|
|
A summary of activity for the allowance of doubtful accounts
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
Accounts
|
|
|
|
|
|
|
Balance at
|
|
|
for
|
|
|
Written off,
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Doubtful
|
|
|
Net of
|
|
|
at End
|
|
|
|
of Year
|
|
|
Accounts
|
|
|
Recoveries
|
|
|
of Year
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
|
|
$
|
2,897
|
|
|
$
|
2,660
|
|
|
$
|
(2,129
|
)
|
|
$
|
3,428
|
|
Year ended December 31, 2007
|
|
|
3,428
|
|
|
|
3,130
|
|
|
|
(2,269
|
)
|
|
|
4,289
|
|
Year ended December 31, 2008
|
|
|
4,289
|
|
|
|
3,409
|
|
|
|
(2,263
|
)
|
|
|
5,435
|
|
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION
|
The senior secured credit facilities and senior secured notes
described in Note 10 are fully and unconditionally
guaranteed by substantially all existing and future, direct and
indirect, wholly-owned material domestic subsidiaries that are
Unrestricted Subsidiaries under our Indenture dated
December 16, 1993 (except for certain special purpose
subsidiaries that only guarantee and pledge their assets under
our ABL credit facility).
Our condensed consolidating balance sheets at December 31,
2008 and 2007 and condensed consolidating statements of income
and cash flows for each of the three years in the period ended
December 31, 2008, segregating the parent company issuer,
the subsidiary guarantors, the subsidiary non-guarantors and
eliminations, follow.
F-32
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
16,507
|
|
|
$
|
11,867
|
|
|
$
|
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
6,846
|
|
|
|
4,594
|
|
|
|
|
|
|
|
11,440
|
|
Supplies
|
|
|
|
|
|
|
2,671
|
|
|
|
1,949
|
|
|
|
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
(6
|
)
|
|
|
2,444
|
|
|
|
2,116
|
|
|
|
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,073
|
|
|
|
1,336
|
|
|
|
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(2,100
|
)
|
|
|
(82
|
)
|
|
|
(141
|
)
|
|
|
2,100
|
|
|
|
(223
|
)
|
Gains on investments
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
776
|
|
|
|
640
|
|
|
|
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,190
|
|
|
|
(328
|
)
|
|
|
159
|
|
|
|
|
|
|
|
2,021
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(97
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Management fees
|
|
|
|
|
|
|
(426
|
)
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
13,970
|
|
|
|
11,050
|
|
|
|
2,100
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(84
|
)
|
|
|
2,537
|
|
|
|
817
|
|
|
|
(2,100
|
)
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
(757
|
)
|
|
|
803
|
|
|
|
222
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
673
|
|
|
|
1,734
|
|
|
|
595
|
|
|
|
(2,100
|
)
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
53
|
|
|
|
176
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
673
|
|
|
$
|
1,681
|
|
|
$
|
419
|
|
|
$
|
(2,100
|
)
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2007
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
15,598
|
|
|
$
|
11,260
|
|
|
$
|
|
|
|
$
|
26,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
6,441
|
|
|
|
4,273
|
|
|
|
|
|
|
|
10,714
|
|
Supplies
|
|
|
|
|
|
|
2,549
|
|
|
|
1,846
|
|
|
|
|
|
|
|
4,395
|
|
Other operating expenses
|
|
|
(2
|
)
|
|
|
2,279
|
|
|
|
1,964
|
|
|
|
|
|
|
|
4,241
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,942
|
|
|
|
1,188
|
|
|
|
|
|
|
|
3,130
|
|
Equity in earnings of affiliates
|
|
|
(2,245
|
)
|
|
|
(90
|
)
|
|
|
(116
|
)
|
|
|
2,245
|
|
|
|
(206
|
)
|
Gains on investments
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
779
|
|
|
|
647
|
|
|
|
|
|
|
|
1,426
|
|
Interest expense
|
|
|
2,161
|
|
|
|
(95
|
)
|
|
|
149
|
|
|
|
|
|
|
|
2,215
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
(3
|
)
|
|
|
(468
|
)
|
|
|
|
|
|
|
(471
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Management fees
|
|
|
|
|
|
|
(392
|
)
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
13,410
|
|
|
|
9,891
|
|
|
|
2,245
|
|
|
|
25,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
86
|
|
|
|
2,188
|
|
|
|
1,369
|
|
|
|
(2,245
|
)
|
|
|
1,398
|
|
Provision for income taxes
|
|
|
(788
|
)
|
|
|
712
|
|
|
|
392
|
|
|
|
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
874
|
|
|
|
1,476
|
|
|
|
977
|
|
|
|
(2,245
|
)
|
|
|
1,082
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
28
|
|
|
|
180
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
HCA Inc.
|
|
$
|
874
|
|
|
$
|
1,448
|
|
|
$
|
797
|
|
|
$
|
(2,245
|
)
|
|
$
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2006
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
14,913
|
|
|
$
|
10,564
|
|
|
$
|
|
|
|
$
|
25,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
6,319
|
|
|
|
4,090
|
|
|
|
|
|
|
|
10,409
|
|
Supplies
|
|
|
|
|
|
|
2,487
|
|
|
|
1,835
|
|
|
|
|
|
|
|
4,322
|
|
Other operating expenses
|
|
|
|
|
|
|
2,253
|
|
|
|
1,803
|
|
|
|
|
|
|
|
4,056
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,652
|
|
|
|
1,008
|
|
|
|
|
|
|
|
2,660
|
|
Equity in earnings of affiliates
|
|
|
(1,995
|
)
|
|
|
(79
|
)
|
|
|
(118
|
)
|
|
|
1,995
|
|
|
|
(197
|
)
|
Gains on investments
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
(243
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
755
|
|
|
|
636
|
|
|
|
|
|
|
|
1,391
|
|
Interest expense
|
|
|
895
|
|
|
|
(99
|
)
|
|
|
159
|
|
|
|
|
|
|
|
955
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
7
|
|
|
|
(212
|
)
|
|
|
|
|
|
|
(205
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
5
|
|
|
|
19
|
|
|
|
|
|
|
|
24
|
|
Transaction costs
|
|
|
429
|
|
|
|
25
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
442
|
|
Management fees
|
|
|
|
|
|
|
(377
|
)
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(671
|
)
|
|
|
12,948
|
|
|
|
9,342
|
|
|
|
1,995
|
|
|
|
23,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
671
|
|
|
|
1,965
|
|
|
|
1,222
|
|
|
|
(1,995
|
)
|
|
|
1,863
|
|
Provision for income taxes
|
|
|
(365
|
)
|
|
|
612
|
|
|
|
379
|
|
|
|
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,036
|
|
|
|
1,353
|
|
|
|
843
|
|
|
|
(1,995
|
)
|
|
|
1,237
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
21
|
|
|
|
180
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
HCA Inc.
|
|
$
|
1,036
|
|
|
$
|
1,332
|
|
|
$
|
663
|
|
|
$
|
(1,995
|
)
|
|
$
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2008
(Dollars in millions)