HCA INC. - 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. 7 TO
MARKET MAKING PROSPECTUS DATED
JULY 10, 2009
THE
DATE OF THIS SUPPLEMENT IS NOVEMBER 12, 2009
On
November 12, 2009, HCA Inc. filed the
attached
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2009
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30,
2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-11239
HCA Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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75-2497104
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(State or other jurisdiction
of
incorporation or organization)
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(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)
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(615) 344-9551
(Registrants
telephone number, including area code)
Not
Applicable
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock as of the latest
practicable date.
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Class of Common Stock
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Outstanding at October 31, 2009
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Voting common stock, $.01 par value
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94,636,900 shares
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HCA
INC.
Form 10-Q
September 30, 2009
2
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Quarter
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Nine Months
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2009
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2008
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2009
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2008
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Revenues
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$
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7,533
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$
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7,002
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$
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22,447
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$
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21,109
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Salaries and benefits
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3,013
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2,883
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8,880
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8,563
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Supplies
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1,206
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1,141
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3,627
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3,463
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Other operating expenses
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1,184
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1,147
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3,410
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3,396
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Provision for doubtful accounts
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910
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819
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2,583
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2,520
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Equity in earnings of affiliates
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(53
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(41
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(182
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(170
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Depreciation and amortization
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354
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350
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1,067
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1,062
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Interest expense
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510
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497
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1,487
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1,521
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Losses (gains) on sales of facilities
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(50
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8
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(90
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)
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Impairment of long-lived assets
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3
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44
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16
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53
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7,127
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6,790
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20,896
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20,318
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Income before income taxes
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406
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212
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1,551
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791
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Provision for income taxes
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132
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76
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480
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233
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Net income
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274
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136
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1,071
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558
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Net income attributable to noncontrolling interests
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78
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50
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233
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161
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Net income attributable to HCA Inc.
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$
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196
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$
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86
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$
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838
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$
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397
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See accompanying notes.
3
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September 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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443
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$
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465
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Accounts receivable, less allowance for doubtful accounts of
$5,926 and $5,435
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3,499
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3,780
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Inventories
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745
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737
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Deferred income taxes
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1,099
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914
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Other
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515
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405
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6,301
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6,301
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Property and equipment, at cost
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24,389
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23,714
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Accumulated depreciation
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(13,038
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(12,185
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11,351
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11,529
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Investments of insurance subsidiary
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1,371
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1,422
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Investments in and advances to affiliates
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855
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842
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Goodwill
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2,596
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2,580
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Deferred loan costs
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436
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458
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Other
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1,210
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1,148
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$
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24,120
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$
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24,280
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LIABILITIES AND STOCKHOLDERS DEFICIT
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Current liabilities:
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Accounts payable
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$
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1,199
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$
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1,370
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Accrued salaries
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954
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854
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Other accrued expenses
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1,316
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1,282
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Long-term debt due within one year
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635
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404
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4,104
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3,910
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Long-term debt
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25,279
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26,585
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Professional liability risks
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1,097
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1,108
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Income taxes and other liabilities
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1,782
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1,782
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Equity securities with contingent redemption rights
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147
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155
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Stockholders deficit:
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Common stock $.01 par; authorized 125,000,000 shares;
outstanding 94,614,500 shares in 2009 and
94,367,500 shares in 2008
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1
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1
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Capital in excess of par value
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204
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165
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Accumulated other comprehensive loss
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(505
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(604
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Retained deficit
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(8,979
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(9,817
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Stockholders deficit attributable to HCA Inc.
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(9,279
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(10,255
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Noncontrolling interests
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990
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995
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(8,289
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(9,260
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$
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24,120
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$
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24,280
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See accompanying notes.
4
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2009
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2008
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Cash flows from operating activities:
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Net income
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$
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1,071
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$
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558
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Changes in operating assets and liabilities
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(2,136
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(2,420
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Provision for doubtful accounts
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2,583
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2,520
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Depreciation and amortization
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1,067
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1,062
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Income taxes
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(485
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)
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(379
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)
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Losses (gains) on sales of facilities
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8
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(90
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)
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Impairment of long-lived assets
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16
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53
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Amortization of deferred loan costs
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60
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59
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Pay-in-kind
interest
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58
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Share-based compensation
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21
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25
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Other
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52
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27
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Net cash provided by operating activities
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2,315
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1,415
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Cash flows from investing activities:
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Purchase of property and equipment
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(915
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(1,115
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Acquisition of hospitals and health care entities
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(42
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(76
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)
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Disposition of hospitals and health care entities
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39
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185
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Change in investments
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113
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30
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Other
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(2
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4
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Net cash used in investing activities
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(807
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)
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(972
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)
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Cash flows from financing activities:
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Issuance of long-term debt
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2,979
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4
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Net change in revolving credit facilities
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(1,125
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)
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530
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Repayment of long-term debt
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(3,050
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)
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(775
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)
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Distributions to noncontrolling interests
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(254
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)
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(141
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)
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Payment of debt issuance costs
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(68
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)
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Other
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(12
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)
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(10
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)
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Net cash used in financing activities
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(1,530
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)
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(392
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)
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Change in cash and cash equivalents
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(22
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)
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51
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Cash and cash equivalents at beginning of period
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465
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393
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Cash and cash equivalents at end of period
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$
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443
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$
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444
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Interest payments
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$
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1,154
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$
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1,380
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Income tax payments, net
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$
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965
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$
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612
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See accompanying notes.
5
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NOTE 1
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INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Merger,
Recapitalization and Reporting Entity
On November 17, 2006, HCA Inc. completed its merger (the
Merger) with Hercules Acquisition Corporation,
pursuant to which the Company was acquired by Hercules Holding
II, LLC (Hercules Holding), a Delaware limited
liability company owned by a private investor group comprised of
affiliates of Bain Capital Partners (Bain), Kohlberg
Kravis Roberts & Co. (KKR), Merrill Lynch
Global Private Equity (MLGPE) (each a
Sponsor) and of Citigroup Inc. and Bank of America
Corporation (the Sponsor Assignees), by affiliates
of HCA founder, Dr. Thomas F. Frist Jr., (the Frist
Entities, and together with the Sponsors and the Sponsor
Assignees, the Investors), and by members of
management. The Merger, the financing transactions related to
the Merger and other related transactions are collectively
referred to in this quarterly 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. On April 29, 2008,
we registered our common stock pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended, thus subjecting
us to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended. Our common stock is
not traded on a national securities exchange.
Basis of
Presentation
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 September 30, 2009, these
affiliates owned and operated 155 hospitals, 97 freestanding
surgery centers and facilities which 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 quarterly
report on
Form 10-Q,
refer to HCA Inc. and its affiliates unless otherwise stated or
indicated by context.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete consolidated financial statements. In the opinion
of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal and
recurring nature. In accordance with Accounting Standards
Codification (ASC) 810, Consolidation (ASC
810), references in this report to net income
attributable to HCA Inc. and stockholders deficit
attributable to HCA Inc. do not include noncontrolling interests
(previously known as minority interests), which we now report
separately. The implementation of ASC 810 also results in the
cash flow impact of distributions to and certain other
transactions with noncontrolling interests that were previously
classified within operating activities, being classified within
financing activities. Such treatment is consistent with the view
that under ASC 810 transactions between HCA Inc. and
noncontrolling interests are considered to be equity
transactions. The presentation and disclosure provisions of ASC
810 have been applied retrospectively for all periods presented.
We evaluated all events or transactions that occurred after
September 30, 2009, through November 12, 2009, the
date we issued these financial statements. During this period we
did not have any material subsequent events that required
recognition or disclosure in the September 30, 2009
financial statements.
The majority of our expenses are cost of revenue
items. Costs that could be classified as general and
administrative would include our corporate office costs, which
were $39 million and $41 million for the quarters
ended September 30, 2009 and 2008, respectively, and
$116 million and $124 million for the nine months
ended
6
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
NOTE 1
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INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
|
Basis of
Presentation (continued)
September 30, 2009 and 2008, respectively. Operating
results for the quarter and nine months ended September 30,
2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. For further
information, refer to the consolidated financial statements and
footnotes thereto included in our current report dated
August 14, 2009 on
Form 8-K/A
for the year ended December 31, 2008.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
At September 30, 2009, we were contesting before the
Appeals Division of the Internal Revenue Service
(IRS), 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 10
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.
Six taxable periods of HCA and its predecessors ended in 1997
through 2002 and the 2002 taxable year for six affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, were
pending before the IRS Examination Division as of
September 30, 2009.
The IRS began an audit of the 2005 and 2006 federal income tax
returns for HCA and seven affiliated partnerships during 2008.
During the quarter ended September 30, 2009, six of the
seven partnership audits were resolved with no material impact
on our results of operations or financial position.
Our liability for unrecognized tax benefits was
$609 million, including accrued interest of
$139 million, as of September 30, 2009
($625 million and $156 million, respectively, as of
December 31, 2008). Unrecognized tax benefits of
$223 million ($264 million as of December 31,
2008) would affect the effective rate, if recognized. The
liability for unrecognized tax benefits does not reflect
deferred tax assets of $72 million ($81 million as of
December 31, 2008) related to deductible interest and
state income taxes or a refundable deposit of $104 million,
which is recorded in noncurrent assets. The provision for income
taxes reflects interest expense of $3 million and
$14 million related to taxing authority examinations for
the quarters ended September 30, 2009 and 2008,
respectively. The provision for income taxes reflects a
$31 million reduction in interest expense and interest
expense of $20 million related to taxing authority
examinations for the nine months ended September 30, 2009
and 2008, respectively.
Depending on the resolution of the IRS disputes, the completion
of examinations by federal, state or international taxing
authorities, or the expiration of statutes of limitation for
specific taxing jurisdictions, we believe it is reasonably
possible our liability for unrecognized tax benefits may
significantly increase or decrease within the next
12 months. However, we are currently unable to estimate the
range of any possible change.
7
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3
|
INVESTMENTS
OF INSURANCE SUBSIDIARY
|
A summary of our insurance subsidiarys investments at
September 30, 2009 and December 31, 2008 follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
713
|
|
|
$
|
36
|
|
|
$
|
(2
|
)
|
|
$
|
747
|
|
Auction rate securities
|
|
|
479
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
473
|
|
Asset-backed securities
|
|
|
45
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
44
|
|
Money market funds
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491
|
|
|
|
36
|
|
|
|
(9
|
)
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stocks
|
|
|
5
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
3
|
|
Common stocks
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,499
|
|
|
$
|
37
|
|
|
$
|
(11
|
)
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,670
|
|
|
$
|
21
|
|
|
$
|
(69
|
)
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009 and December 31, 2008, 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 income. At September 30,
2009 and December 31, 2008, $100 million and
$119 million, respectively, of our investments were subject
to restrictions included in insurance bond collateralization and
assumed reinsurance contracts.
8
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3
|
INVESTMENTS
OF INSURANCE SUBSIDIARY (continued)
|
Scheduled maturities of investments in debt securities at
September 30, 2009 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
313
|
|
|
$
|
313
|
|
Due after one year through five years
|
|
|
296
|
|
|
|
311
|
|
Due after five years through ten years
|
|
|
212
|
|
|
|
227
|
|
Due after ten years
|
|
|
146
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967
|
|
|
|
1,001
|
|
Auction rate securities
|
|
|
479
|
|
|
|
473
|
|
Asset-backed securities
|
|
|
45
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,491
|
|
|
$
|
1,518
|
|
|
|
|
|
|
|
|
|
|
The average expected maturity of the investments in debt
securities at September 30, 2009 was 3.7 years,
compared to the average scheduled maturity of 12.2 years.
Expected and scheduled maturities may differ because the issuers
of certain securities have the right to call, prepay or
otherwise redeem such obligations prior to the scheduled
maturity date. The average expected maturities for our auction
rate and asset-backed securities were derived from valuation
models of expected cash flows and involved managements
judgment. The average expected maturities for our auction rate
and asset-backed securities at September 30, 2009 were
5.6 years and 6.2 years, respectively, compared to
average scheduled maturities of 25.5 years and
25.4 years, respectively.
A summary of long-term debt at September 30, 2009 and
December 31, 2008, including related interest rates at
September 30, 2009, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Senior secured asset-based revolving credit facility (effective
interest rate of 1.8%)
|
|
$
|
925
|
|
|
$
|
2,000
|
|
Senior secured revolving credit facility
|
|
|
|
|
|
|
50
|
|
Senior secured term loan facilities (effective interest rate of
6.5%)
|
|
|
9,032
|
|
|
|
12,002
|
|
Senior secured first lien notes (effective interest rate of 8.9%)
|
|
|
2,681
|
|
|
|
|
|
Other senior secured debt (effective interest rate of 7.0%)
|
|
|
352
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
|
12,990
|
|
|
|
14,458
|
|
|
|
|
|
|
|
|
|
|
Senior secured cash-pay notes (effective interest rate of 9.7%)
|
|
|
4,500
|
|
|
|
4,200
|
|
Senior secured toggle notes (effective interest rate of 10.0%)
|
|
|
1,578
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
|
6,078
|
|
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes (effective interest rate of 7.2%)
|
|
|
6,846
|
|
|
|
6,831
|
|
|
|
|
|
|
|
|
|
|
Total debt (average life of six years, rates averaging 7.5%)
|
|
|
25,914
|
|
|
|
26,989
|
|
Less amounts due within one year
|
|
|
635
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,279
|
|
|
$
|
26,585
|
|
|
|
|
|
|
|
|
|
|
9
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 4
|
LONG-TERM
DEBT (continued)
|
During February 2009, we issued $310 million aggregate
principal amount of
97/8% senior
secured second lien notes due 2017 at a price of 96.673% of
their face value, resulting in $300 million of gross
proceeds. After the payment of related fees and expenses, we
used the proceeds to repay outstanding indebtedness under our
senior secured term loan facilities.
During April 2009, we issued $1.500 billion aggregate
principal amount of
81/2% senior
secured first lien notes due 2019 at a price of 96.755% of their
face value, resulting in $1.451 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds to repay outstanding indebtedness under our senior
secured term loan facilities.
During August 2009, we issued $1.250 billion aggregate
principal amount of
77/8% senior
secured first lien notes due 2020 at a price of 98.254% of their
face value, resulting in $1.228 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds to repay outstanding indebtedness under our senior
secured term loan facilities.
|
|
NOTE 5
|
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 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
September 30, 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Termination Date
|
|
|
Value
|
|
|
Pay-fixed interest rate swap
|
|
$
|
500
|
|
|
|
March 2011
|
|
|
$
|
(15
|
)
|
Pay-fixed interest rate swaps
|
|
|
8,000
|
|
|
|
November 2011
|
|
|
|
(582
|
)
|
Pay-fixed interest rate swaps (starting November 2011)
|
|
|
2,000
|
|
|
|
December 2016
|
|
|
|
(26
|
)
|
During the next 12 months, we estimate $367 million
will be reclassified from other comprehensive income
(OCI) to interest expense.
Cross
Currency Swaps
The Company and certain subsidiaries have incurred obligations
and entered into various intercompany transactions where such
obligations are denominated in currencies, other than the
functional currencies of the parties executing the trade. In
order to mitigate the currency exposure risks and better match
the cash flows of our obligations and intercompany transactions
with cash flows from operations, we 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.
