e424b4
PROSPECTUS
Filed
pursuant to Rule 424(b)(4)
Registration No. 333-171369
HCA Holdings, Inc.
126,200,000 Shares
Common
Stock
$30.00 per share
We are offering 87,719,300 shares of our common stock, and
the selling stockholders named in this prospectus are offering
38,480,700 shares of our common stock. We will not receive
any proceeds from the sale of the shares by the selling
stockholders.
This is an initial public offering of our common stock. Since
November 2006 and prior to this offering, there has been no
public market for our common stock. Our common stock has been
approved for listing on the New York Stock Exchange under the
symbol HCA.
Investing in our common stock involves a high degree of risk.
See Risk Factors beginning on page 13 of this
prospectus to read about factors you should consider before
buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
Initial price to public
|
|
$
|
30.00
|
|
|
$
|
3,786,000,000
|
|
Underwriting discount
|
|
$
|
1.0875
|
|
|
$
|
137,242,500
|
|
Proceeds, before expenses, to HCA Holdings, Inc.
|
|
$
|
28.9125
|
|
|
$
|
2,536,184,261
|
|
Proceeds, before expenses, to the selling stockholders
|
|
$
|
28.9125
|
|
|
$
|
1,112,573,239
|
|
To the extent that the underwriters sell more than
126,200,000 shares of common stock, the underwriters have
the option to purchase up to an additional
18,930,000 shares from the selling stockholders at the
initial price to the public less the underwriting discount.
The underwriters expect to deliver the shares against payment in
New York, New York on or about March 15, 2011.
Joint Book-Running Managers
|
|
|
|
|
BofA Merrill Lynch
|
|
Citi
|
|
J.P. Morgan
|
Senior Co-Managers
|
|
|
|
|
Credit Agricole CIB
|
|
Mizuho Securities USA Inc.
|
|
RBC Capital Markets
|
RBS
|
|
SMBC Nikko
|
|
SunTrust Robinson Humphrey
|
Co-Managers
|
|
|
|
Avondale
Partners |
Baird |
Cowen and Company |
CRT Capital Group LLC |
|
|
|
|
Lazard
Capital Markets |
Leerink Swann |
Morgan Keegan |
Oppenheimer & Co. |
|
|
Raymond
James |
Susquehanna Financial Group, LLLP |
Prospectus dated March 9, 2011.
You should rely only on the information contained in this
prospectus or in any free writing prospectus that we authorize
be delivered to you. Neither we nor the underwriters have
authorized anyone to provide you with additional or different
information. If anyone provides you with additional, different
or inconsistent information, you should not rely on it. We and
the underwriters are not making an offer to sell these
securities in any jurisdiction where an offer or sale is not
permitted. You should assume that the information in this
prospectus is accurate only as of the date on the front cover,
regardless of the time of delivery of this prospectus or of any
sale of our common stock. Our business, prospects, financial
condition and results of operations may have changed since that
date.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
13
|
|
|
|
|
29
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
38
|
|
|
|
|
57
|
|
|
|
|
81
|
|
|
|
|
97
|
|
|
|
|
110
|
|
|
|
|
141
|
|
|
|
|
144
|
|
|
|
|
149
|
|
|
|
|
159
|
|
|
|
|
165
|
|
|
|
|
167
|
|
|
|
|
170
|
|
|
|
|
178
|
|
|
|
|
178
|
|
|
|
|
179
|
|
|
|
|
F-1
|
|
MARKET,
RANKING AND OTHER INDUSTRY DATA
The data included in this prospectus regarding markets and
ranking, including the size of certain markets and our position
and the position of our competitors within these markets, are
based on reports of government agencies or published industry
sources and estimates based on our managements knowledge
and experience in the markets in which we operate. These
estimates have been based on information obtained from our trade
and business organizations and other contacts in the markets in
which we operate. We believe these estimates to be accurate as
of the date of this prospectus. However, this information may
prove to be inaccurate because of the method by which we
obtained some of the data for the estimates or because this
information cannot always be verified with complete certainty
due to the limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and
other limitations and uncertainties. As a result, you should be
aware that market, ranking and other similar industry data
included in this prospectus, and estimates and beliefs based on
that data, may not be reliable. We cannot guarantee the accuracy
or completeness of any such information contained in this
prospectus.
i
PROSPECTUS
SUMMARY
This summary highlights significant aspects of our business
and this offering, but it is not complete and does not contain
all of the information you should consider before making your
investment decision. You should carefully read the entire
prospectus, including the information presented under the
section entitled Risk Factors and the financial
statements and related notes, before making an investment
decision. This summary contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ
significantly from the results discussed in the forward-looking
statements as a result of certain factors, including those set
forth in Risk Factors and Forward-Looking
Statements.
As used herein, unless otherwise stated or indicated by
context, references to the Company, HCA,
we, our or us refer to HCA
Inc. and its affiliates prior to the Corporate Reorganization
(as defined below) and to HCA Holdings, Inc. and its affiliates
after the Corporate Reorganization. The term
affiliates means direct and indirect subsidiaries of
HCA Holdings, Inc. and partnerships and joint ventures in which
such subsidiaries are partners. The terms facilities
or hospitals refer to entities owned and operated by
affiliates of HCA and the term employees refers to
employees of affiliates of HCA.
Our
Company
We are the largest non-governmental hospital operator in the
U.S. and a leading comprehensive, integrated provider of
health care and related services. We provide these services
through a network of acute care hospitals, outpatient
facilities, clinics and other patient care delivery settings. As
of December 31, 2010, we operated a diversified portfolio
of 164 hospitals (with approximately 41,000 beds) and 106
freestanding surgery centers across 20 states throughout
the U.S. and in England. As a result of our efforts to
establish significant market share in large and growing urban
markets with attractive demographic and economic profiles, we
currently have a substantial market presence in 14 of the top 25
fastest growing markets with populations greater than 500,000 in
the U.S. and currently maintain the first or second position,
based on inpatient admissions, in many of our key markets. We
believe our ability to successfully position and grow our assets
in attractive markets and execute our operating plan has
contributed to the strength of our financial performance over
the last several years. For the year ended December 31,
2010, we generated revenues of $30.683 billion, net income
attributable to HCA Holdings, Inc. of $1.207 billion and
Adjusted EBITDA of $5.868 billion.
Our patient-first strategy is to provide high quality health
care services in a cost-efficient manner. We intend to build
upon our history of profitable growth by maintaining our
dedication to quality care, increasing our presence in key
markets through organic expansion and strategic acquisitions and
joint ventures, leveraging our scale and infrastructure, and
further developing our physician and employee relationships. We
believe pursuing these core elements of our strategy helps us
develop a faster-growing, more stable and more profitable
business and increases our relevance to patients, physicians,
payers and employers.
Using our scale, significant resources and over 40 years of
operating experience, we have developed a significant management
and support infrastructure. Some of the key components of our
support infrastructure include a revenue cycle management
organization, a health care group purchasing organization,
(GPO), an information technology and services
provider, a nurse staffing agency and a medical malpractice
insurance underwriter. These shared services have helped us to
maximize our cash collection efficiency, achieve savings in
purchasing through our scale, more rapidly deploy information
technology upgrades, more effectively manage our labor pool and
achieve greater stability in malpractice insurance premiums.
Collectively, these components have helped us to further enhance
our operating effectiveness, cost efficiency and overall
financial results. We are also creating a subsidiary that will
offer certain of these component services to other health care
companies.
Since the founding of our business in 1968 as a single-facility
hospital company, we have demonstrated an ability to
consistently innovate and sustain growth during varying economic
and regulatory climates. Under the leadership of an experienced
senior management team, whose tenure at HCA averages over
20 years, we have established an extensive record of
providing high quality care, profitably growing our business,
making and integrating strategic acquisitions and efficiently
and strategically allocating capital spending.
On November 17, 2006, HCA Inc. was acquired by a private
investor group comprised of affiliates of or funds sponsored by
Bain Capital Partners, LLC (Bain Capital), Kohlberg
Kravis Roberts & Co. (KKR),
1
Merrill Lynch Global Private Equity (MLGPE), now
BAML Capital Partners (each a Sponsor), Citigroup
Inc., Bank of America Corporation (the Sponsor
Assignees) and HCA founder Dr. Thomas F. Frist, Jr.
(the Frist Entities), a group we collectively refer
to as the Investors, and by members of management
and certain other investors. We refer to the merger, the
financing transactions related to the merger and other related
transactions collectively as the Recapitalization.
Since the Recapitalization, we have achieved substantial
operational and financial progress. During this time, we have
made significant investments in expanding our service lines and
expanding our alignment with highly specialized and primary care
physicians. In addition, we have enhanced our operating
efficiencies through a number of corporate cost-saving
initiatives and an expansion of our support infrastructure. We
have made investments in information technology to optimize our
facilities and systems. We have also undertaken a number of
initiatives to improve clinical quality and patient
satisfaction. As a result of these initiatives, our financial
performance has improved significantly from the year ended
December 31, 2007, the first full year following the
Recapitalization, to the year ended December 31, 2010, with
revenues growing by $3.825 billion, net income attributable
to HCA Holdings, Inc. increasing by $333 million and
Adjusted EBITDA increasing by $1.276 billion. This
represents compounded annual growth rates on these key metrics
of 4.5%, 11.4% and 8.5%, respectively.
Our
Industry
We believe well-capitalized, comprehensive and integrated health
care delivery providers are well-positioned to benefit from the
current industry trends, some of which include:
Aging Population and Continued Growth in the Need for Health
Care Services. According to the U.S. Census
Bureau, the demographic age group of persons aged 65 and over is
expected to experience compounded annual growth of 3.0% over the
next 20 years, and constitute 19.3% of the total
U.S. population by 2030. The Centers for
Medicare & Medicaid Services (CMS)
projects continued increases in hospital services based on the
aging of the U.S. population, advances in medical
procedures, expansion of health coverage, increasing consumer
demand for expanded medical services and increased prevalence of
chronic conditions such as diabetes, heart disease and obesity.
We believe these factors will continue to drive increased
utilization of health care services and the need for
comprehensive, integrated hospital networks that can provide a
wide array of essential and sophisticated health care.
Continued Evolution of Quality-Based Reimbursement Favors
Large-Scale, Comprehensive and Integrated
Providers. We believe the U.S. health care
system is continuing to evolve in ways that favor large-scale,
comprehensive and integrated providers that provide high levels
of quality care. Specifically, we believe there are a number of
initiatives that will continue to gain importance in the
foreseeable future, including: introduction of value-based
payment methodologies tied to performance, quality and
coordination of care, implementation of integrated electronic
health records and information, and an increasing ability for
patients and consumers to make choices about all aspects of
health care. We believe our company is well positioned to
respond to these emerging trends and has the resources,
expertise and flexibility necessary to adapt in a timely manner
to the changing health care regulatory and reimbursement
environment.
Impact of Health Reform Law. The Patient
Protection and Affordable Care Act, as amended by the Health
Care and Education Reconciliation Act of 2010 (collectively, the
Health Reform Law), will change how health care
services are covered, delivered and reimbursed. It will do so
through expanded coverage of uninsured individuals, significant
reductions in the growth of Medicare program payments, material
decreases in Medicare and Medicaid disproportionate share
hospital (DSH) payments, and the establishment of
programs where reimbursement is tied in part to quality and
integration. The Health Reform Law, as enacted, is expected to
expand health insurance coverage to approximately 32 to 34
million additional individuals through a combination of public
program expansion and private sector health insurance reforms.
We believe the expansion of private sector and Medicaid coverage
will, over time, increase our reimbursement related to providing
services to individuals who were previously uninsured. On the
other hand, the reductions in the growth in Medicare payments
and the decreases in DSH payments will adversely affect our
government reimbursement. Because of the many variables
involved, including pending court challenges, the potential for
2
changes to the law as a result and efforts to amend or repeal
the law, we are unable to predict the net impact of the Health
Reform Law on us; however, we believe our experienced management
team, emphasis on quality care and diverse service offerings
will enable us to capitalize on the opportunities presented by
the Health Reform Law, as well as adapt in a timely manner to
its challenges.
Our
Competitive Strengths
We believe our key competitive strengths include:
Largest Comprehensive, Integrated Health Care Delivery
System. We are the largest
non-governmental
hospital operator in the U.S., providing approximately 4% to 5%
of all U.S. hospital services through our national
footprint. The scope and scale of our operations, evidenced by
the types of facilities we operate, the diverse medical
specialties we offer and the numerous patient care access points
we provide, enable us to provide a comprehensive range of health
care services in a cost-effective manner. As a result, we
believe the breadth of our platform is a competitive advantage
in the marketplace enabling us to attract patients, physicians
and clinical staff while also providing significant economies of
scale and increasing our relevance with commercial payers.
Reputation for High Quality Patient-Centered
Care. Since our founding, we have maintained an
unwavering focus on patients and clinical outcomes. We believe
clinical quality influences physician and patient choices about
health care delivery. We align our quality initiatives
throughout the organization by engaging corporate, local,
physician and nurse leaders to share best practices and develop
standards for delivering high quality care. We have invested
extensively in quality of care initiatives, with an emphasis on
implementing information technology and adopting industry-wide
best practices and clinical protocols. As a result of these
efforts, we have achieved significant progress in clinical
quality. As measured by the CMS clinical core measures reported
on the CMS Hospital Compare website and based on publicly
available data for the twelve months ended March 31, 2010,
our hospitals achieved a composite score of 98.4% of the CMS
core measures versus the national average of 95.3%, making us
among the top performing major health systems in the U.S. In
addition, as required by the Health Reform Law, CMS will
establish a value-based purchasing system and will adjust
hospital payment rates based on
hospital-acquired
conditions and hospital readmissions. We also believe our
quality initiatives favorably position us in a payment
environment that is increasingly performance-based.
Leading Local Market Positions in Large, Growing, Urban
Markets. Over our history, we have sought to
selectively expand and upgrade our asset base to create a
premium portfolio of assets in attractive growing markets. As a
result, we have a strong market presence in 14 of the top 25
fastest growing markets with populations greater than 500,000 in
the U.S. We currently operate in 29 markets, 17 of which
have populations of 1 million or more, with all but one of
these markets projecting growth above the national average from
2009 to 2014. Our inpatient market share places us first or
second in many of our key markets. We believe the strength and
stability of these market positions will create organic growth
opportunities and allow us to develop long-term relationships
with patients, physicians, large employers and third-party
payers.
Diversified Revenue Base and Payer Mix. We
believe our broad geographic footprint, varied service lines and
diverse revenue base mitigate our risks in numerous ways. Our
diversification limits our exposure to competitive dynamics and
economic conditions in any single local market, reimbursement
changes in specific service lines and disruptions with respect
to payers such as state Medicaid programs or large commercial
insurers. We have a diverse portfolio of assets with no single
facility contributing more than 2.3% of our revenues and no
single metropolitan statistical area contributing more than 8.0%
of revenues for the year ended December 31, 2010. We have
also developed a highly diversified payer base, including
approximately 3,000 managed care contracts, with no single
commercial payer representing more than 8% of revenues for the
year ended December 31, 2010. In addition, we are one of
the countrys largest providers of outpatient services,
which accounted for approximately 38% of our revenues for the
year ended December 31, 2010. We believe the geographic
diversity of our markets and the scope of our inpatient and
outpatient operations help reduce volatility in our operating
results.
3
Scale and Infrastructure Drive Cost Savings and
Efficiencies. Our scale allows us to leverage our
support infrastructure to achieve significant cost savings and
operating efficiencies, thereby driving margin expansion. We
strategically manage our supply chain through centralized
purchasing and supply warehouses, as well as our revenue cycle
through centralized billing, collections and health information
management functions. We also manage the provision of
information technology through a combination of centralized
systems with regional service support as well as centralize many
other clinical and corporate functions, creating economies of
scale in managing expenses and business processes. In addition
to the cost savings and operating efficiencies, this support
infrastructure simultaneously generates revenue from third
parties that utilize our services.
Well-Capitalized Portfolio of High Quality
Assets. In order to expand the range and improve
the quality of services provided at our facilities, we invested
over $7.5 billion in our facilities and information
technology systems over the five-year period ended
December 31, 2010. We believe our significant capital
investments in these areas will continue to attract new and
returning patients, attract and retain high-quality physicians,
maximize cost efficiencies and address the health care needs of
our local communities. Furthermore, we believe our platform, as
well as electronic health record infrastructure, national
research and physician management capabilities, provide a
strategic advantage by enhancing our ability to capitalize on
anticipated incentives through the Health Information Technology
for Economic and Clinical Health Act (HITECH)
provisions of the American Recovery and Reinvestment Act of 2009
(ARRA) and position us well in an environment that
increasingly emphasizes quality, transparency and coordination
of care.
Strong Operating Results and Cash Flows. Our
leading scale, diversification, favorable market positions,
dedication to clinical quality and focus on operational
efficiency have enabled us to achieve attractive historical
financial performance even during the most recent economic
period. In the year ended December 31, 2010, we generated
net income attributable to HCA Holdings, Inc. of
$1.207 billion, Adjusted EBITDA of $5.868 billion and
cash flows from operating activities of $3.085 billion. Our
ability to generate strong and consistent cash flow from
operations has enabled us to invest in our operations, reduce
our debt, enhance earnings per share and continue to pursue
attractive growth opportunities.
Proven and Experienced Management Team. We
believe the extensive experience and depth of our management
team are a distinct competitive advantage in the complicated and
evolving industry in which we compete. Our CEO and Chairman of
the Board of Directors, Richard M. Bracken, began his career
with our company over 29 years ago and has held various
executive positions with us over that period, including, most
recently, as our President and Chief Operating Officer. Our
President, Chief Financial Officer and Director, R. Milton
Johnson, joined our company over 28 years ago and has held
various positions in our financial operations since that time.
Our six Group Presidents average approximately 20 years of
experience with our company. Members of our senior management
hold significant equity interests in our company, further
aligning their long-term interests with those of our
stockholders.
Our
Growth Strategy
We are committed to providing the communities we serve with high
quality, cost-effective health care while growing our business,
increasing our profitability and creating long-term value for
our stockholders. To achieve these objectives, we align our
efforts around the following growth agenda:
Grow Our Presence in Existing Markets. We
believe we are well positioned in a number of large and growing
markets that will allow us the opportunity to generate
long-term, attractive growth through the expansion of our
presence in these markets. We plan to continue recruiting and
strategically collaborating with the physician community and
adding attractive service lines such as cardiology, emergency
services, oncology and womens services. Additional
components of our growth strategy include expanding our
footprint through developing various outpatient access points,
including surgery centers, rural outreach, freestanding
emergency departments and walk-in clinics. Since our
Recapitalization, we have invested significant capital into
these markets and expect to continue to see the benefit of this
investment.
Achieve Industry-Leading Performance in Clinical and
Satisfaction Measures. Achieving high levels of
patient safety, patient satisfaction and clinical quality are
central goals of our business model. To achieve these
4
goals, we have implemented a number of initiatives including
infection reduction initiatives, hospitalist programs, advanced
health information technology and evidence-based medicine
programs. We routinely analyze operational practices from our
best-performing hospitals to identify ways to implement
organization-wide performance improvements and reduce clinical
variation. We believe these initiatives will continue to improve
patient care, help us achieve cost efficiencies, grow our
revenues and favorably position us in an environment where our
constituents are increasingly focused on quality, efficacy and
efficiency.
Recruit and Employ Physicians to Meet Need for High Quality
Health Services. We depend on the quality and
dedication of the health care providers and other team members
who serve at our facilities. We believe a critical component of
our growth strategy is our ability to successfully recruit and
strategically collaborate with physicians and other
professionals to provide high quality care. We attract and
retain physicians by providing high quality, convenient
facilities with advanced technology, by expanding our specialty
services and by building our outpatient operations. We believe
our continued investment in the employment, recruitment and
retention of physicians will improve the quality of care at our
facilities.
Continue to Leverage Our Scale and Market Positions to
Enhance Profitability. We believe there is
significant opportunity to continue to grow the profitability of
our company by fully leveraging the scale and scope of our
franchise. We are currently pursuing next generation performance
improvement initiatives such as contracting for services on a
multistate basis and expanding our support infrastructure for
additional clinical and support functions, such as physician
credentialing, medical transcription and electronic medical
recordkeeping. We believe our centrally managed business
processes and ability to leverage cost-saving practices across
our extensive network will enable us to continue to manage costs
effectively. We are in the process of creating a subsidiary that
will leverage key components of our support infrastructure,
including revenue cycle management, health care group
purchasing, supply chain management and staffing functions, by
offering these services to other hospital companies.
Selectively Pursue a Disciplined Development
Strategy. We continue to believe there are
significant growth opportunities in our markets. We will
continue to provide financial and operational resources to
successfully execute on our in-market opportunities. To
complement our in-market growth agenda, we intend to focus on
selectively developing and acquiring new hospitals, outpatient
facilities and other health care service providers. We believe
the challenges faced by the hospital industry may spur
consolidation and we believe our size, scale, national presence
and access to capital will position us well to participate in
any such consolidation. We have a strong record of successfully
acquiring and integrating hospitals and entering into joint
ventures and intend to continue leveraging this experience.
Corporate
Reorganization
On November 22, 2010, HCA Inc. reorganized by creating a new
holding company structure (the Corporate
Reorganization). We are the new parent company, and HCA
Inc. is now our wholly-owned direct subsidiary. As part of the
Corporate Reorganization, HCA Inc.s outstanding shares of
capital stock were automatically converted, on a share for share
basis, into identical shares of our common stock. Our amended
and restated certificate of incorporation, amended and restated
bylaws, executive officers and board of directors following the
Corporate Reorganization are the same as HCA Inc.s in
effect immediately prior to the Corporate Reorganization, and
the rights, privileges and interests of HCA Inc.s
stockholders remain the same with respect to us as the new
holding company. Additionally, as a result of the Corporate
Reorganization, we are deemed the successor registrant to HCA
Inc. under the Securities and Exchange Act of 1934, as amended
(the Exchange Act), and shares of our common stock
are deemed registered under Section 12(g) of the Exchange
Act. As part of the Corporate Reorganization, we became a
guarantor but did not assume the debt of HCA Inc.s
outstanding secured notes. See Description of
Indebtedness.
We have assumed all of HCA Inc.s obligations with respect
to the outstanding shares previously registered on Form S-8 for
distribution pursuant to HCA Inc.s stock incentive plan
and have also assumed HCA Inc.s other equity incentive
plans that provide for the right to acquire HCA Inc.s
common stock, whether or not exercisable. We have also assumed
and agreed to perform HCA Inc.s obligations under its
other compensation plans and agreements pursuant to which HCA
Inc. is to issue equity securities to its directors, officers,
or employees. The
5
agreements and plans we assumed were each deemed to be
automatically amended as necessary to provide that references
therein to HCA Inc. now refer to HCA Holdings, Inc.
Consequently, following the Corporate Reorganization, the right
to receive HCA Inc.s common stock under its various
compensation plans and agreements automatically converted into
rights for the same number of shares of our common stock, with
the same rights and conditions as the corresponding HCA Inc.
rights prior to the Corporate Reorganization.
Risk
Factors
Investing in our common stock involves substantial risk, and our
ability to successfully operate our business is subject to
numerous risks, including those that are generally associated
with operating in the health care industry. Any of the factors
set forth under Risk Factors may limit our ability
to successfully execute our business strategy. You should
carefully consider all of the information set forth in this
prospectus and, in particular, should evaluate the specific
factors set forth under Risk Factors in deciding
whether to invest in our common stock. Among these important
risks are the following:
|
|
|
|
|
our substantial debt could limit our ability to pursue our
growth strategy;
|
|
|
|
our debt agreements contain restrictions that may limit our
flexibility in operating our business;
|
|
|
|
the current economic climate and general economic factors may
adversely affect our performance;
|
|
|
|
we face intense competition that could limit our growth
opportunities;
|
|
|
|
we are required to comply with extensive laws and regulations
that could impact our operations;
|
|
|
|
legal proceedings and governmental investigations could
negatively impact our business; and
|
|
|
|
uninsured and patient due accounts could adversely affect our
results of operations.
|
In addition, it is difficult to predict the impact on our
company of the Health Reform Law due to the laws
complexity, lack of implementing regulations or interpretive
guidance, gradual and potentially delayed implementation,
pending court challenges and possible amendment or repeal, as
well as our inability to foresee how individuals and businesses
will respond to the choices afforded them by the law. Because of
the many variables involved, we are unable to predict the net
effect on the Company of the Health Reform Laws planned
reductions in the growth of Medicare payments, the expected
increases in our revenues from providing care to previously
uninsured individuals, and numerous other provisions in the law
that may affect us.
Through our predecessors, we commenced operations in 1968. HCA
Inc. was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. HCA Holdings, Inc.
was incorporated in Delaware in October 2010. Our principal
executive offices are located at One Park Plaza, Nashville,
Tennessee 37203, and our telephone number is
(615) 344-9551.
Our website address is www.hcahealthcare.com. The
information on our website is not part of this prospectus.
6
The
Offering
|
|
|
Common stock offered by HCA |
|
87,719,300 shares |
|
Common stock offered by selling stockholders |
|
38,480,700 shares |
|
Common stock to be outstanding after this offering |
|
515,205,100 shares |
|
Use of Proceeds |
|
We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and estimated offering
expenses, will be approximately $2.5 billion. |
|
|
|
We intend to use the anticipated net proceeds to repay certain
of our existing indebtedness, as will be determined following
completion of this offering, and for general corporate purposes.
Pending such application, we intend to use the anticipated
proceeds to temporarily reduce amounts under our asset-based
revolving credit facility and our senior secured revolving
credit facility. As a result of this application of proceeds,
this offering is subject to the conflict of interest
provisions of Rule 5121 of the Financial Industry
Regulatory Authority, Inc. Conduct Rules (FINRA Rule
5121). |
|
|
|
We will not receive any proceeds from the sale of shares of our
common stock by the selling stockholders. The selling
stockholders include the Sponsors, the Sponsor Assignees and
certain members of management. |
|
Underwriters option |
|
The selling stockholders have granted the underwriters a
30-day
option to purchase up to 18,930,000 additional shares of our
common stock at the initial public offering price. |
|
Dividend policy |
|
We do not intend to pay dividends on our common stock for the
foreseeable future following completion of the offering. |
|
Risk Factors |
|
You should carefully read and consider the information set forth
under Risk Factors beginning on page 13 of this
prospectus and all other information set forth in this
prospectus before investing in our common stock. |
|
Conflicts of Interest |
|
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory, investment banking,
commercial banking and other services for us for which they
received or will receive customary fees and expenses. See
Underwriting. |
|
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or
its affiliates indirectly own in excess of 10% of our issued and
outstanding common stock, and is therefore deemed to be one of
our affiliates and have a conflict of
interest within the meaning of FINRA Rule 5121.
Additionally, because we expect that more than 5% of the net
proceeds of this offering may be received by certain
underwriters in this offering or their affiliates that are
lenders under the senior secured credit facilities, this
offering is being conducted in accordance with
FINRA Rule 5121 regarding the underwriting of
securities. FINRA Rule 5121 requires that a |
7
|
|
|
|
|
qualified independent underwriter as defined by the
FINRA rules participate in the preparation of the registration
statement of which this prospectus forms a part and perform its
usual standard of due diligence with respect thereto. Barclays
Capital Inc. (Barclays Capital) has agreed to serve
as the qualified independent underwriter for the offering. In
addition, in accordance with FINRA Rule 5121, if
Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or
its affiliates receives more than 5% of the net proceeds from
this offering, it will not confirm sales to discretionary
accounts without the prior written consent of its customers. See
Underwriting Conflicts of Interest. |
|
NYSE ticker symbol |
|
HCA |
Unless we indicate otherwise or the context requires, all
information in this prospectus:
|
|
|
|
|
assumes no exercise of the underwriters option to purchase
additional shares of our common stock;
|
|
|
|
reflects the 4.505 to 1 stock split that we effectuated prior to
the pricing of this offering; and
|
|
|
|
does not reflect (1) 50,525,942 shares of our common
stock issuable upon the exercise of outstanding stock options at
a weighted average exercise price of $8.58 per share as of
December 31, 2010, of which 23,834,766 were then
exercisable; and (2) 41,497,181 shares of our common
stock reserved for future grants under our stock incentive plans
effective upon the consummation of this offering.
|
8
Summary
Financial Data
The following table sets forth HCA Holdings, Inc.s summary
financial data as of and for the periods indicated. The
financial data as of December 31, 2010 and 2009 and for
each of the three years in the period ended December 31,
2010 have been derived from HCA Holdings, Inc.s
consolidated financial statements included elsewhere in this
prospectus, which have been audited by Ernst & Young
LLP. The financial data as of December 31, 2008 have been
derived from HCA Holdings, Inc.s consolidated financial
statements audited by Ernst & Young LLP that are not
included herein.
The summary financial data should be read in conjunction with,
and are qualified by reference to, Selected Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and the related notes thereto
appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
11,958
|
|
|
|
11,440
|
|
Supplies
|
|
|
4,961
|
|
|
|
4,868
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
4,724
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(246
|
)
|
|
|
(223
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
2,002
|
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
1,375
|
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.83
|
|
|
$
|
2.48
|
|
|
$
|
1.59
|
|
Diluted
|
|
$
|
2.76
|
|
|
$
|
2.44
|
|
|
$
|
1.56
|
|
Weighted average shares (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
426,424
|
|
|
|
425,567
|
|
|
|
423,699
|
|
Diluted
|
|
|
437,347
|
|
|
|
432,227
|
|
|
|
430,982
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$
|
3,085
|
|
|
$
|
2,747
|
|
|
$
|
1,990
|
|
Cash flows used in investing activities
|
|
|
(1,039
|
)
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
Cash flows used in financing activities
|
|
|
(1,947
|
)
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
5,383
|
|
|
$
|
5,093
|
|
|
$
|
4,378
|
|
Adjusted EBITDA(1)
|
|
|
5,868
|
|
|
|
5,472
|
|
|
|
4,574
|
|
Capital expenditures
|
|
|
1,325
|
|
|
|
1,317
|
|
|
|
1,600
|
|
Operating Data(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period(3)
|
|
|
156
|
|
|
|
155
|
|
|
|
158
|
|
Number of freestanding outpatient surgical centers at end of
period(4)
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
Number of licensed beds at end of period(5)
|
|
|
38,827
|
|
|
|
38,839
|
|
|
|
38,504
|
|
Weighted average licensed beds(6)
|
|
|
38,655
|
|
|
|
38,825
|
|
|
|
38,422
|
|
Admissions(7)
|
|
|
1,554,400
|
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
Equivalent admissions(8)
|
|
|
2,468,400
|
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
Average length of stay (days)(9)
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
4.9
|
|
Average daily census(10)
|
|
|
20,523
|
|
|
|
20,650
|
|
|
|
20,795
|
|
Occupancy(11)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
Emergency room visits(12)
|
|
|
5,706,200
|
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
Outpatient surgeries(13)
|
|
|
783,600
|
|
|
|
794,600
|
|
|
|
797,400
|
|
Inpatient surgeries(14)
|
|
|
487,100
|
|
|
|
494,500
|
|
|
|
493,100
|
|
Days revenues in accounts receivable(15)
|
|
|
46
|
|
|
|
45
|
|
|
|
49
|
|
Gross patient revenues(16)
|
|
$
|
125,640
|
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
Outpatient revenues as a percentage of patient revenues(17)
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
37
|
%
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(18)
|
|
$
|
2,650
|
|
|
$
|
2,264
|
|
|
$
|
2,391
|
|
Property, plant and equipment, net
|
|
|
11,352
|
|
|
|
11,427
|
|
|
|
11,529
|
|
Cash and cash equivalents
|
|
|
411
|
|
|
|
312
|
|
|
|
465
|
|
Total assets
|
|
|
23,852
|
|
|
|
24,131
|
|
|
|
24,280
|
|
Total debt
|
|
|
28,225
|
|
|
|
25,670
|
|
|
|
26,989
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
147
|
|
|
|
155
|
|
Stockholders deficit attributable to HCA Holdings,
Inc.
|
|
|
(11,926
|
)
|
|
|
(8,986
|
)
|
|
|
(10,255
|
)
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,008
|
|
|
|
995
|
|
Total stockholders deficit
|
|
|
(10,794
|
)
|
|
|
(7,978
|
)
|
|
|
(9,260
|
)
|
|
|
|
(1) |
|
EBITDA, a measure used by management to evaluate operating
performance, is defined as net income attributable to HCA
Holdings, Inc. plus (i) provision for income taxes,
(ii) interest expense and (iii) depreciation and
amortization. EBITDA is not a recognized term under GAAP and
does not purport to be an alternative to net income as a measure
of operating performance or to cash flows from operating
activities as a measure of liquidity. Additionally, EBITDA is
not intended to be a measure of free cash flow available for
managements discretionary use, as it does not consider
certain cash requirements such as interest payments, tax
payments and other debt service requirements. Management
believes EBITDA is helpful to investors and our management in
highlighting trends because EBITDA excludes the results |
10
|
|
|
|
|
of decisions outside the control of operating management and
that can differ significantly from company to company depending
on long-term strategic decisions regarding capital structure,
the tax jurisdictions in which companies operate and capital
investments. Management compensates for the limitations of using
non-GAAP financial measures by using them to supplement GAAP
results to provide a more complete understanding of the factors
and trends affecting the business than GAAP results alone.
Because not all companies use identical calculations, our
presentation of EBITDA may not be comparable to similarly titled
measures of other companies. |
|
|
|
Adjusted EBITDA is defined as EBITDA, adjusted to exclude net
income attributable to noncontrolling interests, losses (gains)
on sales of facilities and impairments of long-lived assets. We
believe Adjusted EBITDA is an important measure that supplements
discussions and analysis of our results of operations. We
believe it is useful to investors to provide disclosures of our
results of operations on the same basis used by management.
Management relies upon Adjusted EBITDA as the primary measure to
review and assess operating performance of its hospital
facilities and their management teams. Adjusted EBITDA target
amounts are the performance measures utilized in our annual
incentive compensation programs and are vesting conditions for a
portion of our stock option grants. Management and investors
review both the overall performance (GAAP net income
attributable to HCA Holdings, Inc.) and operating performance
(Adjusted EBITDA) of our health care facilities. Adjusted EBITDA
and the Adjusted EBITDA margin (Adjusted EBITDA divided by
revenues) are utilized by management and investors to compare
our current operating results with the corresponding periods
during the previous year and to compare our operating results
with other companies in the health care industry. It is
reasonable to expect that losses (gains) on sales of facilities
and impairment of long-lived assets will occur in future
periods, but the amounts recognized can vary significantly from
period to period, do not directly relate to the ongoing
operations of our health care facilities and complicate period
comparisons of our results of operations and operations
comparisons with other health care companies. Adjusted EBITDA is
not a measure of financial performance under accounting
principles generally accepted in the United States, and should
not be considered an alternative to net income attributable to
HCA Holdings, Inc. as a measure of operating performance or cash
flows from operating, investing and financing activities as a
measure of liquidity. Because Adjusted EBITDA is not a
measurement determined in accordance with generally accepted
accounting principles and is susceptible to varying
calculations, Adjusted EBITDA, as presented, may not be
comparable to other similarly titled measures presented by other
companies. |
|
|
|
|
|
EBITDA and Adjusted EBITDA are calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
5,383
|
|
|
|
5,093
|
|
|
|
4,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests(i)
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
Losses (gains) on sales of facilities(ii)
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets(iii)
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
5,868
|
|
|
$
|
5,472
|
|
|
$
|
4,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents the add-back of net income attributable to
noncontrolling interests. |
|
(ii) |
|
Represents the elimination of losses (gains) on sales of
facilities. |
|
(iii) |
|
Represents the add-back of impairments of long-lived assets. |
|
|
|
(2) |
|
The operating data set forth in this table includes only those
facilities that are consolidated for financial reporting
purposes. |
11
|
|
|
(3) |
|
Excludes eight facilities in 2010, 2009 and 2008 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes. |
|
(4) |
|
Excludes nine facilities in 2010 and eight facilities in 2009
and 2008 that are not consolidated (accounted for using the
equity method) for financial reporting purposes. |
|
(5) |
|
Licensed beds are those beds for which a facility has been
granted approval to operate from the applicable state licensing
agency. |
|
(6) |
|
Represents the average number of licensed beds, weighted based
on periods owned. |
|
(7) |
|
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. |
|
(8) |
|
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. |
|
(9) |
|
Represents the average number of days admitted patients stay in
our hospitals. |
|
(10) |
|
Represents the average number of patients in our hospital beds
each day. |
|
(11) |
|
Represents the percentage of hospital licensed beds occupied by
patients. Both average daily census and occupancy rate provide
measures of the utilization of inpatient rooms. |
|
(12) |
|
Represents the number of patients treated in our emergency rooms. |
|
(13) |
|
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. |
|
(14) |
|
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. |
|
(15) |
|
Revenues per day is calculated by dividing the revenues for the
period by the days in the period. Days revenues in accounts
receivable is then calculated as accounts receivable, net of the
allowance for doubtful accounts, at the end of the period
divided by revenues per day. |
|
(16) |
|
Gross patient revenues are based upon our standard charge
listing. Gross charges/revenues 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. |
|
|
|
(17) |
|
Represents the percentage of patient revenues related to
patients who are not admitted to our hospitals. |
|
(18) |
|
We define working capital as current assets minus current
liabilities. |
12
RISK
FACTORS
An investment in our common stock involves risk. You should
carefully consider the following risks as well as the other
information included in this prospectus, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and related notes included elsewhere in this
prospectus, before investing in our common stock. Any of the
following risks could materially and adversely affect our
business, financial condition or results of operations. However,
the selected risks described below are not the only risks facing
us. Additional risks and uncertainties not currently known to us
or those we currently view to be immaterial may also materially
and adversely affect our business, financial condition or
results of operations. In such a case, the trading price of the
common stock could decline, and you may lose all or part of your
investment in us.
Risks
Related to Our Business
Our
hospitals face competition for patients from other hospitals and
health care providers.