10
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 5
|
FINANCIAL
INSTRUMENTS (continued)
|
Cross
Currency Swaps (continued)
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 our cross currency
swap agreement not designated as a hedge at September 30,
2009 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Termination Date
|
|
|
Value
|
|
|
Euro United States Dollar currency swap
|
|
|
411 Euro
|
|
|
|
December 2011
|
|
|
$
|
92
|
|
The following table sets forth our cross currency swap
agreements, which have been designated as cash flow hedges, at
September 30, 2009 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Termination Date
|
|
|
Value
|
|
|
GBP United States Dollar currency swaps
|
|
|
100 GBP
|
|
|
|
November 2010
|
|
|
$
|
(15
|
)
|
Derivatives
Results of Operations
The following tables present the effect on our results of
operations of our interest rate and cross currency swaps for the
nine months ended September 30, 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
|
Amount of Loss
|
|
|
|
Amount of Loss (Gain)
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
|
Recognized in OCI on
|
|
|
Accumulated OCI
|
|
|
Accumulated OCI
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Derivatives, Net of Tax
|
|
|
into Operations
|
|
|
into Operations
|
|
|
Interest rate swaps
|
|
$
|
139
|
|
|
|
Interest expense
|
|
|
$
|
242
|
|
Cross currency swaps
|
|
|
(7
|
)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132
|
|
|
|
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
|
|
|
Amount of Gain
|
|
|
|
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
|
|
|
Operations on
|
|
|
Operations on
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Derivatives
|
|
|
Derivatives
|
|
|
|
|
|
Cross currency swaps
|
|
|
Other operating expense
|
|
|
$
|
(9
|
)
|
|
|
|
|
Credit-risk-related
Contingent Features
We have agreements with each of our derivative counterparties
that contain a provision where we could be declared in default
on our derivative obligations if repayment of the underlying
indebtedness is accelerated by the lender due to our default on
the indebtedness. As of September 30, 2009, we have not
been required to post any collateral related to these
agreements. If we had breached these provisions at
September 30, 2009, we would have been required to settle
our obligations under the agreements at their aggregate,
estimated termination value of $579 million.
|
|
NOTE 6
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE
|
ASC 820, Fair Value Measurements and Disclosures
(ASC 820) defines fair value, establishes a
framework for measuring fair value, and expands disclosures
about fair value measurements. ASC 820 applies to reported
balances that are required or permitted to be measured at fair
value under existing accounting pronouncements.
ASC 820 emphasizes 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, ASC 820
establishes a fair value hierarchy that distinguishes between
market participant assumptions based on market data obtained
from sources independent of the reporting entity (observable
inputs that are
11
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (continued)
|
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
$473 million ($478 million par value) at
September 30, 2009. 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 and the first nine months of 2009, certain issuers
of our ARS redeemed $93 million and $95 million,
respectively, 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. We incorporate credit valuation adjustments to
reflect both our own nonperformance risk and the respective
counterpartys nonperformance risk in the fair value
measurements.
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
12
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (continued)
|
Derivative
Financial Instruments (continued)
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 September 30, 2009.
The following table summarizes our assets and liabilities
measured at fair value on a recurring basis as of
September 30, 2009, 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
|
|
$
|
1,525
|
|
|
$
|
256
|
|
|
$
|
794
|
|
|
$
|
475
|
|
Less amounts classified as current assets
|
|
|
(154
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
|
|
102
|
|
|
|
794
|
|
|
|
475
|
|
Cross currency swap (Other assets)
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
Cross currency swaps (Income taxes and other liabilities)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
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 nine months ended September 30, 2009 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
Interest
|
|
|
|
of Insurance
|
|
|
Cross Currency
|
|
|
Rate
|
|
|
|
Subsidiary
|
|
|
Swaps
|
|
|
Swaps
|
|
|
Asset (liability) balances at December 31, 2008
|
|
$
|
538
|
|
|
$
|
97
|
|
|
$
|
(26
|
)
|
|
$
|
(657
|
)
|
Realized gains and losses included in earnings
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
242
|
|
Unrealized gains (losses) included in other comprehensive income
|
|
|
35
|
|
|
|
|
|
|
|
11
|
|
|
|
(220
|
)
|
Purchases, issuances and settlements
|
|
|
(98
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (liability) balances at September 30, 2009
|
|
$
|
475
|
|
|
$
|
92
|
|
|
$
|
(15
|
)
|
|
$
|
(623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of our long-term debt was
$25.111 billion and $20.225 billion at
September 30, 2009 and December 31, 2008,
respectively, compared to carrying amounts aggregating
$25.914 billion and $26.989 billion, respectively. The
estimates of fair value are generally based upon the quoted
market prices or quoted market prices for similar issues of
long-term debt with the same maturities.
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could have a material,
adverse effect on our results of operations or financial
position in a given period.
13
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
CONTINGENCIES (continued)
|
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 8
|
COMPREHENSIVE
INCOME AND CAPITAL STRUCTURE
|
The components of comprehensive income, net of related taxes,
for the quarters and nine months ended September 30, 2009
and 2008 are only attributable to HCA Inc. and are as follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
196
|
|
|
$
|
86
|
|
|
$
|
838
|
|
|
$
|
397
|
|
Change in fair value of derivative instruments
|
|
|
(31
|
)
|
|
|
(23
|
)
|
|
|
23
|
|
|
|
5
|
|
Change in fair value of
available-for-sale
securities
|
|
|
32
|
|
|
|
(8
|
)
|
|
|
47
|
|
|
|
(19
|
)
|
Foreign currency translation adjustments
|
|
|
(10
|
)
|
|
|
(24
|
)
|
|
|
22
|
|
|
|
(24
|
)
|
Defined benefit plans
|
|
|
2
|
|
|
|
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
189
|
|
|
$
|
31
|
|
|
$
|
937
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of
related taxes, are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in fair value of derivative instruments
|
|
$
|
(417
|
)
|
|
$
|
(440
|
)
|
Change in fair value of
available-for-sale
securities
|
|
|
17
|
|
|
|
(30
|
)
|
Foreign currency translation adjustments
|
|
|
(6
|
)
|
|
|
(28
|
)
|
Defined benefit plans
|
|
|
(99
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(505
|
)
|
|
$
|
(604
|
)
|
|
|
|
|
|
|
|
|
|
The changes in stockholders deficit, including changes in
stockholders deficit attributable to HCA Inc. and changes
in equity attributable to noncontrolling interests are as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit) Attributable to HCA Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Accumulated
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Other
|
|
|
|
|
|
Attributable to
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Par
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
|
|
|
|
(000)
|
|
|
Value
|
|
|
Value
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
|
Balances, December 31, 2008
|
|
|
94,367
|
|
|
$
|
1
|
|
|
$
|
165
|
|
|
$
|
(604
|
)
|
|
$
|
(9,817
|
)
|
|
$
|
995
|
|
|
$
|
(9,260
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
838
|
|
|
|
233
|
|
|
|
1,071
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(254
|
)
|
|
|
(254
|
)
|
Share-based benefit plans
|
|
|
248
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2009
|
|
|
94,615
|
|
|
$
|
1
|
|
|
$
|
204
|
|
|
$
|
(505
|
)
|
|
$
|
(8,979
|
)
|
|
$
|
990
|
|
|
$
|
(8,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
We operate in one line of business, which is operating hospitals
and related health care entities. During the quarters ended
September 30, 2009 and 2008, approximately 22% of our
patient revenues related to patients participating in the
fee-for-service
Medicare program. During the nine months ended
September 30, 2009 and 2008, approximately 23% of our
patient 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 47 consolidating hospitals located in the Central
United States and the Western Group includes 54 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, losses (gains) on sales of
facilities, impairment of long-lived assets, 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 accounting principles, and
the items excluded from adjusted segment EBITDA are significant
components in understanding and assessing financial performance.
Because adjusted segment EBITDA is not a measurement determined
in accordance with generally accepted accounting principles and
is thus susceptible to varying calculations, adjusted segment
EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies. The geographic distributions
of our revenues, equity in earnings of affiliates, adjusted
segment EBITDA and depreciation and amortization are summarized
in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Group
|
|
$
|
1,823
|
|
|
$
|
1,663
|
|
|
$
|
5,431
|
|
|
$
|
5,007
|
|
Eastern Group
|
|
|
2,191
|
|
|
|
2,059
|
|
|
|
6,647
|
|
|
|
6,382
|
|
Western Group
|
|
|
3,291
|
|
|
|
3,037
|
|
|
|
9,720
|
|
|
|
8,976
|
|
Corporate and other
|
|
|
228
|
|
|
|
243
|
|
|
|
649
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,533
|
|
|
$
|
7,002
|
|
|
$
|
22,447
|
|
|
$
|
21,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Group
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
Eastern Group
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Western Group
|
|
|
(53
|
)
|
|
|
(42
|
)
|
|
|
(179
|
)
|
|
|
(168
|
)
|
Corporate and other
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(53
|
)
|
|
$
|
(41
|
)
|
|
$
|
(182
|
)
|
|
$
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Group
|
|
$
|
328
|
|
|
$
|
240
|
|
|
$
|
1,023
|
|
|
$
|
791
|
|
Eastern Group
|
|
|
312
|
|
|
|
277
|
|
|
|
1,085
|
|
|
|
931
|
|
Western Group
|
|
|
666
|
|
|
|
541
|
|
|
|
2,111
|
|
|
|
1,661
|
|
Corporate and other
|
|
|
(33
|
)
|
|
|
(5
|
)
|
|
|
(90
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,273
|
|
|
$
|
1,053
|
|
|
$
|
4,129
|
|
|
$
|
3,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
SEGMENT
AND GEOGRAPHIC INFORMATION (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Group
|
|
$
|
88
|
|
|
$
|
88
|
|
|
$
|
264
|
|
|
$
|
270
|
|
Eastern Group
|
|
|
91
|
|
|
|
87
|
|
|
|
274
|
|
|
|
267
|
|
Western Group
|
|
|
144
|
|
|
|
137
|
|
|
|
434
|
|
|
|
413
|
|
Corporate and other
|
|
|
31
|
|
|
|
38
|
|
|
|
95
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
354
|
|
|
$
|
350
|
|
|
$
|
1,067
|
|
|
$
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA
|
|
$
|
1,273
|
|
|
$
|
1,053
|
|
|
$
|
4,129
|
|
|
$
|
3,337
|
|
Depreciation and amortization
|
|
|
354
|
|
|
|
350
|
|
|
|
1,067
|
|
|
|
1,062
|
|
Interest expense
|
|
|
510
|
|
|
|
497
|
|
|
|
1,487
|
|
|
|
1,521
|
|
Losses (gains) on sales of facilities
|
|
|
|
|
|
|
(50
|
)
|
|
|
8
|
|
|
|
(90
|
)
|
Impairment of long-lived assets
|
|
|
3
|
|
|
|
44
|
|
|
|
16
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
406
|
|
|
$
|
212
|
|
|
$
|
1,551
|
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10
|
ACQUISITIONS,
DISPOSITIONS AND IMPAIRMENT OF LONG-LIVED ASSETS
|
During the nine months ended September 30, 2009, we paid
$42 million to acquire nonhospital health care entities.
During the nine months ended September 30, 2008, we paid
$18 million to acquire one hospital and $58 million to
acquire other health care entities.
During the nine months ended September 30, 2009, we
received proceeds of $39 million and recognized a net
pretax loss of $8 million related to sales of hospital
facilities and other investments. During the quarter and nine
months ended September 30, 2008, we received proceeds of
$75 million and $185 million, respectively, and
recognized net pretax gains on sales of facilities of
$50 million and $90 million, respectively. For the
quarter ended September 30, 2008, the $50 million
pretax gain is comprised of a $39 million pretax gain on
the sale of a hospital facility and $11 million of net
pretax gains on the sales of other health care entity
investments. For the nine months ended September 30, 2008,
the $90 million pretax gain includes $86 million of
net pretax gains on sales of hospital facilities and
$4 million of net pretax gains on sales of real estate and
other health care entity investments.
During the quarter and nine months ended September 30,
2009, we recorded charges of $3 million and
$16 million, respectively, to adjust the values of certain
real estate investments in our Central Group to estimated fair
value. During the quarter and nine months ended
September 30, 2008, we recorded impairment charges of
$44 million and $53 million, respectively. The
$44 million impairment charge for the quarter ended
September 30, 2008 related to adjusting the value of
goodwill for other health care entity investments in our Eastern
Group to estimated fair value. The additional $9 million
impairment charge included in our operating results for the nine
months ended September 30, 2008 related to adjusting the
value of certain hospital facilities in our Central Group to
estimated fair value.
16
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
Our senior secured credit facilities and senior secured notes
are fully and unconditionally guaranteed by substantially all
existing and future, direct and indirect, wholly-owned material
domestic subsidiaries that are Unrestricted
Subsidiaries under our Indenture dated December 16,
1993 (except for certain special purpose subsidiaries that only
guarantee and pledge their assets under our senior secured
asset-based revolving credit facility).
Our summarized condensed consolidating balance sheets at
September 30, 2009 and December 31, 2008 and condensed
consolidating statements of income for the quarters and nine
months ended September 30, 2009 and 2008 and condensed
consolidating statements of cash flows for the nine months ended
September 30, 2009 and 2008, segregating the parent company
issuer, the subsidiary guarantors, the subsidiary non-guarantors
and eliminations, follow:
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,387
|
|
|
$
|
3,146
|
|
|
$
|
|
|
|
$
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
1,796
|
|
|
|
1,217
|
|
|
|
|
|
|
|
3,013
|
|
Supplies
|
|
|
|
|
|
|
701
|
|
|
|
505
|
|
|
|
|
|
|
|
1,206
|
|
Other operating expenses
|
|
|
1
|
|
|
|
634
|
|
|
|
549
|
|
|
|
|
|
|
|
1,184
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
577
|
|
|
|
333
|
|
|
|
|
|
|
|
910
|
|
Equity in earnings of affiliates
|
|
|
(560
|
)
|
|
|
(19
|
)
|
|
|
(34
|
)
|
|
|
560
|
|
|
|
(53
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
196
|
|
|
|
158
|
|
|
|
|
|
|
|
354
|
|
Interest expense (income)
|
|
|
608
|
|
|
|
(83
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
510
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
Management fees
|
|
|
|
|
|
|
(116
|
)
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
3,688
|
|
|
|
2,830
|
|
|
|
560
|
|
|
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(49
|
)
|
|
|
699
|
|
|
|
316
|
|
|
|
(560
|
)
|
|
|
406
|
|
Provision for income taxes
|
|
|
(245
|
)
|
|
|
273
|
|
|
|
104
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
196
|
|
|
|
426
|
|
|
|
212
|
|
|
|
(560
|
)
|
|
|
274
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
13
|
|
|
|
65
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
196
|
|
|
$
|
413
|
|
|
$
|
147
|
|
|
$
|
(560
|
)
|
|
$
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
4,032
|
|
|
$
|
2,970
|
|
|
$
|
|
|
|
$
|
7,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
1,722
|
|
|
|
1,161
|
|
|
|
|
|
|
|
2,883
|
|
Supplies
|
|
|
|
|
|
|
657
|
|
|
|
484
|
|
|
|
|
|
|
|
1,141
|
|
Other operating expenses
|
|
|
(3
|
)
|
|
|
635
|
|
|
|
515
|
|
|
|
|
|
|
|
1,147
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
471
|
|
|
|
348
|
|
|
|
|
|
|
|
819
|
|
Equity in earnings of affiliates
|
|
|
(432
|
)
|
|
|
(14
|
)
|
|
|
(27
|
)
|
|
|
432
|
|
|
|
(41
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
190
|
|
|
|
160
|
|
|
|
|
|
|
|
350
|
|
Interest expense (income)
|
|
|
541
|
|
|
|
(23
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
497
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
(8
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(50
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
Management fees
|
|
|
|
|
|
|
(109
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
3,521
|
|
|
|
2,731
|
|
|
|
432
|
|
|
|
6,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(106
|
)
|
|
|
511
|
|
|
|
239
|
|
|
|
(432
|
)
|
|
|
212
|
|
Provision for income taxes
|
|
|
(192
|
)
|
|
|
196
|
|
|
|
72
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
86
|
|
|
|
315
|
|
|
|
167
|
|
|
|
(432
|
)
|
|
|
136
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
13
|
|
|
|
37
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
86
|
|
|
$
|
302
|
|
|
$
|
130
|
|
|
$
|
(432
|
)
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
13,200
|
|
|
$
|
9,247
|
|
|
$
|
|
|
|
$
|
22,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
5,311
|
|
|
|
3,569
|
|
|
|
|
|
|
|
8,880
|
|
Supplies
|
|
|
|
|
|
|
2,134
|
|
|
|
1,493
|
|
|
|
|
|
|
|
3,627
|
|
Other operating expenses
|
|
|
13
|
|
|
|
1,870
|
|
|
|
1,527
|
|
|
|
|
|
|
|
3,410
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,631
|
|
|
|
952
|
|
|
|
|
|
|
|
2,583
|
|
Equity in earnings of affiliates
|
|
|
(1,939
|
)
|
|
|
(67
|
)
|
|
|
(115
|
)
|
|
|
1,939
|
|
|
|
(182
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
592
|
|
|
|
475
|
|
|
|
|
|
|
|
1,067
|
|
Interest expense (income)
|
|
|
1,733
|
|
|
|
(219
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
1,487
|
|
Losses on sales of facilities
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
8
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
15
|
|
|
|
1
|
|
|
|
|
|
|
|
16
|
|
Management fees
|
|
|
|
|
|
|
(347
|
)
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
10,926
|
|
|
|
8,224
|
|
|
|
1,939
|
|
|
|
20,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
193
|
|
|
|
2,274
|
|
|
|
1,023
|
|
|
|
(1,939
|
)
|
|
|
1,551
|
|
Provision for income taxes
|
|
|
(645
|
)
|
|
|
816
|
|
|
|
309
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
838
|
|
|
|
1,458
|
|
|
|
714
|
|
|
|
(1,939
|
)
|
|
|
1,071
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
39
|
|
|
|
194
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
838
|
|
|
$
|
1,419
|
|
|
$
|
520
|
|
|
$
|
(1,939
|
)
|
|
$
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
12,229
|
|
|
$
|
8,880
|
|
|
$
|
|
|
|
$
|
21,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
5,128
|
|
|
|
3,435
|
|
|
|
|
|
|
|
8,563
|
|
Supplies
|
|
|
|
|
|
|
1,999
|
|
|
|
1,464
|
|
|
|
|
|
|
|
3,463
|
|
Other operating expenses
|
|
|
(1
|
)
|
|
|
1,846
|
|
|
|
1,551
|
|
|
|
|
|
|
|
3,396
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,527
|
|
|
|
993
|
|
|
|
|
|
|
|
2,520
|
|
Equity in earnings of affiliates
|
|
|
(1,420
|
)
|
|
|
(63
|
)
|
|
|
(107
|
)
|
|
|
1,420
|
|
|
|
(170
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
579
|
|
|
|
483
|
|
|
|
|
|
|
|
1,062
|
|
Interest expense (income)
|
|
|
1,624
|
|
|
|
(42
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
1,521
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
(90
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
Management fees
|
|
|
|
|
|
|
(329
|
)
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
10,645
|
|
|
|
8,050
|
|
|
|
1,420
|
|
|
|
20,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(203
|
)
|
|
|
1,584
|
|
|
|
830
|
|
|
|
(1,420
|
)
|
|
|
791
|
|
Provision for income taxes
|
|
|
(600
|
)
|
|
|
571
|
|
|
|
262
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
397
|
|
|
|
1,013
|
|
|
|
568
|
|
|
|
(1,420
|
)
|
|
|
558
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
39
|
|
|
|
122
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
397
|
|
|
$
|
974
|
|
|
$
|
446
|
|
|
$
|
(1,420
|
)
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
108
|
|
|
$
|
335
|
|
|
$
|
|
|
|
$
|
443
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2,046
|
|
|
|
1,453
|
|
|
|
|
|
|
|
3,499
|
|
Inventories
|
|
|
|
|
|
|
453
|
|
|
|
292
|
|
|
|
|
|
|
|
745
|
|
Deferred income taxes
|
|
|
1,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,099
|
|
Other
|
|
|
45
|
|
|
|
180
|
|
|
|
290
|
|
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,144
|
|
|
|
2,787
|
|
|
|
2,370
|
|
|
|
|
|
|
|
6,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
7,010
|
|
|
|
4,341
|
|
|
|
|
|
|
|
11,351
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
1,371
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
240
|
|
|
|
615
|
|
|
|
|
|
|
|
855
|
|
Goodwill
|
|
|
|
|
|
|
1,659
|
|
|
|
937
|
|
|
|
|
|
|
|
2,596
|
|
Deferred loan costs
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
Investments in and advances to subsidiaries
|
|
|
21,229
|
|
|
|
|
|
|
|
|
|
|
|
(21,229
|
)
|
|
|
|
|
Other
|
|
|
1,082
|
|
|
|
20
|
|
|
|
108
|
|
|
|
|
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,891
|
|
|
$
|
11,716
|
|
|
$
|
9,742
|
|
|
$
|
(21,229
|
)
|
|
$
|
24,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
738
|
|
|
$
|
461
|
|
|
$
|
|
|
|
$
|
1,199
|
|
Accrued salaries
|
|
|
|
|
|
|
607
|
|
|
|
347
|
|
|
|
|
|
|
|
954
|
|
Other accrued expenses
|
|
|
392
|
|
|
|
341
|
|
|
|
583
|
|
|
|
|
|
|
|
1,316
|
|
Long-term debt due within one year
|
|
|
609
|
|
|
|
4
|
|
|
|
22
|
|
|
|
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001
|
|
|
|
1,690
|
|
|
|
1,413
|
|
|
|
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
24,853
|
|
|
|
96
|
|
|
|
330
|
|
|
|
|
|
|
|
25,279
|
|
Intercompany balances
|
|
|
5,910
|
|
|
|
(9,770
|
)
|
|
|
3,860
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
1,097
|
|
|
|
|
|
|
|
1,097
|
|
Income taxes and other liabilities
|
|
|
1,259
|
|
|
|
374
|
|
|
|
149
|
|
|
|
|
|
|
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,023
|
|
|
|
(7,610
|
)
|
|
|
6,849
|
|
|
|
|
|
|
|
32,262
|
|
Equity securities with contingent redemption rights
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
Stockholders (deficit) equity attributable to HCA
Inc.
|
|
|
(9,279
|
)
|
|
|
19,207
|
|
|
|
2,022
|
|
|
|
(21,229
|
)
|
|
|
(9,279
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
119
|
|
|
|
871
|
|
|
|
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,279
|
)
|
|
|
19,326
|
|
|
|
2,893
|
|
|
|
(21,229
|
)
|
|
|
(8,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,891
|
|
|
$
|
11,716
|
|
|
$
|
9,742
|
|
|
$
|
(21,229
|
)
|
|
$
|
24,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
331
|
|
|
$
|
|
|
|
$
|
465
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2,214
|
|
|
|
1,566
|
|
|
|
|
|
|
|
3,780
|
|
Inventories
|
|
|
|
|
|
|
455
|
|
|
|
282
|
|
|
|
|
|
|
|
737
|
|
Deferred income taxes
|
|
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914
|
|
Other
|
|
|
|
|
|
|
140
|
|
|
|
265
|
|
|
|
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914
|
|
|
|
2,943
|
|
|
|
2,444
|
|
|
|
|
|
|
|
6,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
7,122
|
|
|
|
4,407
|
|
|
|
|
|
|
|
11,529
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
1,422
|
|
|
|
|
|
|
|
1,422
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
243
|
|
|
|
599
|
|
|
|
|
|
|
|
842
|
|
Goodwill
|
|
|
|
|
|
|
1,643
|
|
|
|
937
|
|
|
|
|
|
|
|
2,580
|
|
Deferred loan costs
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458
|
|
Investments in and advances to subsidiaries
|
|
|
19,290
|
|
|
|
|
|
|
|
|
|
|
|
(19,290
|
)
|
|
|
|
|
Other
|
|
|
1,050
|
|
|
|
31
|
|
|
|
67
|
|
|
|
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,712
|
|
|
$
|
11,982
|
|
|
$
|
9,876
|
|
|
$
|
(19,290
|
)
|
|
$
|
24,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
881
|
|
|
$
|
489
|
|
|
$
|
|
|
|
$
|
1,370
|
|
Accrued salaries
|
|
|
|
|
|
|
549
|
|
|
|
305
|
|
|
|
|
|
|
|
854
|
|
Other accrued expenses
|
|
|
435
|
|
|
|
284
|
|
|
|
563
|
|
|
|
|
|
|
|
1,282
|
|
Long-term debt due within one year
|
|
|
355
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790
|
|
|
|
1,714
|
|
|
|
1,406
|
|
|
|
|
|
|
|
3,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
26,089
|
|
|
|
99
|
|
|
|
397
|
|
|
|
|
|
|
|
26,585
|
|
Intercompany balances
|
|
|
3,663
|
|
|
|
(8,136
|
)
|
|
|
4,473
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
1,108
|
|
|
|
|
|
|
|
1,108
|
|
Income taxes and other liabilities
|
|
|
1,270
|
|
|
|
379
|
|
|
|
133
|
|
|
|
|
|
|
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,812
|
|
|
|
(5,944
|
)
|
|
|
7,517
|
|
|
|
|
|
|
|
33,385
|
|
Equity securities with contingent redemption rights
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
Stockholders (deficit) equity attributable to HCA
Inc.
|
|
|
(10,255
|
)
|
|
|
17,788
|
|
|
|
1,502
|
|
|
|
(19,290
|
)
|
|
|
(10,255
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
138
|
|
|
|
857
|
|
|
|
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,255
|
)
|
|
|
17,926
|
|
|
|
2,359
|
|
|
|
(19,290
|
)
|
|
|
(9,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,712
|
|
|
$
|
11,982
|
|
|
$
|
9,876
|
|
|
$
|
(19,290
|
)
|
|
$
|
24,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
838
|
|
|
$
|
1,458
|
|
|
$
|
714
|
|
|
$
|
(1,939
|
)
|
|
$
|
1,071
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash from operating assets and liabilities
|
|
|
201
|
|
|
|
(1,475
|
)
|
|
|
(862
|
)
|
|
|
|
|
|
|
(2,136
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,631
|
|
|
|
952
|
|
|
|
|
|
|
|
2,583
|
|
Depreciation and amortization
|
|
|
|
|
|
|
592
|
|
|
|
475
|
|
|
|
|
|
|
|
1,067
|
|
Income taxes
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(485
|
)
|
Losses on sales of facilities
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
8
|
|
Impairments of long-lived assets
|
|
|
|
|
|
|
15
|
|
|
|
1
|
|
|
|
|
|
|
|
16
|
|
Amortization of deferred loan costs
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Pay-in-kind
interest
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Share-based compensation
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Equity in earnings of affiliates
|
|
|
(1,939
|
)
|
|
|
|
|
|
|
|
|
|
|
1,939
|
|
|
|
|
|
Other
|
|
|
42
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,204
|
)
|
|
|
2,232
|
|
|
|
1,287
|
|
|
|
|
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(522
|
)
|
|
|
(393
|
)
|
|
|
|
|
|
|
(915
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(38
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(42
|
)
|
Disposition of hospitals and health care entities
|
|
|
|
|
|
|
18
|
|
|
|
21
|
|
|
|
|
|
|
|
39
|
|
Change in investments
|
|
|
|
|
|
|
9
|
|
|
|
104
|
|
|
|
|
|
|
|
113
|
|
Other
|
|
|
|
|
|
|
(18
|
)
|
|
|
16
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(551
|
)
|
|
|
(256
|
)
|
|
|
|
|
|
|
(807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979
|
|
Net change in revolving credit facilities
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
Repayment of long-term debt
|
|
|
(2,960
|
)
|
|
|
(6
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
(3,050
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(58
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
(254
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
2,397
|
|
|
|
(1,643
|
)
|
|
|
(754
|
)
|
|
|
|
|
|
|
|
|
Payment of debt issuance costs
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
Other
|
|
|
(19
|
)
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,204
|
|
|
|
(1,707
|
)
|
|
|
(1,027
|
)
|
|
|
|
|
|
|
(1,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(26
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(22
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
134
|
|
|
|
331
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
108
|
|
|
$
|
335
|
|
|
$
|
|
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
HCA
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL
INFORMATION (continued)
|
HCA
INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
397
|
|
|
$
|
1,013
|
|
|
$
|
568
|
|
|
$
|
(1,420
|
)
|
|
$
|
558
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash from operating assets and liabilities
|
|
|
100
|
|
|
|
(1,627
|
)
|
|
|
(893
|
)
|
|
|
|
|
|
|
(2,420
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,527
|
|
|
|
993
|
|
|
|
|
|
|
|
2,520
|
|
Depreciation and amortization
|
|
|
|
|
|
|
579
|
|
|
|
483
|
|
|
|
|
|
|
|
1,062
|
|
Income taxes
|
|
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379
|
)
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
(90
|
)
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
Amortization of deferred loan costs
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Share-based compensation
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Equity in earnings of affiliates
|
|
|
(1,420
|
)
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
|
|
|
|
Other
|
|
|
6
|
|
|
|
18
|
|
|
|
3
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,212
|
)
|
|
|
1,510
|
|
|
|
1,117
|
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(579
|
)
|
|
|
(536
|
)
|
|
|
|
|
|
|
(1,115
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(25
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
(76
|
)
|
Disposition of hospitals and health care entities
|
|
|
|
|
|
|
20
|
|
|
|
165
|
|
|
|
|
|
|
|
185
|
|
Change in investments
|
|
|
|
|
|
|
(13
|
)
|
|
|
43
|
|
|
|
|
|
|
|
30
|
|
Other
|
|
|
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(599
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
(972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Net change in revolving credit facilities
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
Repayment of long-term debt
|
|
|
(699
|
)
|
|
|
(3
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(775
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(20
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
(141
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
1,382
|
|
|
|
(934
|
)
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,212
|
|
|
|
(957
|
)
|
|
|
(647
|
)
|
|
|
|
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(46
|
)
|
|
|
97
|
|
|
|
|
|
|
|
51
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
165
|
|
|
|
228
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
119
|
|
|
$
|
325
|
|
|
$
|
|
|
|
$
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This quarterly report on
Form 10-Q
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) the possible enactment of federal or state health care
reform and changes in federal, state or local laws or
regulations affecting the health care industry,
(4) 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, (5) the ability to achieve operating and
financial targets, attain expected levels of patient volumes and
control the costs of providing services, (6) 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,
(7) the highly competitive nature of the health care
business, (8) 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, (9) the efforts of insurers, health care providers
and others to contain health care costs, (10) the outcome
of our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures,
(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 availability and terms of capital to fund the
expansion of our business and improvements to our existing
facilities, (13) changes in accounting practices,
(14) changes in general economic conditions nationally and
regionally in our markets, (15) future divestitures which
may result in charges, (16) changes in business strategy or
development plans, (17) delays in receiving payments for
services provided, (18) the outcome of pending and any
future tax audits, appeals and litigation associated with our
tax positions, (19) potential liabilities and other claims
that may be asserted against us, and (20) other risk
factors described in our annual report on
Form 10-K
and other filings with the Securities and Exchange Commission.