The health care business is highly competitive, and competition
among hospitals and other health care providers for patients has
intensified in recent years. Generally, other hospitals in the
local communities we serve provide services similar to those
offered by our hospitals. In addition, CMS publicizes on its
Hospital Compare website performance data related to quality
measures and data on patient satisfaction surveys hospitals
submit in connection with their Medicare reimbursement. Federal
law provides for the future expansion of the number of quality
measures that must be reported. Additional quality measures and
future trends toward clinical transparency may have an
unanticipated impact on our competitive position and patient
volumes. Further, the Health Reform Law requires all hospitals
to annually establish, update and make public a list of the
hospitals standard charges for items and services. If any
of our hospitals achieve poor results (or results that are lower
than our competitors) on these quality measures or on patient
satisfaction surveys or if our standard charges are higher than
our competitors, our patient volumes could decline.
In addition, the number of freestanding specialty hospitals,
surgery centers and diagnostic and imaging centers in the
geographic areas in which we operate has increased
significantly. As a result, most of our hospitals operate in a
highly competitive environment. Some of the facilities that
compete with our hospitals are owned by governmental agencies or
not-for-profit
corporations supported by endowments, charitable contributions
and/or tax
revenues and can finance capital expenditures and operations on
a tax-exempt basis. Our hospitals face increasing competition
from specialty hospitals, some of which are physician-owned, and
from both our own and unaffiliated freestanding surgery centers
for market share in high margin services and for quality
physicians and personnel. If ambulatory surgery centers are
better able to compete in this environment than our hospitals,
our hospitals may experience a decline in patient volume, and we
may experience a decrease in margin, even if those patients use
our ambulatory surgery centers. In states that do not require a
Certificate of Need (CON) for the purchase,
construction or expansion of health care facilities or services,
competition in the form of new services, facilities and capital
spending is more prevalent. Further, if our competitors are
better able to attract patients, recruit physicians, expand
services or obtain favorable managed care contracts at their
facilities than our hospitals and ambulatory surgery centers, we
may experience an overall decline in patient volume. See
Business Competition.
The
growth of uninsured and patient due accounts and a deterioration
in the collectibility of these accounts could adversely affect
our results of operations.
The primary collection risks of our accounts receivable relate
to the uninsured patient accounts and patient accounts for which
the primary insurance carrier has paid the amounts covered by
the applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts relates primarily to amounts due directly
from patients.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical write-offs and
expected net collections, business and economic conditions,
trends in federal and state governmental and private employer
health care coverage, the rate of growth in uninsured patient
admissions and other collection indicators. At December 31,
2010, our allowance for doubtful accounts represented
13
approximately 93% of the $4.249 billion patient due
accounts receivable balance. The sum of the provision for
doubtful accounts, uninsured discounts and charity care
increased from $7.009 billion for 2008 to
$8.362 billion for 2009 and to $9.626 billion for 2010.
A continuation of the trends that have resulted in an increasing
proportion of accounts receivable being comprised of uninsured
accounts and a deterioration in the collectibility of these
accounts will adversely affect our collection of accounts
receivable, cash flows and results of operations. Prior to the
Health Reform Law being fully implemented, our facilities may
experience growth in bad debts, uninsured discounts and charity
care as a result of a number of factors, including the economic
downturn and increase in unemployment. The Health Reform Law
seeks to decrease, over time, the number of uninsured
individuals. As enacted, the Health Reform Law will, effective
January 1, 2014, expand Medicaid and incentivize employers
to offer, and require individuals to carry, health insurance or
be subject to penalties. More than 20 challenges to the
Health Reform Law have been filed in federal courts. Some
federal courts have upheld the constitutionality of the Health
Reform Law or dismissed cases on procedural grounds. Others have
held unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the law intact. These lawsuits are subject to appeal, and
several are currently on appeal, including those that hold the
law unconstitutional. It is difficult to predict the full impact
of the Health Reform Law due to the laws complexity, lack
of implementing regulations or interpretive guidance, gradual
and potentially delayed implementation, pending court challenges
and possible amendment or repeal, as well as our inability to
foresee how individuals and businesses will respond to the
choices afforded them by the law. In addition, even after
implementation of the Health Reform Law, we may continue to
experience bad debts and have to provide uninsured discounts and
charity care for undocumented aliens who are not permitted to
enroll in a health insurance exchange or government health care
programs and certain others who may not have insurance coverage.
Changes
in government health care programs may reduce our
revenues.
A significant portion of our patient volume is derived from
government health care programs, principally Medicare and
Medicaid. Specifically, we derived 40.7% of our revenues from
the Medicare and Medicaid programs in 2010. Changes in
government health care programs may reduce the reimbursement we
receive and could adversely affect our business and results of
operations.
In recent years, legislative and regulatory changes have
resulted in limitations on and, in some cases, reductions in
levels of payments to health care providers for certain services
under the Medicare program. For example, CMS completed a
two-year transition to full implementation of the Medicare
severity diagnosis-related group (MS-DRG) system,
which represents a refinement to the existing diagnosis-related
group system. Future realignments in the MS-DRG system could
impact the margins we receive for certain services. Further, the
Health Reform Law provides for material reductions in the growth
of Medicare program spending, including reductions in Medicare
market basket updates and Medicare DSH funding. Medicare
payments in federal fiscal year 2011 for inpatient hospital
services are slightly lower than payments for the same services
in federal fiscal year 2010, because of reductions resulting
from the Health Reform Law and the MS-DRG implementation.
Since most states must operate with balanced budgets and since
the Medicaid program is often a states largest program,
some states can be expected to enact or consider enacting
legislation designed to reduce their Medicaid expenditures. The
current economic downturn has increased the budgetary pressures
on many states, and these budgetary pressures have resulted, and
likely will continue to result, in decreased spending, or
decreased spending growth, for Medicaid programs and the
Childrens Health Insurance Program (CHIP) in
many states. The Health Reform Law provides for material
reductions to Medicaid DSH funding. Further, many states have
also adopted, or are considering, legislation designed to reduce
coverage, enroll Medicaid recipients in managed care programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems. Effective March 23,
2010, the Health Reform Law requires states to at least maintain
Medicaid eligibility standards established prior to the
enactment of the law for adults until January 1, 2014 and
for children until October 1, 2019. However, states with
budget deficits may seek a waiver from this requirement to
address eligibility standards that apply to adults making more
than 133% of the federal poverty level. The
14
Health Reform Law also provides for significant expansions to
the Medicaid program, but these changes are not required until
2014. In addition, the Health Reform Law will result in
increased state legislative and regulatory changes in order for
states to comply with new federal mandates, such as the
requirement to establish American Health Benefit Exchanges
(Exchanges), and to participate in grants and other
incentive opportunities.
In some cases, commercial third-party payers rely on all or
portions of the MS-DRG system to determine payment rates, which
may result in decreased reimbursement from some commercial
third-party payers. Other changes to government health care
programs may negatively impact payments from commercial
third-party payers.
Current or future health care reform efforts, changes in laws or
regulations regarding government health care programs, other
changes in the administration of government health care programs
and changes to commercial third-party payers in response to
health care reform and other changes to government health care
programs could have a material, adverse effect on our financial
position and results of operations.
We are
unable to predict the impact of the Health Reform Law, which
represents a significant change to the health care
industry.
As enacted, the Health Reform Law will change how health care
services are covered, delivered, and reimbursed through expanded
coverage of uninsured individuals, reduced growth in Medicare
program spending, reductions in Medicare and Medicaid DSH
payments and the establishment of programs where reimbursement
is tied to quality and integration. In addition, the law reforms
certain aspects of health insurance, expands existing efforts to
tie Medicare and Medicaid payments to performance and quality,
and contains provisions intended to strengthen fraud and abuse
enforcement.
The expansion of health insurance coverage under the Health
Reform Law may result in a material increase in the number of
patients using our facilities who have either private or public
program coverage. In addition, a disproportionately large
percentage of the new Medicaid coverage is likely to be in
states that currently have relatively low income eligibility
requirements. Two such states are Texas and Florida, where about
one-half of our licensed beds are located. We also have a
significant presence in other relatively low income eligibility
states, including Georgia, Kansas, Louisiana, Missouri, Oklahoma
and Virginia. Further, the Health Reform Law provides for a
value-based purchasing program, the establishment of Accountable
Care Organizations (ACOs) and bundled payment pilot
programs, which will create possible sources of additional
revenue.
However, it is difficult to predict the size of the potential
revenue gains to the Company as a result of these elements of
the Health Reform Law, because of uncertainty surrounding a
number of material factors, including the following:
|
|
|
|
|
how many previously uninsured individuals will obtain coverage
as a result of the Health Reform Law (while the Congressional
Budget Office (CBO) estimates 32 million, CMS
estimates almost 34 million; both agencies made a number of
assumptions to derive that figure, including how many
individuals will ignore substantial subsidies and decide to pay
the penalty rather than obtain health insurance and what
percentage of people in the future will meet the new Medicaid
income eligibility requirements);
|
|
|
|
|
|
what percentage of the newly insured patients will be covered
under the Medicaid program and what percentage will be covered
by private health insurers;
|
|
|
|
the extent to which states will enroll new Medicaid participants
in managed care programs;
|
|
|
|
|
|
the pace at which insurance coverage expands, including the pace
of different types of coverage expansion;
|
|
|
|
|
|
the change, if any, in the volume of inpatient and outpatient
hospital services that are sought by and provided to previously
uninsured individuals;
|
|
|
|
the rate paid to hospitals by private payers for newly covered
individuals, including those covered through the newly created
Exchanges and those who might be covered under the Medicaid
program under contracts with the state;
|
|
|
|
the rate paid by state governments under the Medicaid program
for newly covered individuals;
|
15
|
|
|
|
|
how the value-based purchasing and other quality programs will
be implemented;
|
|
|
|
the percentage of individuals in the Exchanges who select the
high deductible plans, since health insurers offering those
kinds of products have traditionally sought to pay lower rates
to hospitals;
|
|
|
|
whether the net effect of the Health Reform Law, including the
prohibition on excluding individuals based on pre-existing
conditions, the requirement to keep medical costs at or above a
specified minimum percentage of premium revenue, other health
insurance reforms and the annual fee applied to all health
insurers, will be to put pressure on the bottom line of health
insurers, which in turn might cause them to seek to reduce
payments to hospitals with respect to both newly insured
individuals and their existing business; and
|
|
|
|
the possibility that implementation of the provisions expanding
health insurance coverage or the entire Health Reform Law will
be delayed due to court challenges or revised or eliminated as a
result of court challenges and efforts to repeal or amend the
law. More than 20 challenges to the Health Reform Law have
been filed in federal courts. Some federal district courts have
upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the law intact. These lawsuits are subject to appeal, and
several are currently on appeal, including those that hold the
law unconstitutional.
|
On the other hand, the Health Reform Law provides for
significant reductions in the growth of Medicare spending,
reductions in Medicare and Medicaid DSH payments and the
establishment of programs where reimbursement is tied to quality
and integration. Since 40.7% of our revenues in 2010 were from
Medicare and Medicaid, reductions to these programs may
significantly impact us and could offset any positive effects of
the Health Reform Law. It is difficult to predict the size of
the revenue reductions to Medicare and Medicaid spending,
because of uncertainty regarding a number of material factors,
including the following:
|
|
|
|
|
the amount of overall revenues we will generate from Medicare
and Medicaid business when the reductions are implemented;
|
|
|
|
whether reductions required by the Health Reform Law will be
changed by statute or by judicial decision prior to becoming
effective;
|
|
|
|
the size of the Health Reform Laws annual productivity
adjustment to the market basket beginning in 2012 payment years;
|
|
|
|
|
|
the amount of the Medicare DSH reductions that will be made,
commencing in federal fiscal year 2014;
|
|
|
|
the allocation to our hospitals of the Medicaid DSH reductions,
commencing in federal fiscal year 2014;
|
|
|
|
|
|
what the losses in revenues will be, if any, from the Health
Reform Laws quality initiatives;
|
|
|
|
how successful ACOs, in which we anticipate participating, will
be at coordinating care and reducing costs or whether they will
decrease reimbursement;
|
|
|
|
the scope and nature of potential changes to Medicare
reimbursement methods, such as an emphasis on bundling payments
or coordination of care programs;
|
|
|
|
whether our revenues from upper payment limit (UPL)
programs will be adversely affected, because there may be fewer
indigent, non-Medicaid patients for whom the Company provides
services pursuant to UPL programs; and
|
|
|
|
reductions to Medicare payments CMS may impose for
excessive readmissions.
|
Because of the many variables involved, we are unable to predict
the net effect on us of the expected increases in insured
individuals using our facilities, the reductions in Medicare
spending, reductions in Medicare and Medicaid DSH funding, and
numerous other provisions in the Health Reform Law that may
affect us. Further, it is unclear how efforts to repeal or
revise the Health Reform Law and federal lawsuits challenging
its constitutionality will be resolved or what the impact would
be of any resulting changes to the law.
16
If we
are unable to retain and negotiate favorable contracts with
nongovernment payers, including managed care plans, our revenues
may be reduced.
Our ability to obtain favorable contracts with nongovernment
payers, including health maintenance organizations, preferred
provider organizations and other managed care plans
significantly affects the revenues and operating results of our
facilities. Revenues derived from these entities and other
insurers accounted for 53.7% and 53.4% of our revenues for 2010
and 2009, respectively. Nongovernment payers, including managed
care payers, continue to demand discounted fee structures, and
the trend toward consolidation among nongovernment payers tends
to increase their bargaining power over fee structures. As
various provisions of the Health Reform Law are implemented,
including the establishment of the Exchanges, nongovernment
payers increasingly may demand reduced fees. Our future success
will depend, in part, on our ability to retain and renew our
managed care contracts and enter into new managed care contracts
on terms favorable to us. Other health care providers may impact
our ability to enter into managed care contracts or negotiate
increases in our reimbursement and other favorable terms and
conditions. For example, some of our competitors may negotiate
exclusivity provisions with managed care plans or otherwise
restrict the ability of managed care companies to contract with
us. It is not clear what impact, if any, the increased
obligations on managed care payers and other payers imposed by
the Health Reform Law will have on our ability to negotiate
reimbursement increases. If we are unable to retain and
negotiate favorable contracts with managed care plans or
experience reductions in payment increases or amounts received
from nongovernment payers, our revenues may be reduced.
Our
performance depends on our ability to recruit and retain quality
physicians.
The success of our hospitals depends in part on the number and
quality of the physicians on the medical staffs of our
hospitals, the admitting practices of those physicians and
maintaining good relations with those physicians. Although we
employ some physicians, physicians are often not employees of
the hospitals at which they practice and, in many of the markets
we serve, most physicians have admitting privileges at other
hospitals in addition to our hospitals. Such physicians may
terminate their affiliation with our hospitals at any time. If
we are unable to provide adequate support personnel or
technologically advanced equipment and hospital facilities that
meet the needs of those physicians and their patients, they may
be discouraged from referring patients to our facilities,
admissions may decrease and our operating performance may
decline.
Our
hospitals face competition for staffing, which may increase
labor costs and reduce profitability.
Our operations are dependent on the efforts, abilities and
experience of our management and medical support personnel, such
as nurses, pharmacists and lab technicians, as well as our
physicians. We compete with other health care providers in
recruiting and retaining qualified management and support
personnel responsible for the daily operations of each of our
hospitals, including nurses and other nonphysician health care
professionals. In some markets, the availability of nurses and
other medical support personnel has been a significant operating
issue to health care providers. We may be required to continue
to enhance wages and benefits to recruit and retain nurses and
other medical support personnel or to hire more expensive
temporary or contract personnel. As a result, our labor costs
could increase. We also depend on the available labor pool of
semi-skilled and unskilled employees in each of the markets in
which we operate. Certain proposed changes in federal labor
laws, including the Employee Free Choice Act, could increase the
likelihood of employee unionization attempts. To the extent a
significant portion of our employee base unionizes, it is
possible our labor costs could increase materially. When
negotiating collective bargaining agreements with unions,
whether such agreements are renewals or first contracts, there
is the possibility that strikes could occur during the
negotiation process, and our continued operation during any
strikes could increase our labor costs. In addition, the states
in which we operate could adopt mandatory nurse-staffing ratios
or could reduce mandatory nurse staffing ratios already in
place. State-mandated nurse-staffing ratios could significantly
affect labor costs and have an adverse impact on revenues if we
are required to limit admissions in order to meet the required
ratios. If our labor costs increase, we may not be able to raise
rates to offset these increased costs. Because a significant
percentage of our revenues consists of fixed, prospective
payments, our ability to pass along increased labor costs is
constrained. Our failure to recruit and retain qualified
management, nurses and other medical support personnel, or to
control labor costs, could have a material, adverse effect on
our results of operations.
17
If we
fail to comply with extensive laws and government regulations,
we could suffer penalties or be required to make significant
changes to our operations.
The health care industry is required to comply with extensive
and complex laws and regulations at the federal, state and local
government levels relating to, among other things:
|
|
|
|
|
billing and coding for services and properly handling
overpayments;
|
|
|
|
relationships with physicians and other referral sources;
|
|
|
|
necessity and adequacy of medical care;
|
|
|
|
quality of medical equipment and services;
|
|
|
|
qualifications of medical and support personnel;
|
|
|
|
confidentiality, maintenance, data breach, identity theft and
security issues associated with health-related and personal
information and medical records;
|
|
|
|
screening, stabilization and transfer of individuals who have
emergency medical conditions;
|
|
|
|
licensure and certification;
|
|
|
|
hospital rate or budget review;
|
|
|
|
preparing and filing of cost reports;
|
|
|
|
operating policies and procedures;
|
|
|
|
activities regarding competitors; and
|
|
|
|
addition of facilities and services.
|
Among these laws are the federal Anti-kickback Statute, the
federal physician self-referral law (commonly called the
Stark Law), the federal False Claims Act
(FCA) and similar state laws. We have a variety of
financial relationships with physicians and others who either
refer or influence the referral of patients to our hospitals and
other health care facilities, and these laws govern those
relationships. The Office of Inspector General of the Department
of Health and Human Services (OIG) has enacted safe
harbor regulations that outline practices deemed protected from
prosecution under the Anti-kickback Statute. While we endeavor
to comply with the applicable safe harbors, certain of our
current arrangements, including joint ventures and financial
relationships with physicians and other referral sources and
persons and entities to which we refer patients, do not qualify
for safe harbor protection. Failure to qualify for a safe harbor
does not mean the arrangement necessarily violates the
Anti-kickback Statute but may subject the arrangement to greater
scrutiny. However, we cannot offer assurance that practices
outside of a safe harbor will not be found to violate the
Anti-kickback Statute. Allegations of violations of the
Anti-kickback Statute may be brought under the federal Civil
Monetary Penalty Law, which requires a lower burden of proof
than other fraud and abuse laws, including the Anti-kickback
Statute.
Our financial relationships with referring physicians and their
immediate family members must comply with the Stark Law by
meeting an exception. We attempt to structure our relationships
to meet an exception to the Stark Law, but the regulations
implementing the exceptions are detailed and complex, and we
cannot provide assurance that every relationship complies fully
with the Stark Law. Unlike the Anti-kickback Statute, failure to
meet an exception under the Stark Law results in a violation of
the Stark Law, even if such violation is technical in nature.
Additionally, if we violate the Anti-kickback Statute or Stark
Law, or if we improperly bill for our services, we may be found
to violate the FCA, either under a suit brought by the
government or by a private person under a qui tam, or
whistleblower, suit. See Business
Regulation and Other Factors.
If we fail to comply with the Anti-kickback Statute, the Stark
Law, the FCA or other applicable laws and regulations, we could
be subjected to liabilities, including civil penalties
(including the loss of our licenses to operate one or more
facilities), exclusion of one or more facilities from
participation in the Medicare,
18
Medicaid and other federal and state health care programs and,
for violations of certain laws and regulations, criminal
penalties.
We do not always have the benefit of significant regulatory or
judicial interpretation of these laws and regulations. In the
future, different interpretations or enforcement of, or
amendment to, these laws and regulations could subject our
current or past practices to allegations of impropriety or
illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure
programs and operating expenses. A determination that we have
violated these laws, or the public announcement that we are
being investigated for possible violations of these laws, could
have a material, adverse effect on our business, financial
condition, results of operations or prospects, and our business
reputation could suffer significantly. In addition, other
legislation or regulations at the federal or state level may be
adopted that adversely affect our business.
We
have been and could become the subject of governmental
investigations, claims and litigation.
Health care companies are subject to numerous investigations by
various governmental agencies. Further, under the FCA, private
parties have the right to bring qui tam, or
whistleblower, suits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our
individual facilities have received, and other facilities may
receive, government inquiries from, and may be subject to
investigation by, federal and state agencies. Depending on
whether the underlying conduct in these or future inquiries or
investigations could be considered systemic, their resolution
could have a material, adverse effect on our financial position,
results of operations and liquidity.
Governmental agencies and their agents, such as the Medicare
Administrative Contractors, fiscal intermediaries and carriers,
as well as the OIG, CMS and state Medicaid programs, conduct
audits of our health care operations. Private payers may conduct
similar post-payment audits, and we also perform internal audits
and monitoring. Depending on the nature of the conduct found in
such audits and whether the underlying conduct could be
considered systemic, the resolution of these audits could have a
material, adverse effect on our financial position, results of
operations and liquidity.
As required by statute, CMS has implemented the Recovery Audit
Contractor (RAC) program on a nationwide basis.
Under the program, CMS contracts with RACs on a contingency fee
basis to conduct post-payment reviews to detect and correct
improper payments in the fee-for-service Medicare program. The
Health Reform Law expands the RAC programs scope to
include managed Medicare plans and to include Medicaid claims.
In addition, CMS employs Medicaid Integrity Contractors
(MICs) to perform post-payment audits of Medicaid
claims and identify overpayments. The Health Reform Law
increases federal funding for the MIC program for federal fiscal
year 2011 and later years. In addition to RACs and MICs, the
state Medicaid agencies and other contractors have increased
their review activities.
Should we be found out of compliance with any of these laws,
regulations or programs, depending on the nature of the
findings, our business, our financial position and our results
of operations could be negatively impacted. See
Business Legal Proceedings
Government Investigations, Claims and Litigation.
Controls
designed to reduce inpatient services may reduce our
revenues.
Controls imposed by Medicare, managed Medicare, Medicaid,
managed Medicaid and commercial third-party payers designed to
reduce admissions and lengths of stay, commonly referred to as
utilization review, have affected and are expected
to continue to affect our facilities. Utilization review entails
the review of the admission and course of treatment of a patient
by health plans. Inpatient utilization, average lengths of stay
and occupancy rates continue to be negatively affected by
payer-required preadmission authorization and utilization review
and by payer pressure to maximize outpatient and alternative
health care delivery services for less acutely ill patients.
Efforts to impose more stringent cost controls are expected to
continue. For example, the Health Reform Law potentially expands
the use of prepayment review by Medicare contractors by
eliminating statutory restrictions on their use. Although we are
unable to predict the effect these changes
19
will have on our operations, significant limits on the scope of
services reimbursed and on reimbursement rates and fees could
have a material, adverse effect on our business, financial
position and results of operations.
Our
overall business results may suffer from the economic
downturn.
During periods of high unemployment, governmental entities often
experience budget deficits as a result of increased costs and
lower than expected tax collections. These budget deficits at
federal, state and local government entities have decreased, and
may continue to decrease, spending for health and human service
programs, including Medicare, Medicaid and similar programs,
which represent significant payer sources for our hospitals.
Other risks we face during periods of high unemployment include
potential declines in the population covered under managed care
agreements, patient decisions to postpone or cancel elective and
non-emergency health care procedures, potential increases in the
uninsured and underinsured populations and further difficulties
in our collecting patient co-payment and deductible receivables.
The
industry trend towards value-based purchasing may negatively
impact our revenues.
There is a trend in the health care industry towards value-based
purchasing of health care services. These value-based purchasing
programs include both public reporting of quality data and
preventable adverse events tied to the quality and efficiency of
care provided by facilities. Governmental programs including
Medicare and Medicaid currently require hospitals to report
certain quality data to receive full reimbursement updates. In
addition, Medicare does not reimburse for care related to
certain preventable adverse events (also called never
events). Many large commercial payers currently require
hospitals to report quality data, and several commercial payers
do not reimburse hospitals for certain preventable adverse
events. Further, we have implemented a policy pursuant to which
we do not bill patients or third-party payers for fees or
expenses incurred due to certain preventable adverse events.
Effective July 1, 2011, the Health Reform Law will prohibit
the use of federal funds under the Medicaid program to reimburse
providers for medical assistance provided to treat hospital
acquired conditions (HACs). Beginning in federal
fiscal year 2015, the 25% of hospitals with the worst national
risk-adjusted HAC rates in the previous year will receive a 1%
reduction in their total inpatient operating Medicare payments.
Hospitals with excessive readmissions for conditions designated
by the Department of Health and Human Services (HHS)
will receive reduced payments for all inpatient discharges, not
just discharges relating to the conditions subject to the
excessive readmission standard.
The Health Reform Law also requires HHS to implement a
value-based purchasing program for inpatient hospital services.
The Health Reform Law requires HHS to reduce inpatient hospital
payments for all discharges by a percentage beginning at 1% in
federal fiscal year 2013 and increasing by 0.25% each fiscal
year up to 2% in federal fiscal year 2017 and subsequent years.
HHS will pool the amount collected from these reductions to fund
payments to reward hospitals that meet or exceed certain quality
performance standards established by HHS. HHS will determine the
amount each hospital that meets or exceeds the quality
performance standards will receive from the pool of dollars
created by these payment reductions. As proposed by CMS, the
value-based purchasing program will initially calculate
incentive payments based on hospitals achievement of 17
clinical process of care measures and eight dimensions of a
patients experience of care using the Hospital Consumer
Assessment of Healthcare Providers and Systems
(HCAHPS) survey and their improvement in meeting
these standards compared to prior periods. For federal fiscal
year 2013, CMS estimates the value-based purchasing program will
redistribute $850 million among the nations hospitals.
We expect value-based purchasing programs, including programs
that condition reimbursement on patient outcome measures, to
become more common and to involve a higher percentage of
reimbursement amounts. We are unable at this time to predict how
this trend will affect our results of operations, but it could
negatively impact our revenues.
Our
operations could be impaired by a failure of our information
systems.
Any system failure that causes an interruption in service or
availability of our systems could adversely affect operations or
delay the collection of revenues. Even though we have
implemented network security
20
measures, our servers are vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering.
The occurrence of any of these events could result in
interruptions, delays, the loss or corruption of data,
cessations in the availability of systems or liability under
privacy and security laws, all of which could have a material
adverse effect on our financial position and results of
operations and harm our business reputation.
The performance of our information technology and systems is
critical to our business operations. In addition to our shared
services initiatives, our information systems are essential to a
number of critical areas of our operations, including:
|
|
|
|
|
accounting and financial reporting;
|
|
|
|
billing and collecting accounts;
|
|
|
|
coding and compliance;
|
|
|
|
clinical systems;
|
|
|
|
medical records and document storage;
|
|
|
|
inventory management;
|
|
|
|
negotiating, pricing and administering managed care contracts
and supply contracts; and
|
|
|
|
monitoring quality of care and collecting data on quality
measures necessary for full Medicare payment updates.
|
If we
fail to effectively and timely implement electronic health
record systems, our operations could be adversely
affected.
As required by ARRA, the Secretary of HHS is in the process of
developing and implementing an incentive payment program for
eligible hospitals and health care professionals that adopt and
meaningfully use certified electronic health record
(EHR) technology. HHS intends to use the Provider
Enrollment, Chain and Ownership System (PECOS) to
verify Medicare enrollment prior to making EHR incentive program
payments. During 2011, we anticipate receiving Medicare and
Medicaid incentive payments for being a meaningful user of
certified EHR technology. We anticipate a majority of 2011
incentive payments will be received and recognized as revenues
during the fourth quarter of 2011. Medicare and Medicaid
incentive payments for our eligible hospitals and professionals
are estimated to range from $275 to $325 million for 2011.
Actual incentive payments could vary from these estimates due to
certain factors such as availability of federal funding for both
Medicare and Medicaid incentive payments, timing of the approval
of state Medicaid incentive payment plans by CMS and our ability
to implement and demonstrate meaningful use of certified
EHR technology.
We have incurred and will continue to incur both capital costs
and operating expenses in order to implement our certified EHR
technology and meet meaningful use requirements. These expenses
are ongoing and are projected to continue over all stages of
implementation of meaningful use. The timing of expenses will
not correlate with the receipt of the incentive payments and the
recognition of revenues. We estimate that operating expenses to
implement our certified EHR technology and meet meaningful use
will range from $125 to $150 million for 2011. Actual operating
expenses could vary from these estimates. If our hospitals and
employed professionals are unable to meet the requirements for
participation in the incentive payment program, including having
an enrollment record in PECOS, we will not be eligible to
receive incentive payments that could offset some of the costs
of implementing EHR systems. Further, eligible providers that
fail to demonstrate meaningful use of certified EHR technology
will be subject to reduced payments from Medicare, beginning in
federal fiscal year 2015 for eligible hospitals and calendar
year 2015 for eligible professionals. Failure to implement
certified EHR systems effectively and in a timely manner could
have a material, adverse effect on our financial position and
results of operations.
21
State
efforts to regulate the construction or expansion of health care
facilities could impair our ability to operate and expand our
operations.
Some states, particularly in the eastern part of the country,
require health care providers to obtain prior approval, known as
a CON, for the purchase, construction or expansion of health
care facilities, to make certain capital expenditures or to make
changes in services or bed capacity. In giving approval, these
states consider the need for additional or expanded health care
facilities or services. We currently operate health care
facilities in a number of states with CON laws. The failure to
obtain any requested CON could impair our ability to operate or
expand operations. Any such failure could, in turn, adversely
affect our ability to attract patients to our facilities and
grow our revenues, which would have an adverse effect on our
results of operations.
Our
facilities are heavily concentrated in Florida and Texas, which
makes us sensitive to regulatory, economic, environmental and
competitive conditions and changes in those
states.
We operated 164 hospitals at December 31, 2010, and 74 of
those hospitals are located in Florida and Texas. Our Florida
and Texas facilities combined revenues represented
approximately 52% of our consolidated revenues for the year
ended December 31, 2010. This concentration makes us
particularly sensitive to regulatory, economic, environmental
and competitive conditions and changes in those states. Any
material change in the current payment programs or regulatory,
economic, environmental or competitive conditions in those
states could have a disproportionate effect on our overall
business results.
In addition, our hospitals in Florida, Texas and other areas
across the Gulf Coast are located in hurricane-prone areas. In
the recent past, hurricanes have had a disruptive effect on the
operations of our hospitals in Florida, Texas and other coastal
states, and the patient populations in those states. Our
business activities could be harmed by a particularly active
hurricane season or even a single storm, and the property
insurance we obtain may not be adequate to cover losses from
future hurricanes or other natural disasters.
We may
be subject to liabilities from claims by the Internal Revenue
Service.
We are currently contesting, before the Internal Revenue Service
(IRS) Appeals Division, certain claimed deficiencies
and adjustments proposed by the IRS Examination Division in
connection with its audit of HCA Inc.s 2005 and 2006
federal income tax returns. The disputed items include the
timing of recognition of certain patient service revenues, the
deductibility of certain debt retirement costs and our method
for calculating the tax allowance for doubtful accounts. In
addition, eight taxable periods of HCA Inc. and its predecessors
ended in 1997 through 2004, for which the primary remaining
issue is the computation of the tax allowance for doubtful
accounts, are currently pending before the IRS Examination
Division. The IRS Examination Division began an audit of HCA
Inc.s 2007, 2008 and 2009 federal income tax returns in
December 2010.
Management believes HCA Holdings, Inc., its predecessors,
subsidiaries and affiliates properly reported taxable income and
paid taxes in accordance with applicable laws and agreements
established with the IRS and 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.
We may
be subject to liabilities from claims brought against our
facilities.
We are subject to litigation relating to our business practices,
including claims and legal actions by patients and others in the
ordinary course of business alleging malpractice, product
liability or other legal theories. See
Business Legal Proceedings. Many of
these actions involve large claims and significant defense
costs. We insure a portion of our professional liability risks
through a wholly-owned subsidiary. Management believes our
reserves for self-insured retentions and insurance coverage are
sufficient to cover insured claims arising out of the operation
of our facilities. Our wholly-owned insurance subsidiary has
entered into certain reinsurance contracts, and the obligations
covered by the reinsurance contracts are included in its
reserves for professional liability risks, as the subsidiary
remains liable to the extent that the reinsurers do not meet
their obligations under the reinsurance contracts. If payments
for claims exceed
22
actuarially determined estimates, are not covered by insurance,
or reinsurers, if any, fail to meet their obligations, our
results of operations and financial position could be adversely
affected.
We are
exposed to market risks related to changes in the market values
of securities and interest rate changes.
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
$734 million and $8 million, respectively, at
December 31, 2010. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2010, we had a net unrealized gain of
$10 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2010, our
wholly-owned insurance subsidiary had invested $250 million
($251 million par value) in tax-exempt student loan auction
rate securities that continue to experience market illiquidity.
It is uncertain if auction-related market liquidity will resume
for these securities. We may be required to recognize
other-than-temporary
impairments on these long-term investments in future periods
should issuers default on interest payments or should the fair
market valuations of the securities deteriorate due to ratings
downgrades or other issue specific factors.
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. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Market Risk.
Risks
Related to Our Indebtedness
Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, expose us to
interest rate risk to the extent of our variable rate debt and
prevent us from meeting our obligations.
We are highly leveraged. As of December 31, 2010, our total
indebtedness was $28.225 billion. As of December 31,
2010 we had availability of $1.189 billion under our cash
flow credit facility and $125 million under our asset-based
revolving credit facility, after giving effect to letters of
credit and borrowing base limitations. Our high degree of
leverage could have important consequences, including:
|
|
|
|
|
increasing our vulnerability to downturns or adverse changes in
general economic, industry or competitive conditions and adverse
changes in government regulations;
|
|
|
|
requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures and future
business opportunities;
|
|
|
|
exposing us to the risk of increased interest rates as certain
of our unhedged borrowings are at variable rates of interest;
|
|
|
|
limiting our ability to make strategic acquisitions or causing
us to make nonstrategic divestitures;
|
|
|
|
limiting our ability to obtain additional financing for working
capital, capital expenditures, product or service line
development, debt service requirements, acquisitions and general
corporate or other purposes; and
|
23
|
|
|
|
|
limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who are less highly leveraged.
|
We and our subsidiaries have the ability to incur additional
indebtedness in the future, subject to the restrictions
contained in our senior secured credit facilities and the
indentures governing our outstanding notes. If new indebtedness
is added to our current debt levels, the related risks that we
now face could intensify.
We may
not be able to generate sufficient cash to service all of our
indebtedness and may not be able to refinance our indebtedness
on favorable terms. If we are unable to do so, we may be forced
to take other actions to satisfy our obligations under our
indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which are subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you we
will maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness.
In addition, we conduct our operations through our subsidiaries.
Accordingly, repayment of our indebtedness is dependent on the
generation of cash flow by our subsidiaries and their ability to
make such cash available to us by dividend, debt repayment or
otherwise. Our subsidiaries may not be able to, or may not be
permitted to, make distributions to enable us to make payments
in respect of our indebtedness. Each subsidiary is a distinct
legal entity, and, under certain circumstances, legal and
contractual restrictions may limit our ability to obtain cash
from our subsidiaries.
We may find it necessary or prudent to refinance our outstanding
indebtedness with longer-maturity debt at a higher interest
rate. In February, April and August of 2009 and, in March of
2010, for example, we issued $310 million in aggregate
principal amount of
97/8%
second lien notes due 2017, $1.500 billion in aggregate
principal amount of
81/2%
first lien notes due 2019, $1.250 billion in aggregate
principal amount of
77/8%
first lien notes due 2020 and $1.400 billion in aggregate
principal amount of
71/4%
first lien notes due 2020, respectively. The net proceeds of
those offerings were used to prepay term loans under our cash
flow credit facility, which currently bears interest at a lower
floating rate. Our ability to refinance our indebtedness on
favorable terms, or at all, is directly affected by the current
global economic and financial conditions. In addition, our
ability to incur secured indebtedness (which would generally
enable us to achieve better pricing than the incurrence of
unsecured indebtedness) depends in part on the value of our
assets, which depends, in turn, on the strength of our cash
flows and results of operations, and on economic and market
conditions and other factors.
If our cash flows and capital resources are insufficient to fund
our debt service obligations or we are unable to refinance our
indebtedness, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional
capital or restructure our indebtedness. These alternative
measures may not be successful and may not permit us to meet our
scheduled debt service obligations. If our operating results and
available cash are insufficient to meet our debt service
obligations, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet our debt service and other obligations. We may not be able
to consummate those dispositions, or the proceeds from the
dispositions may not be adequate to meet any debt service
obligations then due.
Our
debt agreements contain restrictions that limit our flexibility
in operating our business.
Our senior secured credit facilities and the indentures
governing our outstanding notes contain various covenants that
limit our ability to engage in specified types of transactions.
These covenants limit our and certain of our subsidiaries
ability to, among other things:
|
|
|
|
|
incur additional indebtedness or issue certain preferred shares;
|
|
|
|
pay dividends on, repurchase or make distributions in respect of
our capital stock or make other restricted payments;
|
24
|
|
|
|
|
make certain investments;
|
|
|
|
sell or transfer assets;
|
|
|
|
create liens;
|
|
|
|
consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and
|
|
|
|
enter into certain transactions with our affiliates.
|
Under our asset-based revolving credit facility, when (and for
as long as) the combined availability under our asset-based
revolving credit facility and our senior secured revolving
credit facility is less than a specified amount for a certain
period of time or, if a payment or bankruptcy event of default
has occurred and is continuing, funds deposited into any of our
depository accounts will be transferred on a daily basis into a
blocked account with the administrative agent and applied to
prepay loans under the asset-based revolving credit facility and
to cash collateralize letters of credit issued thereunder.
Under our senior secured credit facilities, we are required to
satisfy and maintain specified financial ratios. Our ability to
meet those financial ratios can be affected by events beyond our
control, and there can be no assurance we will continue to meet
those ratios. A breach of any of these covenants could result in
a default under both the cash flow credit facility and the
asset-based revolving credit facility. Upon the occurrence of an
event of default under the senior secured credit facilities, the
lenders thereunder could elect to declare all amounts
outstanding under the senior secured credit facilities to be
immediately due and payable and terminate all commitments to
extend further credit. If we were unable to repay those amounts,
the lenders under the senior secured credit facilities could
proceed against the collateral granted to them to secure such
indebtedness. We have pledged a significant portion of our
assets under our senior secured credit facilities, and that
collateral (other than certain European collateral securing our
senior secured European term loan facility) is also pledged as
collateral under our first lien notes. If any of the lenders
under the senior secured credit facilities accelerate the
repayment of borrowings, there can be no assurance there will be
sufficient assets to repay the senior secured credit facilities,
the first lien notes and our other indebtedness.
Risks
Related to this Offering and Ownership of Our Common
Stock
An
active, liquid trading market for our common stock may not
develop.
After our Recapitalization and prior to this offering, there has
not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead
to the development of a trading market on the New York Stock
Exchange or otherwise or how active and liquid that market may
become. If an active and liquid trading market does not develop,
you may have difficulty selling any of our common stock that you
purchase. The initial public offering price for the shares will
be determined by negotiations between us and the underwriters
and may not be indicative of prices that will prevail in the
open market following this offering. The market price of our
common stock may decline below the initial offering price, and
you may not be able to sell your shares of our common stock at
or above the price you paid in this offering, or at all.
You
will incur immediate and substantial dilution in the net
tangible book value of the shares you purchase in this
offering.
Prior investors have paid substantially less per share of our
common stock than the price in this offering. The initial public
offering price of our common stock is substantially higher than
the net tangible book value per share of outstanding common
stock prior to completion of the offering. Based on our net
tangible book value as of December 31, 2010 and upon the
issuance and sale of 87,719,300 shares of common stock by
us at the initial public offering price of $30.00 per
share, if you purchase our common stock in this offering, you
will pay more for your shares than the amounts paid by our
existing stockholders for their shares and you will suffer
immediate dilution of approximately $52.07 per share in net
tangible book value. We also have a large number of outstanding
stock options to purchase common stock with exercise prices that
are below the estimated initial public offering price of our
common stock. To the extent that these options are exercised,
you will experience further dilution. See Dilution.
25
Our
stock price may change significantly following the offering, and
you could lose all or part of your investment as a
result.
We and the underwriters will negotiate to determine the initial
public offering price. You may not be able to resell your shares
at or above the initial public offering price due to a number of
factors such as those listed in Risks Related
to Our Business and the following, some of which are
beyond our control:
|
|
|
|
|
quarterly variations in our results of operations;
|
|
|
|
results of operations that vary from the expectations of
securities analysts and investors;
|
|
|
|
results of operations that vary from those of our competitors;
|
|
|
|
changes in expectations as to our future financial performance,
including financial estimates by securities analysts and
investors;
|
|
|
|
announcements by us, our competitors or our vendors of
significant contracts, acquisitions, joint marketing
relationships, joint ventures or capital commitments;
|
|
|
|
announcements by third parties or governmental entities of
significant claims or proceedings against us;
|
|
|
|
new laws and governmental regulations applicable to the health
care industry, including the Health Reform Law;
|
|
|
|
a default under the agreements governing our indebtedness;
|
|
|
|
future sales of our common stock by us, directors, executives
and significant stockholders; and
|
|
|
|
changes in domestic and international economic and political
conditions and regionally in our markets.
|
Furthermore, the stock market has recently experienced extreme
volatility that, in some cases, has been unrelated or
disproportionate to the operating performance of particular
companies. These broad market and industry fluctuations may
adversely affect the market price of our common stock,
regardless of our actual operating performance.
In the past, following periods of market volatility,
stockholders have instituted securities class action litigation.
If we were involved in securities litigation, it could have a
substantial cost and divert resources and the attention of
executive management from our business regardless of the outcome
of such litigation.
If we
or our existing investors sell additional shares of our common
stock after this offering, the market price of our common stock
could decline.
The market price of our common stock could decline as a result
of sales of a large number of shares of common stock in the
market after this offering, or the perception that such sales
could occur. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we
deem appropriate. After the completion of this offering, we will
have 515,205,100 shares of common stock outstanding. This
number includes 126,200,000 shares that are being sold in
this offering, which may be resold immediately in the public
market.
We and the selling stockholders, our executive officers and
directors and the Investors have agreed not to sell or transfer
any common stock or securities convertible into, exchangeable
for, exercisable for, or repayable with common stock, for
180 days after the date of this prospectus without first
obtaining the written consent of two of the representatives of
the underwriters. In addition, pursuant to stockholders
agreements, we have granted certain stockholders the right to
cause us, in certain instances, at our expense, to file
registration statements under the Securities Act of 1933, as
amended (the Securities Act) covering resales of our
common stock held by them. These shares will represent
approximately 72.9% of our outstanding common stock after this
offering (69.3% if the overallotment option is exercised in
full). These shares also may be sold pursuant to Rule 144
under the Securities Act, depending on their holding period and
subject to restrictions in the case of shares held by persons
deemed to be our affiliates. As restrictions on resale end or if
these stockholders exercise their registration rights, the
market price of our stock could decline if the holders of
restricted shares sell them or are perceived by the market as
intending to sell them. See Certain Relationships and
Related Party Transactions Stockholder
Agreements Management Stockholders
Agreement, Certain Relationships and Related Party
Transactions Registration Rights Agreement,
Shares Eligible for Future Sale and
Underwriting.
26
As of December 31, 2010, 427,458,800 shares of our
common stock were outstanding, 23,834,766 shares were
issuable upon the exercise of outstanding vested stock options
under our stock incentive plans, 26,691,176 shares were
subject to outstanding unvested stock options under our stock
incentive plans and, effective upon the consummation of this
offering, 41,497,181 shares will be reserved for future
grant under our stock incentive plans. Shares acquired upon the
exercise of vested options under our stock incentive plan will
first become eligible for resale at any time after the date of
this prospectus. Sales of a substantial number of shares of our
common stock following the vesting of outstanding stock options
could cause the market price of our common stock to decline.
Because
we do not currently intend to pay cash dividends on our common
stock for the foreseeable future, you may not receive any return
on investment unless you sell your common stock for a price
greater than that which you paid for it.
We currently intend to retain future earnings, if any, for
future operation, expansion and debt repayment and do not intend
to pay any cash dividends for the foreseeable future. Any
decision to declare and pay dividends in the future will be made
at the discretion of our board of directors (the
Board or the Board of Directors) and
will depend on, among other things, our results of operations,
financial condition, cash requirements, contractual restrictions
and other factors that our Board of Directors may deem relevant.
In addition, our ability to pay dividends may be limited by
covenants of any existing and future outstanding indebtedness we
or our subsidiaries incur, including our senior secured credit
facilities and the indentures governing our notes. As a result,
you may not receive any return on an investment in our common
stock unless you sell our common stock for a price greater than
that which you paid for it.
Some
provisions of Delaware law and our governing documents could
discourage a takeover that stockholders may consider
favorable.
In addition to the Investors ownership of a controlling
percentage of our common stock, Delaware law and provisions
contained in our amended and restated certificate of
incorporation and amended and restated bylaws as we expect them
to be in effect upon pricing of this offering could make it
difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders. For example, our
amended and restated certificate of incorporation authorizes our
Board of Directors to determine the rights, preferences,
privileges and restrictions of unissued preferred stock, without
any vote or action by our stockholders. As a result, our Board
could authorize and issue shares of preferred stock with voting
or conversion rights that could adversely affect the voting or
other rights of holders of our common stock or with other terms
that could impede the completion of a merger, tender offer or
other takeover attempt. In addition, as described under
Description of Capital Stock Delaware
Anti-Takeover Statutes elsewhere in this prospectus, we
are subject to certain provisions of Delaware law that may
discourage potential acquisition proposals and may delay, deter
or prevent a change of control of our company, including through
transactions, and, in particular, unsolicited transactions, that
some or all of our stockholders might consider to be desirable.
As a result, efforts by our stockholders to change the direction
or management of our company may be unsuccessful.
The
Investors will continue to have significant influence over us
after this offering, including control over decisions that
require the approval of stockholders, which could limit your
ability to influence the outcome of key transactions, including
a change of control.
We are controlled, and after this offering is completed will
continue to be controlled, by the Investors. The Investors will
indirectly own through their investment in Hercules Holding II,
LLC (Hercules Holding) approximately 72.9% of our
common stock after the completion of this offering (69.3% if the
overallotment option is exercised in full). In addition,
representatives of the Investors will have the right to
designate a majority of the seats on our Board of Directors. As
a result, the Investors will have control over our decisions to
enter into any corporate transaction (and the terms thereof) and
the ability to prevent any change in the composition of our
Board of Directors and any transaction that requires stockholder
approval regardless of whether others believe that such change
or transaction is in our best interests. So long as the
Investors continue to indirectly hold a majority of our
outstanding common stock, they will have the ability to control
27
the vote in any election of directors, amend our amended and
restated certificate of incorporation or amended and restated
bylaws or take other actions requiring the vote of our
stockholders. Even if such amount is less than 50%, the
Investors will continue to be able to strongly influence or
effectively control our decisions.
Additionally, Bain Capital, KKR, and BAML Capital Partners are
in the business of making investments in companies and may
acquire and hold interests in businesses that compete directly
or indirectly with us. One or more of the Sponsors may also
pursue acquisition opportunities that may be complementary to
our business and, as a result, those acquisition opportunities
may not be available to us.
We are
a controlled company within the meaning of the New
York Stock Exchange rules and, as a result, will qualify for,
and intend to rely on, exemptions from certain corporate
governance requirements. You will not have the same protections
afforded to stockholders of companies that are subject to such
requirements.
After completion of this offering, the Investors will continue
to control a majority of the voting power of our outstanding
common stock. As a result, we are a controlled
company within the meaning of the corporate governance
standards of the New York Stock Exchange. Under these rules, a
company of which more than 50% of the voting power is held by an
individual, group or another company is a controlled
company and may elect not to comply with certain corporate
governance requirements, including:
|
|
|
|
|
the requirement that a majority of the Board of Directors
consist of independent directors;
|
|
|
|
the requirement that we have a nominating/corporate governance
committee that is composed entirely of independent directors
with a written charter addressing the committees purpose
and responsibilities;
|
|
|
|
the requirement that we have a compensation committee that is
composed entirely of independent directors with a written
charter addressing the committees purpose and
responsibilities; and
|
|
|
|
the requirement for an annual performance evaluation of the
nominating/corporate governance and compensation committees.
|
Following this offering, we intend to utilize these exemptions.
As a result, we will not have a majority of independent
directors, our nominating and corporate governance committee, if
any, and compensation committee will not consist entirely of
independent directors and such committees will not be subject to
annual performance evaluations. Accordingly, you will not have
the same protections afforded to stockholders of companies that
are subject to all of the corporate governance requirements of
the New York Stock Exchange.
28
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements
within the meaning of the federal securities laws, which involve
risks and uncertainties. Forward-looking statements include all
statements that do not relate solely to historical or current
facts, and you can identify forward-looking statements because
they contain words such as believes,
expects, may, will,
should, seeks,
approximately, intends,
plans, estimates, projects,
continue, initiative or
anticipates or similar expressions that concern our
prospects, objectives, strategies, plans or intentions. All
statements made relating to our estimated and projected
earnings, margins, costs, expenditures, cash flows, growth
rates, operating and growth strategies, ability to repay or
refinance our substantial existing indebtedness and financial
results or to the impact of existing or proposed laws or
regulations (including the Health Reform Law) described in this
prospectus are forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that may
change at any time, and, therefore, our actual results may
differ materially from those expected. We derive many of our
forward-looking statements from our operating budgets and
forecasts, which are based upon many detailed assumptions. While
we believe our assumptions are reasonable, it is very difficult
to predict the impact of known factors, and, of course, it is
impossible to anticipate all factors that could affect our
actual results. These factors include, but are not limited to:
|
|
|
|
|
the ability to recognize the benefits of the Recapitalization;
|
|
|
|
the impact of the substantial indebtedness incurred to finance
the Recapitalization and distributions to stockholders and the
ability to refinance such indebtedness on acceptable terms;
|
|
|
|
the effects related to the enactment of the Health Reform Law,
the possible enactment of additional federal or state health
care reforms and possible changes to the Health Reform Law and
other federal, state or local laws or regulations affecting the
health care industry;
|
|
|
|
increases in the amount and risk of collectibility of uninsured
accounts and deductibles and copayment amounts for insured
accounts;
|
|
|
|
the ability to achieve operating and financial targets, attain
expected levels of patient volumes and control the costs of
providing services;
|
|
|
|
possible changes in the Medicare, Medicaid and other state
programs, including Medicaid supplemental payments pursuant to
UPL programs, that may impact reimbursements to health care
providers and insurers;
|
|
|
|
the highly competitive nature of the health care business;
|
|
|
|
changes in revenue mix, including potential declines in the
population covered under managed care agreements and the ability
to enter into and renew managed care provider agreements on
acceptable terms;
|
|
|
|
the efforts of insurers, health care providers and others to
contain health care costs;
|
|
|
|
the outcome of our continuing efforts to monitor, maintain and
comply with appropriate laws, regulations, policies and
procedures;
|
|
|
|
increases in wages and the ability to attract and retain
qualified management and personnel, including affiliated
physicians, nurses and medical and technical support personnel;
|
|
|
|
the availability and terms of capital to fund the expansion of
our business and improvements to our existing facilities;
|
|
|
|
changes in accounting practices;
|
|
|
|
changes in general economic conditions nationally and regionally
in our markets;
|
|
|
|
future divestitures which may result in charges and possible
impairments of long-lived assets;
|
|
|
|
changes in business strategy or development plans;
|
29
|
|
|
|
|
delays in receiving payments for services provided;
|
|
|
|
the outcome of pending and any future tax audits, appeals and
litigation associated with our tax positions;
|
|
|
|
potential adverse impact of known and unknown government
investigations, litigation and other claims that may be made
against us; and
|
|
|
|
other risk factors described in this prospectus.
|
All subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by these cautionary
statements.
We caution you that the important factors discussed above may
not contain all of the material factors that are important to
you. The forward-looking statements included in this prospectus
are made only as of the date hereof. We undertake no obligation
to publicly update or revise any forward-looking statement as a
result of new information, future events or otherwise, except as
otherwise required by law.
30
USE OF
PROCEEDS
We estimate that the net proceeds we will receive from the sale
of 87,719,300 shares of our common stock in this offering,
after deducting underwriter discounts and commissions and
estimated expenses payable by us, will be approximately
$2.5 billion.
We will not receive any proceeds from the sale of
38,480,700 shares (57,410,700 if the underwriters exercise
the option to purchase additional shares in full) of our common
stock by the selling stockholders.
We intend to use the anticipated net proceeds from this offering
to repay certain of our existing indebtedness, as will be
determined following completion of this offering, and for
general corporate purposes. Pending such application, we intend
to use the anticipated proceeds to temporarily reduce amounts
under our asset-based revolving credit facility and our senior
secured revolving credit facility. Our asset-based revolving
credit facility currently matures on November 16, 2012 and
bears interest at LIBOR plus 1.25%. Our senior secured revolving
credit facility matures on November 17, 2012 and will be
extended to November 17, 2015 and currently bears interest
at LIBOR plus 1.50%.
Affiliates of certain of the underwriters are lenders under our
senior secured credit facilities and, accordingly, may receive a
portion of the net proceeds from this offering through repayment
of such indebtedness. See Underwriting
Conflicts of Interest.
31
DIVIDEND
POLICY
Following completion of the offering, we do not intend to pay
any cash dividends on our common stock for the foreseeable
future and instead may retain earnings, if any, for future
operation and expansion and debt repayment. Any decision to
declare and pay dividends in the future will be made at the
discretion of our Board of Directors and will depend on, among
other things, our results of operations, cash requirements,
financial condition, contractual restrictions and other factors
that our Board of Directors may deem relevant. In addition, our
ability to pay dividends is limited by covenants in our senior
secured credit facilities and in the indentures governing
certain of our notes. See Description of
Indebtedness and Note 10 to our consolidated
financial statements for restrictions on our ability to pay
dividends.
On January 27, 2010, our Board of Directors declared a
distribution to our stockholders and holders of vested stock
options of $1.751 billion in the aggregate. On May 5, 2010,
our Board of Directors declared a distribution to our
stockholders and holders of vested stock options of $500 million
in the aggregate. On November 23, 2010, our Board of
Directors declared a distribution to our stockholders and
holders of stock options of approximately $2.1 billion in
the aggregate.
32
CAPITALIZATION
The following table sets forth our capitalization as of
December 31, 2010:
|
|
|
|
|
on an actual basis; and
|
|
|
|
on an as adjusted basis to give effect to (1) the issuance
of common stock in this offering and the application of proceeds
from the offering as described in Use of Proceeds as
if each had occurred on December 31, 2010, (2) the
4.505 to 1 stock split that was effectuated prior to the
pricing of this offering, and (3) the payment of
approximately $211 million in fees under our management
agreement with the Sponsors in connection with this offering and
the termination of the agreement. See Certain
Relationships and Related Party Transactions Sponsor
Management Agreement.
|
You should read this table in conjunction with Use of
Proceeds, Selected Financial Data, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and notes thereto, included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
411
|
|
|
$
|
411
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Senior secured credit facilities(1)
|
|
$
|
10,134
|
|
|
$
|
7,816
|
|
Senior secured first lien notes(2)
|
|
|
4,075
|
|
|
|
4,075
|
|
Senior secured second lien notes(3)
|
|
|
6,079
|
|
|
|
6,079
|
|
Other secured indebtedness
|
|
|
322
|
|
|
|
322
|
|
Unsecured indebtedness(4)
|
|
|
7,615
|
|
|
|
7,615
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
|
28,225
|
|
|
|
25,907
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights(5)
|
|
|
141
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
Common stock: $.01 par value; 1,800,000,000 authorized
shares; 427,458,800 shares issued and outstanding (actual);
515,178,100 shares issued and outstanding (as adjusted)(6)
|
|
|
4
|
|
|
|
5
|
|
Capital in excess of par value
|
|
|
386
|
|
|
|
3,029
|
|
Accumulated other comprehensive loss
|
|
|
(428
|
)
|
|
|
(428
|
)
|
Retained deficit
|
|
|
(11,888
|
)
|
|
|
(12,040
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders deficit attributable to HCA Holdings,
Inc.
|
|
|
(11,926
|
)
|
|
|
(9,434
|
)
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(10,794
|
)
|
|
|
(8,302
|
)
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
17,572
|
|
|
$
|
17,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of, (i) a $2.000 billion asset-based
revolving credit facility maturing on November 16, 2012
(the asset-based revolving credit facility)
($1.875 billion outstanding at December 31, 2010);
(ii) a $2.000 billion senior secured revolving credit
facility maturing on November 17, 2012 and to be extended
to November 17, 2015 pursuant to the amended and restated
joinder agreement entered into on November 8, 2010 (see
Description of Indebtedness) (the senior
secured revolving credit facility) ($729 million
outstanding at December 31, 2010, without giving effect to
outstanding letters of credit); (iii) a $2.750 billion
senior secured term loan A facility maturing on
November 17, 2012 ($1.618 billion outstanding at
December 31, 2010); (iv) an $8.800 billion senior
secured term loan B facility consisting of a $6.800 billion
senior secured term loan B-1 facility maturing on
November 17, 2013 and a $2.000 billion |
33
|
|
|
|
|
senior secured term loan B-2 facility maturing on
March 31, 2017 ($3.525 billion outstanding under term
loan B-1 facility at December 31, 2010 and
$2.000 billion outstanding under term loan B-2
facility at December 31, 2010); and (v) a
1.000 billion senior secured European term loan
facility maturing on November 17, 2013
(291 million, or $387 million-equivalent,
outstanding at December 31, 2010). We refer to the
facilities described under (ii) through (v) above,
collectively, as the cash flow credit facility and,
together with the asset-based revolving credit facility, the
senior secured credit facilities. We intend to use
the net proceeds received by us in connection with our sale of
87,719,300 shares of our common stock to temporarily reduce
obligations under our revolving credit facilities. See Use
of Proceeds. |
|
(2) |
|
In April 2009, we issued $1.500 billion aggregate principal
amount of first lien notes at a price of 96.755% of their face
value, resulting in $1.451 billion of gross proceeds, which
were used to repay obligations under our cash flow credit
facility after the payment of related fees and expenses. In
August 2009, we issued $1.250 billion aggregate principal
amount of first lien notes at a price of 98.254% of their face
value, resulting in $1.228 billion of gross proceeds, which
were used to repay obligations under our cash flow credit
facility after the payment of related fees and expenses. In
March 2010, we issued $1.400 billion aggregate principal
amount of first lien notes at a price of 99.095% of their face
value, resulting in approximately $1.387 billion of gross
proceeds, which were used to repay obligations under our cash
flow credit facility after the payment of related fees and
expenses. In each case, the discount will accrete and be
included in interest expense until the applicable first lien
notes mature. As of December 31, 2010, there was
$75 million of unamortized discount. |
|
(3) |
|
Consists of $4.200 billion of second lien notes (comprised
of $1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016) and $1.578 billion of
95/8%/103/8%
second lien toggle notes (which allow us, at our option, to pay
interest in kind during the first five years at the higher
interest rate of
103/8%)
due 2016. In addition, in February 2009 we issued
$310 million aggregate principal amount of
97/8%
second lien notes due 2017 at a price of 96.673% of their face
value, resulting in $300 million of gross proceeds, which
were used to repay obligations under our cash flow credit
facility after payment of related fees and expenses. The
discount on the 2009 second lien notes will accrete and be
included in interest expense until those 2009 second lien notes
mature. As of December 31, 2010, there was $9 million
of unamortized discount. |
|
(4) |
|
Consists of (i) an aggregate principal amount of
$246 million medium-term notes with maturities in 2014 and
2025 and a weighted average interest rate of 8.28%; (ii) an
aggregate principal amount of $886 million debentures with
maturities ranging from 2015 to 2095 and a weighted average
interest rate of 7.55%; (iii) an aggregate principal amount
of $4.967 billion senior notes with maturities ranging from
2011 to 2033 and a weighted average interest rate of 6.62%;
(iv) $1.525 billion of
73/4%
senior notes due 2021 and (v) $9 million of
unamortized debt discounts that reduce the existing
indebtedness. For more information regarding our unsecured and
other indebtedness, see Description of Indebtedness. |
|
(5) |
|
The initial public offering of our common stock eliminates the
contingent redemption rights. |
|
(6) |
|
Subsequent to December 31, 2010, approximately
27,000 shares were issued upon exercise of outstanding
options. |
The table set forth above is based on the number of shares of
our common stock outstanding as of December 31, 2010. This
table does not reflect:
|
|
|
|
|
50,525,942 shares of our common stock issuable upon the
exercise of outstanding stock options at a weighted average
exercise price of $8.58 per share as of December 31,
2010, of which 23,834,766 were then exercisable; and
|
|
|
|
41,497,181 shares of our common stock reserved for future
grants under our stock incentive plans, effective upon the
consummation of this offering.
|
34
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share of our common stock and the net
tangible book value per share of our common stock after this
offering. Dilution results from the fact that the initial public
offering price per share of common stock is substantially in
excess of the net tangible book value per share of our common
stock attributable to the existing stockholders for our
presently outstanding shares of common stock. We calculate net
tangible book value per share of our common stock by dividing
the net tangible book value (total consolidated tangible assets
less total consolidated liabilities) by the number of
outstanding shares of our common stock.
Our net tangible book value as of December 31, 2010 was a
deficit of ($13.7) billion or ($32.10) per share of
our common stock, based on 427,458,800 shares of our common
stock outstanding as of December 31, 2010. Dilution is
determined by subtracting net tangible book value per share of
our common stock from the initial public offering price per
share of our common stock.
Without taking into account any other changes in such net
tangible book value after December 31, 2010, after giving
effect to the sale of 87,719,300 shares of our common stock
in this offering at the initial public offering price of $30.00
per share, less the underwriting discounts and commissions and
the estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value at December 31, 2010 would
have been a deficit of ($11.4) billion, or ($22.07) per
share. This represents an immediate increase in net tangible
book value of $10.03 per share of our common stock to the
existing stockholders and an immediate dilution in net tangible
book value of ($52.07) per share of our common stock, to
investors purchasing shares of our common stock in this
offering. The following table illustrates such dilution per
share of our common stock:
|
|
|
|
|
Initial public offering price per share of our common stock
|
|
$
|
30.00
|
|
Net tangible book value (deficit) per share of our common stock
as of December 31, 2010
|
|
$
|
(32.10
|
)
|
Pro forma net tangible book value (deficit) per share of our
common stock after giving effect to this offering
|
|
$
|
(22.07
|
)
|
Amount of dilution in net tangible book value per share of our
common stock to new investors in this offering
|
|
$
|
(52.07
|
)
|
The following table summarizes, on a pro forma basis as of
December 31, 2010, the total number of shares of our common
stock purchased from us, the total cash consideration paid to us
and the average price per share of our common stock paid by
purchasers of such shares and by new investors purchasing shares
of our common stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of our
|
|
|
|
|
|
|
|
|
Average Price Per
|
|
|
|
Common Stock Purchased
|
|
|
Total Consideration
|
|
|
Share of our
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Common Stock
|
|
|
Prior purchasers
|
|
|
388,978,100(1
|
)
|
|
|
76
|
%
|
|
$
|
4.404 billion
|
|
|
|
54
|
%
|
|
$
|
11.32
|
|
New investors
|
|
|
126,200,000(1
|
)
|
|
|
24
|
%
|
|
|
3.786 billion
|
|
|
|
46
|
%
|
|
$
|
30.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
515,178,100
|
|
|
|
100
|
%
|
|
$
|
8.190 billion
|
|
|
|
100
|
%
|
|
$
|
15.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects 38,480,700 shares owned by selling shareholders
that will be purchased by new investors as a result of this
offering. |
To the extent that we grant options to our employees or
directors in the future, and those options or existing options
are exercised or other issuances of shares of our common stock
are made, there will be further dilution to new investors.
35
SELECTED
FINANCIAL DATA
The following table sets forth selected financial data of HCA
Holdings, Inc. as of the dates and for the periods indicated.
The selected financial data as of December 31, 2010 and
2009 and for each of the three years in the period ended
December 31, 2010 have been derived from HCA Holdings,
Inc.s consolidated financial statements appearing
elsewhere in this prospectus, which have been audited by Ernst
& Young LLP. The selected financial data as of
December 31, 2008, 2007 and 2006 and for each of the two
years in the period ended December 31, 2007 presented in
this table have been derived from HCA Holdings, Inc.s
consolidated financial statements audited by Ernst & Young
LLP that are not included in this prospectus.
The selected financial data set forth below should be read in
conjunction with, and are qualified by reference to,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the consolidated
financial statements and the related notes thereto appearing
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
$
|
25,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
11,958
|
|
|
|
11,440
|
|
|
|
10,714
|
|
|
|
10,409
|
|
Supplies
|
|
|
4,961
|
|
|
|
4,868
|
|
|
|
4,620
|
|
|
|
4,395
|
|
|
|
4,322
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
4,724
|
|
|
|
4,554
|
|
|
|
4,233
|
|
|
|
4,056
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
|
|
3,130
|
|
|
|
2,660
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(246
|
)
|
|
|
(223
|
)
|
|
|
(206
|
)
|
|
|
(197
|
)
|
Gains on sales of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
|
|
2,215
|
|
|
|
955
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
25,460
|
|
|
|
23,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
2,002
|
|
|
|
1,170
|
|
|
|
1,398
|
|
|
|
1,863
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
|
|
316
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
1,375
|
|
|
|
902
|
|
|
|
1,082
|
|
|
|
1,237
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
|
|
208
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
$
|
874
|
|
|
$
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.83
|
|
|
$
|
2.48
|
|
|
$
|
1.59
|
|
|
$
|
2.07
|
|
|
|
(a)
|
|
Diluted earnings per share
|
|
$
|
2.76
|
|
|
$
|
2.44
|
|
|
$
|
1.56
|
|
|
$
|
2.03
|
|
|
|
(a)
|
|
Cash dividends declared per share
|
|
$
|
9.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
$
|
23,675
|
|
Working capital
|
|
|
2,650
|
|
|
|
2,264
|
|
|
|
2,391
|
|
|
|
2,356
|
|
|
|
2,502
|
|
Long-term debt, including amounts due within one year
|
|
|
28,225
|
|
|
|
25,670
|
|
|
|
26,989
|
|
|
|
27,308
|
|
|
|
28,408
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
147
|
|
|
|
155
|
|
|
|
164
|
|
|
|
125
|
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,008
|
|
|
|
995
|
|
|
|
938
|
|
|
|
907
|
|
Stockholders deficit
|
|
|
(10,794
|
)
|
|
|
(7,978
|
)
|
|
|
(9,260
|
)
|
|
|
(9,600
|
)
|
|
|
(10,467
|
)
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
3,085
|
|
|
$
|
2,747
|
|
|
$
|
1,990
|
|
|
$
|
1,564
|
|
|
$
|
1,988
|
|
Cash used in investing activities
|
|
|
(1,039
|
)
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
(479
|
)
|
|
|
(1,307
|
)
|
Capital expenditures
|
|
|
(1,325
|
)
|
|
|
(1,317
|
)
|
|
|
(1,600
|
)
|
|
|
(1,444
|
)
|
|
|
(1,865
|
)
|
Cash used in financing activities
|
|
|
(1,947
|
)
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
(1,326
|
)
|
|
|
(383
|
)
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period(b)
|
|
|
156
|
|
|
|
155
|
|
|
|
158
|
|
|
|
161
|
|
|
|
166
|
|
Number of freestanding outpatient surgical centers at end of
period(c)
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
|
|
99
|
|
|
|
98
|
|
Number of licensed beds at end of period(d)
|
|
|
38,827
|
|
|
|
38,839
|
|
|
|
38,504
|
|
|
|
38,405
|
|
|
|
39,354
|
|
Weighted average licensed beds(e)
|
|
|
38,655
|
|
|
|
38,825
|
|
|
|
38,422
|
|
|
|
39,065
|
|
|
|
40,653
|
|
Admissions(f)
|
|
|
1,554,400
|
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
|
|
1,552,700
|
|
|
|
1,610,100
|
|
Equivalent admissions(g)
|
|
|
2,468,400
|
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
|
|
2,352,400
|
|
|
|
2,416,700
|
|
Average length of stay (days)(h)
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Average daily census(i)
|
|
|
20,523
|
|
|
|
20,650
|
|
|
|
20,795
|
|
|
|
21,049
|
|
|
|
21,688
|
|
Occupancy(j)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
Emergency room visits(k)
|
|
|
5,706,200
|
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
|
|
5,116,100
|
|
|
|
5,213,500
|
|
Outpatient surgeries(l)
|
|
|
783,600
|
|
|
|
794,600
|
|
|
|
797,400
|
|
|
|
804,900
|
|
|
|
820,900
|
|
Inpatient surgeries(m)
|
|
|
487,100
|
|
|
|
494,500
|
|
|
|
493,100
|
|
|
|
516,500
|
|
|
|
533,100
|
|
Days revenues in accounts receivable(n)
|
|
|
46
|
|
|
|
45
|
|
|
|
49
|
|
|
|
53
|
|
|
|
53
|
|
Gross patient revenues(o)
|
|
$
|
125,640
|
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
|
$
|
92,429
|
|
|
$
|
84,913
|
|
Outpatient revenues as a % of patient revenues(p)
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
36
|
%
|
|
|
|
(a)
|
|
Due to our November 2006 Merger and
Recapitalization, our capital structure and share-based
compensation plans for periods before and after the
Recapitalization are not comparable; therefore, we are
presenting earnings and dividends declared per share information
only for periods subsequent to the Recapitalization.
|
|
(b)
|
|
Excludes eight facilities in 2010,
2009, 2008 and 2007 and seven facilities in 2006 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes.
|
|
(c)
|
|
Excludes nine facilities in 2010,
2007 and 2006 and eight facilities in 2009 and 2008 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes.
|
|
(d)
|
|
Licensed beds are those beds for
which a facility has been granted approval to operate from the
applicable state licensing agency.
|
|
(e)
|
|
Represents the average number of
licensed beds, weighted based on periods owned.
|
|
(f)
|
|
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.
|
|
(g)
|
|
Equivalent admissions are used by
management and certain investors as a general measure of
combined inpatient and outpatient volume. Equivalent admissions
are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and
then dividing the resulting amount by gross inpatient revenue.
The equivalent admissions computation equates
outpatient revenue to the volume measure (admissions) used to
measure inpatient volume, resulting in a general measure of
combined inpatient and outpatient volume.
|
|
(h)
|
|
Represents the average number of
days admitted patients stay in our hospitals.
|
|
(i)
|
|
Represents the average number of
patients in our hospital beds each day.
|
|
(j)
|
|
Represents the percentage of
hospital licensed beds occupied by patients. Both average daily
census and occupancy rate provide measures of the utilization of
inpatient rooms.
|
|
(k)
|
|
Represents the number of patients
treated in our emergency rooms.
|
|
(l)
|
|
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.
|
|
(m)
|
|
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.
|
|
(n)
|
|
Revenues per day is calculated by
dividing the revenues for the period by the days in the period.
Days revenues in accounts receivable is then calculated as
accounts receivable, net of the allowance for doubtful accounts,
at the end of the period divided by revenues per day.
|
|
(o)
|
|
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.
|
|
(p)
|
|
Represents the percentage of
patient revenues related to patients who are not admitted to our
hospitals.
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of
operations and financial condition with Selected Financial
Data and the consolidated financial statements and related
notes included elsewhere in this prospectus. This discussion
contains forward-looking statements and involves numerous risks
and uncertainties, including, but not limited to, those
described in the Risk Factors section of this
prospectus. Actual results may differ materially from those
contained in any forward-looking statements.
You also should read the following discussion of our results
of operations and financial condition with
Business Business Drivers and Measures
for a discussion of certain of our important financial policies
and objectives; performance measures and operational factors we
use to evaluate our financial condition and operating
performance; and our business segments.
Overview
We are the largest non-governmental hospital operator in the
U.S. and a leading comprehensive, integrated provider of health
care and related services. At December 31, 2010, we
operated 164 hospitals, comprised of 158 general, acute care
hospitals; five psychiatric hospitals; and one rehabilitation
hospital. The 164 hospital total includes eight hospitals (seven
general, acute care hospitals and one rehabilitation hospital)
owned by joint ventures in which an affiliate of HCA is a
partner, and these joint ventures are accounted for using the
equity method. In addition, we operated 106 freestanding surgery
centers, nine of which are owned by joint ventures in which an
affiliate of HCA is a partner, and these joint ventures are
accounted for using the equity method. Our facilities are
located in 20 states and England. For the year ended
December 31, 2010, we generated revenues of
$30.683 billion and net income attributable to HCA
Holdings, Inc. of $1.207 billion.
On November 17, 2006, HCA Inc. was acquired by a private
investor group comprised of affiliates of or funds sponsored by
Bain Capital, KKR, MLGPE (now BAML Capital Partners), Citigroup
Inc., Bank of America Corporation and HCA founder
Dr. Thomas F. Frist, Jr., and by members of management and
certain other investors. We refer to the merger, the financing
transactions related to the merger and other related
transactions collectively as the Recapitalization.
2010
Operations Summary
Net income attributable to HCA Holdings, Inc. totaled
$1.207 billion for 2010, compared to $1.054 billion
for 2009. The 2010 results include net gains on sales of
facilities of $4 million and impairments of long-lived
assets of $123 million. The 2009 results include net losses
on sales of facilities of $15 million and impairments of
long-lived assets of $43 million.
Revenues increased to $30.683 billion for 2010 from
$30.052 billion for 2009. Revenues increased 2.1% on both a
consolidated basis and on a same facility basis for 2010,
compared to 2009. The consolidated revenues increase can be
attributed to the combined impact of a 0.9% increase in revenue
per equivalent admission and a 1.2% increase in equivalent
admissions. The same facility revenues increase resulted from a
0.6% increase in same facility revenue per equivalent admission
and a 1.4% increase in same facility equivalent admissions.
During 2010, consolidated admissions declined 0.1% and same
facility admissions increased 0.1%, compared to 2009. Inpatient
surgical volumes declined 1.5% on a consolidated basis and
declined 1.4% on a same facility basis during 2010, compared to
2009. Outpatient surgical volumes declined 1.4% on a
consolidated basis and declined 1.2% on a same facility basis
during 2010, compared to 2009. Emergency room visits increased
2.0% on a consolidated basis and increased 2.1% on a same
facility basis during 2010, compared to 2009.
For 2010, the provision for doubtful accounts declined
$628 million, to 8.6% of revenues from 10.9% of revenues
for 2009. The combined self-pay revenue deductions for charity
care and uninsured discounts increased $1.892 billion for
2010, compared to 2009. 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
38
charity care, was 25.6% for 2010, compared to 23.8% for 2009.
Same facility uninsured admissions increased 5.4% and same
facility uninsured emergency room visits increased 1.2% for
2010, compared to 2009.
Interest expense totaled $2.097 billion for 2010, compared
to $1.987 billion for 2009. The $110 million increase
in interest expense for 2010 was due primarily to an increase in
the average effective interest rate.
Cash flows from operating activities increased
$338 million, from $2.747 billion for 2009 to
$3.085 billion for 2010. The increase related primarily to
the net impact of improvements from a $198 million increase
in net income and a $547 million reduction in income tax
payments, offsetting a $384 million net decline from
changes in working capital items and the provision for doubtful
accounts.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Our estimates are based on historical
experience and various other assumptions we believe are
reasonable under the circumstances. We evaluate our estimates on
an ongoing basis and make changes to the estimates and related
disclosures as experience develops or new information becomes
known. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services
are provided, based upon the estimated amounts due from payers.
Estimates of contractual allowances under managed care health
plans are based upon the payment terms specified in the related
contractual agreements. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to
interpretation. The estimated reimbursement amounts are made on
a payer-specific basis and are recorded based on the best
information available regarding managements interpretation
of the applicable laws, regulations and contract terms.