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, which forward-looking statements
reflect managements views only as of the date of this
report. We undertake no obligation to revise or update any
forward-looking statements, whether as a result of new
information, future events or otherwise.
Third
Quarter 2009 Operations Summary
Net income attributable to HCA Inc. totaled $196 million
for the quarter ended September 30, 2009, compared to
$86 million for the quarter ended September 30, 2008.
Revenues increased to $7.533 billion in the third quarter
of 2009 from $7.002 billion in the third quarter of 2008.
No gains or losses on sales of facilities were recognized during
the third quarter of 2009, compared to gains on sales of
facilities of $50 million being recognized during the third
quarter of 2008. Third quarter 2009 results include an
impairment of long-lived assets of $3 million, compared to
an impairment of long-lived assets of $44 million for the
third quarter of 2008.
Revenues increased 7.6% on a consolidated basis and 7.7% on a
same facility basis for the quarter ended September 30,
2009 compared to the quarter ended September 30, 2008. The
increase in consolidated revenues can be attributed to the
combined impact of a 2.7% increase in revenue per equivalent
admission and a 4.7% increase in equivalent admissions. The same
facility revenues increase resulted from the combined impact of
a 2.8% increase in same facility revenue per equivalent
admission and a 4.8% increase in same facility equivalent
admissions.
25
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Third
Quarter 2009 Operations Summary (continued)
During the quarter ended September 30, 2009, consolidated
admissions and same facility admissions each increased 2.7%
compared to the quarter ended September 30, 2008. Inpatient
surgeries increased 3.2% on a consolidated basis and increased
1.9% on a same facility basis during the quarter ended
September 30, 2009, compared to the quarter ended
September 30, 2008. Outpatient surgeries increased 1.3% on
a consolidated basis and increased 0.8% on a same facility basis
during the quarter ended September 30, 2009, compared to
the quarter ended September 30, 2008. Emergency department
visits increased 10.6% on a consolidated basis and increased
11.1% on a same facility basis during the quarter ended
September 30, 2009, compared to the quarter ended
September 30, 2008.
For the quarter ended September 30, 2009, the provision for
doubtful accounts increased $91 million to 12.1% of
revenues, from 11.7% of revenues for the quarter ended
September 30, 2008. The combined self-pay revenue
deductions for charity care and uninsured discounts increased
$368 million during the third quarter of 2009, compared to
the third quarter of 2008. Same facility uninsured admissions
increased 8.2% and same facility uninsured emergency room visits
increased 12.0% for the quarter ended September 30, 2009
compared to the quarter ended September 30, 2008.
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 7.6% from $7.002 billion in the third
quarter of 2008 to $7.533 billion in the third quarter of
2009. The increase in consolidated revenues can be attributed to
the combined impact of a 2.7% increase in revenue per equivalent
admission and a 4.7% increase in equivalent admissions. Same
facility revenues increased 7.7% from $6.862 billion in the
third quarter of 2008 to $7.392 billion in the third
quarter of 2009. The increase in same facility revenues can be
attributed to the combined impact of a 2.8% increase in same
facility revenue per equivalent admission and a 4.8% increase in
same facility equivalent admissions.
Consolidated admissions and same facility admissions each
increased 2.7% compared to the third quarter of 2008.
Consolidated outpatient surgeries increased 1.3% and same
facility outpatient surgeries increased 0.8% in the third
quarter of 2009, compared to the third quarter of 2008.
Consolidated inpatient surgeries increased 3.2% and same
facility inpatient surgeries increased 1.9% in the third quarter
of 2009, compared to the third quarter of 2008. Emergency
department visits increased 10.6% on a consolidated basis and
increased 11.1% on a same facility basis during the quarter
ended September 30, 2009, compared to the quarter ended
September 30, 2008.
Same facility uninsured admissions increased by 2,017
admissions, or 8.2%, in the third quarter of 2009 compared to
the third quarter of 2008. Same facility uninsured admissions in
2009, compared to 2008, increased 10.4% in the second quarter of
2009 and declined 0.1% in the first quarter of 2009. The
quarterly trend of same facility uninsured admissions growth
during 2008, compared to 2007, was 5.3% during the first
quarter, 1.0% during the second quarter, 0.9% during the third
quarter and a decline of 0.4% during the fourth quarter.
26
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Revenue/Volume
Trends (continued)
The approximate percentages of our admissions related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care and other insurers and the uninsured for the quarters and
nine months ended September 30, 2009 and 2008 are set forth
in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
32
|
%
|
|
|
33
|
%
|
|
|
34
|
%
|
|
|
35
|
%
|
Managed Medicare
|
|
|
10
|
|
|
|
9
|
|
|
|
10
|
|
|
|
9
|
|
Medicaid
|
|
|
9
|
|
|
|
8
|
|
|
|
9
|
|
|
|
8
|
|
Managed Medicaid
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
Managed care and other insurers
|
|
|
34
|
|
|
|
36
|
|
|
|
33
|
|
|
|
35
|
|
Uninsured
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The approximate percentages of our inpatient revenues related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care and other insurers and the uninsured for the quarters and
nine months ended September 30, 2009 and 2008 are set forth
in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
29
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
31
|
%
|
Managed Medicare
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Medicaid
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
7
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Managed care and other insurers
|
|
|
45
|
|
|
|
45
|
|
|
|
44
|
|
|
|
45
|
|
Uninsured
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, we had 73 hospitals in the states of
Texas and Florida. During the third quarter of 2009, 57% of our
admissions and 51% of our revenues were generated by these
hospitals. Uninsured admissions in Texas and Florida represented
63% of our uninsured admissions during the third quarter of 2009.
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 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. Our Texas Medicaid
revenues included $115 million and $100 million during
the third quarters of 2009 and 2008, respectively, and
$276 million and $194 million during the first nine
months of 2009 and 2008, respectively, of Medicaid supplemental
payments pursuant to UPL programs.
27
ITEM 2.
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 results from
operations for the quarters and nine months ended
September 30, 2009 and 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
7,533
|
|
|
|
100.0
|
|
|
$
|
7,002
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
3,013
|
|
|
|
40.0
|
|
|
|
2,883
|
|
|
|
41.2
|
|
Supplies
|
|
|
1,206
|
|
|
|
16.0
|
|
|
|
1,141
|
|
|
|
16.3
|
|
Other operating expenses
|
|
|
1,184
|
|
|
|
15.7
|
|
|
|
1,147
|
|
|
|
16.4
|
|
Provision for doubtful accounts
|
|
|
910
|
|
|
|
12.1
|
|
|
|
819
|
|
|
|
11.7
|
|
Equity in earnings of affiliates
|
|
|
(53
|
)
|
|
|
(0.7
|
)
|
|
|
(41
|
)
|
|
|
(0.6
|
)
|
Depreciation and amortization
|
|
|
354
|
|
|
|
4.7
|
|
|
|
350
|
|
|
|
5.0
|
|
Interest expense
|
|
|
510
|
|
|
|
6.8
|
|
|
|
497
|
|
|
|
7.1
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
(0.7
|
)
|
Impairment of long-lived assets
|
|
|
3
|
|
|
|
|
|
|
|
44
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,127
|
|
|
|
94.6
|
|
|
|
6,790
|
|
|
|
97.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
406
|
|
|
|
5.4
|
|
|
|
212
|
|
|
|
3.0
|
|
Provision for income taxes
|
|
|
132
|
|
|
|
1.8
|
|
|
|
76
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
274
|
|
|
|
3.6
|
|
|
|
136
|
|
|
|
1.9
|
|
Net income attributable to noncontrolling interests
|
|
|
78
|
|
|
|
1.0
|
|
|
|
50
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
196
|
|
|
|
2.6
|
|
|
$
|
86
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7.6
|
%
|
|
|
|
|
|
|
6.6
|
%
|
|
|
|
|
Income before income taxes
|
|
|
91.5
|
|
|
|
|
|
|
|
(44.7
|
)
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
|
126.0
|
|
|
|
|
|
|
|
(71.1
|
)
|
|
|
|
|
Admissions(a)
|
|
|
2.7
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
4.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.7
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7.7
|
|
|
|
|
|
|
|
7.7
|
|
|
|
|
|
Admissions(a)
|
|
|
2.7
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
4.8
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.8
|
|
|
|
|
|
|
|
5.7
|
|
|
|
|
|
28
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Operating
Results Summary (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
22,447
|
|
|
|
100.0
|
|
|
$
|
21,109
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
8,880
|
|
|
|
39.6
|
|
|
|
8,563
|
|
|
|
40.6
|
|
Supplies
|
|
|
3,627
|
|
|
|
16.2
|
|
|
|
3,463
|
|
|
|
16.4
|
|
Other operating expenses
|
|
|
3,410
|
|
|
|
15.1
|
|
|
|
3,396
|
|
|
|
16.1
|
|
Provision for doubtful accounts
|
|
|
2,583
|
|
|
|
11.5
|
|
|
|
2,520
|
|
|
|
11.9
|
|
Equity in earnings of affiliates
|
|
|
(182
|
)
|
|
|
(0.8
|
)
|
|
|
(170
|
)
|
|
|
(0.8
|
)
|
Depreciation and amortization
|
|
|
1,067
|
|
|
|
4.8
|
|
|
|
1,062
|
|
|
|
5.0
|
|
Interest expense
|
|
|
1,487
|
|
|
|
6.6
|
|
|
|
1,521
|
|
|
|
7.2
|
|
Losses (gains) on sales of facilities
|
|
|
8
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
(0.4
|
)
|
Impairment of long-lived assets
|
|
|
16
|
|
|
|
0.1
|
|
|
|
53
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,896
|
|
|
|
93.1
|
|
|
|
20,318
|
|
|
|
96.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,551
|
|
|
|
6.9
|
|
|
|
791
|
|
|
|
3.7
|
|
Provision for income taxes
|
|
|
480
|
|
|
|
2.1
|
|
|
|
233
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,071
|
|
|
|
4.8
|
|
|
|
558
|
|
|
|
2.6
|
|
Net income attributable to noncontrolling interests
|
|
|
233
|
|
|
|
1.1
|
|
|
|
161
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
838
|
|
|
|
3.7
|
|
|
$
|
397
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
6.3
|
%
|
|
|
|
|
|
|
5.7
|
%
|
|
|
|
|
Income before income taxes
|
|
|
96.1
|
|
|
|
|
|
|
|
(21.0
|
)
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
|
110.9
|
|
|
|
|
|
|
|
(33.3
|
)
|
|
|
|
|
Admissions(a)
|
|
|
0.8
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
3.3
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.9
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
6.7
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
Admissions(a)
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
3.8
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.8
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
(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 revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The
equivalent admissions computation equates outpatient
revenues 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 which were either acquired or
divested during the current and prior period. |
29
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Quarters
Ended September 30, 2009 and 2008
Net income attributable to HCA Inc. totaled $196 million
for the third quarter of 2009 compared to $86 million for
the third quarter of 2008. Revenues increased 7.6% due to the
combined impact of revenue per equivalent admission growth of
2.7% and an increase of 4.7% in equivalent admissions for the
third quarter of 2009 compared to the third quarter of 2008.
For the third quarter of 2009, consolidated admissions and same
facility admissions each increased 2.7% compared to the third
quarter of 2008. Outpatient surgical volumes increased 1.3% on a
consolidated basis and increased 0.8% on a same facility basis
during the third quarter of 2009, compared to the third quarter
of 2008. Consolidated inpatient surgeries increased 3.2% and
same facility inpatient surgeries increased 1.9% in the third
quarter of 2009, compared to the third quarter of 2008.
Emergency department visits increased 10.6% on a consolidated
basis and increased 11.1% on a same facility basis during the
quarter ended September 30, 2009, compared to the quarter
ended September 30, 2008.
Salaries and benefits, as a percentage of revenues, were 40.0%
in the third quarter of 2009 and 41.2% in the same quarter of
2008. Salaries and benefits per equivalent admission declined
0.2% in the third quarter of 2009 compared to the third quarter
of 2008. Same facility labor rate increases averaged 3.3% for
the third quarter of 2009 compared to the third quarter of 2008.
Supplies, as a percentage of revenues, were 16.0% in the third
quarter of 2009 and 16.3% in the third quarter of 2008. Supply
cost per equivalent admission increased 0.9% in the third
quarter of 2009 compared to the third quarter of 2008. Same
facility supply costs increased 9.6% for medical devices, 3.9%
for pharmacy supplies, 8.5% for blood products and 6.5% for
general medical and surgical items in the third quarter of 2009
compared to the third quarter of 2008.
Other operating expenses, as a percentage of revenues, declined
to 15.7% in the third quarter of 2009 compared to 16.4% in the
third quarter of 2008. Other operating expenses is primarily
comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including
professional liability insurance) and nonincome taxes. The
overall decline in other operating expenses, as a percentage of
revenues, is comprised of relatively small reductions in several
areas, including repairs and maintenance, utilities, employee
recruitment and travel and entertainment. Other operating
expenses include $57 million and $22 million of
indigent care costs in certain Texas markets during the third
quarters of 2009 and 2008, respectively. Provisions for losses
related to professional liability risks were $60 million
and $32 million for the third quarters of 2009 and 2008,
respectively. We recorded $15 million of expense related to
the hurricanes that occurred during the third quarter of 2008.
Provision for doubtful accounts increased $91 million, from
$819 million in the third quarter of 2008 to
$910 million in the third quarter of 2009, and as a
percentage of revenues, increased to 12.1% in the third quarter
of 2009 compared to 11.7% in the third quarter of 2008. The
provision for doubtful accounts and the allowance for doubtful
accounts relate primarily to uninsured amounts due directly from
patients. The combined self-pay revenue deductions for charity
care and uninsured discounts increased $368 million during
the third quarter of 2009, compared to the third quarter of
2008. The sum of the provision for doubtful accounts, uninsured
discounts and charity care, as a percentage of the sum of net
revenues, uninsured discounts and charity care, was 24.9% for
the third quarter of 2009, compared to 21.9% for the third
quarter of 2008. At September 30, 2009, our allowance for
doubtful accounts represented approximately 95% of the
$6.244 billion total patient due accounts receivable
balance, including accounts, net of estimated contractual
discounts, related to patients for which eligibility for
Medicaid assistance or charity was being evaluated.
Equity in earnings of affiliates increased from $41 million
in the third quarter of 2008 to $53 million in the third
quarter of 2009. Equity in earnings of affiliates relates
primarily to our Denver, Colorado market joint venture.
30
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Quarters
Ended September 30, 2009 and 2008 (continued)
Depreciation and amortization increased $4 million, from
$350 million in the third quarter of 2008 to
$354 million in the third quarter of 2009.
Interest expense increased from $497 million in the third
quarter of 2008 to $510 million in the third quarter of
2009. Our average debt balance was $26.139 billion for the
third quarter of 2009 compared to $27.263 billion for the
third quarter of 2008. The average interest rate for our long
term debt increased from 7.3% at September 30, 2008 to 7.5%
at September 30, 2009.