Management continually reviews the contractual estimation
process to consider and incorporate updates to laws and
regulations and the frequent changes in managed care contractual
terms resulting from contract renegotiations and renewals. We
have invested significant resources to refine and improve our
computerized billing systems and the information system data
used to make contractual allowance estimates. We have developed
standardized calculation processes and related training programs
to improve the utility of our patient accounting systems.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, the provision of services to patients who are
financially unable to pay for the health care services they
receive. The Health Reform Law requires health plans to
reimburse hospitals for emergency services provided to enrollees
without prior authorization and without regard to whether a
participating provider contract is in place. Further, as
enacted, the Health Reform Law contains provisions that seek to
decrease the number of uninsured individuals, including
requirements or incentives, which do not become effective until
2014, for individuals to obtain, and large employers to provide,
insurance coverage. These mandates may reduce the financial
impact of screening for and stabilizing emergency medical
conditions. However, many factors are unknown regarding the
impact of the Health Reform Law, including the outcome of court
challenges to the constitutionality of the law and Congressional
efforts to amend or repeal the law, how many previously
uninsured individuals will obtain coverage as a result of the
law or the change, if any, in the volume of inpatient and
outpatient hospital services that are sought by and provided to
previously uninsured individuals and the payer mix.
39
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify as charity care; therefore, they
are not reported in revenues. Patients treated at our hospitals
for nonelective care, who have income at or below 200% of the
federal poverty level, are eligible for charity care. The
federal poverty level is established by the federal government
and is based on income and family size. We provide discounts
from our gross charges to uninsured patients who do not qualify
for Medicaid or charity care. These discounts are similar to
those provided to many local managed care plans. After the
discounts are applied, we are still unable to collect a
significant portion of uninsured patients accounts, and we
record significant provisions for doubtful accounts (based upon
our historical collection experience) related to uninsured
patients in the period the services are provided.
Due to the complexities involved in the classification and
documentation of health care services authorized and provided,
the estimation of revenues earned and the related reimbursement
are often subject to interpretations that could result in
payments that are different from our estimates. Adjustments to
estimated Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $52 million, $40 million and
$32 million in 2010, 2009 and 2008, respectively. The
adjustments to estimated reimbursement amounts, which resulted
in net increases to revenues, related primarily to cost reports
filed during previous years were $50 million,
$60 million and $35 million in 2010, 2009 and 2008,
respectively. We expect adjustments during the next 12 months
related to Medicare and Medicaid cost report filings and
settlements and disproportionate-share funds will result in
increases to revenues within generally similar ranges.
Provision
for Doubtful Accounts and the Allowance for Doubtful
Accounts
The collection of outstanding receivables from Medicare, managed
care payers, other third-party payers and patients is our
primary source of cash and is critical to our operating
performance. The primary collection risks relate to uninsured
patient accounts, including patient accounts for which the
primary insurance carrier has paid the amounts covered by the
applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to amounts due directly from patients. An
estimated allowance for doubtful accounts is recorded for all
uninsured accounts, regardless of the aging of those accounts.
Accounts are written off when all reasonable internal and
external collection efforts have been performed. Our collection
policies include a review of all accounts against certain
standard collection criteria, upon completion of our internal
collection efforts. Accounts determined to possess positive
collectibility attributes are forwarded to a secondary external
collection agency and the other accounts are written off. The
accounts that are not collected by the secondary external
collection agency are written off when they are returned to us
by the collection agency (usually within 12 months).
Writeoffs are based upon specific identification and the
writeoff process requires a writeoff adjustment entry to the
patient accounting system. We do not pursue collection of
amounts related to patients that meet our guidelines to qualify
as charity care.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical writeoffs and
expected net collections, business and economic conditions,
trends in federal, state, and private employer health care
coverage and other collection indicators. Management relies on
the results of detailed reviews of historical writeoffs and
recoveries at facilities that represent a majority of our
revenues and accounts receivable (the hindsight
analysis) as a primary source of information in estimating
the collectibility of our accounts receivable. We perform the
hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. We believe our
quarterly updates to the estimated allowance for doubtful
accounts at each of our hospital facilities provide reasonable
valuations of our accounts receivable. These routine, quarterly
changes in estimates have not resulted in material adjustments
to our allowance for doubtful accounts, provision for doubtful
accounts or
period-to-period
comparisons of our results of operations. At December 31,
2010 and 2009, the allowance for doubtful accounts represented
approximately 93% and 94%, respectively, of the
$4.249 billion and $5.176 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
portion of our accounts receivable. The estimated uninsured
portion of Medicaid pending and uninsured discount pending
accounts is included in our patient due accounts receivable
balance.
40
The revenue deductions related to uninsured accounts (charity
care and uninsured discounts) generally have the inverse effect
on the provision for doubtful accounts. To quantify the total
impact of and trends related to uninsured accounts, we believe
it is beneficial to view these revenue deductions and provision
for doubtful accounts in combination, rather than each
separately. A summary of these amounts for the years ended
December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Provision for doubtful accounts
|
|
$
|
2,648
|
|
|
$
|
3,276
|
|
|
$
|
3,409
|
|
Uninsured discounts
|
|
|
4,641
|
|
|
|
2,935
|
|
|
|
1,853
|
|
Charity care
|
|
|
2,337
|
|
|
|
2,151
|
|
|
|
1,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
9,626
|
|
|
$
|
8,362
|
|
|
$
|
7,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for doubtful accounts, as a percentage of
revenues, declined from 12.0% for 2008 to 10.9% for 2009 and
declined to 8.6% for 2010. Our decision to increase uninsured
discounts during the second half of 2009 has directly
contributed to the decline in the provision for doubtful
accounts. However, 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
increased from 21.9% for 2008 to 23.8% for 2009 and to 25.6% for
2010.
Days revenues in accounts receivable were 46 days,
45 days and 49 days at December 31, 2010, 2009,
and 2008, respectively. Management expects a continuation of the
challenges related to the collection of the patient due
accounts. Adverse changes in the percentage of our patients
having adequate health care coverage, general economic
conditions, patient accounting service center operations, payer
mix, or trends in federal, state, and private employer health
care coverage could affect the collection of accounts
receivable, cash flows and results of operations.
The approximate breakdown of accounts receivable by payer
classification as of December 31, 2010 and 2009 is set
forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
|
Under 91 Days
|
|
|
91180 Days
|
|
|
Over 180 Days
|
|
|
Accounts receivable aging at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
14
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other insurers
|
|
|
21
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
17
|
|
|
|
8
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
52
|
%
|
|
|
13
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable aging at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
12
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other insurers
|
|
|
18
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
13
|
|
|
|
8
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43
|
%
|
|
|
13
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our decisions to increase uninsured discounts and to reduce the
length of time accounts are left with our secondary collection
agency have contributed to improvements in our accounts
receivable aging trends, particularly for our uninsured accounts
receivable.
Professional
Liability Claims
We, along with virtually all health care providers, operate in
an environment with professional liability risks. Our facilities
are insured by our wholly-owned insurance subsidiary for losses
up to $50 million per occurrence, subject to a
$5 million per occurrence self-insured retention. We
purchase excess insurance on a claims-made basis for losses in
excess of $50 million per occurrence. Our professional
liability reserves, net of
41
receivables under reinsurance contracts, do not include amounts
for any estimated losses covered by our excess insurance
coverage. Provisions for losses related to professional
liability risks were $222 million, $211 million and
$175 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Reserves for professional liability risks represent the
estimated ultimate cost of all reported and unreported losses
incurred through the respective consolidated balance sheet
dates. The estimated ultimate cost includes estimates of direct
expenses and fees paid to outside counsel and experts, but does
not include the general overhead costs of our insurance
subsidiary or corporate office. Individual case reserves are
established based upon the particular circumstances of each
reported claim and represent our estimates of the future costs
that will be paid on reported claims. Case reserves are reduced
as claim payments are made and are adjusted upward or downward
as our estimates regarding the amounts of future losses are
revised. Once the case reserves for known claims are determined,
information is stratified by loss layers and retentions,
accident years, reported years, and geographic location of our
hospitals. Several actuarial methods are employed to utilize
this data to produce estimates of ultimate losses and reserves
for incurred but not reported claims, including: paid and
incurred extrapolation methods utilizing paid and incurred loss
development to estimate ultimate losses; frequency and severity
methods utilizing paid and incurred claims development to
estimate ultimate average frequency (number of claims) and
ultimate average severity (cost per claim); and
Bornhuetter-Ferguson methods which add expected development to
actual paid or incurred experience to estimate ultimate losses.
These methods use our company-specific historical claims data
and other information. Company-specific claim reporting and
settlement data collected over an approximate
20-year
period is used in our reserve estimation process. This
company-specific data includes information regarding our
business, including historical paid losses and loss adjustment
expenses, historical and current case loss reserves, actual and
projected hospital statistical data, professional liability
retentions for each policy year, geographic information and
other data.
Reserves and provisions for professional liability risks are
based upon actuarially determined estimates. The estimated
reserve ranges, net of amounts receivable under reinsurance
contracts, were $1.067 billion to $1.276 billion at
December 31, 2010 and $1.024 billion to
$1.270 billion at December 31, 2009. Our estimated
reserves for professional liability claims may change
significantly if future claims differ from expected trends. We
perform sensitivity analyses which model the volatility of key
actuarial assumptions and monitor our reserves for adequacy
relative to all our assumptions in the aggregate. Based on our
analysis, we believe the estimated professional liability
reserve ranges represent the reasonably likely outcomes for
ultimate losses. We consider the number and severity of claims
to be the most significant assumptions in estimating reserves
for professional liabilities. A 2% change in the expected
frequency trend could be reasonably likely and would increase
the reserve estimate by $16 million or reduce the reserve
estimate by $15 million. A 2% change in the expected claim
severity trend could be reasonably likely and would increase the
reserve estimate by $71 million or reduce the reserve
estimate by $65 million. We believe adequate reserves have
been recorded for our professional liability claims; however,
due to the complexity of the claims, the extended period of time
to settle the claims and the wide range of potential outcomes,
our ultimate liability for professional liability claims could
change by more than the estimated sensitivity amounts and could
change materially from our current estimates.
The reserves for professional liability risks cover
approximately 2,700 and 2,600 individual claims at
December 31, 2010 and 2009, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. The average time
period between the occurrence and payment of final settlement
for our professional liability claims is approximately five
years, although the facts and circumstances of each individual
claim can result in an
occurrence-to-settlement
timeframe that varies from this average. The estimation of the
timing of payments beyond a year can vary significantly.
Reserves for professional liability risks were
$1.262 billion and $1.322 billion at December 31,
2010 and 2009, respectively. The current portion of these
reserves, $268 million and $265 million at
December 31, 2010 and 2009, respectively, is included in
other accrued expenses. Obligations covered by
reinsurance contracts are included in the reserves for
professional liability risks, as the insurance subsidiary
remains liable to the extent reinsurers do not meet their
obligations. Reserves for professional liability risks (net of
$14 million and $53 million receivable under
reinsurance contracts at December 31, 2010 and 2009,
respectively) were
42
$1.248 billion and $1.269 billion at December 31,
2010 and 2009, respectively. The estimated total net reserves
for professional liability risks at December 31, 2010 and
2009 are comprised of $758 million and $680 million,
respectively, of case reserves for known claims and
$490 million and $589 million, respectively, of
reserves for incurred but not reported claims.
Changes in our professional liability reserves, net of
reinsurance recoverable, for the years ended December 31,
are summarized in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net reserves for professional liability claims, January 1
|
|
$
|
1,269
|
|
|
$
|
1,330
|
|
|
$
|
1,469
|
|
Provision for current year claims
|
|
|
272
|
|
|
|
258
|
|
|
|
239
|
|
Favorable development related to prior years claims
|
|
|
(50
|
)
|
|
|
(47
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
222
|
|
|
|
211
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for current year claims
|
|
|
7
|
|
|
|
4
|
|
|
|
7
|
|
Payments for prior years claims
|
|
|
236
|
|
|
|
268
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claim payments
|
|
|
243
|
|
|
|
272
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for professional liability claims, December 31
|
|
$
|
1,248
|
|
|
$
|
1,269
|
|
|
$
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The favorable development related to prior years claims
resulted from declining claim frequency and moderating claim
severity trends. We believe these favorable trends are primarily
attributable to tort reforms enacted in key states, particularly
Texas, and our risk management and patient safety initiatives,
particularly in the area of obstetrics.
Income
Taxes
We calculate our provision for income taxes using the asset and
liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary
differences that arise from the recognition of items in
different periods for tax and accounting purposes. Deferred tax
assets generally represent the tax effects of amounts expensed
in our income statement for which tax deductions will be claimed
in future periods.
Although we believe we have properly reported taxable income and
paid taxes in accordance with applicable laws, federal, state or
international taxing authorities may challenge our tax positions
upon audit. Significant judgment is required in determining and
assessing the impact of uncertain tax positions. We report a
liability for unrecognized tax benefits from uncertain tax
positions taken or expected to be taken in our income tax
return. During each reporting period, we assess the facts and
circumstances related to uncertain tax positions. If the
realization of unrecognized tax benefits is deemed probable
based upon new facts and circumstances, the estimated liability
and the provision for income taxes are reduced in the current
period. Final audit results may vary from our estimates.
Results
of Operations
Revenue/Volume
Trends
Our revenues depend upon inpatient occupancy levels, the
ancillary services and therapy programs ordered by physicians
and provided to patients, the volume of outpatient procedures
and the charge and negotiated payment rates for such services.
Gross charges typically do not reflect what our facilities are
actually paid. Our facilities have entered into agreements with
third-party payers, including government programs and managed
care health plans, under which the facilities are paid based
upon the cost of providing services, predetermined rates per
diagnosis, fixed per diem rates or discounts from gross charges.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify for charity care; therefore, they
are not reported in revenues. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care that
are similar to the discounts provided to many local managed care
plans.
43
Revenues increased 2.1% to $30.683 billion for 2010 from
$30.052 billion for 2009 and increased 5.9% for 2009 from
$28.374 billion for 2008. The increase in revenues in 2010
can be primarily attributed to the combined impact of a 0.9%
increase in revenue per equivalent admission and a 1.2% increase
in equivalent admissions compared to the prior year. The
increase in revenues in 2009 can be primarily attributed to the
combined impact of a 2.6% increase in revenue per equivalent
admission and a 3.2% increase in equivalent admissions compared
to 2008. The decline in the rate of revenue growth from 5.9% for
2009 compared to 2008 to 2.1% for 2010 compared to 2009 is
primarily due to a decline in the rate of volume growth
(equivalent admission growth declined from 3.2% for 2009
compared to 2008 to 1.2% for 2010 compared to 2009) and a
decline in uninsured revenues (uninsured revenues were
$1.732 billion, $2.350 billion and $2.695 billion
for the years ended December 31, 2010, 2009 and 2008,
respectively) resulting from our increased uninsured discounts
(uninsured discounts were $4.641 billion,
$2.935 billion and $1.853 billion for the years ended
December 31, 2010, 2009 and 2008, respectively).
Consolidated admissions declined 0.1% in 2010 compared to 2009
and increased 1.0% in 2009 compared to 2008. Consolidated
inpatient surgeries declined 1.5% and consolidated outpatient
surgeries declined 1.4% during 2010 compared to 2009.
Consolidated inpatient surgeries increased 0.3% and consolidated
outpatient surgeries declined 0.4% during 2009 compared to 2008.
Consolidated emergency room visits increased 2.0% during 2010
compared to 2009 and increased 6.6% during 2009 compared to 2008.
Same facility revenues increased 2.1% for the year ended
December 31, 2010 compared to the year ended
December 31, 2009 and increased 6.1% for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. The 2.1% increase for 2010 can be
primarily attributed to the combined impact of a 0.6% increase
in same facility revenue per equivalent admission and a 1.4%
increase in same facility equivalent admissions. The 6.1%
increase for 2009 can be primarily attributed to the combined
impact of a 2.6% increase in same facility revenue per
equivalent admission and a 3.4% increase in same facility
equivalent admissions.
Same facility admissions increased 0.1% in 2010 compared to 2009
and increased 1.2% in 2009 compared to 2008. Same facility
inpatient surgeries declined 1.4% and same facility outpatient
surgeries declined 1.2% during 2010 compared to 2009. Same
facility inpatient surgeries increased 0.5% and same facility
outpatient surgeries declined 0.1% during 2009 compared to 2008.
Same facility emergency room visits increased 2.1% during 2010
compared to 2009 and increased 7.0% during 2009 compared to 2008.
Same facility uninsured emergency room visits increased 1.2% and
same facility uninsured admissions increased 5.4% during 2010
compared to 2009. Same facility uninsured emergency room visits
increased 6.5% and same facility uninsured admissions increased
4.7% during 2009 compared to 2008.
The approximate percentages of our admissions related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care and other insurers and the uninsured for the years ended
December 31, 2010, 2009 and 2008 are set forth in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
35
|
%
|
Managed Medicare
|
|
|
10
|
|
|
|
10
|
|
|
|
9
|
|
Medicaid
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
Managed Medicaid
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
Managed care and other insurers
|
|
|
32
|
|
|
|
34
|
|
|
|
35
|
|
Uninsured
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
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 years ended
December 31, 2010, 2009 and 2008 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
31
|
%
|
Managed Medicare
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
Medicaid
|
|
|
9
|
|
|
|
8
|
|
|
|
7
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Managed care and other insurers
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
Uninsured (a)
|
|
|
3
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Increases in discounts to uninsured revenues have resulted in
declines in the percentage of our inpatient revenues related to
the uninsured, as the percentage of uninsured admissions
compared to total admissions has increased slightly. |
At December 31, 2010, we owned and operated 38 hospitals
and 32 surgery centers in the state of Florida. Our Florida
facilities revenues totaled $7.490 billion,
$7.343 billion and $7.009 billion for the years ended
December 31, 2010, 2009 and 2008, respectively. At
December 31, 2010, we owned and operated 36 hospitals and
23 surgery centers in the state of Texas. Our Texas
facilities revenues totaled $8.352 billion,
$8.042 billion and $7.351 billion for the years ended
December 31, 2010, 2009 and 2008, respectively. During
2010, 2009 and 2008, 57%, 57% and 55%, respectively, of our
admissions and 52%, 51% and 51% of our revenues were generated
by our Florida and Texas facilities. Uninsured admissions in
Florida and Texas represented 63%, 64% and 63% of our uninsured
admissions during 2010, 2009 and 2008, respectively.
We receive a significant portion of our revenues from government
health programs, principally Medicare and Medicaid, which are
highly regulated and subject to frequent and substantial
changes. We have increased the indigent care services we provide
in several communities in the state of Texas, in affiliation
with other hospitals. The state of Texas has been involved in
the effort to increase the indigent care provided by private
hospitals. As a result of this additional indigent care provided
by private hospitals, public hospital districts or counties in
Texas have available funds that were previously devoted to
indigent care. The public hospital districts or counties are
under no contractual or legal obligation to provide such
indigent care. The public hospital districts or counties have
elected to transfer some portion of these 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 $657 million, $474 million and
$262 million for the years ended December 31, 2010,
2009 and 2008, respectively, of Medicaid supplemental payments
pursuant to UPL programs.
The American Recovery and Reinvestment Act of 2009 provides for
Medicare and Medicaid incentive payments beginning in 2011 for
eligible hospitals and professionals that adopt and meaningfully
use certified electronic health record (EHR)
technology. We estimate a majority of our eligible hospitals
will attest to adopting, implementing, upgrading or
demonstrating meaningful use of certified EHR technology during
the fourth quarter of 2011, and we will not recognize any
revenues related to the Medicare or Medicaid incentive payments
until we are able to complete these attestations. We currently
estimate that, during 2011 (primarily during our fourth
quarter), the amount of Medicare or Medicaid incentive payments
realizable (and revenues recognized) will be in the range of
$275 million to $325 million. Actual incentive
payments could vary from these estimates due to certain factors
such as availability of federal funding for both Medicare and
Medicaid incentive payments, timing of the approval of state
Medicaid incentive payment plans by CMS and our ability
45
to implement and demonstrate meaningful use of certified EHR
technology. We have incurred and will continue to incur both
capital costs and operating expenses in order to implement our
certified EHR technology and meet meaningful use requirements.
These expenses are ongoing and are projected to continue over
all stages of implementation of meaningful use. The timing of
recognizing the expenses will not correlate with the receipt of
the incentive payments and the recognition of revenues. We
estimate that operating expenses to implement our certified EHR
technology and meet meaningful use will be in the range of
$125 million to $150 million for 2011. Actual
operating expenses could vary from these estimates. There can be
no assurance that we will be able to demonstrate meaningful use
of certified EHR technology, and the failure to do so could have
a material, adverse effect on our results of operations.
Operating
Results Summary
The following are comparative summaries of operating results for
the years ended December 31, 2010, 2009 and 2008 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
100.0
|
|
|
$
|
30,052
|
|
|
|
100.0
|
|
|
$
|
28,374
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
40.7
|
|
|
|
11,958
|
|
|
|
39.8
|
|
|
|
11,440
|
|
|
|
40.3
|
|
Supplies
|
|
|
4,961
|
|
|
|
16.2
|
|
|
|
4,868
|
|
|
|
16.2
|
|
|
|
4,620
|
|
|
|
16.3
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
16.3
|
|
|
|
4,724
|
|
|
|
15.7
|
|
|
|
4,554
|
|
|
|
16.1
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
8.6
|
|
|
|
3,276
|
|
|
|
10.9
|
|
|
|
3,409
|
|
|
|
12.0
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(0.9
|
)
|
|
|
(246
|
)
|
|
|
(0.8
|
)
|
|
|
(223
|
)
|
|
|
(0.8
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
4.6
|
|
|
|
1,425
|
|
|
|
4.8
|
|
|
|
1,416
|
|
|
|
5.0
|
|
Interest expense
|
|
|
2,097
|
|
|
|
6.8
|
|
|
|
1,987
|
|
|
|
6.6
|
|
|
|
2,021
|
|
|
|
7.1
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(0.3
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
0.4
|
|
|
|
43
|
|
|
|
0.1
|
|
|
|
64
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
92.7
|
|
|
|
28,050
|
|
|
|
93.3
|
|
|
|
27,204
|
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
7.3
|
|
|
|
2,002
|
|
|
|
6.7
|
|
|
|
1,170
|
|
|
|
4.1
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
2.2
|
|
|
|
627
|
|
|
|
2.1
|
|
|
|
268
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
5.1
|
|
|
|
1,375
|
|
|
|
4.6
|
|
|
|
902
|
|
|
|
3.2
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
1.2
|
|
|
|
321
|
|
|
|
1.1
|
|
|
|
229
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
|
3.9
|
|
|
$
|
1,054
|
|
|
|
3.5
|
|
|
$
|
673
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
%
|
|
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
Income before income taxes
|
|
|
11.5
|
|
|
|
|
|
|
|
71.1
|
|
|
|
|
|
|
|
(16.3
|
)
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
|
14.5
|
|
|
|
|
|
|
|
56.7
|
|
|
|
|
|
|
|
(23.0
|
)
|
|
|
|
|
Admissions(a)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.2
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.9
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
|
|
|
|
|
|
|
6.1
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
Admissions(a)
|
|
|
0.1
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.4
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.6
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
|
(b) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(c) |
|
Same facility information excludes the operations of hospitals
and their related facilities that were either acquired, divested
or removed from service during the current and prior year. |
46
Supplemental
Non-GAAP Disclosures
Operating Measures on a Cash Revenues Basis
(Dollars in millions)
The results of operations presented on a cash revenues basis for
the years ended December 31, 2010, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
30,052
|
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
28,374
|
|
|
|
|
|
|
|
100.0
|
%
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
3,276
|
|
|
|
|
|
|
|
|
|
|
|
3,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash revenues(a)
|
|
|
28,035
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
26,776
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
24,965
|
|
|
|
100.0
|
%
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
44.5
|
|
|
|
40.7
|
|
|
|
11,958
|
|
|
|
44.7
|
|
|
|
39.8
|
|
|
|
11,440
|
|
|
|
45.8
|
|
|
|
40.3
|
|
Supplies
|
|
|
4,961
|
|
|
|
17.7
|
|
|
|
16.2
|
|
|
|
4,868
|
|
|
|
18.2
|
|
|
|
16.2
|
|
|
|
4,620
|
|
|
|
18.5
|
|
|
|
16.3
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
17.9
|
|
|
|
16.3
|
|
|
|
4,724
|
|
|
|
17.6
|
|
|
|
15.7
|
|
|
|
4,554
|
|
|
|
18.3
|
|
|
|
16.1
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
Cash revenues
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
Cash revenue per equivalent admission
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Cash revenues is defined as
reported revenues less the provision for doubtful accounts. We
use cash revenues as an analytical indicator for purposes of
assessing the effect of uninsured patient volumes, adjusted for
the effect of both the revenue deductions related to uninsured
accounts (charity care and uninsured discounts) and the
provision for doubtful accounts (which relates primarily to
uninsured accounts), on our revenues and certain operating
expenses, as a percentage of cash revenues. Variations in the
revenue deductions related to uninsured accounts generally have
the inverse effect on the provision for doubtful accounts.
During 2010, uninsured discounts increased $1.706 billion
and the provision for doubtful accounts declined
$628 million, compared to 2009. During 2009, uninsured
discounts increased $1.082 billion and the provision for
doubtful accounts declined $133 million, compared to 2008.
Cash revenues is commonly used as an analytical indicator within
the health care industry. Cash revenues should not be considered
as a measure of financial performance under generally accepted
accounting principles. Because cash revenues is not a
measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying
calculations, cash revenues, as presented, may not be comparable
to other similarly titled measures of other health care
companies.
|
|
(b)
|
|
Salaries and benefits, supplies and
other operating expenses, as a percentage of cash revenues (a
non-GAAP financial measure), present the impact on these ratios
due to the adjustment of deducting the provision for doubtful
accounts from reported revenues and results in these ratios
being non-GAAP financial measures. We believe these non-GAAP
financial measures are useful to investors to provide
disclosures of our results of operations on the same basis as
that used by management. Management uses this information to
compare certain operating expense categories as a percentage of
cash revenues. Management finds this information useful to
evaluate certain expense category trends without the influence
of whether adjustments related to revenues for uninsured
accounts are recorded as revenue adjustments (charity care and
uninsured discounts) or operating expenses (provision for
doubtful accounts), and thus the expense category trends are
generally analyzed as a percentage of cash revenues. These
non-GAAP financial measures should not be considered
alternatives to GAAP financial measures. We believe this
supplemental information provides management and the users of
our financial statements with useful information for
period-to-period
comparisons. Investors are encouraged to use GAAP measures when
evaluating our overall financial performance.
|
47
Years
Ended December 31, 2010 and 2009
Net income attributable to HCA Holdings, Inc. totaled
$1.207 billion for the year ended December 31, 2010
compared to $1.054 billion for the year ended
December 31, 2009. Financial results for 2010 include net
gains on sales of facilities of $4 million and asset
impairment charges of $123 million. Financial results for
2009 include net losses on sales of facilities of
$15 million and asset impairment charges of
$43 million.
Revenues increased 2.1% to $30.683 billion for 2010 from
$30.052 billion for 2009. The increase in revenues was due
primarily to the combined impact of a 0.9% increase in revenue
per equivalent admission and a 1.2% increase in equivalent
admissions compared to 2009. Same facility revenues increased
2.1% due primarily to the combined impact of a 0.6% increase in
same facility revenue per equivalent admission and a 1.4%
increase in same facility equivalent admissions compared to
2009. Cash revenues (reported revenues less the provision for
doubtful accounts) increased 4.7% for 2010, compared to 2009.
During 2010, consolidated admissions declined 0.1% and same
facility admissions increased 0.1% for 2010, compared to 2009.
Consolidated inpatient surgical volumes declined 1.5%, and same
facility inpatient surgeries declined 1.4% during 2010 compared
to 2009. Consolidated outpatient surgical volumes declined 1.4%,
and same facility outpatient surgeries declined 1.2% during 2010
compared to 2009. Emergency room visits increased 2.0% on a
consolidated basis and increased 2.1% on a same facility basis
during 2010 compared to 2009.
Salaries and benefits, as a percentage of revenues, were 40.7%
in 2010 and 39.8% in 2009. Salaries and benefits, as a
percentage of cash revenues, were 44.5% in 2010 and 44.7% in
2009. Salaries and benefits per equivalent admission increased
3.2% in 2010 compared to 2009. Same facility labor rate
increases averaged 2.7% for 2010 compared to 2009.
Supplies, as a percentage of revenues, were 16.2% in both 2010
and 2009. Supplies, as a percentage of cash revenues, were 17.7%
in 2010 and 18.2% in 2009. Supply costs per equivalent admission
increased 0.7% in 2010 compared to 2009. Supply costs per
equivalent admission increased 2.4% for medical devices, 0.8%
for blood products, and 2.9% for general medical and surgical
items, and declined 0.7% for pharmacy supplies in 2010 compared
to 2009.
Other operating expenses, as a percentage of revenues, increased
to 16.3% in 2010 from 15.7% in 2009. Other operating expenses,
as a percentage of cash revenues, increased to 17.9% in 2010
from 17.6% in 2009. Other operating expenses are primarily
comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including
professional liability insurance) and nonincome taxes. The major
component of the increase in other operating expenses, as a
percentage of revenues, was related to indigent care costs in
certain Texas markets which increased to $354 million for
2010 from $248 million for 2009. Provisions for losses
related to professional liability risks were $222 million
and $211 million for 2010 and 2009, respectively.
Provision for doubtful accounts declined $628 million, from
$3.276 billion in 2009 to $2.648 billion in 2010, and
as a percentage of revenues, declined to 8.6% for 2010 from
10.9% in 2009. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to uninsured
amounts due directly from patients. The decline in the provision
for doubtful accounts can be attributed to the
$1.892 billion increase in the combined self-pay revenue
deductions for charity care and uninsured discounts during 2010,
compared to 2009. 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 25.6% for 2010, compared to 23.8% for 2009. At
December 31, 2010, our allowance for doubtful accounts
represented approximately 93% of the $4.249 billion total
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage or uninsured discounts
was being evaluated.
Equity in earnings of affiliates increased from
$246 million for 2009 to $282 million for 2010. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
48
Depreciation and amortization declined, as a percentage of
revenues, to 4.6% in 2010 from 4.8% in 2009. Depreciation
expense was $1.416 billion for 2010 and $1.419 billion
for 2009.
Interest expense increased to $2.097 billion for 2010 from
$1.987 billion for 2009. The increase in interest expense
was due primarily to an increase in the average effective
interest rate. Our average debt balance was $26.751 billion
for 2010 compared to $26.267 billion for 2009. The average
interest rate for our long-term debt increased from 7.6% for
2009 to 7.8% for 2010.
Net gains on sales of facilities were $4 million for 2010
and were related to sales of real estate and other health care
entity investments. Net losses on sales of facilities were
$15 million for 2009 and included $8 million of net
losses on the sales of three hospital facilities and
$7 million of net losses on sales of real estate and other
health care entity investments.
Impairments of long-lived assets were $123 million for 2010
and included $74 million related to two hospital facilities
and $49 million related to other health care entity
investments, which includes $35 million for the writeoff of
capitalized engineering and design costs related to certain
building safety requirements (California earthquake standards)
that have been revised. Impairments of long-lived assets were
$43 million for 2009 and included $19 million related
to goodwill and $24 million related to property and
equipment.
The effective tax rate was 35.3% and 37.3% for 2010 and 2009,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Our provisions for income taxes for
2010 and 2009 were reduced by $44 million and
$12 million, respectively, related to reductions in
interest expense related to taxing authority examinations.
Excluding the effect of these adjustments, the effective tax
rate for 2010 and 2009 would have been 37.6% and 38.0%,
respectively.
Net income attributable to noncontrolling interests increased
from $321 million for 2009 to $366 million for 2010.
The increase in net income attributable to noncontrolling
interests related primarily to growth in operating results of
hospital joint ventures in two Texas markets.
Years
Ended December 31, 2009 and 2008
Net income attributable to HCA Holdings, Inc. totaled
$1.054 billion for the year ended December 31, 2009
compared to $673 million for the year ended
December 31, 2008. Financial results for 2009 include
losses on sales of facilities of $15 million and asset
impairment charges of $43 million. Financial results for
2008 include gains on sales of facilities of $97 million
and asset impairment charges of $64 million.
Revenues increased 5.9% to $30.052 billion for 2009 from
$28.374 billion for 2008. The increase in revenues was due
primarily to the combined impact of a 2.6% increase in revenue
per equivalent admission and a 3.2% increase in equivalent
admissions compared to 2008. Same facility revenues increased
6.1% due primarily to the combined impact of a 2.6% increase in
same facility revenue per equivalent admission and a 3.4%
increase in same facility equivalent admissions compared to
2008. Cash revenues (reported revenues less the provision for
doubtful accounts) increased 7.2% for 2009, compared to 2008.
During 2009, consolidated admissions increased 1.0% and same
facility admissions increased 1.2% for 2009, compared to 2008.
Consolidated inpatient surgical volumes increased 0.3%, and same
facility inpatient surgeries increased 0.5% during 2009 compared
to 2008. Consolidated outpatient surgical volumes declined 0.4%,
and same facility outpatient surgeries declined 0.1% during 2009
compared to 2008. Emergency department visits increased 6.6% on
a consolidated basis and increased 7.0% on a same facility basis
during 2009 compared to 2008.
Salaries and benefits, as a percentage of revenues, were 39.8%
in 2009 and 40.3% in 2008. Salaries and benefits, as a
percentage of cash revenues, were 44.7% in 2009 and 45.8% in
2008. Salaries and benefits per equivalent admission increased
1.3% in 2009 compared to 2008. Same facility labor rate
increases averaged 3.7% for 2009 compared to 2008.
Supplies, as a percentage of revenues, were 16.2% in 2009 and
16.3% in 2008. Supplies, as a percentage of cash revenues, were
18.2% in 2009 and 18.5% in 2008. Supply costs per equivalent
admission increased
49
2.1% in 2009 compared to 2008. Same facility supply costs
increased 5.9% for medical devices, 4.0% for pharmacy supplies,
7.1% for blood products and 7.0% for general medical and
surgical items in 2009 compared to 2008.
Other operating expenses, as a percentage of revenues, declined
to 15.7% in 2009 from 16.1% in 2008. Other operating expenses,
as a percentage of cash revenues, declined to 17.6% in 2009 from
18.3% in 2008. Other operating expenses are primarily comprised
of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including
professional liability insurance) and nonincome taxes. The
overall decline in other operating expenses, as a percentage of
revenues, is comprised of relatively small reductions in several
areas, including utilities, employee recruitment and travel and
entertainment. Other operating expenses include
$248 million and $144 million of indigent care costs
in certain Texas markets during 2009 and 2008, respectively.
Provisions for losses related to professional liability risks
were $211 million and $175 million for 2009 and 2008,
respectively.
Provision for doubtful accounts declined $133 million, from
$3.409 billion in 2008 to $3.276 billion in 2009, and
as a percentage of revenues, declined to 10.9% for 2009 from
12.0% in 2008. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to uninsured
amounts due directly from patients. The decline in the provision
for doubtful accounts can be attributed to the
$1.486 billion increase in the combined self-pay revenue
deductions for charity care and uninsured discounts during 2009,
compared to 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 23.8% for 2009, compared to 21.9% for 2008. At
December 31, 2009, our allowance for doubtful accounts
represented approximately 94% of the $5.176 billion total
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage or uninsured discounts
was being evaluated.
Equity in earnings of affiliates increased from
$223 million for 2008 to $246 million for 2009. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
Depreciation and amortization decreased, as a percentage of
revenues, to 4.8% in 2009 from 5.0% in 2008. Depreciation
expense was $1.419 billion for 2009 and $1.412 billion
for 2008.
Interest expense declined to $1.987 billion for 2009 from
$2.021 billion for 2008. The decline in interest expense
was due to reductions in the average debt balance. Our average
debt balance was $26.267 billion for 2009 compared to
$27.211 billion for 2008. The average interest rate for our
long-term debt increased from 7.4% for 2008 to 7.6% for 2009.
Net losses on sales of facilities were $15 million for 2009
and included $8 million of net losses on the sales of three
hospital facilities and $7 million of net losses on sales
of real estate and other health care entity investments. Gains
on sales of facilities were $97 million for 2008 and
included $81 million of gains on the sales of two hospital
facilities and $16 million of net gains on sales of real
estate and other health care entity investments.
Impairments of long-lived assets were $43 million for 2009
and included $19 million related to goodwill and
$24 million related to property and equipment. Impairments
of long-lived assets were $64 million for 2008 and included
$48 million related to goodwill and $16 million
related to property and equipment.
The effective tax rate was 37.3% and 28.5% for 2009 and 2008,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Primarily as a result of reaching a
settlement with the IRS Appeals Division and the revision of the
amount of a proposed IRS adjustment related to prior taxable
periods, we reduced our provision for income taxes by
$69 million in 2008. Excluding the effect of these
adjustments, the effective tax rate for 2008 would have been
35.8%.
Net income attributable to noncontrolling interests increased
from $229 million for 2008 to $321 million for 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.
50
Liquidity
and Capital Resources
Our primary cash requirements are paying our operating expenses,
servicing our debt, capital expenditures on our existing
properties, acquisitions of hospitals and other health care
entities, distributions to stockholders and distributions to
noncontrolling interests. Our primary cash sources are cash flow
from operating activities, issuances of debt and equity
securities and dispositions of hospitals and other health care
entities.
Cash provided by operating activities totaled
$3.085 billion in 2010 compared to $2.747 billion in
2009 and $1.990 billion in 2008. Working capital totaled
$2.650 billion at December 31, 2010 and
$2.264 billion at December 31, 2009. The
$338 million increase in cash provided by operating
activities for 2010, compared to 2009, was primarily comprised
of the net impact of the $198 million increase in net
income, a $547 million improvement from lower income tax
payments and a $384 million decline from changes in
operating assets and liabilities and the provision for doubtful
accounts. The $757 million increase in cash provided by
operating activities for 2009, compared to 2008, related
primarily to the $473 million increase in net income and
$143 million improvement from changes in operating assets
and liabilities and the provision for doubtful accounts. Cash
payments for interest and income taxes declined
$387 million for 2010 compared to 2009 and increased
$203 million for 2009 compared to 2008.
Cash used in investing activities was $1.039 billion,
$1.035 billion and $1.467 billion in 2010, 2009 and
2008, respectively. Excluding acquisitions, capital expenditures
were $1.325 billion in 2010, $1.317 billion in 2009
and $1.600 billion in 2008. We expended $233 million,
$61 million and $85 million for acquisitions of
hospitals and health care entities during 2010, 2009 and 2008,
respectively. Expenditures for acquisitions in 2010 included two
hospital facilities, and in 2009 and 2008 were generally
comprised of outpatient and ancillary services entities. Planned
capital expenditures are expected to approximate
$1.600 billion in 2011. At December 31, 2010, there
were projects under construction which had an estimated
additional cost to complete and equip over the next five years
of $1.700 billion. We expect to finance capital
expenditures with internally generated and borrowed funds.
During 2010, we received cash proceeds of $37 million from
sales of other health care entities and real estate investments.
We also received net cash proceeds of $472 million related
to net changes in our investments. During 2009, we received cash
proceeds of $41 million from dispositions of three
hospitals and sales of other health care entities and real
estate investments. We also received net cash proceeds of
$303 million related to net changes in our investments.
During 2008, we received cash proceeds of $143 million from
dispositions of two hospitals and $50 million from sales of
other health care entities and real estate investments.
Cash used in financing activities totaled $1.947 billion in
2010, $1.865 billion in 2009 and $451 million in 2008.
During 2010, we paid $4.257 billion in distributions to our
stockholders and received net proceeds of $2.533 billion
from our debt issuance and debt repayment activities. During
2009 and 2008, we used cash proceeds from sales of facilities
and available cash provided by operations to make net debt
repayments of $1.459 billion and $260 million,
respectively. During 2010, we received contributions from
noncontrolling interests of $57 million. During 2010, 2009
and 2008, we made distributions to noncontrolling interests of
$342 million, $330 million and $178 million,
respectively. We paid debt issuance costs of $50 million
and $70 million for 2010 and 2009, respectively. During
2010, we received income tax benefits of $114 million for
certain items (primarily the cash distributions to holders of
our stock options) that were deductible expenses for tax
purposes, but were recognized as adjustments to
stockholders deficit for financial reporting purposes. We
or our affiliates, including affiliates of the Sponsors, may in
the future repurchase portions of our debt securities, subject
to certain limitations, from time to time in either the open
market or through privately negotiated transactions, in
accordance with applicable SEC and other legal requirements. The
timing, prices, and sizes of purchases depend upon prevailing
trading prices, general economic and market conditions, and
other factors, including applicable securities laws. Funds for
the repurchase of debt securities have, and are expected to,
come primarily from cash generated from operations and borrowed
funds.
51
In addition to cash flows from operations, available sources of
capital include amounts available under our senior secured
credit facilities ($1.314 billion as of December 31,
2010 and $1.523 billion as of January 31,
2011) and anticipated access to public and private debt
markets.
During 2010, our Board of Directors declared three distributions
to our stockholders and holders of stock options. The
distributions totaled $42.50 per share and vested stock option,
or $4.332 billion in the aggregate. The distributions were
funded using funds available under our existing senior secured
credit facilities, proceeds from the November 2010 issuance of
$1.525 billion aggregate principal amount of
73/4% senior
unsecured notes due 2021 and cash on hand.
Investments of our professional liability insurance subsidiary,
to maintain statutory equity and pay claims, totaled
$742 million and $1.316 billion at December 31,
2010 and 2009, respectively. Investments were reduced during
2010 as a result of the insurance subsidiary distributing
$500 million of excess capital to the Company. The
insurance subsidiary maintained net reserves for professional
liability risks of $452 million and $590 million at
December 31, 2010 and 2009, 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
$796 million and $679 million at December 31,
2010 and 2009, respectively. Claims payments, net of reinsurance
recoveries, during the next 12 months are expected to
approximate $265 million. We estimate that approximately
$165 million of the expected net claim payments during the
next 12 months will relate to claims subject to the
self-insured retention.
Financing
Activities
We are a highly leveraged company with significant debt service
requirements. Our debt totaled $28.225 billion and
$25.670 billion at December 31, 2010 and 2009,
respectively. Our interest expense was $2.097 billion for
2010 and $1.987 billion for 2009.
During February 2009, HCA Inc. 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. During April 2009, HCA Inc. 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.
During August 2009, HCA Inc. 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.
During March 2010, HCA Inc. issued $1.400 billion
aggregate principal amount of
71/4%
senior secured first lien notes due 2020 at a price of 99.095%
of their face value, resulting in $1.387 billion of gross
proceeds. After the payment of related fees and expenses, we
used the proceeds from these debt offerings to repay outstanding
indebtedness under our senior secured term loan facilities.
During November 2010, we issued $1.525 billion aggregate
principal amount of
73/4% senior
unsecured notes due 2021 at a price of 100% of their face value.
After the payment of related fees and expenses, we used the
proceeds to make a distribution to our stockholders and
optionholders.
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.
52
Contractual
Obligations and Off-Balance Sheet Arrangements
As of December 31, 2010, maturities of contractual
obligations and other commercial commitments are presented in
the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations(a)
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt including interest, excluding the senior secured
credit facilities(b)
|
|
$
|
29,803
|
|
|
$
|
1,845
|
|
|
$
|
4,824
|
|
|
$
|
5,053
|
|
|
$
|
18,081
|
|
Loans outstanding under the senior secured credit facilities,
including interest(b)
|
|
|
12,013
|
|
|
|
848
|
|
|
|
7,828
|
|
|
|
1,147
|
|
|
|
2,190
|
|
Operating leases(c)
|
|
|
1,876
|
|
|
|
269
|
|
|
|
466
|
|
|
|
293
|
|
|
|
848
|
|
Purchase and other obligations(c)
|
|
|
225
|
|
|
|
37
|
|
|
|
44
|
|
|
|
36
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
43,917
|
|
|
$
|
2,999
|
|
|
$
|
13,162
|
|
|
$
|
6,529
|
|
|
$
|
21,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments Not Recorded on the
|
|
Commitment Expiration by Period
|
|
Consolidated Balance Sheet
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Surety bonds(d)
|
|
$
|
59
|
|
|
$
|
52
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
|
|
Letters of credit(e)
|
|
|
82
|
|
|
|
9
|
|
|
|
41
|
|
|
|
32
|
|
|
|
|
|
Physician commitments(f)
|
|
|
33
|
|
|
|
26
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Guarantees(g)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
176
|
|
|
$
|
87
|
|
|
$
|
54
|
|
|
$
|
33
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We have not included obligations to pay estimated professional
liability claims ($1.248 billion at December 31, 2010,
including net reserves of $452 million related to the
wholly-owned insurance subsidiary) in this table. The
estimated professional liability claims, which occurred prior to
2007, are expected to be funded by the designated investment
securities that are restricted for this purpose
($742 million at December 31, 2010). We also have not
included obligations related to unrecognized tax benefits of
$413 million at December 31, 2010, as we cannot
reasonably estimate the timing or amounts of cash payments, if
any, at this time. |
|
(b) |
|
Estimates of interest payments assume that interest rates,
borrowing spreads and foreign currency exchange rates at
December 31, 2010, remain constant during the period
presented. |
|
(c) |
|
Amounts relate to future operating lease obligations, purchase
obligations and other obligations and are not recorded in our
consolidated balance sheet. Amounts also include physician
commitments that are recorded in our consolidated balance sheet. |
|
(d) |
|
Amounts relate primarily to instances in which we have agreed to
indemnify various commercial insurers who have provided surety
bonds to cover self-insured workers compensation claims,
utility deposits and damages for malpractice cases which were
awarded to plaintiffs by the courts. These cases are currently
under appeal and the bonds will not be released by the courts
until the cases are closed. |
|
(e) |
|
Amounts relate primarily to various insurance programs and
employee benefit plan obligations for which we have letters of
credit outstanding. |
|
(f) |
|
In consideration for physicians relocating to the communities in
which our hospitals are located and agreeing to engage in
private practice for the benefit of the respective communities,
we make advances to physicians, normally over a period of one
year, to assist in establishing the physicians practices.
The actual amount of these commitments to be advanced often
depends upon the financial results of the physicians
private practices during the recruitment agreement payment
period. The physician commitments reflected were based on our
maximum exposure on effective agreements at December 31,
2010. |
|
(g) |
|
We have entered into guarantee agreements related to certain
leases. |
53
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
$734 million and $8 million, respectively, at
December 31, 2010. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2010, we had a net unrealized gain of
$10 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2010, our
wholly-owned insurance subsidiary had invested $250 million
($251 million par value) in tax-exempt student loan auction
rate securities that continue to experience market illiquidity.
It is uncertain if auction-related market liquidity will resume
for these securities. We may be required to recognize
other-than-temporary
impairments on these long-term investments in future periods
should issuers default on interest payments or should the fair
market valuations of the securities deteriorate due to ratings
downgrades or other issue specific factors.
We are also exposed to market risk related to changes in
interest rates, and we periodically enter into interest rate
swap agreements to manage our exposure to these fluctuations.
Our interest rate swap agreements involve the exchange of fixed
and variable rate interest payments between two parties, based
on common notional principal amounts and maturity dates. The
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions. The interest payments under these
agreements are settled on a net basis. These derivatives have
been recognized in the financial statements at their respective
fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other
comprehensive income, and changes in the fair value of
derivatives which have not been designated as hedges are
recorded in operations.
With respect to our interest-bearing liabilities, approximately
$3.037 billion of long-term debt at December 31, 2010
was subject to variable rates of interest, while the remaining
balance in long-term debt of $25.188 billion at
December 31, 2010 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 rate debt is comprised primarily of
amounts outstanding under the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to an applicable margin plus, at our
option, either (a) a base rate determined by reference to
the higher of (1) the federal funds rate plus 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. The average effective interest rate for our
long-term debt increased from 7.6% for 2009 to 7.8% for 2010.
On March 2, 2009, the cash flow credit facility was amended
to allow for one or more future issuances of additional secured
notes, which may include notes that are secured on a pari
passu basis or on a junior basis with the obligations under
the cash flow credit facility, so long as (1) such notes do
not require, subject to certain exceptions, scheduled
repayments, payment of principal or redemption prior to the
scheduled term loan B-1 maturity date, (2) the terms of
such notes, taken as a whole, are not more restrictive than
those in the cash flow credit facility and (3) no
subsidiary of HCA Inc. that is not a U.S. guarantor is an
obligor of such additional secured notes, and such notes are not
secured by any European collateral securing the cash flow credit
facility. The U.S. security documents related to the cash
flow credit facility were also amended and restated in
connection with the amendment in order to give effect to the
security interests to be granted to holders of such additional
secured notes.
On March 2, 2009, the asset-based revolving credit facility
was amended to allow for one or more future issuances of
additional secured notes or loans, which may include notes or
loans that are secured on a pari
54
passu basis or on a junior basis with the obligations
under the cash flow credit facility, so long as (1) such
notes or loans do not require, subject to certain exceptions,
scheduled repayments, payment of principal or redemption prior
to the scheduled term loan B-1 maturity date, (2) the terms
of such notes or loans, as applicable, taken as a whole, are not
more restrictive than those in the cash flow credit facility and
(3) no subsidiary of HCA Inc. that is not a
U.S. guarantor is an obligor of such additional secured
notes. The amendment to the asset-based revolving credit
facility also altered the excess facility availability
requirement to include a separate minimum facility availability
requirement applicable to the asset-based revolving credit
facility and increased the applicable LIBOR and asset-based
revolving margins for all borrowings under the asset-based
revolving credit facility by 0.25% each.
On June 18, 2009, the cash flow credit facility was amended
to permit the unlimited incurrence of new term loans to
refinance the term loans initially incurred as well as any
previously incurred refinancing term loans and to permit the
establishment of commitments under a replacement cash flow
revolver under the cash flow credit facility to replace all or a
portion of the revolving commitments initially established under
the cash flow credit facility as well as any previously issued
replacement revolvers.
On April 6, 2010 the cash flow credit facility was further
amended to (i) extend the maturity date for
$2.0 billion of the tranche B term loans from
November 17, 2013 to March 31, 2017 and
(ii) increase the ABR margin and LIBOR margin with respect
to such extended term loans to 2.25% and 3.25%, respectively.
On November 8, 2010, an amended and restated joinder
agreement was entered into with respect to the cash flow credit
facility to establish a new replacement revolving credit series,
which will mature on November 17, 2015. The replacement
revolving credit commitments will become effective upon the
earlier of (i) our receipt of all or a portion of the
proceeds (including by way of contribution) from an initial
public offering of common stock of HCA Inc. or its direct or
indirect parent company (the IPO Proceeds Condition)
and (ii) May 17, 2012, subject to the satisfaction of
certain other conditions. If the IPO Proceeds Condition has not
been satisfied, on May 17, 2012 or, if the IPO Proceeds
Condition has been satisfied prior to May 17, 2012, on
November 17, 2012, the applicable ABR and LIBOR margins
with respect to the replacement revolving loans will be
increased from the applicable ABR and LIBOR margins of the
existing revolving loans based upon the achievement of a certain
leverage ratio, which level will decrease from the levels of the
existing revolving loans. The offering contemplated hereby will
satisfy the IPO Proceeds Condition.
The estimated fair value of our total long-term debt was
$28.738 billion at December 31, 2010. 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 $30 million. To mitigate the impact of
fluctuations in interest rates, we generally target a portion of
our debt portfolio to be maintained at fixed rates.
Our international operations and the European term loan expose
us to market risks associated with foreign currencies. In order
to mitigate the currency exposure related to debt service
obligations through December 31, 2011 under the European
term loan, we have entered into cross currency swap agreements.
A cross currency swap is an agreement between two parties to
exchange a stream of principal and interest payments in one
currency for a stream of principal and interest payments in
another currency over a specified period.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including foreign currency and interest rate exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income, depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies
as a fair value hedge or a cash flow hedge. Gains and losses on
derivatives designated as cash flow hedges, to the extent they
are effective, are recorded in other comprehensive income, and
subsequently reclassified to earnings to offset the
55
impact of the hedged items when they occur. Changes in the fair
value of derivatives not qualifying as hedges, and for any
portion of a hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to expense over the
remaining period of the debt originally covered by the
terminated swap.
Effects
of Inflation and Changing Prices
Various federal, state and local laws have been enacted that, in
certain cases, limit our ability to increase prices. Revenues
for general, acute care hospital services rendered to Medicare
patients are established under the federal governments
prospective payment system. Total
fee-for-service
Medicare revenues approximated 23.5% in 2010, 22.8% in 2009 and
23.1% in 2008 of our revenues.
Management believes hospital industry operating margins have
been, and may continue to be, under significant pressure because
of changes in payer mix and growth in operating expenses in
excess of the increase in prospective payments under the
Medicare program. In addition, as a result of increasing
regulatory and competitive pressures, our ability to maintain
operating margins through price increases to non-Medicare
patients is limited.
IRS
Disputes
At December 31, 2010, we were contesting, before the IRS
Appeals Division, certain claimed deficiencies and adjustments
proposed by the IRS Examination Division in connection with its
audit of HCA Inc.s 2005 and 2006 federal income tax
returns. The disputed items include the timing of recognition of
certain patient service revenues, the deductibility of certain
debt retirement costs and our method for calculating the tax
allowance for doubtful accounts. In addition, eight taxable
periods of HCA Inc. and its predecessors ended in 1997 through
2004, 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 December 31, 2010. The
IRS Examination Division began an audit of HCA Inc.s 2007,
2008 and 2009 federal income tax returns in December 2010.
Management believes we and our predecessors and affiliates
properly reported taxable income and paid taxes in accordance
with applicable laws and agreements established with the IRS and
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.
56
BUSINESS
Our
Company
We are the largest non-governmental hospital operator in the
U.S. and a leading comprehensive, integrated provider of
health care and related services. We provide these services
through a network of acute care hospitals, outpatient
facilities, clinics and other patient care delivery settings. As
of December 31, 2010, we operated a diversified portfolio
of 164 hospitals (with approximately 41,000 beds) and 106
freestanding surgery centers across 20 states throughout
the U.S. and in England. As a result of our efforts to
establish significant market share in large and growing urban
markets with attractive demographic and economic profiles, we
currently have a substantial market presence in 14 of the top 25
fastest growing markets with populations greater than 500,000 in
the U.S. and currently maintain the first or second position,
based on inpatient admissions, in many of our key markets. We
believe our ability to successfully position and grow our assets
in attractive markets and execute our operating plan has
contributed to the strength of our financial performance over
the last several years. For the year ended December 31,
2010, we generated revenues of $30.683 billion, net income
attributable to HCA Holdings, Inc. of $1.207 billion and
Adjusted EBITDA of $5.868 billion.
Our patient-first strategy is to provide high quality health
care services in a cost-efficient manner. We intend to build
upon our history of profitable growth by maintaining our
dedication to quality care, increasing our presence in key
markets through organic expansion and strategic acquisitions and
joint ventures, leveraging our scale and infrastructure, and
further developing our physician and employee relationships. We
believe pursuing these core elements of our strategy helps us
develop a faster-growing, more stable and more profitable
business and increases our relevance to patients, physicians,
payers and employers.
Using our scale, significant resources and over 40 years of
operating experience, we have developed a significant management
and support infrastructure. Some of the key components of our
support infrastructure include a revenue cycle management
organization, a health care GPO, an information technology and
services provider, a nurse staffing agency and a medical
malpractice insurance underwriter. These shared services have
helped us to maximize our cash collection efficiency, achieve
savings in purchasing through our scale, more rapidly deploy
information technology upgrades, more effectively manage our
labor pool and achieve greater stability in malpractice
insurance premiums. Collectively, these components have helped
us to further enhance our operating effectiveness, cost
efficiency and overall financial results. We are also creating a
subsidiary that will offer certain of these component services
to other health care companies.
Since the founding of our business in 1968 as a single-facility
hospital company, we have demonstrated an ability to
consistently innovate and sustain growth during varying economic
and regulatory climates. Under the leadership of an experienced
senior management team, whose tenure at HCA averages over
20 years, we have established an extensive record of
providing high quality care, profitably growing our business,
making and integrating strategic acquisitions and efficiently
and strategically allocating capital spending.
On November 17, 2006, we were acquired by a private
investor group comprised of affiliates of or funds sponsored by
Bain Capital, KKR, MLGPE (now BAML Capital Partners) (each a
Sponsor), Citigroup Inc., Bank of America
Corporation (the Sponsor Assignees) and HCA founder
Dr. Thomas F. Frist, Jr. (the Frist Entities),
a group we collectively refer to as the Investors,
and by members of management and certain other investors. We
refer to the merger, the financing transactions related to the
merger and other related transactions collectively as the
Recapitalization.
Since the Recapitalization, we have achieved substantial
operational and financial progress. During this time, we have
made significant investments in expanding our service lines and
expanding our alignment with highly specialized and primary care
physicians. In addition, we have enhanced our operating
efficiencies through a number of corporate cost-saving
initiatives and an expansion of our support infrastructure. We
have made investments in information technology to optimize our
facilities and systems. We have also undertaken a number of
initiatives to improve clinical quality and patient
satisfaction. As a result of these initiatives, our financial
performance has improved significantly from the year ended
December 31, 2007, the first full year following the
Recapitalization, to the year ended December 31, 2010, with
revenues growing by
57
$3.825 billion, net income attributable to HCA Holdings,
Inc. increasing by $333 million and Adjusted EBITDA
increasing by $1.276 billion. This represents compounded
annual growth rates on these key metrics of 4.5%, 11.4% and
8.5%, respectively.
Our
Industry
We believe well-capitalized, comprehensive and integrated health
care delivery providers are well-positioned to benefit from the
current industry trends, some of which include:
Aging Population and Continued Growth in the Need for Health
Care Services. According to the U.S. Census
Bureau, the demographic age group of persons aged 65 and over is
expected to experience compounded annual growth of 3.0% over the
next 20 years, and constitute 19.3% of the total
U.S. population by 2030. CMS projects continued increases
in hospital services based on the aging of the
U.S. population, advances in medical procedures, expansion
of health coverage, increasing consumer demand for expanded
medical services and increased prevalence of chronic conditions
such as diabetes, heart disease and obesity. We believe these
factors will continue to drive increased utilization of health
care services and the need for comprehensive, integrated
hospital networks that can provide a wide array of essential and
sophisticated health care.
Continued Evolution of Quality-Based Reimbursement Favors
Large-Scale, Comprehensive and Integrated
Providers. We believe the U.S. health care
system is continuing to evolve in ways that favor large-scale,
comprehensive and integrated providers that provide high levels
of quality care. Specifically, we believe there are a number of
initiatives that will continue to gain importance in the
foreseeable future, including: introduction of value-based
payment methodologies tied to performance, quality and
coordination of care, implementation of integrated electronic
health records and information, and an increasing ability for
patients and consumers to make choices about all aspects of
health care. We believe our company is well positioned to
respond to these emerging trends and has the resources,
expertise and flexibility necessary to adapt in a timely manner
to the changing health care regulatory and reimbursement
environment.
Impact of Health Reform Law. The Health Reform
Law will change how health care services are covered, delivered
and reimbursed. It will do so through expanded coverage of
uninsured individuals, significant reductions in the growth of
Medicare program payments, material decreases in Medicare and
Medicaid DSH payments, and the establishment of programs where
reimbursement is tied in part to quality and integration. The
Health Reform Law, as enacted, is expected to expand health
insurance coverage to approximately 32 to 34 million additional
individuals through a combination of public program expansion
and private sector health insurance reforms. We believe the
expansion of private sector and Medicaid coverage will, over
time, increase our reimbursement related to providing services
to individuals who were previously uninsured. On the other hand,
the reductions in the growth in Medicare payments and the
decreases in DSH payments will adversely affect our government
reimbursement. Because of the many variables involved, including
pending court challenges, the potential for changes to the law
as a result and efforts to amend or repeal the law, we are
unable to predict the net impact of the Health Reform Law on us;
however, we believe our experienced management team, emphasis on
quality care and diverse service offerings will enable us to
capitalize on the opportunities presented by the Health Reform
Law, as well as adapt in a timely manner to its challenges.
Our
Competitive Strengths
We believe our key competitive strengths include:
Largest Comprehensive, Integrated Health Care Delivery
System. We are the largest
non-governmental
hospital operator in the U.S., providing approximately 4% to 5%
of all U.S. hospital services through our national
footprint. The scope and scale of our operations, evidenced by
the types of facilities we operate, the diverse medical
specialties we offer and the numerous patient care access points
we provide, enable us to provide a comprehensive range of health
care services in a cost-effective manner. As a result, we
believe the breadth of our platform is a competitive advantage
in the marketplace enabling us to attract patients,
58
physicians and clinical staff while also providing significant
economies of scale and increasing our relevance with commercial
payers.
Reputation for High Quality Patient-Centered
Care. Since our founding, we have maintained an
unwavering focus on patients and clinical outcomes. We believe
clinical quality influences physician and patient choices about
health care delivery. We align our quality initiatives
throughout the organization by engaging corporate, local,
physician and nurse leaders to share best practices and develop
standards for delivering high quality care. We have invested
extensively in quality of care initiatives, with an emphasis on
implementing information technology and adopting industry-wide
best practices and clinical protocols. As a result of these
efforts, we have achieved significant progress in clinical
quality. As measured by the CMS clinical core measures reported
on the CMS Hospital Compare website and based on publicly
available data for the twelve months ended March 31, 2010,
our hospitals achieved a composite score of 98.4% of the CMS
core measures versus the national average of 95.3%, making us
among the top performing major health systems in the U.S. In
addition, as required by the Health Reform Law, CMS will
establish a value-based purchasing system and will adjust
hospital payment rates based on
hospital-acquired
conditions and hospital readmissions. We also believe our
quality initiatives favorably position us in a payment
environment that is increasingly performance-based.
Leading Local Market Positions in Large, Growing, Urban
Markets. Over our history, we have sought to
selectively expand and upgrade our asset base to create a
premium portfolio of assets in attractive growing markets. As a
result, we have a strong market presence in 14 of the top 25
fastest growing markets with populations greater than 500,000 in
the U.S. We currently operate in 29 markets, 17 of which
have populations of 1 million or more, with all but one of
these markets projecting growth above the national average from
2009 to 2014. Our inpatient market share places us first or
second in many of our key markets. We believe the strength and
stability of these market positions will create organic growth
opportunities and allow us to develop long-term relationships
with patients, physicians, large employers and third-party
payers.
Diversified Revenue Base and Payer Mix. We
believe our broad geographic footprint, varied service lines and
diverse revenue base mitigate our risks in numerous ways. Our
diversification limits our exposure to competitive dynamics and
economic conditions in any single local market, reimbursement
changes in specific service lines and disruptions with respect
to payers such as state Medicaid programs or large commercial
insurers. We have a diverse portfolio of assets with no single
facility contributing more than 2.3% of our revenues and no
single metropolitan statistical area contributing more than 8.0%
of revenues for the year ended December 31, 2010. We have
also developed a highly diversified payer base, including
approximately 3,000 managed care contracts, with no single
commercial payer representing more than 8% of revenues for the
year ended December 31, 2010. In addition, we are one of
the countrys largest providers of outpatient services,
which accounted for approximately 38% of our revenues for the
year ended December 31, 2010. We believe the geographic
diversity of our markets and the scope of our inpatient and
outpatient operations help reduce volatility in our operating
results.
Scale and Infrastructure Drive Cost Savings and
Efficiencies. Our scale allows us to leverage our
support infrastructure to achieve significant cost savings and
operating efficiencies, thereby driving margin expansion. We
strategically manage our supply chain through centralized
purchasing and supply warehouses, as well as our revenue cycle
through centralized billing, collections and health information
management functions. We also manage the provision of
information technology through a combination of centralized
systems with regional service support as well as centralize many
other clinical and corporate functions, creating economies of
scale in managing expenses and business processes. In addition
to the cost savings and operating efficiencies, this support
infrastructure simultaneously generates revenue from third
parties that utilize our services.
Well-Capitalized Portfolio of High Quality
Assets. In order to expand the range and improve
the quality of services provided at our facilities, we invested
over $7.5 billion in our facilities and information
technology systems over the five-year period ended
December 31, 2010. We believe our significant capital
investments in these areas will continue to attract new and
returning patients, attract and retain high-quality physicians,
maximize cost efficiencies and address the health care needs of
our local communities. Furthermore, we
59
believe our platform, as well as electronic health record
infrastructure, national research and physician management
capabilities, provide a strategic advantage by enhancing our
ability to capitalize on anticipated incentives through the
HITECH provisions of ARRA and position us well in an environment
that increasingly emphasizes quality, transparency and
coordination of care.
Strong Operating Results and Cash Flows. Our
leading scale, diversification, favorable market positions,
dedication to clinical quality and focus on operational
efficiency have enabled us to achieve attractive historical
financial performance even during the most recent economic
period. In the year ended December 31, 2010, we generated
net income attributable to HCA Holdings, Inc. of
$1.207 billion, Adjusted EBITDA of $5.868 billion and
cash flows from operating activities of $3.085 billion. Our
ability to generate strong and consistent cash flow from
operations has enabled us to invest in our operations, reduce
our debt, enhance earnings per share and continue to pursue
attractive growth opportunities.
Proven and Experienced Management Team. We
believe the extensive experience and depth of our management
team are a distinct competitive advantage in the complicated and
evolving industry in which we compete. Our CEO and Chairman of
the Board of Directors, Richard M. Bracken, began his career
with our company over 29 years ago and has held various
executive positions with us over that period, including, most
recently, as our President and Chief Operating Officer. Our
President, Chief Financial Officer and Director, R. Milton
Johnson, joined our company over 28 years ago and has held
various positions in our financial operations since that time.
Our six Group Presidents average approximately 20 years of
experience with our company. Members of our senior management
hold significant equity interests in our company, further
aligning their long-term interests with those of our
stockholders.
Our
Growth Strategy
We are committed to providing the communities we serve with high
quality, cost-effective health care while growing our business,
increasing our profitability and creating long-term value for
our stockholders. To achieve these objectives, we align our
efforts around the following growth agenda:
Grow Our Presence in Existing Markets. We
believe we are well positioned in a number of large and growing
markets that will allow us the opportunity to generate
long-term, attractive growth through the expansion of our
presence in these markets. We plan to continue recruiting and
strategically collaborating with the physician community and
adding attractive service lines such as cardiology, emergency
services, oncology and womens services. Additional
components of our growth strategy include expanding our
footprint through developing various outpatient access points,
including surgery centers, rural outreach, freestanding
emergency departments and walk-in clinics. Since our
Recapitalization, we have invested significant capital into
these markets and expect to continue to see the benefit of this
investment.
Achieve Industry-Leading Performance in Clinical and
Satisfaction Measures. Achieving high levels of
patient safety, patient satisfaction and clinical quality are
central goals of our business model. To achieve these goals, we
have implemented a number of initiatives including infection
reduction initiatives, hospitalist programs, advanced health
information technology and evidence-based medicine programs. We
routinely analyze operational practices from our best-performing
hospitals to identify ways to implement organization-wide
performance improvements and reduce clinical variation. We
believe these initiatives will continue to improve patient care,
help us achieve cost efficiencies, grow our revenues and
favorably position us in an environment where our constituents
are increasingly focused on quality, efficacy and efficiency.
Recruit and Employ Physicians to Meet Need for High Quality
Health Services. We depend on the quality and
dedication of the health care providers and other team members
who serve at our facilities. We believe a critical component of
our growth strategy is our ability to successfully recruit and
strategically collaborate with physicians and other
professionals to provide high quality care. We attract and
retain physicians by providing high quality, convenient
facilities with advanced technology, by expanding our specialty
services and by building our outpatient operations. We believe
our continued investment in the employment, recruitment and
retention of physicians will improve the quality of care at our
facilities.
60
Continue to Leverage Our Scale and Market Positions to
Enhance Profitability. We believe there is
significant opportunity to continue to grow the profitability of
our company by fully leveraging the scale and scope of our
franchise. We are currently pursuing next generation performance
improvement initiatives such as contracting for services on a
multistate basis and expanding our support infrastructure for
additional clinical and support functions, such as physician
credentialing, medical transcription and electronic medical
recordkeeping. We believe our centrally managed business
processes and ability to leverage cost-saving practices across
our extensive network will enable us to continue to manage costs
effectively. We are in the process of creating a subsidiary that
will leverage key components of our support infrastructure,
including revenue cycle management, health care group
purchasing, supply chain management and staffing functions, by
offering these services to other hospital companies.
Selectively Pursue a Disciplined Development
Strategy. We continue to believe there are
significant growth opportunities in our markets. We will
continue to provide financial and operational resources to
successfully execute on our in-market opportunities. To
complement our in-market growth agenda, we intend to focus on
selectively developing and acquiring new hospitals, outpatient
facilities and other health care service providers. We believe
the challenges faced by the hospital industry may spur
consolidation and we believe our size, scale, national presence
and access to capital will position us well to participate in
any such consolidation. We have a strong record of successfully
acquiring and integrating hospitals and entering into joint
ventures and intend to continue leveraging this experience.
Business
Drivers and Measures
Our
Financial Policies and Objectives
We seek to optimize our financial and operating performance by
implementing the business strategy set forth under
Business Our Growth Strategy. Our
success in implementing this strategy depends, in turn, on our
ability to fulfill our financial policies and objectives, which
include the following:
|
|
|
|
|
Operations: We plan to focus on our core
operations: the provision of high quality, cost-effective health
care in large, high growth urban communities, primarily in the
southern and western regions of the United States. Our specific
policies designed to maintain this focus include:
|
|
|
|
|
|
using investments in new and expanded services to drive use of
our facilities;
|
|
|
|
seeking rate increases from managed care payers commensurate
with increases in our underlying costs to provide high quality
services;
|
|
|
|
managing operating expenses by, among other methods, leveraging
our scale;
|
|
|
|
seeking cost savings by reducing variations in our patient care
and support processes and reducing our discretionary operating
expenses; and
|
|
|
|
considering divesting non-core assets, where appropriate.
|
|
|
|
|
|
Leverage: We expect to have significant
indebtedness for the foreseeable future. However, we expect to:
|
|
|
|
|
|
manage our floating interest rate exposure through our
$7.1 billion aggregate notional amount of pay-fixed rate
swap agreements related to our senior secured credit facilities
debt at December 31, 2010; and
|
|
|
|
endeavor to improve our credit quality over time.
|
|
|
|
|
|
Capital Expenditures: We plan to maintain a
disciplined capital expenditure approach by:
|
|
|
|
|
|
targeting new investments with potentially high returns;
|
61
|
|
|
|
|
deploying capital strategically to improve our competitive
position and market share and to enhance our operations; and
|
|
|
|
managing discretionary capital expenditures based on the
strength of our cash flows.
|
Operational
Factors
In pursuing our business and our financial policies and
objectives, we pay close attention to a number of performance
measures and operational factors.
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 charges and negotiated payment rates for such services.
Our expenses depend upon the levels of salaries and benefits
paid to our employees, the cost of supplies and the costs of
other operating expenses. To monitor these variables, we use a
variety of metrics, including those described below.
|
|
|
|
|
admissions, which is the total number of patients admitted to
our hospitals and which we use as a measure of inpatient volume;
|
|
|
|
equivalent admissions, which is a measure of patient volume that
takes into account both inpatient and outpatient volume;
|
|
|
|
the payer mix of our admissions, i.e., the percentage of our
admissions related to Medicare, Medicaid, managed Medicare,
managed Medicaid, managed care and other insurers, and uninsured
patients;
|
|
|
|
emergency room visits;
|
|
|
|
inpatient and outpatient surgeries; and
|
|
|
|
the average daily census of patients in our hospital beds.
|
|
|
|
|
|
revenue per equivalent admission; and
|
|
|
|
revenue, minus our provision for doubtful accounts, per
equivalent admission.
|
|
|
|
|
|
salaries and benefits per equivalent admission;
|
|
|
|
supply costs per equivalent admission;
|
|
|
|
other operating expenses (including contract services,
professional fees, repairs and maintenance, rents and leases,
utilities, insurance and nonincome taxes) per equivalent
admission; and
|
|
|
|
operating expenses, minus our provision for doubtful accounts,
per equivalent admission.
|
We set forth the volume measures described above, except for
payer mix, for the years ended December 31, 2010, 2009,
2008, 2007 and 2006 under the heading Operating Data
in Selected Financial Data. We give details about
the payer mix for the years ended December 31, 2010, 2009
and 2008 in Managements Discussion and Analysis of
Financial Condition and Results of Operations Results of
Operations Revenue/Volume Trends.
The pricing and expense measures described above can be derived
by dividing (1) the amounts from the applicable line items
in our income statement (minus our provision for doubtful
accounts, where indicated) by (2) equivalent admissions,
which are set forth under the heading Operating Data
in Selected Financial Data.
62
Business
Segments
Our company operations were structured in three geographically
organized groups at December 31, 2010:
|
|
|
|
|
Western Group. The Western Group was comprised
of the markets in Alaska, California, Colorado, Idaho, Kansas
(south central portion), Nevada, Oklahoma, Texas and Utah. As of
December 31, 2010, there were 56 consolidating
hospitals within the Western Group. The Western Group includes
seven of our non-consolidating hospitals, with respect to which
major strategic and operating decisions are shared equally with
non-HCA partners. For the year ended December 31, 2010, the
Western Group generated revenues of $13.467 billion.
|
|
|
|
Central Group. The Central Group was comprised
of the markets in Indiana, Georgia (northern portion), Kansas
(eastern portion), Kentucky, Louisiana, Mississippi, Missouri,
New Hampshire, Tennessee and Virginia. As of December 31,
2010, there were 46 consolidating hospitals within the
Central Group. The Central Group includes one of our
non-consolidating hospitals, with respect to which major
strategic and operating decisions are shared equally with
non-HCA partners. For the year ended December 31, 2010, the
Central Group generated revenues of $7.222 billion.
|
|
|
|
Eastern Group. The Eastern Group was comprised
of the markets in Florida, Georgia (southern portion) and South
Carolina. As of December 31, 2010, there were 48
consolidating hospitals within the Eastern Group. For the year
ended December 31, 2010, the Eastern Group generated
revenues of $9.006 billion.
|
We also owned and operated six hospitals in England as of
December 31, 2010, which are included in our Corporate and
other group. These international facilities generated revenues
of $792 million for the year ended December 31, 2010.
Our divisions and market structures are designed to augment our
market-based strategy to provide integrated services to their
respective community. This structure allows our management to
focus on manageable groupings of hospitals and provide them with
direct support.
Note 14 to our consolidated financial statements contains
information by segment on our revenues, equity in earnings of
affiliates, adjusted segment EBITDA and depreciation and
amortization for the years ended December 31, 2010, 2009
and 2008.
On February 11, 2011, we announced an internal
reorganization, which includes the creation of a new subsidiary
to provide business services to other health care companies, a
new structuring of provider operations and a further integration
of clinical quality performance with physician practice services.
Health
Care Facilities
We currently own, manage or operate hospitals; freestanding
surgery centers; diagnostic and imaging centers; radiation and
oncology therapy centers; comprehensive rehabilitation and
physical therapy centers; and various other facilities.
At December 31, 2010, we owned and operated 151 general,
acute care hospitals with 38,321 licensed beds, and an
additional seven general, acute care hospitals with 2,269
licensed beds are operated through joint ventures, which are
accounted for using the equity method. Most of our general,
acute care hospitals provide medical and surgical services,
including inpatient care, intensive care, cardiac care,
diagnostic services and emergency services. The general, acute
care hospitals also provide outpatient services such as
outpatient surgery, laboratory, radiology, respiratory therapy,
cardiology and physical therapy. Each hospital has an organized
medical staff and a local board of trustees or governing board,
made up of members of the local community.
Our hospitals do not typically engage in extensive medical
research and education programs. However, some of our hospitals
are affiliated with medical schools and may participate in the
clinical rotation of medical interns and residents and other
education programs.
63
At December 31, 2010, we operated five psychiatric
hospitals with 506 licensed beds. Our psychiatric hospitals
provide therapeutic programs including child, adolescent and
adult psychiatric care, adult and adolescent alcohol and drug
abuse treatment and counseling.