During the third quarter of 2009, no gains or losses on sales of
facilities were recognized. During the third quarter of 2008, we
recorded net gains on sales of facilities of $50 million,
which included a $39 million gain on the sale of a hospital.
During the third quarter of 2009, we recorded asset impairment
charges of $3 million to adjust the value of certain real
estate investments to estimated fair value. During the third
quarter of 2008, we recorded asset impairment charges of
$44 million to adjust the value of goodwill of health care
entity investments to estimated fair value.
The effective tax rate was 40.2% and 46.8% for the third
quarters of 2009 and 2008, respectively. The effective tax rate
computations exclude net income attributable to noncontrolling
interests as it relates to consolidated partnerships. Excluding
the effect of interest expense related to taxing authority
examinations, the effective tax rate for the third quarters of
2009 and 2008 would have been 39.6% and 41.3%, respectively.
Net income attributable to noncontrolling interests increased
from $50 million for the third quarter of 2008 to
$78 million for the third quarter of 2009. The increase in
net income attributable to noncontrolling interests related
primarily to growth in operating results of hospital joint
ventures in two Texas markets.
Nine
Months Ended September 30, 2009 and 2008
Net income attributable to HCA Inc. totaled $838 million in
the nine months ended September 30, 2009 compared to
$397 million in the nine months ended September 30,
2008. Revenues increased 6.3% due to the combined impact of
revenue per equivalent admission growth of 2.9% and an increase
of 3.3% in equivalent admissions for the first nine months of
2009 compared to the first nine months of 2008.
For the first nine months of 2009, consolidated admissions
increased 0.8% and same facility admissions increased 1.2%
compared to the first nine months of 2008. Outpatient surgical
volumes declined 0.3% on a consolidated basis and declined 0.1%
on a same facility basis during the first nine months of 2009,
compared to the first nine months of 2008. Consolidated
inpatient surgeries increased 0.1% and same facility inpatient
surgeries increased 0.7% in the first nine months of 2009,
compared to the first nine months of 2008. Emergency department
visits increased 5.8% on a consolidated basis and increased 6.4%
on a same facility basis during the first nine months of 2009,
compared to the first nine months of 2008.
Salaries and benefits, as a percentage of revenues, were 39.6%
in the first nine months of 2009 and 40.6% in the first nine
months of 2008. Salaries and benefits per equivalent admission
increased 0.4% in the first nine months of 2009 compared to the
first nine months of 2008. Same facility labor rate increases
averaged 3.8% for the first nine months of 2009 compared to the
first nine months of 2008.
Supplies, as a percentage of revenues, were 16.2% in the first
nine months of 2009 and 16.4% in the first nine months of 2008.
Supply cost per equivalent admission increased 1.4% in the first
nine months of 2009 compared to the first nine months of 2008.
Same facility supply costs increased 6.4% for medical devices,
3.1% for pharmacy supplies, 6.9% for blood products and 5.4% for
general medical and surgical items in the first nine months of
2009 compared to the first nine months of 2008.
31
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Nine Months Ended September 30, 2009 and 2008
(continued)
Other operating expenses, as a percentage of revenues, declined
to 15.1% in the first nine months of 2009 compared to 16.1% in
the first nine months of 2008. Other operating expenses is
primarily comprised of contract services, professional fees,
repairs and maintenance, rents and leases, utilities, insurance
(including professional liability insurance) and nonincome
taxes. The overall decline in other operating expenses, as a
percentage of revenues, is comprised of relatively small
reductions in several areas, including repairs and maintenance,
utilities, employee recruitment and travel and entertainment.
Other operating expenses include $145 million and
$99 million of indigent care costs in certain Texas markets
during the first nine months of 2009 and 2008, respectively.
Provisions for losses related to professional liability risks
were $154 million and $144 million for the first nine
months of 2009 and 2008, respectively.
Provision for doubtful accounts increased $63 million, from
$2.520 billion in the first nine months of 2008 to
$2.583 billion in the first nine months of 2009, and as a
percentage of revenues, declined to 11.5% in the first nine
months of 2009 compared to 11.9% in the first nine months of
2008. The provision for doubtful accounts and the allowance for
doubtful accounts relate primarily to uninsured amounts due
directly from patients. While the provision for doubtful
accounts decreased as a percentage of revenues, the combined
self-pay revenue deductions for charity care and uninsured
discounts increased $993 million for the first nine months
of 2009 compared to the first nine months of 2008. The sum of
the provision of doubtful accounts, uninsured discounts and
charity care, as a percentage of the sum of net revenues,
uninsured discounts and charity care, was 23.7% for the first
nine months of 2009, compared to 21.6% for the first nine months
of 2008. At September 30, 2009, our allowance for doubtful
accounts represented approximately 95% of the
$6.244 billion total patient due accounts receivable
balance, including accounts, net of estimated contractual
discounts, related to patients for which eligibility for
Medicaid assistance or charity was being evaluated.
Equity in earnings of affiliates was $182 million and
$170 million in the first nine months of 2009 and 2008,
respectively. Equity in earnings of affiliates relates primarily
to our Denver, Colorado market joint venture.
Depreciation and amortization increased $5 million, from
$1.062 billion in the first nine months of 2008 to
$1.067 billion in the first nine months of 2009.
Interest expense declined from $1.521 billion in the first
nine months of 2008 to $1.487 billion in the first nine
months of 2009 due primarily to a reduction in the average
outstanding debt balance. Our average debt balance was
$26.452 billion for the first nine months of 2009 compared
to $27.313 billion for the first nine months of 2008. The
average interest rate for our long term debt increased from 7.3%
at September 30, 2008 to 7.5% at September 30, 2009.
During the first nine months of 2009, we recorded net losses on
sales of facilities and other investments of $8 million.
During the first nine months of 2008, we recognized net gains on
sales of facilities of $90 million, which includes
$86 million of net gains on the sales of hospital
facilities and $4 million of net gains on sales of real
estate and other health care entity investments.
During the first nine months of 2009, we recorded asset
impairment charges of $16 million to adjust the value of
certain real estate investments to estimated fair value. During
the first nine months of 2008, we recorded asset impairment
charges of $53 million, including a $44 million
impairment charge related to adjusting the value of goodwill for
other health care entity investments to estimated fair value.
The additional $9 million asset impairment charge included
in our operating results for the first nine months of 2008
related to adjusting the value of certain hospital facilities to
estimated fair value.
The effective tax rate was 36.4% and 36.9% for the first nine
months of 2009 and 2008, respectively. The effective tax rate
computations exclude net income attributable to noncontrolling
interests as it relates to consolidated partnerships.
32
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results
of Operations (continued)
Nine Months Ended September 30, 2009 and 2008
(continued)
Net income attributable to noncontrolling interests increased
from $161 million for the first nine months of 2008 to
$233 million for the first nine months of 2009. The
increase in net income attributable to noncontrolling interests
related primarily to growth in operating results of hospital
joint ventures in two Texas markets.
Liquidity
and Capital Resources
Cash provided by operating activities totaled
$2.315 billion in the first nine months of 2009 compared to
$1.415 billion in the first nine months of 2008. The
$900 million increase in cash provided by operating
activities in the first nine months of 2009 compared to the
first nine months of 2008 related primarily to the
$513 million increase in net income and $347 million
improvement from changes in operating assets and liabilities and
the provision for doubtful accounts. We made $2.119 billion
and $1.992 billion in interest and net tax payments in the
first nine months of 2009 and 2008, respectively. Working
capital totaled $2.197 billion at September 30, 2009
and $2.391 billion at December 31, 2008. The net
decline in working capital at September 30, 2009 compared
to December 31, 2008 is due primarily to an increase in the
current portion of long-term debt.
Cash used in investing activities was $807 million in the
first nine months of 2009 compared to $972 million in the
first nine months of 2008. Excluding acquisitions, capital
expenditures were $915 million in the first nine months of
2009 and $1.115 billion in the first nine months of 2008.
Capital expenditures are expected to approximate $1.400 billion
in 2009. At September 30, 2009, there were projects under
construction which had estimated additional costs to complete
and equip over the next five years of approximately
$1.350 billion. We expect to finance capital expenditures
with internally generated and borrowed funds. We received cash
flows from our investments of $113 million and
$30 million in the first nine months of 2009 and 2008,
respectively. We received $39 million and $185 million
from sales of hospitals and health care entities during the
first nine months of 2009 and 2008, respectively.
Cash used in financing activities totaled $1.530 billion
during the first nine months of 2009 compared to
$392 million during the first nine months of 2008. During
the first nine months of 2009, cash flows used in financing
activities included reductions in net borrowings of
$1.196 billion, payments of debt issuance costs of
$68 million and distributions to noncontrolling interests
of $254 million. During the first nine months of 2008, cash
flows used in financing activities included reductions in net
borrowings of $241 million and distributions to
noncontrolling interests of $141 million.
Due to the Recapitalization, we are a highly leveraged company
with significant debt service requirements. Our debt totaled
$25.914 billion at September 30, 2009. Our interest
expense was $1.521 billion for the first nine months of
2008 and $1.487 billion for the first nine months of 2009.
In addition to cash flows from operations, available sources of
capital include amounts available under our senior secured
credit facilities ($2.863 billion and $3.209 billion
available as of September 30, 2009 and October 31,
2009, respectively) and anticipated access to public and private
debt markets.
Investments of our professional liability insurance subsidiary,
to maintain statutory equity and pay claims, totaled
$1.525 billion and $1.622 billion at
September 30, 2009 and December 31, 2008,
respectively. The insurance subsidiary maintained net reserves
for professional liability risks of $671 million and
$782 million at September 30, 2009 and
December 31, 2008, 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. Net reserves for the self-insured
professional liability risks retained were $633 million and
$548 million at September 30, 2009 and
December 31, 2008, respectively. Claims payments, net of
reinsurance recoveries, during the next 12 months are
expected to approximate $235 million. We estimate that
approximately $85 million of the expected net claim
payments during the next 12 months will relate to claims in
the self-insured retention.
33
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity
and Capital Resources (continued)
During February 2009, we issued $310 million aggregate
principal amount of
97/8% senior
secured second lien notes due 2017 at a price of 96.673% of
their face value, resulting in $300 million of gross
proceeds. After the payment of related fees and expenses, we
used the proceeds to repay outstanding indebtedness under our
senior secured term loan facilities.
During April 2009, we issued $1.500 billion aggregate
principal amount of
81/2% senior
secured first lien notes due 2019 at a price of 96.755% of their
face value, resulting in $1.451 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds to repay outstanding indebtedness under our senior
secured term loan facilities.
During August 2009, we issued $1.250 billion aggregate
principal amount of
77/8% senior
secured first lien notes due 2020 at a price of 98.254% of their
face value, resulting in $1.228 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds to repay outstanding indebtedness under our senior
secured term loan facilities.
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.
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
$1.518 billion and $7 million, respectively, at
September 30, 2009. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
September 30, 2009, we had a net unrealized gain of
$26 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 September 30, 2009, our
wholly-owned insurance subsidiary had invested $473 million
($478 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. 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
34
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity
and Capital Resources (continued)
Market Risk (continued)
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
$1.459 billion of long-term debt at September 30, 2009
was subject to variable rates of interest, while the remaining
balance in long-term debt of $24.455 billion at
September 30, 2009 was 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 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 0.50% 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 may fluctuate according to a
leverage ratio, with the exception of term loan B where the
margin is static. The average rate for our long-term debt
increased from 7.3% at September 30, 2008 to 7.5% at
September 30, 2009.
The estimated fair value of our total long-term debt was
$25.111 billion at September 30, 2009. 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 $15 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 foreign currency denominated
loans expose us to market risks associated with foreign
currencies. In order to mitigate the currency exposure related
to foreign currency denominated debt service obligations, 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. Our credit risk related to these
agreements is considered low because the swap agreements are
with creditworthy financial institutions.
Pending
IRS Disputes
At September 30, 2009, we were contesting before the IRS
Appeals Division, 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 10 affiliates
that are treated as partnerships for federal income tax
purposes. The disputed items include the timing of recognition
of certain patient service revenues and our method for
calculating the tax allowance for doubtful accounts.
Six taxable periods of HCA and its predecessors ended in 1997
through 2002 and the 2002 taxable year of six affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, were
pending before the IRS Examination Division as of
September 30, 2009.
The IRS began an audit of the 2005 and 2006 federal income tax
returns for HCA and seven affiliated partnerships during 2008.
During the quarter ended September 30, 2009, six of the
seven partnership audits were resolved with no material impact
on our results of operations or financial position.
Management believes that adequate provisions have been recorded
to satisfy final resolution of the disputed issues. Management
believes that HCA, its predecessors, subsidiaries 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.