We also operate outpatient health care facilities which include
freestanding ambulatory surgery centers (ASCs),
diagnostic and imaging centers, comprehensive outpatient
rehabilitation and physical therapy centers, outpatient
radiation and oncology therapy centers and various other
facilities. These outpatient services are an integral component
of our strategy to develop comprehensive health care networks in
select communities. Most of our ASCs are operated through
partnerships or limited liability companies, with majority
ownership of each partnership or limited liability company
typically held by a general partner or subsidiary that is an
affiliate of HCA.
Certain of our affiliates provide a variety of management
services to our health care facilities, including patient safety
programs; ethics and compliance programs; national supply
contracts; equipment purchasing and leasing contracts;
accounting, financial and clinical systems; governmental
reimbursement assistance; construction planning and
coordination; information technology systems and solutions;
legal counsel; human resources services; and internal audit
services.
Sources
of Revenue
Hospital revenues depend upon inpatient occupancy levels, the
medical and ancillary services ordered by physicians and
provided to patients, the volume of outpatient procedures and
the charges or payment rates for such services. Charges and
reimbursement rates for inpatient services vary significantly
depending on the type of payer, the type of service (e.g.,
medical/surgical, intensive care or psychiatric) and the
geographic location of the hospital. Inpatient occupancy levels
fluctuate for various reasons, many of which are beyond our
control.
We receive payment for patient services from the federal
government under the Medicare program, state governments under
their respective Medicaid or similar programs, managed care
plans, private insurers and directly from patients. The
approximate percentages of our revenues from such sources were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
Managed Medicare
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
Medicaid
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Managed care and other insurers
|
|
|
53
|
|
|
|
52
|
|
|
|
53
|
|
Uninsured
|
|
|
6
|
|
|
|
8
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare is a federal program that provides certain hospital and
medical insurance benefits to persons age 65 and over, some
disabled persons, persons with end-stage renal disease and
persons with Lou Gehrigs Disease. Medicaid is a
federal-state program, administered by the states, which
provides hospital and medical benefits to qualifying individuals
who are unable to afford health care. All of our general, acute
care hospitals located in the United States are certified as
health care services providers for persons covered under
Medicare and Medicaid programs. Amounts received under Medicare
and Medicaid programs are generally significantly less than
established hospital gross charges for the services provided.
Our hospitals generally offer discounts from established charges
to certain group purchasers of health care services, including
private insurance companies, employers, HMOs, PPOs and other
managed care plans. These discount programs generally limit our
ability to increase revenues in response to increasing costs.
See Business Competition. Patients are
generally not responsible for the total difference between
established hospital gross charges and amounts reimbursed for
such services under Medicare, Medicaid, HMOs or PPOs
64
and other managed care plans, but are responsible to the extent
of any exclusions, deductibles or coinsurance features of their
coverage. The amount of such exclusions, deductibles and
coinsurance continues to increase. Collection of amounts due
from individuals is typically more difficult than from
governmental or third-party payers. We provide discounts to
uninsured patients who do not qualify for Medicaid or charity
care under our charity care policy. These discounts are similar
to those provided to many local managed care plans. In
implementing the discount policy, we attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care under our charity care policy. If an
uninsured patient does not qualify for these programs, the
uninsured discount is applied.
Medicare
Inpatient
Acute Care
Under the Medicare program, we receive reimbursement under a
prospective payment system (PPS) for general, acute
care hospital inpatient services. Under the hospital inpatient
PPS, fixed payment amounts per inpatient discharge are
established based on the patients assigned MS-DRG. CMS
completed a two-year transition to full implementation of
MS-DRGs to replace the previously used Medicare diagnosis
related groups in an effort to better recognize severity of
illness in Medicare payment rates. MS-DRGs classify treatments
for illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal
diagnosis. MS-DRG weights represent the average resources for a
given MS-DRG relative to the average resources for all MS-DRGs.
MS-DRG payments are adjusted for area wage differentials.
Hospitals, other than those defined as new, receive
PPS reimbursement for inpatient capital costs based on MS-DRG
weights multiplied by a geographically adjusted federal rate.
When the cost to treat certain patients falls well outside the
normal distribution, providers typically receive additional
outlier payments.
MS-DRG rates are updated and MS-DRG weights are recalibrated
using cost relative weights each federal fiscal year (which
begins October 1). The index used to update the MS-DRG rates
(the market basket) gives consideration to the
inflation experienced by hospitals and entities outside the
health care industry in purchasing goods and services. The
Health Reform Law provides for annual decreases to the market
basket, including a 0.25% reduction in 2010 for discharges
occurring on or after April 1, 2010. The Health Reform Law
also provides for the following reductions to the market basket
update for each of the following federal fiscal years: 0.25% in
2011, 0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in 2015 and 2016
and 0.75% in 2017, 2018 and 2019. For federal fiscal year 2012
and each subsequent federal fiscal year, the Health Reform Law
provides for the annual market basket update to be further
reduced by a productivity adjustment. The amount of that
reduction will be the projected, nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the Bureau of Labor Statistics (BLS)
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. Based upon the latest available data,
federal fiscal year 2012 market basket reductions resulting from
this productivity adjustment are likely to range from 1.0% to
1.4%. CMS estimates that the combined market basket and
productivity adjustments will reduce Medicare payments under the
inpatient PPS by $112.6 billion from 2010 to 2019. A
decrease in payments rates or an increase in rates that is below
the increase in our costs may adversely affect the results of
our operations.
For federal fiscal year 2010, CMS initially set the MS-DRG rate
increase at the full market basket of 2.1%, but CMS reduced the
increase to 1.85% for discharges occurring on or after
April 1, 2010, as required by the Health Reform Law. For
federal fiscal year 2011, CMS increased the MS-DRG rate for
federal fiscal year 2011 by 2.35%, representing the full market
basket of 2.6% minus the 0.25% reduction required by the Health
Reform Law. CMS also applied a documentation and coding
adjustment of negative 2.9% in federal fiscal year 2011 to
account for increases in aggregate payments during
implementation of the MS-DRG system. This reduction represents
half of the documentation and coding adjustment that CMS intends
to implement. CMS plans to recover the remaining 2.9% and
interest in federal fiscal year 2012. The market basket update
and the documentation and coding adjustment together result in
an aggregate market basket adjustment for federal fiscal year
2011 of negative 0.55%. CMS has also announced that an
additional prospective negative adjustment of 3.9% will be
needed to avoid increased Medicare spending unrelated to
65
patient severity of illness. CMS did not implement this
additional 3.9% reduction in federal fiscal year 2011 but has
stated that it will be required in the future.
Further realignments in the MS-DRG system could also reduce the
payments we receive for certain specialties, including
cardiology and orthopedics. CMS has focused on payment levels
for such specialties in recent years in part because of the
proliferation of specialty hospitals. Changes in the payments
received for specialty services could have an adverse effect on
our results of operations.
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA) provides for hospitals to receive
a 2% reduction to their market basket updates if they fail to
submit data for patient care quality indicators to the Secretary
of HHS. As required by the Deficit Reduction Act of 2005
(DRA 2005), CMS has expanded, through a series of
rulemakings, the number of quality measures that must be
reported to avoid the market basket reduction. In federal fiscal
year 2011, CMS requires hospitals to report 55 quality
measures in order to avoid the market basket reduction for
inpatient PPS payments in federal fiscal year 2012. All of our
hospitals paid under the Medicare inpatient PPS are
participating in the quality initiative by submitting the
requested quality data. While we will endeavor to comply with
all data submission requirements as additional requirements
continue to be added, our submissions may not be deemed timely
or sufficient to entitle us to the full market basket adjustment
for all of our hospitals.
As part of CMS goal of transforming Medicare from a
passive payer to an active purchaser of quality goods and
services, for discharges occurring after October 1, 2008,
Medicare no longer assigns an inpatient hospital discharge to a
higher paying MS-DRG if a selected HAC was not present on
admission. In this situation, the case is paid as though the
secondary diagnosis was not present. Currently, there are ten
categories of conditions on the list of HACs. In addition, CMS
has established three National Coverage Determinations that
prohibit Medicare reimbursement for erroneous surgical
procedures performed on an inpatient or outpatient basis. The
Health Reform Law provides for reduced payments based on a
hospitals HAC rates. Beginning in federal fiscal year
2015, the 25% of hospitals with the worst national risk-adjusted
HAC rates in the previous year will receive a 1% reduction in
their total inpatient operating Medicare payments. In addition,
effective July 1, 2011, the Health Reform Law prohibits the
use of federal funds under the Medicaid program to reimburse
providers for medical services provided to treat HACs.
The Health Reform Law also provides for reduced payments to
hospitals based on readmission rates. Beginning in federal
fiscal year 2013, inpatient payments will be reduced if a
hospital experiences excessive readmissions within a
time period specified by HHS from the date of discharge for
heart attack, heart failure, pneumonia or other conditions
designated by HHS. Hospitals with what HHS defines as excessive
readmissions for these conditions will receive reduced payments
for all inpatient discharges, not just discharges relating to
the conditions subject to the excessive readmission standard.
Each hospitals performance will be publicly reported by
HHS. HHS has the discretion to determine what
excessive readmissions means and other terms and
conditions of this program.
The Health Reform Law additionally establishes a value-based
purchasing program to further link payments to quality and
efficiency. In federal fiscal year 2013, HHS is directed to
implement a value-based purchasing program for inpatient
hospital services. Beginning in federal fiscal year 2013, CMS
will reduce the inpatient PPS payment amount for all discharges
by the following: 1% for 2013; 1.25% for 2014; 1.5% for 2015;
1.75% for 2016; and 2% for 2017 and subsequent years. For each
federal fiscal year, the total amount collected from these
reductions will be pooled and used to fund payments to reward
hospitals that meet certain quality performance standards
established by HHS. HHS will determine the quality performance
measures, the standards hospitals must achieve in order to meet
the quality performance measures and the methodology for
calculating payments to hospitals that meet the required quality
threshold. HHS will also determine the amount each hospital that
meets or exceeds the quality performance standards will receive
from the pool of dollars created by the reductions related to
the value-based purchasing program. On January 7, 2011, CMS
issued a proposed rule for the value-based purchasing program
that would use 17 clinical process of care measures and eight
dimensions of a patients experience of care using the
HCAHPS survey to determine incentive payments for federal fiscal
year 2013. As proposed, the incentive payments would be
calculated based on a combination of measures of hospitals
achievement of the performance standards and their
66
improvement in meeting the performance standards compared to
prior periods. To determine payments in federal fiscal year
2013, the baseline performance period (measurement standard) as
proposed would be July 1, 2009 through March 31, 2010.
To determine whether hospitals meet performance standards, CMS
would compare each hospitals performance in the period
July 1, 2011 through March 31, 2012 to its performance
in the baseline performance period. CMS has not yet proposed
specific threshold values for the performance standards. CMS
also proposes to add three outcome measures for federal fiscal
year 2014, for which the performance period would be
July 1, 2011 through December 31, 2012 and the
baseline performance period would be July 1, 2008 through
December 31, 2009.
Historically, the Medicare program has set aside 5.10% of
Medicare inpatient payments to pay for outlier cases. For
federal fiscal year 2010, CMS established an outlier threshold
of $23,140, and for federal fiscal year 2011, CMS reduced the
outlier threshold to $23,075. We do not anticipate that the
decrease to the outlier threshold for federal fiscal year 2011
will have a material impact on our results of operations.
Outpatient
CMS reimburses hospital outpatient services (and certain
Medicare Part B services furnished to hospital inpatients
who have no Part A coverage) on a PPS basis. CMS uses fee
schedules to pay for physical, occupational and speech
therapies, durable medical equipment, clinical diagnostic
laboratory services and nonimplantable orthotics and
prosthetics, freestanding surgery centers services and services
provided by independent diagnostic testing facilities.
Hospital outpatient services paid under PPS are classified into
groups called ambulatory payment classifications
(APCs). Services for each APC are similar clinically
and in terms of the resources they require. A payment rate is
established for each APC. Depending on the services provided, a
hospital may be paid for more than one APC for a patient visit.
The APC payment rates were updated for calendar years 2008 and
2009 by market baskets of 3.30% and 3.60%, respectively. CMS
updated payment rates for calendar year 2010 by the full market
basket of 2.1%. However, the Health Reform Law includes a 0.25%
reduction to the market basket for 2010. The Health Reform Law
also provides for the following reductions to the market basket
update for each of the following calendar years: 0.25% in 2011,
0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in 2015 and 2016 and
0.75% in 2017, 2018 and 2019. For calendar year 2011, CMS
implemented a market basket update of 2.6%. With the 0.25%
reduction required by the Health Reform Law, this update results
in a market basket increase of 2.35%. For calendar year 2012 and
each subsequent calendar year, the Health Reform Law provides
for an annual market basket update to be further reduced by a
productivity adjustment. The amount of that reduction will be
the projected, nationwide productivity gains over the preceding
10 years. To determine the projection, HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the outpatient PPS by $26.3 billion from
2010 to 2019. CMS continues to require hospitals to submit
quality data relating to outpatient care to avoid receiving a 2%
reduction to the market basket update under the outpatient PPS.
CMS required hospitals to report data on 11 quality measures in
calendar year 2010 for the payment determination in calendar
year 2011 and requires hospitals to report 15 quality measures
in calendar year 2011 to avoid reduced payments in calendar year
2012.
Rehabilitation
CMS reimburses inpatient rehabilitation facilities
(IRFs) on a PPS basis. Under IRF PPS, patients are
classified into case mix groups based upon impairment, age,
comorbidities (additional diseases or disorders from which the
patient suffers) and functional capability. IRFs are paid a
predetermined amount per discharge that reflects the
patients case mix group and is adjusted for area wage
levels, low-income patients, rural areas and high-cost outliers.
CMS provided for a market basket update of 2.5% for federal
fiscal year 2010. However, the Health Reform Law requires a
0.25% reduction to the market basket for 2010 for discharges
occurring on or after April 1, 2010. The Health Reform Law
also provides for the following reductions to the market basket
update for each of the following federal fiscal years: 0.25% in
2011, 0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in 2015 and 2016
and 0.75% in 2017, 2018 and 2019. For federal fiscal year 2011,
CMS implemented a market basket update of 2.5%. With the 0.25%
reduction required by the Health Reform Law, this update results
in a market basket increase of 2.25% for
67
federal fiscal year 2011. For federal fiscal year 2012 and each
subsequent federal fiscal year, the Health Reform Law provides
for the annual market basket update to be further reduced by a
productivity adjustment. The amount of that reduction will be
the projected, nationwide productivity gains over the preceding
10 years. To determine the projection, HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the IRF PPS by $5.7 billion from 2010 to
2019. Beginning in federal fiscal year 2014, IRFs will be
required to report quality measures to CMS or will receive a two
percentage point reduction to the market basket update. As of
December 31, 2010, we had one rehabilitation hospital,
which is operated through a joint venture, and 43 hospital
rehabilitation units.
On May 7, 2004, CMS published a final rule to change the
criteria for being classified as an IRF. Pursuant to that final
rule, 75% of a facilitys inpatients over a given year had
to have been treated for at least one of 10 specified
conditions, and a subsequent regulation expanded the number of
specified conditions to 13. Since then, several statutory and
regulatory adjustments have been made to the rule, including
adjustments to the percentage of a facilitys patients that
must be treated for one of the 13 specified conditions.
Currently, the compliance threshold is set by statute at 60%.
Implementation of this 60% threshold has reduced our IRF
admissions and can be expected to continue to restrict the
treatment of patients whose medical conditions do not meet any
of the 13 approved conditions. In addition, effective
January 1, 2010, IRFs must meet additional coverage
criteria, including patient selection and care requirements
relating to pre-admission screenings, post-admission
evaluations, ongoing coordination of care and involvement of
rehabilitation physicians. A facility that fails to meet the 60%
threshold or other criteria to be classified as an IRF will be
paid under the acute care hospital inpatient or outpatient PPS,
which generally provide for lower payment amounts.
Psychiatric
Inpatient hospital services furnished in psychiatric hospitals
and psychiatric units of general, acute care hospitals and
critical access hospitals are reimbursed under a prospective
payment system (IPF PPS), a per diem payment, with
adjustments to account for certain patient and facility
characteristics. IPF PPS contains an outlier policy
for extraordinarily costly cases and an adjustment to a
facilitys base payment if it maintains a full-service
emergency department. CMS has established the IPF PPS payment
rate in a manner intended to be budget neutral and has adopted a
July 1 update cycle, with each twelve month period referred to
as a rate year. CMS issued a proposed rule that
includes changing the IPF PPS from the rate year update cycle to
a fiscal year schedule. If implemented as proposed, the rates
for 2012 would be effective from July 1, 2011 through
September 30, 2012, with future updates coinciding with the
federal fiscal year (from October 1 through September 30). The
rehabilitation, psychiatric and long-term care (RPL)
market basket update is used to update the IPF PPS. The annual
RPL market basket update for rate year 2010 was 2.1%, and the
annual RPL market basket update for rate year 2011 is 2.4%.
However, the Health Reform Law includes a 0.25% reduction to the
market basket for rate year 2010 and again in 2011. The Health
Reform Law also provides for the following reductions to the
market basket update for rate years that begin in the following
calendar years: 0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in
2015 and 2016 and 0.75% in 2017, 2018 and 2019. For rate year
2012 and each subsequent rate year, the Health Reform Law
provides for the annual market basket update to be further
reduced by a productivity adjustment. The amount of that
reduction will be the projected, nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the IPF PPS by $4.3 billion from 2010 to 2019. In
a proposed rule, CMS proposes a market basket update of 3.0% for
rate year 2012. If implemented as proposed, and with the 0.25%
reduction required by the Health Reform Law, this would result
in a market basket update of 2.75%. As of December 31,
2010, we had five psychiatric hospitals and 35 hospital
psychiatric units.
Ambulatory
Surgery Centers
CMS reimburses ASCs using a predetermined fee schedule.
Reimbursements for ASC overhead costs are limited to no more
than the overhead costs paid to hospital outpatient departments
under the Medicare hospital
68
outpatient PPS for the same procedure. Effective January 1,
2008, ASC payment groups increased from nine clinically
disparate payment groups to an extensive list of covered
surgical procedures among the APCs used under the outpatient PPS
for these surgical services. Because the new payment system has
a significant impact on payments for certain procedures, for
services previously in the nine payment groups, CMS has
established a four-year transition period for implementing the
required payment rates. Moreover, if CMS determines that a
procedure is commonly performed in a physicians office,
the ASC reimbursement for that procedure is limited to the
reimbursement allowable under the Medicare Part B Physician
Fee Schedule, with limited exceptions. In addition, all surgical
procedures, other than those that pose a significant safety risk
or generally require an overnight stay, are payable as ASC
procedures. As a result, more Medicare procedures now performed
in hospitals may be moved to ASCs, reducing surgical volume in
our hospitals. Also, more Medicare procedures now performed in
ASCs may be moved to physicians offices. Commercial
third-party payers may adopt similar policies. The Health Reform
Law requires HHS to issue a plan by January 1, 2011 for
developing a value-based purchasing program for ASCs, but HHS
has not yet publicly issued this plan. Such a program may
further impact Medicare reimbursement of ASCs or increase our
operating costs in order to satisfy the value-based standards.
For federal fiscal year 2011 and each subsequent federal fiscal
year, the Health Reform Law provides for the annual market
basket update to be reduced by a productivity adjustment. The
amount of that reduction will be the projected nationwide
productivity gains over the preceding 10 years. To
determine the projection, HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old).
Physician
Services
Physician services are reimbursed under the physician fee
schedule (PFS) system, under which CMS has assigned
a national relative value unit (RVU) to most medical
procedures and services that reflects the various resources
required by a physician to provide the services relative to all
other services. Each RVU is calculated based on a combination
of work required in terms of time and intensity of effort for
the service, practice expense (overhead) attributable to the
service and malpractice insurance expense attributable to the
service. These three elements are each modified by a geographic
adjustment factor to account for local practice costs then
aggregated. The aggregated amount is multiplied by a conversion
factor that accounts for inflation and targeted growth in
Medicare expenditures (as calculated by the SGR) to arrive at
the payment amount for each service. While RVUs for various
services may change in a given year, any alterations are
required by statute to be virtually budget neutral, such that
total payments made under the PFS may not differ by more than
$20 million from what payments would have been if adjustments
were not made.
The PFS rates are adjusted each year, and reductions in both
current and future payments are anticipated. The SGR formula,
if implemented as mandated by statute, would result in
significant reductions to payments under the PFS. Since 2003,
the U.S. Congress has passed multiple legislative acts
delaying application of the SGR to the PFS. For calendar year
2011, CMS issued a final rule that would have applied the SGR
and resulted in an aggregate reduction of 24.9% to all physician
payments under the PFS for federal fiscal year 2011. On
December 15, 2010, President Obama signed legislation
delaying application of the SGR until January 1, 2012. We
cannot predict whether the U.S. Congress will intervene to
prevent this reduction to payments in the future.
Other
Under PPS, the payment rates are adjusted for the area
differences in wage levels by a factor (wage index)
reflecting the relative wage level in the geographic area
compared to the national average wage level. Beginning in
federal fiscal year 2007, CMS adjusted 100% of the wage index
factor for occupational mix. The redistributive impact of wage
index changes, while slightly negative in the aggregate, is not
anticipated to have a material financial impact for 2011.
However, the Health Reform Law requires HHS to report to
Congress by December 31, 2011 with recommendations on how
to comprehensively reform the Medicare wage index system.
As required by the MMA, CMS is implementing contractor reform
whereby CMS has competitively bid the Medicare fiscal
intermediary and Medicare carrier functions to 15 Medicare
Administrative Contractors (MACs), which are
geographically assigned and service both Part A and
Part B providers within a given
69
jurisdiction. Although CMS has awarded initial contracts to all
15 MAC jurisdictions, full transition to the MAC jurisdictions
has been delayed due to CMS resoliciting some bids and
implementing other corrective actions in response to filed
protests. While chain providers had the option of having all
hospitals use one home office MAC, HCA chose to use the MACs
assigned to the geographic areas in which our hospitals are
located. The individual MAC jurisdictions are in varying phases
of transition. During the transition periods and for a
potentially unforeseen period thereafter, all of these changes
could impact claims processing functions and the resulting cash
flow; however, we are unable to predict the impact at this time.
Under the RAC program, CMS contracts with RACs on a contingency
fee basis to conduct post-payment reviews to detect and correct
improper payments in the fee-for-service Medicare program. The
RAC program was originally limited to certain states, but in
2010, CMS implemented the RAC program on a permanent, nationwide
basis as required by statute.
The U.S. Congress has not permanently addressed the SGR
reductions in physician compensation under the PFS. Any repeal
of the SGR may be offset by reductions in Medicare payments to
other types of providers.
Managed
Medicare
Managed Medicare plans relate to situations where a private
company contracts with CMS to provide members with Medicare
Part A, Part B and Part D benefits. Managed
Medicare plans can be structured as HMOs, PPOs or private
fee-for-service
plans. The Medicare program allows beneficiaries to choose
enrollment in certain managed Medicare plans. In 2003, MMA
increased reimbursement to managed Medicare plans and expanded
Medicare beneficiaries health care options. Since 2003,
the number of beneficiaries choosing to receive their Medicare
benefits through such plans has increased. However, the Medicare
Improvements for Patients and Providers Act of 2008 imposed new
restrictions and implemented focused cuts to certain managed
Medicare plans. In addition, the Health Reform Law reduces, over
a three year period, premium payments to managed Medicare plans
such that CMS managed care per capita premium payments
are, on average, equal to traditional Medicare. The Health
Reform Law also implements fee payment adjustments based on
service benchmarks and quality ratings. The CBO has estimated
that, as a result of these changes, payments to plans will be
reduced by $138 billion between 2010 and 2019, while CMS
has estimated the reduction to be $145 billion. In addition, the
Health Reform Law expands the RAC program to include managed
Medicare plans. In light of the current economic downturn and
the Health Reform Law, managed Medicare plans may experience
reduced premium payments, which may lead to decreased enrollment
in such plans.
Medicaid
Medicaid programs are funded jointly by the federal government
and the states and are administered by states under approved
plans. Most state Medicaid program payments are made under a PPS
or are based on negotiated payment levels with individual
hospitals. Medicaid reimbursement is often less than a
hospitals cost of services. The Health Reform Law also
requires states to expand Medicaid coverage to all individuals
under age 65 with incomes up to 133% of the federal poverty
level (FPL) by 2014. However, the Health Reform Law
also requires states to apply a 5% income disregard
to the Medicaid eligibility standard, so that Medicaid
eligibility will effectively be extended to those with incomes
up to 138% of the FPL. In addition, effective July 1, 2011, the
Health Reform Law will prohibit the use of federal funds under
the Medicaid program to reimburse providers for medical
assistance provided to treat HACs. On February 17, 2011,
CMS published a proposed rule that would require each state
Medicaid program to deny payments to providers for the treatment
of HACs designated by CMS and any additional preventable
conditions that may be designated by the state.
Since most states must operate with balanced budgets and since
the Medicaid program is often the states largest program,
states can be expected to adopt or consider adopting legislation
designed to reduce their Medicaid expenditures. The current
economic downturn has increased the budgetary pressures on most
states, and these budgetary pressures have resulted and likely
will continue to result in decreased spending, or decreased
spending growth, for Medicaid programs in many states. ARRA
allocated approximately $87.0 billion to temporarily
70
increase the share of program costs paid by the federal
government to fund each states Medicaid program. Although
initially scheduled to expire at the end of 2010, Congress has
allocated additional funds to extend this increased federal
funding to states through June 2011. These funds have helped
avoid more extensive program and reimbursement cuts, but the
expiration of the increased federal funding could result in
significant reductions to state Medicaid programs.
Further, as permitted by law, certain states in which we operate
have adopted broad-based provider taxes to fund the non-federal
share of Medicaid programs. Many states have also adopted, or
are considering, legislation designed to reduce coverage, enroll
Medicaid recipients in managed care programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems. Effective March 23, 2010, the
Health Reform Law requires states to at least maintain Medicaid
eligibility standards established prior to the enactment of the
law for adults until January 1, 2014 and for children until
October 1, 2019. However, states with budget deficits may seek a
waiver from this requirement to address eligibility standards
that apply to adults making more than 133% of the FPL.
Through DRA 2005, Congress has expanded the federal
governments involvement in fighting fraud, waste and abuse
in the Medicaid program by creating the Medicaid Integrity
Program. Among other things, DRA 2005 requires CMS to employ
MICs, to perform post-payment audits of Medicaid claims and
identify overpayments. MICs are assigned to five geographic
regions and have commenced audits in states assigned to those
regions. The Health Reform Law increases federal funding for the
MIC program for federal fiscal year 2011 and later years. In
addition to MICs, several other contractors and state Medicaid
agencies have increased their review activities. The Health
Reform Law expands the RAC programs scope to include
Medicaid claims.
Managed
Medicaid
Managed Medicaid programs enable states to contract with one or
more entities for patient enrollment, care management and claims
adjudication. The states usually do not relinquish program
responsibilities for financing, eligibility criteria and core
benefit plan design. We generally contract directly with one of
the designated entities, usually a managed care organization.
The provisions of these programs are state-specific.
Enrollment in managed Medicaid plans has increased in recent
years, as state governments seek to control the cost of Medicaid
programs. However, general economic conditions in the states in
which we operate may require reductions in premium payments to
these plans and may reduce enrollment in these plans.
Electronic
Health Records
ARRA provides for Medicare and Medicaid incentive payments
beginning in federal fiscal year 2011 for eligible hospitals and
calendar year 2011 for eligible professionals that adopt and
meaningfully use certified EHR technology. A total of at least
$20 billion in incentives is being made available through
the Medicare and Medicaid EHR incentive programs to eligible
hospitals and eligible professionals in the adoption of EHRs.
Under the Medicare incentive program, acute care hospitals that
demonstrate meaningful use will receive incentive payments for
up to four fiscal years. The Medicare incentive payment amount
is the product of three factors: (1) an initial amount
comprised of a base amount of $2,000,000 plus $200 for each
acute care inpatient discharge during a payment year, beginning
with a hospitals 1,150th discharge of the year and ending
with a hospitals 23,000th discharge of the year;
(2) the Medicare share, which is the sum of
Medicare Part A and Part C acute care
inpatient-bed-days divided by the product of the total
inpatient-bed-days and a charity care factor; and (3) a
transition factor applicable to the payment year. In order to
maximize their incentive payments, acute care hospitals must
participate in the incentive program by federal fiscal year
2013. Beginning in federal fiscal year 2015, acute care
hospitals that fail to demonstrate meaningful use of certified
EHR technology will receive reduced market basket updates under
inpatient PPS.
Eligible professionals who demonstrate meaningful use are
entitled to incentive payments for up to five payment years in
an amount equal to 75% of their estimated Medicare allowed
charges for covered professional services furnished during the
relevant calendar year, subject to an annual limit. Eligible
71
professionals must participate in the incentive payment program
by calendar year 2012 in order to maximize their incentive
payments and must participate by calendar year 2014 in order to
receive any incentive payments. Beginning in calendar year 2015,
eligible professionals who do not demonstrate meaningful use of
certified EHR technology will face Medicare payment reductions.
The Medicaid EHR incentive program is voluntary for states to
implement. For participating states, the Medicaid EHR incentive
program will provide incentive payments for acute care hospitals
and eligible professionals that meet certain volume percentages
of Medicaid patients as well as childrens hospitals.
Providers may only participate in a single states Medicaid
EHR incentive program. Eligible professionals can only
participate in either the Medicaid incentive program or the
Medicare incentive program and can change this election only one
time. Hospitals may participate in both the Medicare and
Medicaid incentive programs.
To qualify for incentive payments under the Medicaid program,
providers must adopt, implement, upgrade or demonstrate
meaningful use of, certified EHR technology during their first
participation year or successfully demonstrate meaningful use of
certified EHR technology in subsequent participation years.
Payments may be received for up to six participation years. For
hospitals, the aggregate Medicaid EHR incentive amount is the
product of two factors: (1) the overall EHR amount which is
comprised of a base amount of $2,000,000 plus a
discharge-related amount, multiplied by the Medicare share
(which is set at one by statute) multiplied by a transition
factor, and (2) the Medicaid share, which is
the estimated Medicaid inpatient-bed days plus estimated
Medicaid managed care inpatient
bed-days,
divided by the product of the estimated total inpatient
bed-days and
a charity care factor. Under the Medicaid incentive program,
eligible professionals may receive payments based on their EHR
costs, up to total amount of $63,750, or for pediatricians,
$42,500. There is no penalty for hospitals or professionals
under Medicaid for failing to meet EHR meaningful use
requirements.
Accountable
Care Organizations and Pilot Projects
The Health Reform Law requires HHS to establish a Medicare
Shared Savings Program that promotes accountability and
coordination of care through the creation of ACOs, beginning no
later than January 1, 2012. The program will allow
providers (including hospitals), physicians and other designated
professionals and suppliers to form ACOs and voluntarily
work together to invest in infrastructure and redesign delivery
processes to achieve high quality and efficient delivery of
services. The program is intended to produce savings as a result
of improved quality and operational efficiency. ACOs that
achieve quality performance standards established by HHS will be
eligible to share in a portion of the amounts saved by the
Medicare program. HHS has significant discretion to determine
key elements of the program, including what steps providers must
take to be considered an ACO, how to decide if Medicare program
savings have occurred, and what portion of such savings will be
paid to ACOs. In addition, HHS will determine to what degree
hospitals, physicians and other eligible participants will be
able to form and operate an ACO without violating certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute and the Stark Law. The Health Reform Law
does not authorize HHS to waive other laws that may impact the
ability of hospitals and other eligible participants to
participate in ACOs, such as antitrust laws.
The Health Reform Law requires HHS to establish a five-year,
voluntary national bundled payment pilot program for Medicare
services beginning no later than January 1, 2013. Under the
program, providers would agree to receive one payment for
services provided to Medicare patients for certain medical
conditions or episodes of care. HHS will have the discretion to
determine how the program will function. For example, HHS will
determine what medical conditions will be included in the
program and the amount of the payment for each condition. In
addition, the Health Reform Law provides for a five-year bundled
payment pilot program for Medicaid services to begin
January 1, 2012. HHS will select up to eight states to
participate based on the potential to lower costs under the
Medicaid program while improving care. State programs may target
particular categories of beneficiaries, selected diagnoses or
geographic regions of the state. The selected state programs
will provide one payment for both hospital and physician
services provided to Medicaid patients for certain episodes of
inpatient care. For both pilot programs, HHS will determine the
relationship between the programs and restrictions in certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute, the Stark Law and the Health Insurance
Portability and Accountability Act of 1996
72
(HIPAA) privacy, security and transaction standard
requirements. However, the Health Reform Law does not authorize
HHS to waive other laws that may impact the ability of hospitals
and other eligible participants to participate in the pilot
programs, such as antitrust laws.
Disproportionate
Share Hospital Payments
In addition to making payments for services provided directly to
beneficiaries, Medicare makes additional payments to hospitals
that treat a disproportionately large number of low-income
patients (Medicaid and Medicare patients eligible to receive
Supplemental Security Income). DSH payments are determined
annually based on certain statistical information required by
HHS and are calculated as a percentage addition to MS-DRG
payments. The primary method used by a hospital to qualify for
Medicare DSH payments is a complex statutory formula that
results in a DSH percentage that is applied to payments on
MS-DRGs.
Under the Health Reform Law, beginning in federal fiscal year
2014, Medicare DSH payments will be reduced to 25% of the amount
they otherwise would have been absent the law. The remaining 75%
of the amount that would otherwise be paid under Medicare DSH
will be effectively pooled, and this pool will be reduced
further each year by a formula that reflects reductions in the
national level of uninsured who are under 65 years of age. Each
DSH hospital will then be paid, out of the reduced DSH payment
pool, an amount allocated based upon its level of uncompensated
care. It is difficult to predict the full impact of the Medicare
DSH reductions. The CBO estimates $22 billion in reductions
to Medicare DSH payments between 2010 and 2019, while for the
same time period, CMS estimates reimbursement reductions
totaling $50 billion.
Hospitals that provide care to a disproportionately high number
of low-income patients may receive Medicaid DSH payments. The
federal government distributes federal Medicaid DSH funds to
each state based on a statutory formula. The states then
distribute the DSH funding among qualifying hospitals. States
have broad discretion to define which hospitals qualify for
Medicaid DSH payments and the amount of such payments. The
Health Reform Law will reduce funding for the Medicaid DSH
hospital program in federal fiscal years 2014 through 2020 by
the following amounts: 2014 ($500 million); 2015
($600 million); 2016 ($600 million); 2017
($1.8 billion); 2018 ($5 billion); 2019
($5.6 billion); and 2020 ($4 billion). How such cuts
are allocated among the states and how the states allocate these
cuts among providers, have yet to be determined.
TRICARE
TRICARE is the Department of Defenses health care program
for members of the armed forces. For inpatient services, TRICARE
reimburses hospitals based on a DRG system modeled on the
Medicare inpatient PPS. The Department of Defense has also
implemented a PPS for hospital outpatient services furnished to
TRICARE beneficiaries similar to that utilized for services
furnished to Medicare beneficiaries. Because the Medicare
outpatient PPS APC rates have historically been below TRICARE
rates, the adoption of this payment methodology for TRICARE
beneficiaries has reduced our reimbursement; however, TRICARE
outpatient services do not represent a significant portion of
our patient volumes.
Annual
Cost Reports
All hospitals participating in the Medicare, Medicaid and
TRICARE programs, whether paid on a reasonable cost basis or
under a PPS, are required to meet certain financial reporting
requirements. Federal and, where applicable, state regulations
require the submission of annual cost reports covering the
revenues, costs and expenses associated with the services
provided by each hospital to Medicare beneficiaries and Medicaid
recipients.
Annual cost reports required under the Medicare and Medicaid
programs are subject to routine audits, which may result in
adjustments to the amounts ultimately determined to be due to us
under these reimbursement programs. These audits often require
several years to reach the final determination of amounts due to
or from us under these programs. Providers also have rights of
appeal, and it is common to contest issues raised in audits of
cost reports.
73
Managed
Care and Other Discounted Plans
Most of our hospitals offer discounts from established charges
to certain large group purchasers of health care services,
including managed care plans and private insurance companies.
Admissions reimbursed by commercial managed care and other
insurers were 32%, 34% and 35% of our total admissions for the
years ended December 31, 2010, 2009 and 2008, respectively.
Managed care contracts are typically negotiated for terms
between one and three years. While we generally received annual
average yield increases of 5% to 6% from managed care payers
during 2010, there can be no assurance that we will continue to
receive increases in the future. It is not clear what impact, if
any, the increased obligations on managed care payers and other
health plans imposed by the Health Reform Law will have on our
ability to negotiate reimbursement increases.
Uninsured
and Self-Pay Patients
A high percentage of our uninsured patients are initially
admitted through our emergency rooms. For the year ended
December 31, 2010, approximately 82% of our admissions of
uninsured patients occurred through our emergency rooms. EMTALA
requires any hospital that participates in the Medicare program
to conduct an appropriate medical screening examination of every
person who presents to the hospitals emergency room for
treatment and, if the individual is suffering from an emergency
medical condition, to either stabilize that condition or make an
appropriate transfer of the individual to a facility that can
handle the condition. The obligation to screen and stabilize
emergency medical conditions exists regardless of an
individuals ability to pay for treatment. The Health
Reform Law requires health plans to reimburse hospitals for
emergency services provided to enrollees without prior
authorization and without regard to whether a participating
provider contract is in place. Further, as enacted, the Health
Reform Law contains provisions that seek to decrease the number
of uninsured individuals, including requirements and incentives,
which do not become effective until 2014, for individuals to
obtain, and large employers to provide, insurance coverage.
These mandates may reduce the financial impact of screening for
and stabilizing emergency medical conditions. However, many
factors are unknown regarding the impact of the Health Reform
Law, including how many previously uninsured individuals will
obtain coverage as a result of the law or the change, if any, in
the volume of inpatient and outpatient hospital services that
are sought by and provided to previously uninsured individuals
and the payer mix. In addition, it is difficult to predict the
full impact of the Health Reform Law due to the laws
complexity, lack of implementing regulations or interpretive
guidance, gradual and potentially delayed implementation,
pending court challenges and possible amendment or repeal.