35
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating
Data
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
CONSOLIDATING
|
|
|
|
|
|
|
|
|
Number of hospitals in operation at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
155
|
|
|
|
161
|
|
June 30
|
|
|
155
|
|
|
|
161
|
|
September 30
|
|
|
155
|
|
|
|
158
|
|
December 31
|
|
|
|
|
|
|
158
|
|
Number of freestanding outpatient surgical centers in operation
at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
97
|
|
|
|
101
|
|
June 30
|
|
|
97
|
|
|
|
99
|
|
September 30
|
|
|
97
|
|
|
|
99
|
|
December 31
|
|
|
|
|
|
|
97
|
|
Licensed hospital beds at(a):
|
|
|
|
|
|
|
|
|
March 31
|
|
|
38,763
|
|
|
|
38,375
|
|
June 30
|
|
|
38,793
|
|
|
|
38,448
|
|
September 30
|
|
|
38,829
|
|
|
|
38,386
|
|
December 31
|
|
|
|
|
|
|
38,504
|
|
Weighted average licensed beds(b):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
38,811
|
|
|
|
38,406
|
|
Second
|
|
|
38,817
|
|
|
|
38,419
|
|
Third
|
|
|
38,829
|
|
|
|
38,390
|
|
Fourth
|
|
|
|
|
|
|
38,474
|
|
Year
|
|
|
|
|
|
|
38,422
|
|
Average daily census(c):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
21,701
|
|
|
|
22,248
|
|
Second
|
|
|
20,577
|
|
|
|
20,743
|
|
Third
|
|
|
20,087
|
|
|
|
19,932
|
|
Fourth
|
|
|
|
|
|
|
20,273
|
|
Year
|
|
|
|
|
|
|
20,795
|
|
Admissions(d):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
396,200
|
|
|
|
401,700
|
|
Second
|
|
|
387,400
|
|
|
|
382,600
|
|
Third
|
|
|
387,600
|
|
|
|
377,400
|
|
Fourth
|
|
|
|
|
|
|
380,100
|
|
Year
|
|
|
|
|
|
|
1,541,800
|
|
36
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Data (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Equivalent admissions(e):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
610,200
|
|
|
|
601,300
|
|
Second
|
|
|
609,900
|
|
|
|
587,600
|
|
Third
|
|
|
615,100
|
|
|
|
587,400
|
|
Fourth
|
|
|
|
|
|
|
587,300
|
|
Year
|
|
|
|
|
|
|
2,363,600
|
|
Average length of stay (days)(f):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
4.9
|
|
|
|
5.0
|
|
Second
|
|
|
4.8
|
|
|
|
4.9
|
|
Third
|
|
|
4.8
|
|
|
|
4.9
|
|
Fourth
|
|
|
|
|
|
|
4.9
|
|
Year
|
|
|
|
|
|
|
4.9
|
|
Emergency room visits(g):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
1,359,700
|
|
|
|
1,368,800
|
|
Second
|
|
|
1,398,000
|
|
|
|
1,297,600
|
|
Third
|
|
|
1,441,200
|
|
|
|
1,303,100
|
|
Fourth
|
|
|
|
|
|
|
1,276,900
|
|
Year
|
|
|
|
|
|
|
5,246,400
|
|
Outpatient surgeries(h):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
194,400
|
|
|
|
196,900
|
|
Second
|
|
|
200,200
|
|
|
|
202,100
|
|
Third
|
|
|
199,100
|
|
|
|
196,500
|
|
Fourth
|
|
|
|
|
|
|
201,900
|
|
Year
|
|
|
|
|
|
|
797,400
|
|
Inpatient surgeries(i):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
122,600
|
|
|
|
125,400
|
|
Second
|
|
|
124,400
|
|
|
|
125,000
|
|
Third
|
|
|
125,300
|
|
|
|
121,400
|
|
Fourth
|
|
|
|
|
|
|
121,300
|
|
Year
|
|
|
|
|
|
|
493,100
|
|
37
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Data (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Days in accounts receivable(j):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
47
|
|
|
|
53
|
|
Second
|
|
|
45
|
|
|
|
51
|
|
Third
|
|
|
43
|
|
|
|
49
|
|
Fourth
|
|
|
|
|
|
|
48
|
|
Year
|
|
|
|
|
|
|
49
|
|
Gross patient revenues(k) (dollars in millions):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
$
|
28,742
|
|
|
$
|
25,804
|
|
Second
|
|
|
28,500
|
|
|
|
25,065
|
|
Third
|
|
|
28,340
|
|
|
|
24,783
|
|
Fourth
|
|
|
|
|
|
|
27,191
|
|
Year
|
|
|
|
|
|
|
102,843
|
|
Outpatient revenues as a% of patient revenues(l):
|
|
|
|
|
|
|
|
|
Quarter:
|
|
|
|
|
|
|
|
|
First
|
|
|
38
|
%
|
|
|
36
|
%
|
Second
|
|
|
39
|
%
|
|
|
38
|
%
|
Third
|
|
|
38
|
%
|
|
|
39
|
%
|
Fourth
|
|
|
|
|
|
|
38
|
%
|
Year
|
|
|
|
|
|
|
37
|
%
|
NONCONSOLIDATING(m)
|
|
|
|
|
|
|
|
|
Number of hospitals in operation at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
8
|
|
|
|
8
|
|
June 30
|
|
|
8
|
|
|
|
8
|
|
September 30
|
|
|
8
|
|
|
|
8
|
|
December 31
|
|
|
|
|
|
|
8
|
|
Number of freestanding outpatient surgical centers in operation
at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
8
|
|
|
|
8
|
|
June 30
|
|
|
8
|
|
|
|
8
|
|
September 30
|
|
|
8
|
|
|
|
8
|
|
December 31
|
|
|
|
|
|
|
8
|
|
Licensed hospital beds at:
|
|
|
|
|
|
|
|
|
March 31
|
|
|
2,367
|
|
|
|
2,337
|
|
June 30
|
|
|
2,369
|
|
|
|
2,337
|
|
September 30
|
|
|
2,369
|
|
|
|
2,367
|
|
December 31
|
|
|
|
|
|
|
2,367
|
|
38
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Data (Continued)
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
|
Under 91 Days
|
|
|
91 180 Days
|
|
|
Over 180 Days
|
|
|
Accounts receivable aging at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
11
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other discounted
|
|
|
15
|
|
|
|
3
|
|
|
|
3
|
|
Uninsured
|
|
|
19
|
|
|
|
10
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45
|
%
|
|
|
14
|
%
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Licensed beds are those beds for which a facility has been
granted approval to operate from the applicable state licensing
agency. |
|
(b) |
|
Weighted average licensed beds represents the average number of
licensed beds, weighted based on periods owned. |
|
(c) |
|
Represents the average number of patients in our hospital beds
each day. |
|
(d) |
|
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. |
|
(e) |
|
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 revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The
equivalent admissions computation equates outpatient
revenues to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined
inpatient and outpatient volume. |
|
(f) |
|
Represents the average number of days admitted patients stay in
our hospitals. |
|
(g) |
|
Represents the number of patients treated in our emergency rooms. |
|
(h) |
|
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. |
|
(i) |
|
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. |
|
(j) |
|
Days in accounts receivable are calculated by dividing the
revenues for the period by the days in the period (revenues per
day). Accounts receivable, net of allowance for doubtful
accounts, at the end of the period is then divided by the
revenues per day. |
|
(k) |
|
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. |
|
(l) |
|
Represents the percentage of patient revenues related to
patients who are not admitted to our hospitals. |
|
(m) |
|
The nonconsolidating facilities include facilities operated
through 50/50 joint ventures which we do not control and are
accounted for using the equity method of accounting. |
39
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The information called for by this item is provided under the
caption Market Risk under Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
HCAs chief executive officer and chief financial officer
have reviewed and evaluated the effectiveness of HCAs
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Securities Exchange Act of 1934 (the
Exchange Act)) as of the end of the period covered
by this quarterly report. Based on that evaluation, the chief
executive officer and chief financial officer have concluded
that HCAs disclosure controls and procedures effectively
and timely provide them with material information relating to
HCA and its consolidated subsidiaries required to be disclosed
in the reports HCA files or submits under the Exchange Act.
Changes
in Internal Control Over Financial Reporting
During the period covered by this report, there have been no
changes in our internal control over financial reporting that
have materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
Part II:
Other Information
|
|
Item 1:
|
Legal
Proceedings
|
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 materially and
adversely affect our results of operations and financial
position in a given period.
Merger
Litigation in State Court
On October 23, 2006, the Foundation for Seacoast Health
(the Foundation) filed a lawsuit against us and one
of our affiliates, HCA Health Services of New Hampshire, Inc.,
in the Superior Court of Rockingham County, New Hampshire. Among
other things, the complaint seeks to enforce certain provisions
of an asset purchase agreement between the parties, including a
purported right of first refusal to purchase a New Hampshire
hospital, that allegedly were triggered by the Merger and other
prior events. The Foundation initially sought to enjoin the
Merger. However, the parties reached an agreement that allowed
the Merger to proceed, while preserving the plaintiffs
opportunity to litigate whether the Merger triggered the right
of first refusal to purchase the hospital and, if so, at what
price the hospital could be repurchased. On May 25, 2007,
the court granted HCAs motion for summary judgment
disposing of the Foundations central claims. The
Foundation filed an appeal from the final judgment. On
July 15, 2008, the New Hampshire Supreme Court held that
the Merger did not trigger the right of first refusal. The Court
remanded to the lower court the claim that a right of first
refusal had been triggered by certain intra-corporate
transactions in 1999. The matter went to trial on
September 8, 2009, and we are awaiting the courts
ruling.
General
Liability and Other Claims
On April 10, 2006, a class action complaint was filed
against us in the District Court of Kansas alleging, among other
matters, nurse understaffing at all of our hospitals, certain
consumer protection act violations, negligence and unjust
enrichment. The complaint is seeking, among other relief,
declaratory relief and monetary damages, including disgorgement
of profits of $12.250 billion. A motion to dismiss this
action was granted on July 27, 2006,
40
but the plaintiffs appealed this dismissal. While the appeal was
pending, the Kansas Supreme Court for the first time construed
the Kansas Consumer Protection Act to apply to the provision of
medical services. Based on that new ruling, the
10th Circuit reversed the district courts dismissal
and remanded the action for further consideration by the trial
court. We have reached a final settlement with the named
plaintiffs in this action.
We are a party to certain proceedings relating to claims for
income taxes and related interest before the IRS Appeals
Division. For a description of those proceedings, see
Part I. Item 2, Managements Discussion and
Analysis of Financial Condition and Results of
Operations Pending IRS Disputes and
Note 2 to our condensed consolidated financial statements.
We are also subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
for wrongful restriction of, or interference with,
physicians staff privileges. In certain of these actions
the claimants have asked for punitive damages against us, which
may not be covered by insurance. In the opinion of management,
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.
Reference is made to the factors set forth under the caption
Forward-Looking Statements in Part I,
Item 2 of this
Form 10-Q
and other risk factors described in our annual report on
Form 10-K
for the year ended December 31, 2008 and our quarterly
report on
Form 10-Q
for the quarter ended June 30, 2009, which are incorporated
herein by reference. There have not been any material changes to
the risk factors previously disclosed in our annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the quarter ended June 30, 2009.
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Item 2:
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Unregistered
Sales of Equity Securities and Use of Proceeds
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During the quarter ended September 30, 2009, HCA issued and
sold 360,704 shares of common stock in connection with the
cashless exercise of stock options for aggregate consideration
of $4,598,976 resulting in 188,457 net settled shares. HCA
also issued and sold 18,967 shares of common stock in
connection with the cash exercise of stock options for aggregate
consideration of $241,829. These shares were issued without
registration in reliance on the exemptions afforded by
Section 4(2) of the Securities Act of 1933, as amended, and
Rule 701 promulgated thereunder.
The following table provides certain information with respect to
our repurchases of common stock from July 1, 2009 through
September 30, 2009.
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Approximate
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Total Number
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Dollar Value of
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of Shares
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Shares That
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Purchased as
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May Yet Be
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Part of
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Purchased
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Publicly
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Under Publicly
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Total Number
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Announced
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Announced
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of Shares
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Average Price
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Plans or
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Plans or
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Period
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Purchased
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Paid per Share
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Programs
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Programs
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July 1, 2009 through July 31, 2009
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$
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August 1, 2009 through August 31, 2009
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4,205
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$
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63.15
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September 1, 2009 through September 30, 2009
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5,088
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$
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71.68
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Total for Third Quarter 2009
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9,293
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$
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67.82
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$
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During the third quarter of 2009, we purchased 9,293 shares
pursuant to the terms of the Management Stockholders Agreement
and/or
separation agreements and stock purchase agreements between
former employees and the Company.
41
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Item 4:
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Submissions
of Matters to a Vote of Security Holders
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Effective September 21, 2009, Hercules Holding II, LLC, the
holder of 97.3% of our issued and outstanding shares of capital
stock, executed a written consent in lieu of an annual meeting
re-electing Christopher J. Birosak, Jack O. Bovender, Jr.,
Richard M. Bracken, John P. Connaughton, James D. Forbes,
Kenneth W. Freeman, Thomas F. Frist III, William R. Frist,
Christopher R. Gordon, Michael W. Michelson, James C. Momtazee,
Stephen G. Pagliuca and Nathan C. Thorne, as the Board of
Directors of the Company. On September 1, 2009, a notice of
such action was sent to the holders of record of our issued and
outstanding capital stock as of the close of business on
July 31, 2009.
(a) List of Exhibits:
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Exhibit 10.1
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Form of Option Agreement (2009), approved August 27, 2009.
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Exhibit 10.2
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Form of 2x Time Option Agreement.
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Exhibit 31.1
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Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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Exhibit 31.2
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Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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Exhibit 32
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Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
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42
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 thereunto duly authorized.
HCA INC.
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By:
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/s/ R.
Milton Johnson
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R. Milton Johnson
Executive Vice President and
Chief Financial Officer
Date: November 12, 2009
43
Exhibit 10.1
FORM OF
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of ___, 2009 (the Grant Date) is made by and between HCA
Inc., a Delaware corporation (hereinafter referred to as the Company), and the individual
whose name is set forth on the signature page hereof, who is an employee of the Company or a
Subsidiary or Affiliate of the Company, hereinafter referred to as the Optionee. Any
capitalized terms herein not otherwise defined in Article I shall have the meaning set forth in the
2006 Stock Incentive Plan for Key Employees of HCA Inc. and its Affiliates (the Plan).
WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated
by reference and made a part of this Agreement; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company (or, if no such
committee is appointed, the Board of Directors of the Company) (the Committee) has
determined that it would be to the advantage and best interest of the Company and its shareholders
to grant the Option provided for herein to the Optionee as an incentive for increased efforts
during his term of office with the Company or its Subsidiaries or Affiliates, and has advised the
Company thereof and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have the meaning specified
below unless the context clearly indicates to the contrary.
Section 1.1. Base Price
Base Price shall mean $51.00.
Section 1.2. Cause
Cause shall mean Cause as such term may be defined in any employment agreement or
change-in-control agreement in effect at the time of termination of employment between the Optionee
and the Company or any of its Subsidiaries or Affiliates, or, if there is no such employment or
change-in-control agreement, Cause shall mean (i) willful and continued failure by Optionee
(other than by reason of a Permanent Disability) to perform his or her material duties with respect
to the Company or it Subsidiaries which continues beyond ten (10) business days after a written
demand for substantial performance is delivered to Optionee by the Company (the
Cure Period); (ii) willful or intentional engaging by Optionee in material misconduct
that causes material and demonstrable injury, monetarily or otherwise, to the Company, the
Investors or their respective Affiliates; (iii) conviction of, or a plea of nolo contendere to, a
crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a
misdemeanor for which a sentence of more than six months imprisonment is imposed; or (iv) willful
and material breach of the Management Stockholders Agreement or related agreements, or Optionees
engaging in any action in breach of restrictive covenants made by Optionee under the Management
Stockholders Agreement or any employment or change-in-control agreement between the Optionee and
the Company or any of its Subsidiaries, which continues beyond the Cure Period (to the extent that,
in the Boards reasonable judgment, such breach can be cured).
Section 1.3. Closing Date
Closing Date means November 17, 2006.
Section 1.4. EBITDA Performance Option
EBITDA Performance Option shall mean the right and option to purchase, on the terms and
conditions set forth herein, all or any part of an aggregate of the number of shares of Common
Stock set forth on the signature page hereof opposite the term EBITDA Performance Option.
Section 1.5. Fiscal Year
Fiscal Year shall mean each of the 2009, 2010, 2011, 2012, and 2013 fiscal years of the
Company (which, for the avoidance of doubt, ends on December 31 of any given calendar year).
Section 1.6. Good Reason
Good Reason shall mean Good Reason as such term may be defined in any employment agreement
or change-in-control agreement in effect at the time of termination of employment between the
Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such
employment or change-in-control agreement, Good Reason shall mean (i) (A) a reduction in
Optionees base salary (other than a general reduction in base salary that affects all similarly
situated employees (defined as all employees within the same Company pay grade as that of Optionee)
in substantially the same proportions that the Board implements in good faith after consultation
with the Chief Executive Officer (CEO) and Chief Operating Officer of the Company); (B) a
reduction in Optionees annual incentive compensation opportunity; or (C) the reduction of benefits
payable to Optionee under the Companys Supplemental Executive Retirement Plan (if Optionee is a
participant in such plan), in each case other than any isolated, insubstantial and inadvertent
failure by the Company that is not in bad faith and is cured within ten (10) business days after
Optionee gives the Company written
2
notice of such event; provided that the events described in (i)(A) or (i)(B) above will not
be deemed to give rise to Good Reason if employment is terminated, but Optionee declines an offer
of employment involving a loss of compensation of less than 15% from a purchaser, transferee,
outsourced vendor, new operating entity or affiliated employer; (ii) a substantial diminution in
Optionees title, duties and responsibilities, other than any isolated, insubstantial and
inadvertent failure by the Company that is not in bad faith and is cured within ten (10) business
days after Optionee gives the Company written notice of such event; or (iii) a transfer of
Optionees primary workplace to a location that is more than twenty (20) miles from his or her
workplace as of the date of this Agreement; provided that Good Reason shall not be deemed
to occur merely because Optionees willful decision to change position or status within the Company
or any of its Subsidiaries causes one or more of the occurrences described in (i), (ii), or (iii)
to come about.
Section 1.7. Investor Return
Investor Return shall mean, on any date, as determined on a fully diluted, per Share basis,
all cash proceeds actually received by the Investors after the Closing Date in respect of their
shares of Common Stock, including the receipt of any cash dividends or other cash distributions
thereon. The Fair Market Value of any shares of Common Stock distributed by the Investors to their
limited partners shall be deemed to be cash proceeds for purposes of this definition.
Section 1.8. Management Stockholders Agreement
Management Stockholders Agreement shall mean that certain Management Stockholders
Agreement between the Optionee and the Company.
Section 1.9. Option
Option shall mean the aggregate of the Time Option and the EBITDA Performance Option granted
under Section 2.1 of this Agreement.
Section 1.10. Permanent Disability
Permanent Disability shall mean Disability as such term is defined in any employment
agreement between Optionee and the Company or any of its Subsidiaries, or, if there is no such
employment agreement, Disability as defined in the long-term disability plan of the Company.
Section 1.11. Retirement
Retirement shall mean Optionees resignation (other than for Good Reason) from service with
the Company and its Service Recipients (i) after attaining 65 years of age or (ii) after attaining
60 years of age and completing thirty-six (36) months of service with the Company or any Service
Recipients following the Closing Date.
3
Section 1.12. Secretary
Secretary shall mean the Secretary of the Company.
Section 1.13. Time Option
Time Option shall mean the right and option to purchase, on the terms and conditions set
forth herein, all or any part of an aggregate of the number of shares of Common Stock set forth on
the signature page hereof opposite the term Time Option.
ARTICLE II
GRANT OF OPTIONS
Section 2.1. Grant of Options
For good and valuable consideration, on and as of the date hereof the Company irrevocably
grants to the Optionee the following Stock Options: (a) the Time Option and (b) the EBITDA
Performance Option, in each case on the terms and conditions set forth in this Agreement.
Section 2.2. Exercise Price
Subject to Section 2.4, the exercise price of the shares of Common Stock covered by the Option
(the Exercise Price) shall be as set forth on the signature page hereof.
Section 2.3. No Guarantee of Employment
Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue
in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly
reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with
or without cause, subject to the applicable provisions of, if any, the Optionees employment
agreement with the Company or offer letter provided by the Company to the Optionee.
Section 2.4. Adjustments to Option
The Option shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan,
provided, however, that in the event of the payment of an extraordinary dividend by
the Company to its stockholders, then; first, the Exercise Prices of the Option shall be
reduced by the amount of the dividend paid, but only to the extent the Committee determines it to
be permitted under applicable tax laws and it will not have adverse tax consequences to the
Optionee; and, if such reduction cannot be fully effected due to such
4
tax laws, second, the Company shall pay to the Optionee a cash payment, on a per Share
basis, equal to the balance of the amount of the dividend not permitted to be applied to reduce the
Exercise Price of the applicable Option as follows: (a) for each Share subject to a vested Option,
immediately upon the date of such dividend payment; and (b), for each Share subject to an unvested
Option, on the date on which such Option becomes vested and exercisable with respect to such Share.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
(a) So long as the Optionee continues to be employed by the Company or any other Service
Recipients, the Option shall become exercisable pursuant to the following schedules:
(i) Time Option. The Time Option shall become vested and exercisable with respect to 20% of
the Shares subject to such Option on each of the first five anniversaries of the Grant Date.
(ii) EBITDA Performance Option. The EBITDA Performance Option shall be eligible to become
vested and exercisable as to 20% of the Shares subject to such Option at the end of each of the
five Fiscal Years if the Company, on a consolidated basis, achieves its annual EBITDA targets as
set forth in Schedule A attached hereto (each an EBITDA Target) for the given
Fiscal Year. Notwithstanding the foregoing, in the event that an EBITDA Target is not achieved in
a particular Fiscal Year, then that portion of the EBITDA Performance Option that was eligible to
vest but failed to vest due to the Companys failure to achieve its EBITDA Target shall
nevertheless vest and become exercisable at the end of any subsequent Fiscal Year (or the 2014
fiscal year) if the cumulative EBITDA Target (each a Cumulative EBITDA Target)
set forth on Schedule A attached hereto is achieved on a cumulative basis at the end of
such Fiscal Year (or the 2014 fiscal year) with respect to all then completed Fiscal Years;
(b) Notwithstanding the foregoing, upon the occurrence of a Change in Control:
(i) the Time Option shall become immediately exercisable as to 100% of the shares of Common
Stock subject to such Option immediately prior to a Change in Control (but only to the extent such
Option has not otherwise terminated or become exercisable);
(ii) the EBITDA Performance Option shall become
5
immediately exercisable as to 100% of the shares of Common Stock subject to such Option immediately
prior to a Change in Control (but only to the extent such Option has not otherwise terminated or
become exercisable) if (x) the EBITDA Targets have been achieved for each of the Fiscal Years
completed on or prior to such event, (y) on the date of the occurrence of such event, the Companys
cumulative EBITDA for all of the Fiscal Years occurring after the Grant Date through such date
meets or exceeds the Cumulative EBITDA Target for all such Fiscal Years, or (z) as a result of the
Change in Control, the Investors Group achieves an Investor Return of at least 2.5 times the Base
Price; provided that for purposes of clause (y) above, if the Change in Control occurs
during a fiscal year, the Cumulative EBITDA Target for such fiscal year shall be equitably adjusted
in good faith by the Board in consultation with the CEO of the Company to reflect that portion of
the then current fiscal year that has elapsed through the date of the Change in Control; and
(c) Notwithstanding the foregoing, no Option shall become exercisable as to any additional
shares of Common Stock following the termination of employment of the Optionee for any reason and
any Option, which is unexercisable as of the Optionees termination of employment, shall
immediately expire without payment therefor.
Section 3.2. Expiration of Option
Except as otherwise provided in Section 6 or 7 of the Management Stockholders Agreement, the
Optionee may not exercise the Option to any extent after the first to occur of the following
events:
(a) The tenth anniversary of the Grant Date so long as the Optionee remains employed with the
Company or any Service Recipient through such date;
(b) The third anniversary of the date of the Optionees termination of employment with the
Company and all Service Recipients, if the Optionees employment is terminated by reason of death
or Permanent Disability (unless earlier terminated as provided in Section 3.20 below);
(c) Immediately upon the date of the Optionees termination of employment by the Company and
all Service Recipients for Cause;
(d) One hundred and eighty (180) days after the date of an Optionees termination of
employment by the Company and all Service Recipients without Cause (for any reason other than as
set forth in Section 3.2(b));
6
(e) One hundred and eighty (180) days after the date of an Optionees termination of
employment with the Company and all Service Recipients by the Optionee for Good Reason;
(f) One hundred and eighty (180) days after the date of an Optionees termination of
employment with the Company and all Service Recipients by the Optionee upon Retirement.
(g) Thirty (30) days after the date of an Optionees termination of employment with the
Company and all Service Recipients by the Optionee without Good Reason (except due to Retirement,
death or Permanent Disability);
(h) The date the Option is terminated pursuant to Section 6 or 7 of the Management
Stockholders Agreement; or
(i) At the discretion of the Company, if the Committee so determines pursuant to Section 9 of
the Plan.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee (or his or her duly authorized legal
representative) may exercise an Option or any portion thereof. After the death of the Optionee,
any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable
under Section 3.2, be exercised by his personal representative or by any person empowered to do so
under the Optionees will or under the then applicable laws of descent and distribution.
Section 4.2. Partial Exercise
Any exercisable portion of an Option or the entire Option, if then wholly exercisable, may be
exercised in whole or in part at any time prior to the time when the Option or portion thereof
becomes unexercisable under Section 3.2; provided, however, that any partial
exercise shall be for whole shares of Common Stock only.
Section 4.3. Manner of Exercise
An Option, or any exercisable portion thereof, may be exercised solely by
7
delivering to the Secretary or his office all of the following prior to the time when the
Option or such portion becomes unexercisable under Section 3.2:
(a) Notice in writing signed by the Optionee or the other person then entitled to exercise the
Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such
notice complying with all applicable rules established by the Committee;
(b) (i) Full payment (in cash or by check or by a combination thereof) for the shares with
respect to which such Option or portion thereof is exercised or (ii) indication that the Optionee
elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a
number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made
by Optionee to the Company pursuant to clause (i) of this subsection (b);
(c) (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum
withholding tax obligation with respect to which such Option or portion thereof is exercised or
(ii) indication that the Optionee elects to have the number of Shares that would otherwise be
issued to the Optionee upon exercise of such Option (or portion thereof) reduced by a number of
Shares having an aggregate Fair Market Value, on the date of such exercise, equal to the payment to
satisfy the minimum withholding tax obligation that would otherwise be required to be made by the
Optionee to the Company pursuant to clause (i) of this subsection (c);
(d) A bona fide written representation and agreement, in a form satisfactory to the Committee,
signed by the Optionee or other person then entitled to exercise such Option or portion thereof,
stating that the shares of Common Stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act of 1933, as amended (the Act), and then applicable rules
and regulations thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion thereof will indemnify the Company against and hold it free and harmless from any
loss, damage, expense or liability resulting to the Company if any sale or distribution of the
shares by such person is contrary to the representation and agreement referred to above; provided,
however, that the Committee may, in its reasonable discretion, take whatever additional actions it
deems reasonably necessary to ensure the observance and performance of such representation and
agreement and to effect compliance with the Act and any other federal or state securities laws or
regulations; and
(e) In the event the Option or portion thereof shall be exercised
8
pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the option.
Without limiting the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of an
Option does not violate the Act, and may issue stop-transfer orders covering such shares. Share
certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (d) above and the agreements herein. The written
representation and agreement referred to in subsection (d) above shall, however, not be required if
the shares to be issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares.
Section 4.4. Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of an Option, or any portion thereof, may be
either previously authorized but unissued shares or issued shares, which have then been reacquired
by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock purchased upon the
exercise of an Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The obtaining of approval or other clearance from any state or federal governmental agency
which the Committee shall, in its reasonable and good faith discretion, determine to be necessary
or advisable;
(b) The execution by the Optionee of the Management Stockholders Agreement and a Sale
Participation Agreement; and
(c) The lapse of such reasonable period of time following the exercise of the Option as the
Committee may from time to time establish for reasons of administrative convenience or as may
otherwise be required by applicable law.
Section 4.5. Rights as Stockholder
Except as otherwise provided in Section 2.4 of this Agreement, the holder of an Option shall
not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any
shares purchasable upon the exercise of the Option or any portion thereof unless and until
certificates representing such shares shall have been issued by the Company to such holder.
9
ARTICLE V
MISCELLANEOUS
Section 5.1. Administration
The Committee shall have the power to interpret the Plan and this Agreement and to adopt such
rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee shall be final and binding upon the Optionee, the Company and
all other interested persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect to the Plan or the Option.
In its absolute discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan and this Agreement.
Section 5.2. Option Not Transferable
Neither the Option nor any interest or right therein or part thereof shall be liable for the
debts, contracts or engagements of the Optionee or his successors in interest or shall be subject
to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect; provided, however,
that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3. Notices
Any notice to be given under the terms of this Agreement to the Company shall be addressed to
the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed
to him at the address given beneath his signature hereto. By a notice given pursuant to this
Section 5.3, either party may hereafter designate a different address for notices to be given to
him. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then
deceased, be given to the Optionees personal representative if such representative has previously
informed the Company of his status and address by written notice under this Section 5.3. Any
notice shall have been deemed duly given when (i) delivered in person, (ii) enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal Service, or (iii)
enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees
prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.
10
Section 5.4. Titles; Pronouns
Titles are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of this Agreement. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 5.5. Applicability of Plan, Management Stockholders Agreement and Sale Participation
Agreement
The Option and the shares of Common Stock issued to the Optionee upon exercise of the Option
shall be subject to all of the terms and provisions of the Plan, the Management Stockholders
Agreement and a Sale Participation Agreement, to the extent applicable to the Option and such
Shares.
Section 5.6. Amendment
Subject to Section 10 of the Plan, this Agreement may be amended only by a writing executed by
the parties hereto, which specifically states that it is amending this Agreement.
Section 5.7 Governing Law
The laws of the State of Delaware shall govern the interpretation, validity and performance of
the terms of this Agreement regardless of the law that might be applied under principles of
conflicts of laws.
Section 5.8 Arbitration
In the event of any controversy among the parties hereto arising out of, or relating to, this
Agreement which cannot be settled amicably by the parties, such controversy shall be finally,
exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance
with the American Arbitration Association rules, by a single independent arbitrator. Such
arbitration process shall take place within the Nashville, Tennessee metropolitan area. The
decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered
pursuant to a written decision, which contains a detailed recital of the arbitrators reasoning.
Judgment upon the award rendered may be entered in any court having jurisdiction thereof. Each
party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.
If the Optionee substantially prevails on any of his or her substantive legal claims, then the
Company shall reimburse all legal fees and arbitration fees incurred by the Optionee to arbitrate
the dispute.
[Signatures on next page.]
11
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.
12
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Option Grants:
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Aggregate number of shares of Common Stock
for which the Time Option granted hereunder is
exercisable (100% of number of shares):
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Aggregate number of shares of Common Stock
for which the EBITDA Performance Option
granted hereunder is exercisable (100% of the
number of shares):
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Exercise Price of all options:
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$ per share |
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Grant Date:
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OPTIONEE: |
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[Signature Page of Stock Option Agreement]
Exhibit 10.2
FORM OF
2x TIME STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of ___, 2009 (the Grant Date) is made by and between HCA
Inc., a Delaware corporation (hereinafter referred to as the Company), and the individual
whose name is set forth on the signature page hereof, who is an employee of the Company or a
Subsidiary or Affiliate of the Company, hereinafter referred to as the Optionee. Any
capitalized terms herein not otherwise defined in Article I shall have the meaning set forth in the
2006 Stock Incentive Plan for Key Employees of HCA Inc. and its Affiliates (the Plan).
WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated
by reference and made a part of this Agreement; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company (or, if no such
committee is appointed, the Board of Directors of the Company) (the Committee) has
determined that it would be to the advantage and best interest of the Company and its shareholders
to grant the Option provided for herein to the Optionee as an incentive for increased efforts
during his term of office with the Company or its Subsidiaries or Affiliates, and has advised the
Company thereof and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have the meaning specified
below unless the context clearly indicates to the contrary.
Section 1.2. Cause
Cause shall mean Cause as such term may be defined in any employment agreement or
change-in-control agreement in effect at the time of termination of employment between the Optionee
and the Company or any of its Subsidiaries or Affiliates, or, if there is no such employment or
change-in-control agreement, Cause shall mean (i) willful and continued failure by Optionee
(other than by reason of a Permanent Disability) to perform his or her material duties with respect
to the Company or it Subsidiaries which continues beyond ten (10) business days after a
written demand for substantial performance is delivered to Optionee by the Company (the
Cure Period); (ii) willful or intentional engaging by Optionee in material misconduct
that causes material and demonstrable injury, monetarily or otherwise, to the Company, the
Investors or their respective Affiliates; (iii) conviction of, or a plea of nolo contendere to, a
crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a
misdemeanor for which a sentence of more than six months imprisonment is imposed; or (iv) willful
and material breach of the Management Stockholders Agreement or related agreements, or Optionees
engaging in any action in breach of restrictive covenants made by Optionee under the Management
Stockholders Agreement or any employment or change-in-control agreement between the Optionee and
the Company or any of its Subsidiaries, which continues beyond the Cure Period (to the extent that,
in the Boards reasonable judgment, such breach can be cured).