We are taking proactive measures to reduce our provision for
doubtful accounts by, among other things: screening all
patients, including the uninsured, through our emergency
screening protocol, to determine the appropriate care setting in
light of their condition, while reducing the potential for bad
debt and increasing up-front collections from patients subject
to co-pay and deductible requirements and uninsured patients.
Hospital
Utilization
We believe that the most important factors relating to the
overall utilization of a hospital are the quality and market
position of the hospital and the number and quality of
physicians and other health care professionals providing patient
care within the facility. Generally, we believe the ability of a
hospital to be a market leader is determined by its breadth of
services, level of technology, emphasis on quality of care and
convenience for patients and physicians. Other factors that
impact utilization include the growth in local population, local
economic conditions and market penetration of managed care
programs.
74
The following table sets forth certain operating statistics for
our health care facilities. Health care facility operations are
subject to certain seasonal fluctuations, including decreases in
patient utilization during holiday periods and increases in the
cold weather months. The data set forth in this table includes
only those facilities that are consolidated for financial
reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Number of hospitals at end of period(a)
|
|
|
156
|
|
|
|
155
|
|
|
|
158
|
|
|
|
161
|
|
|
|
166
|
|
Number of freestanding outpatient surgery centers at end of
period(b)
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
|
|
99
|
|
|
|
98
|
|
Number of licensed beds at end of period(c)
|
|
|
38,827
|
|
|
|
38,839
|
|
|
|
38,504
|
|
|
|
38,405
|
|
|
|
39,354
|
|
Weighted average licensed beds(d)
|
|
|
38,655
|
|
|
|
38,825
|
|
|
|
38,422
|
|
|
|
39,065
|
|
|
|
40,653
|
|
Admissions(e)
|
|
|
1,554,400
|
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
|
|
1,552,700
|
|
|
|
1,610,100
|
|
Equivalent admissions(f)
|
|
|
2,468,400
|
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
|
|
2,352,400
|
|
|
|
2,416,700
|
|
Average length of stay (days)(g)
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Average daily census(h)
|
|
|
20,523
|
|
|
|
20,650
|
|
|
|
20,795
|
|
|
|
21,049
|
|
|
|
21,688
|
|
Occupancy rate(i)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
Emergency room visits(j)
|
|
|
5,706,200
|
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
|
|
5,116,100
|
|
|
|
5,213,500
|
|
Outpatient surgeries(k)
|
|
|
783,600
|
|
|
|
794,600
|
|
|
|
797,400
|
|
|
|
804,900
|
|
|
|
820,900
|
|
Inpatient surgeries(l)
|
|
|
487,100
|
|
|
|
494,500
|
|
|
|
493,100
|
|
|
|
516,500
|
|
|
|
533,100
|
|
|
|
|
(a) |
|
Excludes eight facilities in 2010, 2009, 2008 and 2007 and seven
facilities in 2006 that are not consolidated (accounted for
using the equity method) for financial reporting purposes. |
|
(b) |
|
Excludes nine facilities in 2010, 2007 and 2006 and eight
facilities in 2009 and 2008 that are not consolidated (accounted
for using the equity method) for financial reporting purposes. |
|
(c) |
|
Licensed beds are those beds for which a facility has been
granted approval to operate from the applicable state licensing
agency. |
|
(d) |
|
Represents the average number of licensed beds, weighted based
on periods owned. |
|
(e) |
|
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. |
|
(f) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(g) |
|
Represents the average number of days admitted patients stay in
our hospitals. |
|
(h) |
|
Represents the average number of patients in our hospital beds
each day. |
|
(i) |
|
Represents the percentage of hospital licensed beds occupied by
patients. Both average daily census and occupancy rate provide
measures of the utilization of inpatient rooms. |
|
(j) |
|
Represents the number of patients treated in our emergency rooms. |
|
(k) |
|
Represents the number of surgeries performed on patients who
were not admitted to our hospitals. Pain management and
endoscopy procedures are not included in outpatient surgeries. |
|
(l) |
|
Represents the number of surgeries performed on patients who
have been admitted to our hospitals. Pain management and
endoscopy procedures are not included in inpatient surgeries. |
75
Competition
Generally, other hospitals in the local communities served by
most of our hospitals provide services similar to those offered
by our hospitals. Additionally, in recent years the number of
freestanding ASCs and diagnostic centers (including facilities
owned by physicians) in the geographic areas in which we operate
has increased significantly. As a result, most of our hospitals
operate in a highly competitive environment. In some cases,
competing hospitals are more established than our hospitals.
Some competing hospitals are owned by tax-supported government
agencies and many others are owned by
not-for-profit
entities that may be supported by endowments, charitable
contributions
and/or tax
revenues and are exempt from sales, property and income taxes.
Such exemptions and support are not available to our hospitals.
In certain localities there are large teaching hospitals that
provide highly specialized facilities, equipment and services
which may not be available at most of our hospitals. We face
increasing competition from specialty hospitals, some of which
are physician-owned, and both our own and unaffiliated
freestanding ASCs for market share in high margin services.
Psychiatric hospitals frequently attract patients from areas
outside their immediate locale and, therefore, our psychiatric
hospitals compete with both local and regional hospitals,
including the psychiatric units of general, acute care hospitals.
Our strategies are designed to ensure our hospitals are
competitive. We believe our hospitals compete within local
communities on the basis of many factors, including the quality
of care, ability to attract and retain quality physicians,
skilled clinical personnel and other health care professionals,
location, breadth of services, technology offered and prices
charged. The Health Reform Law requires hospitals to publish
annually a list of their standard charges for items and
services. We have increased our focus on operating outpatient
services with improved accessibility and more convenient service
for patients, and increased predictability and efficiency for
physicians.
Two of the most significant factors to the competitive position
of a hospital are the number and quality of physicians
affiliated with or employed by the hospital. Although physicians
may at any time terminate their relationship with a hospital we
operate, our hospitals seek to retain physicians with varied
specialties on the hospitals medical staffs and to attract
other qualified physicians. We believe physicians refer patients
to a hospital on the basis of the quality and scope of services
it renders to patients and physicians, the quality of physicians
on the medical staff, the location of the hospital and the
quality of the hospitals facilities, equipment and
employees. Accordingly, we strive to maintain and provide
quality facilities, equipment, employees and services for
physicians and patients.
Another major factor in the competitive position of a hospital
is our ability to negotiate service contracts with purchasers of
group health care services. Managed care plans attempt to direct
and control the use of hospital services and obtain discounts
from hospitals established gross charges. In addition,
employers and traditional health insurers continue to attempt to
contain costs through negotiations with hospitals for managed
care programs and discounts from established gross charges.
Generally, hospitals compete for service contracts with group
health care services purchasers on the basis of price, market
reputation, geographic location, quality and range of services,
quality of the medical staff and convenience. Our future success
will depend, in part, on our ability to retain and renew our
managed care contracts and enter into new managed care contracts
on favorable terms. Other health care providers may impact our
ability to enter into managed care contracts or negotiate
increases in our reimbursement and other favorable terms and
conditions. For example, some of our competitors may negotiate
exclusivity provisions with managed care plans or otherwise
restrict the ability of managed care companies to contract with
us. The trend toward consolidation among non-government payers
tends to increase their bargaining power over fee structures. In
addition, as various provisions of the Health Reform Law are
implemented, including the establishment of Exchanges and
limitations on rescissions of coverage and pre-existing
condition exclusions, non-government payers may increasingly
demand reduced fees or be unwilling to negotiate reimbursement
increases. The importance of obtaining contracts with managed
care organizations varies from community to community, depending
on the market strength of such organizations.
76
State CON laws, which place limitations on a hospitals
ability to expand hospital services and facilities, make capital
expenditures and otherwise make changes in operations, may also
have the effect of restricting competition. We currently operate
health care facilities in a number of states with CON laws.
Before issuing a CON, these states consider the need for
additional or expanded health care facilities or services. In
those states which have no CON laws or which set relatively high
levels of expenditures before they become reviewable by state
authorities, competition in the form of new services, facilities
and capital spending is more prevalent. See Regulation and
Other Factors.
We and the health care industry as a whole face the challenge of
continuing to provide quality patient care while dealing with
rising costs and strong competition for patients. Changes in
medical technology, existing and future legislation, regulations
and interpretations and managed care contracting for provider
services by private and government payers remain ongoing
challenges.
Admissions, average lengths of stay and reimbursement amounts
continue to be negatively affected by payer-required
pre-admission authorization, utilization review and payer
pressure to maximize outpatient and alternative health care
delivery services for less acutely ill patients. The Health
Reform Law potentially expands the use of prepayment review by
Medicare contractors by eliminating statutory restrictions on
their use. Increased competition, admission constraints and
payer pressures are expected to continue. To meet these
challenges, we intend to expand our facilities or acquire or
construct new facilities where appropriate, to enhance the
provision of a comprehensive array of outpatient services, offer
market competitive pricing to private payer groups, upgrade
facilities and equipment and offer new or expanded programs and
services.
Environmental
Matters
We are subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the
environment. We do not believe that we will be required to
expend any material amounts in order to comply with these laws
and regulations.
Insurance
As is typical in the health care industry, we are subject to
claims and legal actions by patients in the ordinary course of
business. Subject to a $5 million per occurrence
self-insured retention, our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence. The insurance subsidiary has
obtained reinsurance for professional liability risks generally
above a retention level of $15 million per occurrence. We
also maintain professional liability insurance with unrelated
commercial carriers for losses in excess of amounts insured by
our insurance subsidiary.
We purchase, from unrelated insurance companies, coverage for
directors and officers liability and property loss in amounts we
believe are adequate. The directors and officers liability
coverage includes a $25 million corporate deductible for
the period prior to the Recapitalization and a $1 million
corporate deductible subsequent to the Recapitalization. In
addition, we will continue to purchase coverage for our
directors and officers on an ongoing basis. The property
coverage includes varying deductibles depending on the cause of
the property damage. These deductibles range from $500,000 per
claim up to 5% of the affected property values for certain flood
and wind and earthquake related incidents.
Employees
and Medical Staffs
At December 31, 2010, we had approximately
194,000 employees, including approximately
48,000 part-time employees. References herein to
employees refer to employees of our affiliates. We
are subject to various state and federal laws that regulate
wages, hours, benefits and other terms and conditions relating
to employment. At December 31, 2010, employees at 32 of our
hospitals are represented by various labor unions. It is
possible additional hospitals may unionize in the future. We
consider our employee relations to be good and have not
experienced work stoppages that have materially, adversely
affected our business or results of operations. Our hospitals,
like most hospitals, have experienced labor costs rising faster
than the general inflation rate. In some markets, nurse and
medical support personnel availability has become a significant
operating issue to health care providers. To address this
challenge, we have implemented several initiatives to improve
retention, recruiting, compensation programs and productivity.
77
Our hospitals are staffed by licensed physicians, who generally
are not employees of our hospitals. However, some physicians
provide services in our hospitals under contracts, which
generally describe a term of service, provide and establish the
duties and obligations of such physicians, require the
maintenance of certain performance criteria and fix compensation
for such services. Any licensed physician may apply to be
accepted to the medical staff of any of our hospitals, but the
hospitals medical staff and the appropriate governing
board of the hospital, in accordance with established
credentialing criteria, must approve acceptance to the staff.
Members of the medical staffs of our hospitals often also serve
on the medical staffs of other hospitals and may terminate their
affiliation with one of our hospitals at any time.
We may be required to continue to enhance wages and benefits to
recruit and retain nurses and other medical support personnel or
to hire more expensive temporary or contract personnel. As a
result, our labor costs could increase. We also depend on the
available labor pool of semi-skilled and unskilled employees in
each of the markets in which we operate. Certain proposed
changes in federal labor laws, including the Employee Free
Choice Act, could increase the likelihood of employee
unionization attempts. To the extent a significant portion of
our employee base unionizes, our costs could increase
materially. In addition, the states in which we operate could
adopt mandatory nurse-staffing ratios or could reduce mandatory
nurse-staffing ratios already in place. State-mandated
nurse-staffing ratios could significantly affect labor costs,
and have an adverse impact on revenues if we are required to
limit patient admissions in order to meet the required ratios.
Properties
The following table lists, by state, the number of hospitals
(general, acute care, psychiatric and rehabilitation) directly
or indirectly owned and operated by us as of December 31,
2010:
|
|
|
|
|
|
|
|
|
State
|
|
Hospitals
|
|
|
Beds
|
|
|
Alaska
|
|
|
1
|
|
|
|
250
|
|
California
|
|
|
5
|
|
|
|
1,637
|
|
Colorado
|
|
|
7
|
|
|
|
2,259
|
|
Florida
|
|
|
38
|
|
|
|
9,808
|
|
Georgia
|
|
|
11
|
|
|
|
1,946
|
|
Idaho
|
|
|
2
|
|
|
|
481
|
|
Indiana
|
|
|
1
|
|
|
|
278
|
|
Kansas
|
|
|
4
|
|
|
|
1,286
|
|
Kentucky
|
|
|
2
|
|
|
|
384
|
|
Louisiana
|
|
|
6
|
|
|
|
1,264
|
|
Mississippi
|
|
|
1
|
|
|
|
130
|
|
Missouri
|
|
|
6
|
|
|
|
1,055
|
|
Nevada
|
|
|
3
|
|
|
|
1,074
|
|
New Hampshire
|
|
|
2
|
|
|
|
295
|
|
Oklahoma
|
|
|
2
|
|
|
|
793
|
|
South Carolina
|
|
|
3
|
|
|
|
740
|
|
Tennessee
|
|
|
12
|
|
|
|
2,345
|
|
Texas
|
|
|
36
|
|
|
|
10,410
|
|
Utah
|
|
|
6
|
|
|
|
968
|
|
Virginia
|
|
|
10
|
|
|
|
3,089
|
|
International
|
|
|
|
|
|
|
|
|
England
|
|
|
6
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
41,196
|
|
|
|
|
|
|
|
|
|
|
In addition to the hospitals listed in the above table, we
directly or indirectly operate 106 freestanding surgery centers.
We also operate medical office buildings in conjunction with
some of our hospitals. These office buildings are primarily
occupied by physicians who practice at our hospitals. Fourteen
of our general, acute care hospitals and three of our other
properties have been mortgaged to support our obligations under
our senior secured cash flow credit facility and the first lien
secured notes we issued in 2009 and 2010. These
78
three other properties are also subject to second mortgages to
support our obligations under the second lien secured notes we
issued in 2006 and 2009.
We maintain our headquarters in approximately
1,200,000 square feet of space in the Nashville, Tennessee
area. In addition to the headquarters in Nashville, we maintain
regional service centers related to our shared services
initiatives. These service centers are located in markets in
which we operate hospitals.
We believe our headquarters, hospitals and other facilities are
suitable for their respective uses and are, in general, adequate
for our present needs. Our properties are subject to various
federal, state and local statutes and ordinances regulating
their operation. Management does not believe that compliance
with such statutes and ordinances will materially affect our
financial position or results of operations.
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.
Government
Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by
various governmental agencies. Further, under the federal FCA,
private parties have the right to bring qui tam, or
whistleblower, suits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our
individual facilities have received, and from time to time,
other facilities may receive, government inquiries from, and may
be subject to investigation by, federal and state agencies.
Depending on whether the underlying conduct in these or future
inquiries or investigations could be considered systemic, their
resolution could have a material, adverse effect on our
financial position, results of operations and liquidity.
The Civil Division of the Department of Justice
(DOJ) has contacted us in connection with its
nationwide review of whether, in certain cases, hospital charges
to the federal government relating to implantable
cardio-defibrillators (ICDs) met the CMS criteria.
In connection with this nationwide review, the DOJ has indicated
that it will be reviewing certain ICD billing and medical
records at 95 HCA hospitals; the review covers the period from
October 2003 to the present. The review could potentially give
rise to claims against us under the federal FCA or other
statutes, regulations or laws. At this time, we cannot predict
what effect, if any, this review or any resulting claims could
have on us.
New
Hampshire Hospital Merger Litigation
In 2006, the Foundation for Seacoast Health (the
Foundation) filed suit against HCA in state court in
New Hampshire. The Foundation alleged that both the 2006
Recapitalization transaction and a prior 1999 intra-corporate
transaction violated a 1983 agreement that placed certain
restrictions on transfers of the Portsmouth Regional Hospital.
In May 2007, the trial court ruled against the Foundation on all
its claims. On appeal, the New Hampshire Supreme Court affirmed
the ruling on the Recapitalization, but remanded to the trial
court the claims based on the 1999 intra-corporate transaction.
The trial court ruled in December 2009 that the 1999
intra-corporate transaction breached the transfer restriction
provisions of the 1983 agreement. The court will now conduct
additional proceedings to determine whether any harm has flowed
from the alleged breach, and if so, what the appropriate remedy
should be. The court may consider whether to, among other
things, award monetary damages, rescind or undo the 1999
intra-corporate transfer or give the Foundation a right to
purchase hospital assets at a price to be determined (which the
Foundation asserts should be below the fair market value of the
hospital). The trial for the remedies phase is currently set for
May 2011.
79
General
Liability and Other Claims
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
Managements Discussion and Analysis of Financial
Condition and Results of Operations IRS
Disputes and Note 5 to our 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.
80
REGULATION AND
OTHER FACTORS
Licensure,
Certification and Accreditation
Health care facility construction and operation are subject to
numerous federal, state and local regulations relating to the
adequacy of medical care, equipment, personnel, operating
policies and procedures, maintenance of adequate records, fire
prevention, rate-setting and compliance with building codes and
environmental protection laws. Facilities are subject to
periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary
for licensing and accreditation. We believe our health care
facilities are properly licensed under applicable state laws.
Each of our acute care hospitals are certified for participation
in the Medicare and Medicaid programs and are accredited by The
Joint Commission. If any facility were to lose its Medicare or
Medicaid certification, the facility would be unable to receive
reimbursement from federal health care programs. If any facility
were to lose accreditation by The Joint Commission, the facility
would be subject to state surveys, potentially be subject to
increased scrutiny by CMS and likely lose payment from
non-government payers. Management believes our facilities are in
substantial compliance with current applicable federal, state,
local and independent review body regulations and standards. The
requirements for licensure, certification and accreditation are
subject to change and, in order to remain qualified, it may
become necessary for us to make changes in our facilities,
equipment, personnel and services. The requirements for
licensure also may include notification or approval in the event
of the transfer or change of ownership. Failure to obtain the
necessary state approval in these circumstances can result in
the inability to complete an acquisition or change of ownership.
Certificates
of Need
In some states where we operate hospitals and other health care
facilities, the construction or expansion of health care
facilities, the acquisition of existing facilities, the transfer
or change of ownership and the addition of new beds or services
may be subject to review by and prior approval of state
regulatory agencies under a CON program. Such laws generally
require the reviewing state agency to determine the public need
for additional or expanded health care facilities and services.
Failure to obtain necessary state approval can result in the
inability to expand facilities, complete an acquisition or
change ownership.
State
Rate Review
Some states have adopted legislation mandating rate or budget
review for hospitals or have adopted taxes on hospital revenues,
assessments or licensure fees to fund indigent health care
within the state. In the aggregate, indigent tax provisions have
not materially, adversely affected our results of operations.
Although we do not currently operate facilities in states that
mandate rate or budget reviews, we cannot predict whether we
will operate in such states in the future, or whether the states
in which we currently operate may adopt legislation mandating
such reviews.
Federal
Health Care Program Regulations
Participation in any federal health care program, including the
Medicare and Medicaid programs, is heavily regulated by statute
and regulation. If a hospital fails to substantially comply with
the numerous conditions of participation in the Medicare and
Medicaid programs or performs certain prohibited acts, the
hospitals participation in the federal health care
programs may be terminated, or civil and/or criminal penalties
may be imposed.
Anti-kickback
Statute
A section of the Social Security Act known as the
Anti-kickback Statute prohibits providers and others
from directly or indirectly soliciting, receiving, offering or
paying any remuneration with the intent of generating referrals
or orders for services or items covered by a federal health care
program. Courts have interpreted this statute broadly and held
that there is a violation of the Anti-kickback Statute if just
one purpose of the remuneration is to generate referrals, even
if there are other lawful purposes. Furthermore, the Health
Reform Law provides that knowledge of the law or the intent to
violate the law is not required.
81
Violations of the Anti-kickback Statute may be punished by a
criminal fine of up to $25,000 for each violation or
imprisonment, civil money penalties of up to $50,000 per
violation and damages of up to three times the total amount of
the remuneration
and/or
exclusion from participation in federal health care programs,
including Medicare and Medicaid. The Health Reform Law provides
that submission of a claim for services or items generated in
violation of the Anti-kickback Statute constitutes a false or
fraudulent claim and may be subject to additional penalties
under the federal FCA.
The OIG, among other regulatory agencies, is responsible for
identifying and eliminating fraud, abuse and waste. The OIG
carries out this mission through a nationwide program of audits,
investigations and inspections. As one means of providing
guidance to health care providers, the OIG issues Special
Fraud Alerts. These alerts do not have the force of law,
but identify features of arrangements or transactions that the
government believes may cause the arrangements or transactions
to violate the Anti-kickback Statute or other federal health
care laws. The OIG has identified several incentive arrangements
that constitute suspect practices, including: (a) payment
of any incentive by a hospital each time a physician refers a
patient to the hospital, (b) the use of free or
significantly discounted office space or equipment in facilities
usually located close to the hospital, (c) provision of
free or significantly discounted billing, nursing or other staff
services, (d) free training for a physicians office
staff in areas such as management techniques and laboratory
techniques, (e) guarantees which provide, if the
physicians income fails to reach a predetermined level,
the hospital will pay any portion of the remainder,
(f) low-interest or interest-free loans, or loans which may
be forgiven if a physician refers patients to the hospital,
(g) payment of the costs of a physicians travel and
expenses for conferences, (h) coverage on the
hospitals group health insurance plans at an
inappropriately low cost to the physician, (i) payment for
services (which may include consultations at the hospital) which
require few, if any, substantive duties by the physician,
(j) purchasing goods or services from physicians at prices
in excess of their fair market value, and (k) rental of
space in physician offices, at other than fair market value
terms, by persons or entities to which physicians refer. The OIG
has encouraged persons having information about hospitals who
offer the above types of incentives to physicians to report such
information to the OIG.
The OIG also issues Special Advisory Bulletins as a means of
providing guidance to health care providers. These bulletins,
along with the Special Fraud Alerts, have focused on certain
arrangements that could be subject to heightened scrutiny by
government enforcement authorities, including:
(a) contractual joint venture arrangements and other joint
venture arrangements between those in a position to refer
business, such as physicians, and those providing items or
services for which Medicare or Medicaid pays, and
(b) certain gainsharing arrangements, i.e., the
practice of giving physicians a share of any reduction in a
hospitals costs for patient care attributable in part to
the physicians efforts.
In addition to issuing Special Fraud Alerts and Special Advisory
Bulletins, the OIG issues compliance program guidance for
certain types of health care providers. The OIG guidance
identifies a number of risk areas under federal fraud and abuse
statutes and regulations. These areas of risk include
compensation arrangements with physicians, recruitment
arrangements with physicians and joint venture relationships
with physicians.
As authorized by Congress, the OIG has published safe harbor
regulations that outline categories of activities deemed
protected from prosecution under the Anti-kickback Statute.
Currently, there are statutory exceptions and safe harbors for
various activities, including the following: certain investment
interests, space rental, equipment rental, practitioner
recruitment, personnel services and management contracts, sale
of practice, referral services, warranties, discounts,
employees, group purchasing organizations, waiver of beneficiary
coinsurance and deductible amounts, managed care arrangements,
obstetrical malpractice insurance subsidies, investments in
group practices, freestanding surgery centers, ambulance
replenishing, and referral agreements for specialty services.
The fact that conduct or a business arrangement does not fall
within a safe harbor, or it is identified in a Special Fraud
Alert or Advisory Bulletin or as a risk area in the Supplemental
Compliance Guidelines for Hospitals, does not necessarily render
the conduct or business arrangement illegal under the
Anti-kickback Statute. However, such conduct and business
arrangements may lead to increased scrutiny by government
enforcement authorities.
82
We have a variety of financial relationships with physicians and
others who either refer or influence the referral of patients to
our hospitals and other health care facilities, including
employment contracts, leases, medical director agreements and
professional service agreements. We also have similar
relationships with physicians and facilities to which patients
are referred from our facilities. In addition, we provide
financial incentives, including minimum revenue guarantees, to
recruit physicians into the communities served by our hospitals.
While we endeavor to comply with the applicable safe harbors,
certain of our current arrangements, including joint ventures
and financial relationships with physicians and other referral
sources and persons and entities to which we refer patients, do
not qualify for safe harbor protection.
Although we believe our arrangements with physicians and other
referral sources have been structured to comply with current law
and available interpretations, there can be no assurance
regulatory authorities enforcing these laws will determine these
financial arrangements comply with the Anti-kickback Statute or
other applicable laws. An adverse determination could subject us
to liabilities under the Social Security Act and other laws,
including criminal penalties, civil monetary penalties and
exclusion from participation in Medicare, Medicaid or other
federal health care programs.
Stark
Law
The Social Security Act also includes a provision commonly known
as the Stark Law. The Stark Law prohibits physicians
from referring Medicare and Medicaid patients to entities with
which they or any of their immediate family members have a
financial relationship, if these entities provide certain
designated health services reimbursable by Medicare
or Medicaid unless an exception applies. The Stark Law also
prohibits entities that provide designated health services
reimbursable by Medicare and Medicaid from billing the Medicare
and Medicaid programs for any items or services that result from
a prohibited referral and requires the entities to refund
amounts received for items or services provided pursuant to the
prohibited referral. Designated health services
include inpatient and outpatient hospital services, clinical
laboratory services and radiology services. Sanctions for
violating the Stark Law include denial of payment, civil
monetary penalties of up to $15,000 per claim submitted and
exclusion from the federal health care programs. The statute
also provides for a penalty of up to $100,000 for a
circumvention scheme. There are exceptions to the self-referral
prohibition for many of the customary financial arrangements
between physicians and providers, including employment
contracts, leases and recruitment agreements. Unlike safe
harbors under the Anti-kickback Statute with which compliance is
voluntary, an arrangement must comply with every requirement of
a Stark Law exception or the arrangement is in violation of the
Stark Law. Although there is an exception for a physicians
ownership interest in an entire hospital, the Health Reform Law
prohibits newly created physician-owned hospitals from billing
for Medicare patients referred by their physician owners. As a
result, the law effectively prevents the formation of new
physician-owned hospitals after December 31, 2010. While
the Health Reform Law grandfathers existing physician-owned
hospitals, it does not allow these hospitals to increase the
percentage of physician ownership and significantly restricts
their ability to expand services.
Through a series of rulemakings, CMS has issued final
regulations implementing the Stark Law. Additional changes to
these regulations, which became effective October 1, 2009,
further restrict the types of arrangements facilities and
physicians may enter, including additional restrictions on
certain leases, percentage compensation arrangements, and
agreements under which a hospital purchases services under
arrangements. While these regulations were intended to
clarify the requirements of the exceptions to the Stark Law, it
is unclear how the government will interpret many of these
exceptions for enforcement purposes. CMS has indicated it is
considering additional changes to the Stark Law regulations. We
do not always have the benefit of significant regulatory or
judicial interpretation of these laws and regulations. We
attempt to structure our relationships to meet an exception to
the Stark Law, but the regulations implementing the exceptions
are detailed and complex, and we cannot assure that every
relationship complies fully with the Stark Law.
Similar
State Laws
Many states in which we operate also have laws similar to the
Anti-kickback Statute that prohibit payments to physicians for
patient referrals and laws similar to the Stark Law that
prohibit certain self-referrals. The scope of these state laws
is broad, since they can often apply regardless of the source of
83
payment for care, and little precedent exists for their
interpretation or enforcement. These statutes typically provide
for criminal and civil penalties, as well as loss of facility
licensure.
Other
Fraud and Abuse Provisions
HIPAA broadened the scope of certain fraud and abuse laws by
adding several criminal provisions for health care fraud
offenses that apply to all health benefit programs. The Social
Security Act also imposes criminal and civil penalties for
making false claims and statements to Medicare and Medicaid.
False claims include, but are not limited to, billing for
services not rendered or for misrepresenting actual services
rendered in order to obtain higher reimbursement, billing for
unnecessary goods and services and cost report fraud. Federal
enforcement officials have the ability to exclude from Medicare
and Medicaid any investors, officers and managing employees
associated with business entities that have committed health
care fraud, even if the officer or managing employee had no
knowledge of the fraud. Criminal and civil penalties may be
imposed for a number of other prohibited activities, including
failure to return known overpayments, certain gainsharing
arrangements, billing Medicare amounts that are substantially in
excess of a providers usual charges, offering remuneration
to influence a Medicare or Medicaid beneficiarys selection
of a health care provider, contracting with an individual or
entity known to be excluded from a federal health care program,
making or accepting a payment to induce a physician to reduce or
limit services, and soliciting or receiving any remuneration in
return for referring an individual for an item or service
payable by a federal health care program. Like the Anti-kickback
Statute, these provisions are very broad. Under the Health
Reform Law, civil penalties may be imposed for the failure to
report and return an overpayment within 60 days of
identifying the overpayment or by the date a corresponding cost
report is due, whichever is later. To avoid liability, providers
must, among other things, carefully and accurately code claims
for reimbursement, promptly return overpayments and accurately
prepare cost reports.
Some of these provisions, including the federal Civil Monetary
Penalty Law, require a lower burden of proof than other fraud
and abuse laws, including the Anti-kickback Statute. Civil
monetary penalties that may be imposed under the federal Civil
Monetary Penalty Law range from $10,000 to $50,000 per act, and
in some cases may result in penalties of up to three times the
remuneration offered, paid, solicited or received. In addition,
a violator may be subject to exclusion from federal and state
health care programs. Federal and state governments increasingly
use the federal Civil Monetary Penalty Law, especially where
they believe they cannot meet the higher burden of proof
requirements under the Anti-kickback Statute. Further,
individuals can receive up to $1,000 for providing information
on Medicare fraud and abuse that leads to the recovery of at
least $100 of Medicare funds under the Medicare Integrity
Program.
The
Federal False Claims Act and Similar State Laws
The qui tam, or whistleblower, provisions of the FCA
allow private individuals to bring actions on behalf of the
government alleging that the defendant has defrauded the federal
government. Further, the government may use the FCA to prosecute
Medicare and other government program fraud in areas such as
coding errors, billing for services not provided and submitting
false cost reports. When a private party brings a qui tam
action under the FCA, the defendant is not made aware of the
lawsuit until the government commences its own investigation or
makes a determination whether it will intervene. When a
defendant is determined by a court of law to be liable under the
FCA, the defendant may be required to pay three times the actual
damages sustained by the government, plus mandatory civil
penalties of between $5,500 and $11,000 for each separate false
claim. There are many potential bases for liability under the
FCA. Liability often arises when an entity knowingly submits a
false claim for reimbursement to the federal government. The FCA
defines the term knowingly broadly. Though simple
negligence will not give rise to liability under the FCA,
submitting a claim with reckless disregard to its truth or
falsity constitutes a knowing submission under the
FCA and, therefore, will qualify for liability. The Fraud
Enforcement and Recovery Act of 2009 expanded the scope of the
FCA by, among other things, creating liability for knowingly and
improperly avoiding repayment of an overpayment received from
the government and broadening protections for whistleblowers.
Under the Health Reform Law, the FCA is implicated by the
knowing failure to report and return an overpayment within
60 days of identifying the overpayment or by the date a
corresponding cost report is due, whichever is later. Further,
the Health Reform Law expands the scope of the FCA to cover
payments in connection with the Exchanges to be created by the
Health Reform Law, if those payments include any federal funds.
84
In some cases, whistleblowers and the federal government have
taken the position, and some courts have held, that providers
who allegedly have violated other statutes, such as the
Anti-kickback Statute and the Stark Law, have thereby submitted
false claims under the FCA. The Health Reform Law clarifies this
issue with respect to the Anti-kickback Statute by providing
that submission of claims for services or items generated in
violation of the Anti-kickback Statute constitutes a false or
fraudulent claim under the FCA. Every entity that receives at
least $5 million annually in Medicaid payments must have
written policies for all employees, contractors or agents,
providing detailed information about false claims, false
statements and whistleblower protections under certain federal
laws, including the FCA, and similar state laws. In addition,
federal law provides an incentive to states to enact false
claims laws comparable to the FCA. A number of states in which
we operate have adopted their own false claims provisions as
well as their own whistleblower provisions under which a private
party may file a civil lawsuit in state court. We have adopted
and distributed policies pertaining to the FCA and relevant
state laws.
HIPAA
Administrative Simplification and Privacy and Security
Requirements
The Administrative Simplification Provisions of HIPAA require
the use of uniform electronic data transmission standards for
certain health care claims and payment transactions submitted or
received electronically. These provisions are intended to
encourage electronic commerce in the health care industry. HHS
has issued regulations implementing the HIPAA Administrative
Simplification Provisions and compliance with these regulations
is mandatory for our facilities. In addition, HIPAA requires
that each provider use a National Provider Identifier. In
January 2009, CMS published a final rule making changes to the
formats used for certain electronic transactions and requiring
the use of updated standard code sets for certain diagnoses and
procedures known as ICD-10 code sets. While use of the ICD-10
code sets is not mandatory until October 1, 2013, we will
be modifying our payment systems and processes to prepare for
the implementation. Implementing the ICD-10 code sets will
require significant administrative changes, but we believe that
the cost of compliance with these regulations has not had and is
not expected to have a material, adverse effect on our business,
financial position or results of operations. The Health Reform
Law requires HHS to adopt standards for additional electronic
transactions and to establish operating rules to promote
uniformity in the implementation of each standardized electronic
transaction.
The privacy and security regulations promulgated pursuant to
HIPAA extensively regulate the use and disclosure of
individually identifiable health information and require covered
entities, including health plans and most health care providers,
to implement administrative, physical and technical safeguards
to protect the security of such information. ARRA broadened the
scope of the HIPAA privacy and security regulations. In
addition, ARRA extends the application of certain provisions of
the security and privacy regulations to business associates
(entities that handle identifiable health information on behalf
of covered entities) and subjects business associates to civil
and criminal penalties for violation of the regulations. On
July 14, 2010, HHS issued a proposed rule that would
implement many of these ARRA provisions. If finalized, these
changes would likely require amendments to existing agreements
with business associates and would subject business associates
and their subcontractors to direct liability under the HIPAA
privacy and security regulations. We currently enforce a HIPAA
compliance plan, which we believe complies with HIPAA privacy
and security requirements and under which a HIPAA compliance
group monitors our compliance. The privacy regulations and
security regulations have and will continue to impose
significant costs on our facilities in order to comply with
these standards.
As required by ARRA, HHS published an interim final rule on
August 24, 2009, that requires covered entities to report
breaches of unsecured protected health information to affected
individuals without unreasonable delay but not to exceed
60 days of discovery of the breach by a covered entity or
its agents. Notification must also be made to HHS and, in
certain situations involving large breaches, to the media. HHS
is required to publish on its website a list of all covered
entities that report a breach involving more than 500
individuals. Various state laws and regulations may also require
us to notify affected individuals in the event of a data breach
involving individually identifiable information.
Violations of the HIPAA privacy and security regulations may
result in civil and criminal penalties, and ARRA has
strengthened the enforcement provisions of HIPAA, which may
result in increased enforcement activity. Under ARRA, HHS is
required to conduct periodic compliance audits of covered
entities and their
85
business associates. ARRA broadens the applicability of the
criminal penalty provisions to employees of covered entities and
requires HHS to impose penalties for violations resulting from
willful neglect. ARRA also significantly increases the amount of
the civil penalties, with penalties of up to $50,000 per
violation for a maximum civil penalty of $1,500,000 in a
calendar year for violations of the same requirement. In
addition, ARRA authorizes state attorneys general to bring civil
actions seeking either injunction or damages in response to
violations of HIPAA privacy and security regulations that
threaten the privacy of state residents. Our facilities also
remain subject to any federal or state privacy-related laws that
are more restrictive than the privacy regulations issued under
HIPAA. These laws vary and could impose additional penalties.
There are numerous other laws and legislative and regulatory
initiatives at the federal and state levels addressing privacy
and security concerns. For example, the Federal Trade Commission
(FTC) issued a final rule in October 2007 requiring
financial institutions and creditors, which arguably included
health providers and health plans, to implement written identity
theft prevention programs to detect, prevent and mitigate
identity theft in connection with certain accounts. The FTC
delayed enforcement of this rule until December 31, 2010.
In addition, on December 18, 2010, the Red Flag Program
Clarification Act of 2010 became law, restricting the definition
of a creditor. This law may exempt many hospitals
from complying with the rule.
EMTALA
All of our hospitals in the United States are subject to EMTALA.
This federal law requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every individual who presents to the
hospitals emergency room for treatment and, if the
individual is suffering from an emergency medical condition, to
either stabilize the condition or make an appropriate transfer
of the individual to a facility able to handle the condition.
The obligation to screen and stabilize emergency medical
conditions exists regardless of an individuals ability to
pay for treatment. There are severe penalties under EMTALA if a
hospital fails to screen or appropriately stabilize or transfer
an individual or if the hospital delays appropriate treatment in
order to first inquire about the individuals ability to
pay. Penalties for violations of EMTALA include civil monetary
penalties and exclusion from participation in the Medicare
program. In addition, an injured individual, the
individuals family or a medical facility that suffers a
financial loss as a direct result of a hospitals violation
of the law can bring a civil suit against the hospital.
The government broadly interprets EMTALA to cover situations in
which individuals do not actually present to a hospitals
emergency room, but present for emergency examination or
treatment to the hospitals campus, generally, or to a
hospital-based clinic that treats emergency medical conditions
or are transported in a hospital-owned ambulance, subject to
certain exceptions. At least one court has interpreted the law
also to apply to a hospital that has been notified of a
patients pending arrival in a non-hospital owned
ambulance. EMTALA does not generally apply to individuals
admitted for inpatient services. The government has expressed
its intent to investigate and enforce EMTALA violations actively
in the future. We believe our hospitals operate in substantial
compliance with EMTALA.