Section 1.3. Closing Date
Closing Date shall mean November 17, 2006.
Section 1.4. Fiscal Year
Fiscal Year shall mean each of 2009, 2010, 2011, 2012, and 2013 fiscal years of the Company
(which, for the avoidance of doubt, ends on December 31 of any given calendar year).
Section 1.5. Employment Agreement
Employment Agreement shall mean that certain Employment Agreement between the Optionee and
the Company as in effect as of the Grant Date.
Section 1.6. Good Reason
Good Reason shall mean Good Reason as such term may be defined in any employment agreement
or change-in-control agreement in effect at the time of termination of employment between the
Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such
employment or change-in-control agreement, Good Reason shall mean (i) (A) a reduction in
Optionees base salary (other than a general reduction in base salary that affects all similarly
situated employees (defined as all employees within the same Company pay grade as that of Optionee)
in substantially the same proportions that the Board implements in good faith after consultation
with the Chief Executive Officer (CEO) and Chief Operating Officer of the Company); (B) a
reduction in Optionees annual incentive compensation opportunity; or (C) the reduction of benefits
payable to Optionee under the Companys Supplemental Executive Retirement Plan (if Optionee is a
participant in such plan), in each case other than any isolated, insubstantial and inadvertent
failure by the Company that is not in bad faith and is cured within ten (10) business days after
Optionee gives the Company written notice of such event; provided that the events described
in (i)(A) or (i)(B) above will not
be deemed to give rise to Good Reason if employment is terminated, but Optionee declines an
offer of employment involving a loss of compensation of less than 15% from
2
a purchaser, transferee,
outsourced vendor, new operating entity or affiliated employer; (ii) a substantial diminution in
Optionees title, duties and responsibilities, other than any isolated, insubstantial and
inadvertent failure by the Company that is not in bad faith and is cured within ten (10) business
days after Optionee gives the Company written notice of such event; or (iii) a transfer of
Optionees primary workplace to a location that is more than twenty (20) miles from his or her
workplace as of the date of this Agreement; provided that Good Reason shall not be deemed
to occur merely because Optionees willful decision to change position or status within the Company
or any of its Subsidiaries causes one or more of the occurrences described in (i), (ii), or (iii)
to come about.
Section 1.7. Investor Return
Investor Return shall mean, on any date, as determined on a fully diluted, per Share basis,
all cash proceeds actually received by the Investors after the Closing Date in respect of their
shares of Common Stock, including the receipt of any cash dividends or other cash distributions
thereon. The Fair Market Value of any shares of Common Stock distributed by the Investors to their
limited partners shall be deemed to be cash proceeds for purposes of this definition.
Section 1.8. Management Stockholders Agreement
Management Stockholders Agreement shall mean that certain Management Stockholders
Agreement between the Optionee and the Company.
Section 1.9. Option
Option shall mean the Option granted under Section 2.1 of this Agreement.
Section 1.10. Permanent Disability
Permanent Disability shall mean Disability as such term is defined in any employment
agreement between Optionee and the Company or any of its Subsidiaries, or, if there is no such
employment agreement, Disability as defined in the long-term disability plan of the Company.
3
Section 1.11. Retirement
Retirement shall mean Optionees resignation (other than for Good Reason) from service with
the Company and its Service Recipients (i) after attaining 65 years of age or (ii) after attaining
60 years of age and completing thirty-six (36) months of service with the Company or any Service
Recipients following the Closing Date.
Section 1.12. Secretary
Secretary shall mean the Secretary of the Company.
Section 1.13. Vesting Date
Vesting Date means the date on which a percentage of the Option will become exercisable,
subject to the conditions of Article III.
ARTICLE II
GRANT OF OPTIONS
Section 2.1. Grant of Options
For good and valuable consideration, on and as of the date hereof the Company irrevocably
grants to the Optionee the Option, on the terms and conditions set forth in this Agreement.
Section 2.2. Exercise Price
Subject to Section 2.4, the exercise price of the shares of Common Stock covered by the Option
(the Exercise Price) shall be as set forth on the signature page hereof.
Section 2.3. No Guarantee of Employment
Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue
in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly
reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with
or without cause, subject to the
4
applicable provisions of, if any, the Optionees employment agreement with the Company or
offer letter provided by the Company to the Optionee.
Section 2.4. Adjustments to Option
The Option shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan,
provided, however, that in the event of the payment of an extraordinary dividend by
the Company to its stockholders, then; first, the Exercise Prices of the Option shall be
reduced by the amount of the dividend paid, but only to the extent the Committee determines it to
be permitted under applicable tax laws and it will not have adverse tax consequences to the
Optionee; and, if such reduction cannot be fully effected due to such tax laws, second, the
Company shall pay to the Optionee a cash payment, on a per Share basis, equal to the balance of the
amount of the dividend not permitted to be applied to reduce the Exercise Price of the applicable
Option as follows: (a) for each Share subject to a vested Option, immediately upon the date of such
dividend payment; and (b), for each Share subject to an unvested Option, on the date on which such
Option becomes vested and exercisable with respect to such Share.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
(a) The Option shall be exercisable, subject to the Optionee continuing to be employed by the
Company or any other Service Recipient, through the applicable Vesting Date, as to the applicable
percentage of the Option as set forth below:
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Vesting Date |
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Percentage of Option Exercisable |
Grant Date |
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40 |
% |
November 17, 2009 |
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20 |
% |
November 17, 2010 |
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20 |
% |
November 17, 2011 |
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20 |
% |
Total: |
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100 |
% |
(b) Notwithstanding the foregoing, upon the occurrence of a Change in Control: the Option
shall become immediately exercisable as to 100% of the shares of Common Stock subject to such
Option immediately prior to a Change in Control (but only to the extent such Option has not
otherwise terminated or become exercisable);
(c) Notwithstanding the foregoing, unless provided otherwise under
5
the terms of the Employment Agreement, which terms are hereby incorporated by reference and made a
part hereof, no Option shall become exercisable as to any additional shares of Common Stock
following the termination of employment of the Optionee for any reason and any Option, which is
unexercisable as of the Optionees termination of employment, shall immediately expire without
payment therefor.
Section 3.2. Expiration of Option
Except as otherwise provided in Section 6 or 7 of the Management Stockholders Agreement and
also except as otherwise provided under the terms of the Employment Agreement, which terms are
hereby incorporated by reference and made a part hereof, the Optionee may not exercise the Option
to any extent after the first to occur of the following events:
(a) The tenth anniversary of the Grant Date so long as the Optionee remains employed with the
Company or any Service Recipient through such date;
(b) The third anniversary of the date of the Optionees termination of employment with the
Company and all Service Recipients, if the Optionees employment is terminated by reason of death
or Permanent Disability (unless earlier terminated as provided in Section 3.20 below);
(c) Immediately upon the date of the Optionees termination of employment by the Company and
all Service Recipients for Cause;
(d) One hundred and eighty (180) days after the date of an Optionees termination of
employment by the Company and all Service Recipients without Cause (for any reason other than as
set forth in Section 3.2(b));
(e) One hundred and eighty (180) days after the date of an Optionees termination of
employment with the Company and all Service Recipients by the Optionee for Good Reason;
(f) One hundred and eighty (180) days after the date of an Optionees termination of
employment with the Company and all Service Recipients by the Optionee upon Retirement.
(g) Thirty (30) days after the date of an Optionees termination of employment with the
Company and all Service Recipients by the Optionee without Good Reason (except due to Retirement,
death or Permanent Disability);
(h) The date the Option is terminated pursuant to Section 6 or 7 of the Management
Stockholders Agreement; or
(i) At the discretion of the Company, if the Committee so determines pursuant to Section 9 of
the Plan.
6
ARTICLE IV
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee (or his or her duly authorized legal
representative) may exercise an Option or any portion thereof. After the death of the Optionee,
any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable
under Section 3.2, be exercised by his personal representative or by any person empowered to do so
under the Optionees will or under the then applicable laws of descent and distribution.
Section 4.2. Partial Exercise
Any exercisable portion of an Option or the entire Option, if then wholly exercisable, may be
exercised in whole or in part at any time prior to the time when the Option or portion thereof
becomes unexercisable under Section 3.2; provided, however, that any partial
exercise shall be for whole shares of Common Stock only.
Section 4.3. Manner of Exercise
An Option, or any exercisable portion thereof, may be exercised solely by delivering to the
Secretary or his office all of the following prior to the time when the Option or such portion
becomes unexercisable under Section 3.2:
(a) Notice in writing signed by the Optionee or the other person then entitled to exercise the
Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such
notice complying with all applicable rules established by the Committee;
(b) (i) Full payment (in cash or by check or by a combination thereof) for the shares with
respect to which such Option or portion thereof is exercised or (ii) indication that the Optionee
elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a
number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made
by Optionee to the Company pursuant to clause (i) of this subsection (b);
(c) (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum
withholding tax obligation with respect to which such Option or portion thereof is exercised or
(ii) indication that the Optionee elects to have the number of Shares that would otherwise be
issued to the Optionee upon exercise of such Option (or portion thereof) reduced by a number of
Shares having an aggregate Fair Market
7
Value, on the date of such exercise, equal to the payment to satisfy the minimum withholding tax
obligation that would otherwise be required to be made by the Optionee to the Company pursuant to
clause (i) of this subsection (c);
(d) A bona fide written representation and agreement, in a form satisfactory to the Committee,
signed by the Optionee or other person then entitled to exercise such Option or portion thereof,
stating that the shares of Common Stock are being acquired for his own account, for investment and
without any present intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act of 1933, as amended (the Act), and then applicable
rules and regulations thereunder, and that the Optionee or other person then entitled to exercise
such Option or portion thereof will indemnify the Company against and hold it free and harmless
from any loss, damage, expense or liability resulting to the Company if any sale or distribution of
the shares by such person is contrary to the representation and agreement referred to above;
provided, however, that the Committee may, in its reasonable discretion, take
whatever additional actions it deems reasonably necessary to ensure the observance and performance
of such representation and agreement and to effect compliance with the Act and any other federal or
state securities laws or regulations; and
(e) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by
any person or persons other than the Optionee, appropriate proof of the right of such person or
persons to exercise the option.
Without limiting the generality of the foregoing, the Committee may require an opinion of counsel
acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of an
Option does not violate the Act, and may issue stop-transfer orders covering such shares. Share
certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (d) above and the agreements herein. The written
representation and agreement referred to in subsection (d) above shall, however, not be required if
the shares to be issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares.
Section 4.4. Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of an Option, or any portion thereof, may be
either previously authorized but unissued shares or issued shares, which have then been reacquired
by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock purchased upon the
exercise of an Option or portion thereof prior to fulfillment of all of the following conditions:
(a) The obtaining of approval or other clearance from any state or federal governmental agency
which the Committee shall, in its reasonable and good faith discretion, determine to be necessary
or advisable;
8
(b) The execution by the Optionee of the Management Stockholders Agreement and a Sale
Participation Agreement; and
(c) The lapse of such reasonable period of time following the exercise of the Option as the
Committee may from time to time establish for reasons of administrative convenience or as may
otherwise be required by applicable law.
Section 4.5. Rights as Stockholder
Except as otherwise provided in Section 2.4 of this Agreement, the holder of an Option shall
not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any
shares purchasable upon the exercise of the Option or any portion thereof unless and until
certificates representing such shares shall have been issued by the Company to such holder.
ARTICLE V
MISCELLANEOUS
Section 5.1. Administration
The Committee shall have the power to interpret the Plan and this Agreement and to adopt such
rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee shall be final and binding upon the Optionee, the Company and
all other interested persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect to the Plan or the Option.
In its absolute discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan and this Agreement.
Section 5.2. Option Not Transferable
Neither the Option nor any interest or right therein or part thereof shall be liable for the
debts, contracts or engagements of the Optionee or his successors in interest or shall be subject
to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect; provided, however,
that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and
distribution.
9
Section 5.3. Notices
Any notice to be given under the terms of this Agreement to the Company shall be addressed to
the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed
to him at the address given beneath his signature hereto. By a notice given pursuant to this
Section 5.3, either party may hereafter designate a different address for notices to be given to
him. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then
deceased, be given to the Optionees personal representative if such representative has previously
informed the Company of his status and address by written notice under this Section 5.3. Any
notice shall have been deemed duly given when (i) delivered in person, (ii) enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal Service, or (iii)
enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees
prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.
Section 5.4. Titles; Pronouns
Titles are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of this Agreement. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
Section 5.5. Applicability of Plan, Management Stockholders Agreement and Sale Participation
Agreement
The Option and the shares of Common Stock issued to the Optionee upon exercise of the Option
shall be subject to all of the terms and provisions of the Plan, the Management Stockholders
Agreement and a Sale Participation Agreement, to the extent applicable to the Option and such
Shares.
Section 5.6. Amendment
Subject to Section 10 of the Plan, this Agreement may be amended only by a writing executed by
the parties hereto, which specifically states that it is amending this Agreement.
Section 5.7 Governing Law
10
The laws of the State of Delaware shall govern the interpretation, validity and performance of
the terms of this Agreement regardless of the law that might be applied under principles of
conflicts of laws.
Section 5.8 Arbitration
In the event of any controversy among the parties hereto arising out of, or relating to, this
Agreement which cannot be settled amicably by the parties, such controversy shall be finally,
exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance
with the American Arbitration Association rules, by a single independent arbitrator. Such
arbitration process shall take place within the Nashville, Tennessee metropolitan area. The
decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered
pursuant to a written decision, which contains a detailed recital of the arbitrators reasoning.
Judgment upon the award rendered may be entered in any court having jurisdiction thereof. Each
party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.
If the Optionee substantially prevails on any of his or her substantive legal claims, then the
Company shall reimburse all legal fees and arbitration fees incurred by the Optionee to arbitrate
the dispute.
[Signatures on next page.]
11
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.
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Option Grants:
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Aggregate number of shares of Common Stock
for which the Option granted hereunder is
exercisable (100% of number of shares):
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Exercise Price of all options:
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$102.00 per share |
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Grant Date:
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Percentage of Option Vested
and Exercisable on Grant Date:
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OPTIONEE: |
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[Signature Page of 2x Time Stock Option Agreement]
EXHIBIT 31.1
CERTIFICATION
I, Richard M. Bracken, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of HCA Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
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By:
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/s/
Richard M. Bracken
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Richard M. Bracken
President and Chief Executive Officer
Date: November 12, 2009
EXHIBIT 31.2
CERTIFICATION
I, R. Milton Johnson, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of HCA Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
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By:
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/s/ R.
Milton Johnson
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R. Milton Johnson
Executive Vice President and
Chief Financial Officer
Date: November 12, 2009
EXHIBIT 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HCA Inc. (the
Company) on
Form 10-Q
for the quarter ended September 30, 2009, as filed with the
Securities and Exchange Commission on the date hereof (the
Report), each of the undersigned certifies, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
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By:
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/s/ Richard
M. Bracken
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Richard M. Bracken
President and Chief Executive Officer
November 12, 2009
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By:
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/s/ R.
Milton Johnson
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R. Milton Johnson
Executive Vice President and
Chief Financial Officer
November 12, 2009