Corporate
Practice of Medicine/Fee Splitting
Some of the states in which we operate have laws prohibiting
corporations and other entities from employing physicians,
practicing medicine for a profit and making certain direct and
indirect payments or fee-splitting arrangements between health
care providers designed to induce or encourage the referral of
patients to, or the recommendation of, particular providers for
medical products and services. Possible sanctions for violation
of these restrictions include loss of license and civil and
criminal penalties. In addition, agreements between the
corporation and the physician may be considered void and
unenforceable. These statutes vary from state to state, are
often vague and have seldom been interpreted by the courts or
regulatory agencies.
Health
Care Industry Investigations
Significant media and public attention has focused in recent
years on the hospital industry. This media and public attention,
changes in government personnel or other factors may lead to
increased scrutiny of the health care industry. While we are
currently not aware of any material investigations of the
Company under
86
federal or state health care laws or regulations, it is possible
that governmental entities could initiate investigations or
litigation in the future at facilities we operate and that such
matters could result in significant penalties, as well as
adverse publicity. It is also possible that our executives and
managers could be included in governmental investigations or
litigation or named as defendants in private litigation.
Our substantial Medicare, Medicaid and other governmental
billings result in heightened scrutiny of our operations. We
continue to monitor all aspects of our business and have
developed a comprehensive ethics and compliance program that is
designed to meet or exceed applicable federal guidelines and
industry standards. Because the law in this area is complex and
constantly evolving, governmental investigations or litigation
may result in interpretations that are inconsistent with our or
industry practices.
In public statements surrounding current investigations,
governmental authorities have taken positions on a number of
issues, including some for which little official interpretation
previously has been available, that appear to be inconsistent
with practices that have been common within the industry and
that previously have not been challenged in this manner. In some
instances, government investigations that have in the past been
conducted under the civil provisions of federal law may now be
conducted as criminal investigations.
Both federal and state government agencies have increased their
focus on and coordination of civil and criminal enforcement
efforts in the health care area. The OIG and the DOJ have, from
time to time, established national enforcement initiatives,
targeting all hospital providers that focus on specific billing
practices or other suspected areas of abuse. The Health Reform
Law includes additional federal funding of $350 million
over the next 10 years to fight health care fraud, waste
and abuse, including $105 million for federal fiscal year
2011 and $65 million in federal fiscal year 2012. In
addition, governmental agencies and their agents, such as MACs,
fiscal intermediaries and carriers, may conduct audits of our
health care operations. Private payers may conduct similar
post-payment audits, and we also perform internal audits and
monitoring.
In addition to national enforcement initiatives, federal and
state investigations have addressed a wide variety of routine
health care operations such as: cost reporting and billing
practices, including for Medicare outliers; financial
arrangements with referral sources; physician recruitment
activities; physician joint ventures; and hospital charges and
collection practices for self-pay patients. We engage in many of
these routine health care operations and other activities that
could be the subject of governmental investigations or
inquiries. For example, we have significant Medicare and
Medicaid billings, numerous financial arrangements with
physicians who are referral sources to our hospitals and joint
venture arrangements involving physician investors. Certain of
our individual facilities have received, and other facilities
may receive, government inquiries from, and may be subject to
investigation by, federal and state agencies. Any additional
investigations of the Company, our executives or managers could
result in significant liabilities or penalties to us, as well as
adverse publicity.
Commencing in 1997, we became aware we were the subject of
governmental investigations and litigation relating to our
business practices. As part of the investigations, the United
States intervened in a number of qui tam actions brought
by private parties. The investigations related to, among other
things, DRG coding, outpatient laboratory billing, home health
issues, physician relations, cost report and wound care issues.
The investigations were concluded through a series of agreements
executed in 2000 and 2003 with the Criminal Division of the DOJ,
the Civil Division of the DOJ, various U.S. Attorneys
offices, CMS, a negotiating team representing states with claims
against us, and others. In January 2001, we entered into an
eight-year CIA with the OIG, which expired January 24,
2009. We submitted our final report pursuant to the CIA on
April 30, 2009, and in April 2010, we received notice from
the OIG that our final report was accepted, relieving us of
future obligations under the CIA. If the government were to
determine that we violated or breached the CIA or other federal
or state laws relating to Medicare, Medicaid or similar
programs, we could be subject to substantial monetary fines,
civil and criminal penalties
and/or
exclusion from participation in the Medicare and Medicaid
programs and other federal and state health care programs.
Alleged violations may be pursued by the government or through
private qui tam actions. Sanctions imposed against us as
a result of such actions could have a material, adverse effect
on our results of operations and financial position.
87
Health
Care Reform
As enacted, the Health Reform Law will change how health care
services are covered, delivered and reimbursed through expanded
coverage of uninsured individuals, reduced growth in Medicare
program spending, reductions in Medicare and Medicaid DSH
payments, and the establishment of programs where reimbursement
is tied to quality and integration. In addition, the law reforms
certain aspects of health insurance, expands existing efforts to
tie Medicare and Medicaid payments to performance and quality,
and contains provisions intended to strengthen fraud and abuse
enforcement. More than 20 challenges to the Health Reform Law
have been filed in federal courts. Some federal district courts
have upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the Health Reform Law intact. These lawsuits are subject to
appeal, and several are currently on appeal, including those
that hold the law unconstitutional. It is unclear how these
lawsuits will be resolved. Further, Congress is considering
bills that would repeal or revise the Health Reform Law.
Expanded
Coverage
Based on CBO and CMS estimates, by 2019, the Health Reform Law
will expand coverage to 32 to 34 million additional
individuals (resulting in coverage of an estimated 94% of the
legal U.S. population). This increased coverage will occur
through a combination of public program expansion and private
sector health insurance and other reforms.
Medicaid
Expansion
The primary public program coverage expansion will occur through
changes in Medicaid, and to a lesser extent, expansion of CHIP.
The most significant changes will expand the categories of
individuals eligible for Medicaid coverage and permit
individuals with relatively higher incomes to qualify. The
federal government reimburses the majority of a states
Medicaid expenses, and it conditions its payment on the state
meeting certain requirements. The federal government currently
requires that states provide coverage for only limited
categories of low-income adults under 65 years old (e.g.,
women who are pregnant, and the blind or disabled). In addition,
the income level required for individuals and families to
qualify for Medicaid varies widely from state to state.
The Health Reform Law materially changes the requirements for
Medicaid eligibility. Commencing January 1, 2014, all state
Medicaid programs are required to provide, and the federal
government will subsidize, Medicaid coverage to virtually all
adults under 65 years old with incomes at or under 133% of
the FPL. This expansion will create a minimum Medicaid
eligibility threshold that is uniform across states. Further,
the Health Reform Law also requires states to apply a
5% income disregard to the Medicaid
eligibility standard, so that Medicaid eligibility will
effectively be extended to those with incomes up to 138% of the
FPL. These new eligibility requirements will expand Medicaid and
CHIP coverage by an estimated 16 to 18 million persons
nationwide. A disproportionately large percentage of the new
Medicaid coverage is likely to be in states that currently have
relatively low income eligibility requirements.
As Medicaid is a joint federal and state program, the federal
government provides states with matching funds in a
defined percentage, known as the federal medical assistance
percentage (FMAP). Beginning in 2014, states will
receive an enhanced FMAP for the individuals enrolled in
Medicaid pursuant to the Health Reform Law. The FMAP percentage
is as follows: 100% for calendar years 2014 through 2016; 95%
for 2017; 94% in 2018; 93% in 2019; and 90% in 2020 and
thereafter.
The Health Reform Law also provides that the federal government
will subsidize states that create non-Medicaid plans for
residents whose incomes are greater than 133% of the FPL but do
not exceed 200% of the FPL. Approved state plans will be
eligible to receive federal funding. The amount of that funding
per individual will be equal to 95% of subsidies that would have
been provided for that individual had he or she enrolled in a
health plan offered through one of the Exchanges, as discussed
below.
88
Historically, states often have attempted to reduce Medicaid
spending by limiting benefits and tightening Medicaid
eligibility requirements. Effective March 23, 2010, the
Health Reform Law requires states to at least maintain Medicaid
eligibility standards established prior to the enactment of the
law for adults until January 1, 2014 and for children until
October 1, 2019. States with budget deficits may, however,
seek a waiver from this requirement, but only to address
eligibility standards that apply to adults making more than 133%
of the FPL.
Private
Sector Expansion
The expansion of health coverage through the private sector as a
result of the Health Reform Law will occur through new
requirements on health insurers, employers and individuals.
Commencing January 1, 2014, health insurance companies will
be prohibited from imposing annual coverage limits, dropping
coverage, excluding persons based upon pre-existing conditions
or denying coverage for any individual who is willing to pay the
premiums for such coverage. Effective January 1, 2011, each
health plan must keep its annual non-medical costs lower than
15% of premium revenue for the group market and lower than 20%
in the small group and individual markets or rebate its
enrollees the amount spent in excess of the percentage. In
addition, effective September 23, 2010, health insurers
will not be permitted to deny coverage to children based upon a
pre-existing condition and must allow dependent care coverage
for children up to 26 years old.
Larger employers will be subject to new requirements and
incentives to provide health insurance benefits to their full
time employees. Effective January 1, 2014, employers with
50 or more employees that do not offer health insurance will be
held subject to a penalty if an employee obtains coverage
through an Exchange if the coverage is subsidized by the
government. The employer penalties will range from $2,000 to
$3,000 per employee, subject to certain thresholds and
conditions.
As enacted, the Health Reform Law uses various means to induce
individuals who do not have health insurance to obtain coverage.
By January 1, 2014, individuals will be required to
maintain health insurance for a minimum defined set of benefits
or pay a tax penalty. The penalty in most cases is $95 in 2014,
$325 in 2015, $695 in 2016, and indexed to a cost of living
adjustment in subsequent years. The IRS, in consultation with
HHS, is responsible for enforcing the tax penalty, although the
Health Reform Law limits the availability of certain IRS
enforcement mechanisms. In addition, for individuals and
families below 400% of the FPL, the cost of obtaining health
insurance through the Exchanges will be subsidized by the
federal government. Those with lower incomes will be eligible to
receive greater subsidies. It is anticipated that those at the
lowest income levels will have the majority of their premiums
subsidized by the federal government, in some cases in excess of
95% of the premium amount.
To facilitate the purchase of health insurance by individuals
and small employers, each state must establish an Exchange by
January 1, 2014. Based on CBO and CMS estimates, between 29
and 31 million individuals will obtain their health
insurance coverage through an Exchange by 2019. Of that amount,
an estimated 16 million will be individuals who were
previously uninsured, and 13 to 15 million will be
individuals who switched from their prior insurance coverage to
a plan obtained through the Exchange. The Health Reform Law
requires that the Exchanges be designed to make the process of
evaluating, comparing and acquiring coverage simple for
consumers. For example, each states Exchange must maintain
an internet website through which consumers may access health
plan ratings that are assigned by the state based on quality and
price, view governmental health program eligibility requirements
and calculate the actual cost of health coverage. Health
insurers participating in an Exchange must offer a set of
minimum benefits to be defined by HHS and may offer more
benefits. Health insurers must offer at least two, and up to
five, levels of plans that vary by the percentage of medical
expenses that must be paid by the enrollee. These levels are
referred to as platinum, gold, silver, bronze and catastrophic
plans, with gold and silver being the two mandatory levels of
plans. Each level of plan must require the enrollee to share the
following percentages of medical expenses up to the
deductible/co-payment limit: platinum, 10%; gold, 20%; silver,
30%; bronze, 40%; and catastrophic, 100%. Health insurers may
establish varying deductible/co-payment levels, up to the
statutory maximum (estimated to be between $6,000 and $7,000 for
an individual). The health insurers must cover 100% of the
amount of medical expenses in excess of the
deductible/co-payment limit. For example, an individual making
100% to 200% of the FPL will have co-payments and deductibles
reduced to about one-third of the amount payable by those with
the same plan with incomes at or above 400% of the FPL.
89
Public
Program Spending
The Health Reform Law provides for Medicare, Medicaid and other
federal health care program spending reductions between 2010 and
2019. The CBO estimates that these will include
$156 billion in Medicare
fee-for-service
market basket and productivity reimbursement reductions for all
providers, the majority of which will come from hospitals; CMS
sets this estimate at $233 billion. The CBO estimates also
include an additional $36 billion in reductions of Medicare
and Medicaid disproportionate share funding ($22 billion
for Medicare and $14 billion for Medicaid). CMS estimates
include an additional $64 billion in reductions of Medicare
and Medicaid disproportionate share funding, with
$50 billion of the reductions coming from Medicare.
Payments
for Hospitals and Ambulatory Surgery Centers
Inpatient Market Basket and Productivity
Adjustment. Under the Medicare program,
hospitals receive reimbursement under a PPS for general, acute
care hospital inpatient services. CMS establishes fixed PPS
payment amounts per inpatient discharge based on the
patients assigned MS-DRG. These MS-DRG rates are updated
each federal fiscal year, which begins October 1, using a
market basket index that takes into account inflation
experienced by hospitals and other entities outside the health
care industry in purchasing goods and services.
The Health Reform Law provides for three types of annual
reductions in the market basket. The first is a general
reduction of a specified percentage each federal fiscal year
starting in 2010 and extending through 2019. These reductions
are as follows: federal fiscal year 2010, 0.25% for discharges
occurring on or after April 1, 2010; 2011 (0.25%); 2012
(0.1%); 2013 (0.1%); 2014 (0.3%); 2015 (0.2%); 2016 (0.2%); 2017
(0.75%); 2018 (0.75%); and 2019 (0.75%).
The second type of reduction to the market basket is a
productivity adjustment that will be implemented by
HHS beginning in federal fiscal year 2012. The amount of that
reduction will be the projected nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for HHS to use in projecting the
productivity figure. Based upon the latest available data,
federal fiscal year 2012 market basket reductions resulting from
this productivity adjustment are likely to range from 1% to 1.4%.
The third type of reduction is in connection with the
value-based purchasing program discussed in more detail below.
Beginning in federal fiscal year 2013, CMS will reduce the
inpatient PPS payment amount for all discharges by the
following: 1% for 2013; 1.25% for 2014; 1.5% for 2015; 1.75% for
2016; and 2% for 2017 and subsequent years. For each federal
fiscal year, the total amount collected from these reductions
will be pooled and used to fund payments to hospitals that
satisfy certain quality metrics. While some or all of these
reductions may be recovered if a hospital satisfies these
quality metrics, the recovery amounts may be delayed.
If the aggregate of the three market basket reductions described
above is more than the annual market basket adjustments made to
account for inflation, there will be a reduction in the MS-DRG
rates paid to hospitals. For example, for the federal fiscal
year 2011 hospital inpatient PPS, the market basket increase to
account for inflation is 2.6% and the aggregate reduction due to
the Health Reform Law and the documentation and coding
adjustment is 3.15%. Thus, the rates paid to a hospital for
inpatient services in federal fiscal year 2011 will be 0.55%
less than rates paid for the same services in the prior year.
Quality-Based Payment Adjustments and Reductions for
Inpatient Services. The Health Reform Law
establishes or expands three provisions to promote value-based
purchasing and to link payments to quality and efficiency.
First, in federal fiscal year 2013, HHS is directed to implement
a value-based purchasing program for inpatient hospital
services. This program will reward hospitals that meet certain
quality performance standards established by HHS. The Health
Reform Law provides HHS considerable discretion over the
value-based purchasing program. For example, HHS will determine
the quality performance measures, the standards hospitals must
achieve in order to meet the quality performance measures, and
the methodology for
90
calculating payments to hospitals that meet the required quality
threshold. HHS will also determine how much money each hospital
will receive from the pool of dollars created by the reductions
related to the value-based purchasing program as described
above. Because the Health Reform Law provides that the pool will
be fully distributed, hospitals that meet or exceed the quality
performance standards set by HHS will receive greater
reimbursement under the value-based purchasing program than they
would have otherwise. On the other hand, hospitals that do not
achieve the necessary quality performance will receive reduced
Medicare inpatient hospital payments. On January 7, 2011,
CMS issued a proposed rule for the value-based purchasing
program that would use 17 clinical process of care measures
and eight dimensions of a patients experience of care
using the HCAHPS survey to determine incentive payments for
federal fiscal year 2013. As proposed, the incentive payments
would be calculated based on a combination of measures of
hospitals achievement of the performance standards and
their improvement in meeting the performance standards compared
to prior periods. To determine payments in federal fiscal year
2013, the baseline performance period (measurement standard) as
proposed would be July 1, 2009 through March 31, 2010.
To determine whether hospitals meet performance standards, CMS
would compare each hospitals performance in the period
July 1, 2011 through March 31, 2012 to its performance
in the baseline performance period. CMS has not yet proposed
specific threshold values for the performance standards. CMS
also proposes to add three outcome measures for federal fiscal
year 2014, for which the performance period would be
July 1, 2011 through December 31, 2012 and the
baseline performance period would be July 1, 2008 through
December 31, 2009.
Second, beginning in federal fiscal year 2013, inpatient
payments will be reduced if a hospital experiences
excessive readmissions within a time period
specified by HHS from the date of discharge for heart attack,
heart failure, pneumonia or other conditions designated by HHS.
Hospitals with what HHS defines as excessive
readmissions for these conditions will receive reduced
payments for all inpatient discharges, not just discharges
relating to the conditions subject to the excessive readmission
standard. Each hospitals performance will be publicly
reported by HHS. HHS has the discretion to determine what
excessive readmissions means and other terms and
conditions of this program.
Third, reimbursement will be reduced based on a facilitys
HAC rates. An HAC is a condition that is acquired by a patient
while admitted as an inpatient in a hospital, such as a surgical
site infection. Beginning in federal fiscal year 2015, the 25%
of hospitals with the worst national risk-adjusted HAC rates in
the previous year will receive a 1% reduction in their total
inpatient operating Medicare payments. In addition, effective
July 1, 2011, the Health Reform Law prohibits the use of
federal funds under the Medicaid program to reimburse providers
for medical services provided to treat HACs.
Outpatient Market Basket and Productivity
Adjustment. Hospital outpatient services paid
under PPS are classified into APCs. The APC payment rates are
updated each calendar year based on the market basket. The first
two market basket changes outlined above the general
reduction and the productivity adjustment apply to
outpatient services as well as inpatient services, although
these are applied on a calendar year basis. The percentage
changes specified in the Health Reform Law summarized above as
the general reduction for inpatients e.g., 0.2% in
2015 are the same for outpatients.
Medicare and Medicaid DSH Payments. The
Medicare DSH program provides for additional payments to
hospitals that treat a disproportionate share of low-income
patients. Under the Health Reform Law, beginning in federal
fiscal year 2014, Medicare DSH payments will be reduced to 25%
of the amount they otherwise would have been absent the law. The
remaining 75% of the amount that would otherwise be paid under
Medicare DSH will be effectively pooled, and this pool will be
reduced further each year by a formula that reflects reductions
in the national level of uninsured who are under 65 years
of age. In other words, the greater the level of coverage for
the uninsured nationally, the more the Medicare DSH payment pool
will be reduced. Each hospital will then be paid, out of the
reduced DSH payment pool, an amount allocated based upon its
level of uncompensated care.
It is difficult to predict the full impact of the Medicare DSH
reductions, and CBO and CMS estimates differ by
$38 billion. The Health Reform Law does not mandate what
data source HHS must use to determine the reduction, if any, in
the uninsured population nationally. In addition, the Health
Reform Law does not contain a definition of uncompensated
care. As a result, it is unclear how a hospitals
share of the Medicare
91
DSH payment pool will be calculated. CMS could use the
definition of uncompensated care used in connection
with hospital cost reports. However, in July 2009, CMS proposed
material revisions to the definition of uncompensated
care used for cost report purposes. Those revisions would
exclude certain significant costs that had historically been
covered, such as unreimbursed costs of Medicaid services. CMS
has not issued a final rule, and the Health Reform Law does not
require HHS to use this definition, even if finalized, for DSH
purposes. How CMS ultimately defines uncompensated
care for purposes of these DSH funding provisions could
have a material effect on a hospitals Medicare DSH
reimbursements.
In addition to Medicare DSH funding, hospitals that provide care
to a disproportionately high number of low-income patients may
receive Medicaid DSH payments. The federal government
distributes federal Medicaid DSH funds to each state based on a
statutory formula. The states then distribute the DSH funding
among qualifying hospitals. Although federal Medicaid law
defines some level of hospitals that must receive Medicaid DSH
funding, states have broad discretion to define additional
hospitals that also may qualify for Medicaid DSH payments and
the amount of such payments. The Health Reform Law will reduce
funding for the Medicaid DSH hospital program in federal fiscal
years 2014 through 2020 by the following amounts: 2014
($500 million); 2015 ($600 million); 2016
($600 million); 2017 ($1.8 billion); 2018
($5 billion); 2019 ($5.6 billion); and 2020
($4 billion). How such cuts are allocated among the states,
and how the states allocate these cuts among providers, have yet
to be determined.
ACOs. The Health Reform Law requires
HHS to establish a Medicare Shared Savings Program that promotes
accountability and coordination of care through the creation of
ACOs. Beginning no later than January 1, 2012, the program
will allow providers (including hospitals), physicians and other
designated professionals and suppliers to form ACOs and
voluntarily work together to invest in infrastructure and
redesign delivery processes to achieve high quality and
efficient delivery of services. The program is intended to
produce savings as a result of improved quality and operational
efficiency. ACOs that achieve quality performance standards
established by HHS will be eligible to share in a portion of the
amounts saved by the Medicare program. HHS has significant
discretion to determine key elements of the program, including
what steps providers must take to be considered an ACO, how to
decide if Medicare program savings have occurred, and what
portion of such savings will be paid to ACOs. In addition, HHS
will determine to what degree hospitals, physicians and other
eligible participants will be able to form and operate an ACO
without violating certain existing laws, including the Civil
Monetary Penalty Law, the Anti-kickback Statute and the Stark
Law. However, the Health Reform Law does not authorize HHS to
waive other laws that may impact the ability of hospitals and
other eligible participants to participate in ACOs, such as
antitrust laws.
Bundled Payment Pilot Programs. The
Health Reform Law requires HHS to establish a five-year,
voluntary national bundled payment pilot program for Medicare
services beginning no later than January 1, 2013. Under the
program, providers would agree to receive one payment for
services provided to Medicare patients for certain medical
conditions or episodes of care. HHS will have the discretion to
determine how the program will function. For example, HHS will
determine what medical conditions will be included in the
program and the amount of the payment for each condition. In
addition, the Health Reform Law provides for a five-year bundled
payment pilot program for Medicaid services to begin
January 1, 2012. HHS will select up to eight states to
participate based on the potential to lower costs under the
Medicaid program while improving care. State programs may target
particular categories of beneficiaries, selected diagnoses or
geographic regions of the state. The selected state programs
will provide one payment for both hospital and physician
services provided to Medicaid patients for certain episodes of
inpatient care. For both pilot programs, HHS will determine the
relationship between the programs and restrictions in certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute, the Stark Law and the HIPAA privacy,
security and transaction standard requirements. However, the
Health Reform Law does not authorize HHS to waive other laws
that may impact the ability of hospitals and other eligible
participants to participate in the pilot programs, such as
antitrust laws.
Ambulatory Surgery Centers. The Health
Reform Law reduces reimbursement for ASCs through a productivity
adjustment to the market basket similar to the productivity
adjustment for inpatient and outpatient hospital services,
beginning in federal fiscal year 2011.
92
Medicare Managed Care (Medicare Advantage or
MA). Under the MA program, the
federal government contracts with private health plans to
provide inpatient and outpatient benefits to beneficiaries who
enroll in such plans. Nationally, approximately 22% of Medicare
beneficiaries have elected to enroll in MA plans. Effective in
2014, the Health Reform Law requires MA plans to keep annual
administrative costs lower than 15% of annual premium revenue.
The Health Reform Law reduces, over a three year period, premium
payments to the MA plans such that CMS managed care per
capita premium payments are, on average, equal to traditional
Medicare. In addition, the Health Reform Law implements fee
payment adjustments based on service benchmarks and quality
ratings. As a result of these changes, payments to MA plans are
estimated to be reduced by $138 to $145 billion between
2010 and 2019. These reductions to MA plan premium payments may
cause some plans to raise premiums or limit benefits, which in
turn might cause some Medicare beneficiaries to terminate their
MA coverage and enroll in traditional Medicare.
Specialty
Hospital Limitations
Over the last decade, we have faced significant competition from
hospitals that have physician ownership. The Health Reform Law
prohibits newly created physician-owned hospitals from billing
for Medicare patients referred by their physician owners. As a
result, the law effectively prevents the formation of new
physician-owned hospitals after December 31, 2010. While
the law grandfathers existing physician-owned hospitals, it does
not allow these hospitals to increase the percentage of
physician ownership and significantly restricts their ability to
expand services.
Program
Integrity and Fraud and Abuse
The Health Reform Law makes several significant changes to
health care fraud and abuse laws, provides additional
enforcement tools to the government, increases cooperation
between agencies by establishing mechanisms for the sharing of
information and enhances criminal and administrative penalties
for non-compliance. For example, the Health Reform Law:
(1) provides $350 million in increased federal funding
over the next 10 years to fight health care fraud, waste
and abuse; (2) expands the scope of the RAC program to
include MA plans and Medicaid; (3) authorizes HHS, in
consultation with the OIG, to suspend Medicare and Medicaid
payments to a provider of services or a supplier pending
an investigation of a credible allegation of fraud;
(4) provides Medicare contractors with additional
flexibility to conduct random prepayment reviews; and
(5) tightens up the rules for returning overpayments made
by governmental health programs and expands FCA liability to
include failure to timely repay identified overpayments.
Impact
of Health Reform Law on the Company
The expansion of health insurance coverage under the Health
Reform Law may result in a material increase in the number of
patients using our facilities who have either private or public
program coverage. In addition, a disproportionately large
percentage of the new Medicaid coverage is likely to be in
states that currently have relatively low income eligibility
requirements. Two such states are Texas and Florida, where about
one-half of the Companys licensed beds are located. We
also have a significant presence in other relatively low income
eligibility states, including Georgia, Kansas, Louisiana,
Missouri, Oklahoma and Virginia. Further, the Health Reform Law
provides for a value-based purchasing program, the establishment
of ACOs and bundled payment pilot programs, which will create
possible sources of additional revenue.
However, it is difficult to predict the size of the potential
revenue gains to the Company as a result of these elements of
the Health Reform Law, because of uncertainty surrounding a
number of material factors, including the following:
|
|
|
|
|
how many previously uninsured individuals will obtain coverage
as a result of the Health Reform Law (while the CBO estimates
32 million, CMS estimates almost 34 million; both
agencies made a number of assumptions to derive that figure,
including how many individuals will ignore substantial subsidies
and decide to pay the penalty rather than obtain health
insurance and what percentage of people in the future will meet
the new Medicaid income eligibility requirements);
|
93
|
|
|
|
|
what percentage of the newly insured patients will be covered
under the Medicaid program and what percentage will be covered
by private health insurers;
|
|
|
|
the extent to which states will enroll new Medicaid participants
in managed care programs;
|
|
|
|
the pace at which insurance coverage expands, including the pace
of different types of coverage expansion;
|
|
|
|
the change, if any, in the volume of inpatient and outpatient
hospital services that are sought by and provided to previously
uninsured individuals;
|
|
|
|
the rate paid to hospitals by private payers for newly covered
individuals, including those covered through the newly created
Exchanges and those who might be covered under the Medicaid
program under contracts with the state;
|
|
|
|
the rate paid by state governments under the Medicaid program
for newly covered individuals;
|
|
|
|
how the value-based purchasing and other quality programs will
be implemented;
|
|
|
|
the percentage of individuals in the Exchanges who select the
high deductible plans, since health insurers offering those
kinds of products have traditionally sought to pay lower rates
to hospitals;
|
|
|
|
whether the net effect of the Health Reform Law, including the
prohibition on excluding individuals based on pre-existing
conditions, the requirement to keep medical costs at or above a
specified minimum percentage of premium revenue, other health
insurance reforms and the annual fee applied to all health
insurers, will be to put pressure on the bottom line of health
insurers, which in turn might cause them to seek to reduce
payments to hospitals with respect to both newly insured
individuals and their existing business; and
|
|
|
|
the possibility that implementation of the provisions expanding
health insurance coverage or the entire Health Reform Law will
be delayed due to court challenges or revised or eliminated as a
result of court challenges and efforts to repeal or amend the
law. More than 20 challenges to the Health Reform Law have
been filed in federal courts. Some federal district courts have
upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
entire Health Reform Law void in its entirety or left the
remainder of the Health Reform Law intact. These lawsuits are
subject to appeal, and several are currently on appeal,
including those that hold the law unconstitutional.
|
On the other hand, the Health Reform Law provides for
significant reductions in the growth of Medicare spending,
reductions in Medicare and Medicaid DSH payments and the
establishment of programs where reimbursement is tied to quality
and integration. Since 40.7% of our revenues in 2010 were from
Medicare and Medicaid, reductions to these programs may
significantly impact the Company and could offset any positive
effects of the Health Reform Law. It is difficult to predict the
size of the revenue reductions to Medicare and Medicaid
spending, because of uncertainty regarding a number of material
factors, including the following:
|
|
|
|
|
the amount of overall revenues the Company will generate from
Medicare and Medicaid business when the reductions are
implemented;
|
|
|
|
whether reductions required by the Health Reform Law will be
changed by statute or by judicial decision prior to becoming
effective;
|
|
|
|
the size of the Health Reform Laws annual productivity
adjustment to the market basket beginning in 2012 payment years;
|
|
|
|
the amount of the Medicare DSH reductions that will be made,
commencing in federal fiscal year 2014;
|
94
|
|
|
|
|
the allocation to our hospitals of the Medicaid DSH reductions,
commencing in federal fiscal year 2014;
|
|
|
|
what the losses in revenues will be, if any, from the Health
Reform Laws quality initiatives;
|
|
|
|
how successful ACOs, in which we anticipate participating, will
be at coordinating care and reducing costs or whether they will
decrease reimbursement;
|
|
|
|
the scope and nature of potential changes to Medicare
reimbursement methods, such as an emphasis on bundling payments
or coordination of care programs;
|
|
|
|
whether the Companys revenues from UPL programs will be
adversely affected, because there may be fewer indigent,
non-Medicaid patients for whom the Company provides services
pursuant to UPL programs; and
|
|
|
|
reductions to Medicare payments CMS may impose for
excessive readmissions.
|
Because of the many variables involved, we are unable to predict
the net effect on the Company of the expected increases in
insured individuals using our facilities, the reductions in
Medicare spending and reductions in Medicare and Medicaid DSH
Funding, and numerous other provisions in the Health Reform Law
that may affect the Company. Further, it is unclear how efforts
to repeal or revise the Health Reform Law and federal lawsuits
challenging its constitutionality will be resolved or what the
impact would be of any resulting changes to the law.
General
Economic and Demographic Factors
The United States economy has weakened significantly in recent
years. Depressed consumer spending and higher unemployment rates
continue to pressure many industries. During economic downturns,
governmental entities often experience budget deficits as a
result of increased costs and lower than expected tax
collections. These budget deficits have forced federal, state
and local government entities to decrease spending for health
and human service programs, including Medicare, Medicaid and
similar programs, which represent significant payer sources for
our hospitals. Other risks we face from general economic
weakness include potential declines in the population covered
under managed care agreements, patient decisions to postpone or
cancel elective and non-emergency health care procedures,
potential increases in the uninsured and underinsured
populations and further difficulties in our collecting patient
co-payment and deductible receivables. The Health Reform Law
seeks to decrease over time the number of uninsured individuals,
by among other things requiring employers to offer, and
individuals to carry, health insurance or be subject to
penalties. However, it is difficult to predict the full impact
of the Health Reform Law due to the laws complexity, lack
of implementing regulations or interpretive guidance, gradual
and potentially delayed implementation, pending court
challenges, and possible amendment or repeal.
The health care industry is impacted by the overall United
States economy. The federal deficit, the growing magnitude of
Medicare expenditures and the aging of the United States
population will continue to place pressure on federal health
care programs.
Compliance
Program
We maintain a comprehensive ethics and compliance program that
is designed to meet or exceed applicable federal guidelines and
industry standards. The program is intended to monitor and raise
awareness of various regulatory issues among employees and to
emphasize the importance of complying with governmental laws and
regulations. As part of the ethics and compliance program, we
provide annual ethics and compliance training to our employees
and encourage all employees to report any violations to their
supervisor, an ethics and compliance officer or a toll-free
telephone ethics line. The Health Reform Law requires providers
to implement core elements of a compliance program criteria to
be established by HHS, on a timeline to be established by HHS,
as a condition of enrollment in the Medicare or Medicaid
programs, and we may have to modify our compliance programs to
comply with these new criteria.
95
Antitrust
Laws
The federal government and most states have enacted antitrust
laws that prohibit certain types of conduct deemed to be
anti-competitive. These laws prohibit price fixing, concerted
refusal to deal, market monopolization, price discrimination,
tying arrangements, acquisitions of competitors and other
practices that have, or may have, an adverse effect on
competition. Violations of federal or state antitrust laws can
result in various sanctions, including criminal and civil
penalties. Antitrust enforcement in the health care industry is
currently a priority of the Federal Trade Commission. We believe
we are in compliance with such federal and state laws, but
courts or regulatory authorities may reach a determination in
the future that could adversely affect our operations.
96
MANAGEMENT
Directors
The following is a brief description of the background and
business experience of each member of our Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
Name
|
|
Age(1)
|
|
Since
|
|
Position(s)
|
|
Richard M. Bracken
|
|
|
58
|
|
|
|
2002
|
|
|
Chairman of the Board and Chief Executive Officer
|
R. Milton Johnson
|
|
|
54
|
|
|
|
2009
|
|
|
President, Chief Financial Officer and Director
|
Christopher J. Birosak
|
|
|
56
|
|
|
|
2006
|
|
|
Director
|
John P. Connaughton
|
|
|
45
|
|
|
|
2006
|
|
|
Director
|
James D. Forbes
|
|
|
51
|
|
|
|
2009
|
|
|
Director
|
Kenneth W. Freeman
|
|
|
60
|
|
|
|
2009
|
|
|
Director
|
Thomas F. Frist III
|
|
|
42
|
|
|
|
2006
|
|
|
Director
|
William R. Frist
|
|
|
41
|
|
|
|
2009
|
|
|
Director
|
Christopher R. Gordon
|
|
|
38
|
|
|
|
2006
|
|
|
Director
|
Michael W. Michelson
|
|
|
59
|
|
|
|
2006
|
|
|
Director
|
James C. Momtazee
|
|
|
39
|
|
|
|
2006
|
|
|
Director
|
Stephen G. Pagliuca
|
|
|
56
|
|
|
|
2006
|
|
|
Director
|
Nathan C. Thorne
|
|
|
57
|
|
|
|
2006
|
|
|
Director
|
Jay O. Light
|
|
|
69
|
|
|
|
|
|
|
Director Nominee
|
Geoffrey G. Meyers
|
|
|
66
|
|
|
|
|
|
|
Director Nominee
|
|
|
|
(1) |
|
As of February 11, 2011. |
Richard M. Bracken has served as Chief Executive Officer
of the Company since January 2009 and was appointed as Chairman
of the Board in December 2009. Mr. Bracken served as
President and Chief Executive Officer from January 2009 to
December 2009. Mr. Bracken was appointed Chief Operating
Officer in July 2001 and served as President and Chief Operating
Officer from January 2002 to January 2009. Mr. Bracken
served as President Western Group of the Company
from August 1997 until July 2001. From January 1995 to August
1997, Mr. Bracken served as President of the Pacific
Division of the Company. Prior to 1995, Mr. Bracken served
in various hospital Chief Executive Officer and Administrator
positions with
HCA-Hospital
Corporation of America.
R. Milton Johnson has served as President and Chief
Financial Officer of the Company since February 2011 and was
appointed as a director in December 2009. Mr. Johnson
served as Executive Vice President and Chief Financial Officer
from July 2004 to February 2011 and as Senior Vice
President and Controller of the Company from July 1999
until July 2004. Mr. Johnson served as Vice President and
Controller of the Company from November 1998 to July 1999. Prior
to that time, Mr. Johnson served as Vice
President Tax of the Company from April 1995 to
October 1998. Prior to that time, Mr. Johnson served as
Director of Tax for Healthtrust, Inc. The Hospital
Company from September 1987 to April 1995.
Christopher J. Birosak is a Managing Director of BAML
Capital Partners, the private equity division of Bank of America
Corporation. BAML Capital Partners is the successor organization
to Merrill Lynch Global Private Equity. Prior to joining the
Global Private Equity Division of Merrill Lynch in 2004,
Mr. Birosak worked in various capacities in the Merrill
Lynch Leveraged Finance Group with particular emphasis on
leveraged buyouts and mergers and acquisitions related
financings. Mr. Birosak served as a director of Atrium
Companies, Inc. from 2004 to 2009 and currently serves on the
board of directors of NPC International. Mr. Birosak joined
Merrill Lynch in 1994.
97
John P. Connaughton has been a Managing Director of Bain
Capital Partners, LLC since 1997 and a member of the firm since
1989. Prior to joining Bain Capital, Mr. Connaughton was a
consultant at Bain & Company, Inc., where he worked in
the health care, consumer products and business services
industries. Mr. Connaughton served as a director of
Stericycle, Inc. from 1999 to 2005, M/C Communications (PriMed)
from 2004 to 2009, AMC Theatres from 2004 to 2009,
ProSiebenSat.1 Media from 2003 to 2007, Cumulus Media Partners
from 2006 to 2008 and Epoch Senior Living from 2001 to 2007. He
currently serves as a director of Air Medical Group Holdings,
Inc., Clear Channel Communications, Inc., CRC Health
Corporation, Warner Chilcott, Ltd., Sungard Data Systems, Warner
Music Group, Quintiles Transnational Corp. and The Boston
Celtics.
James D. Forbes has been Head of Bank of Americas
Global Principal Investments Division since March 2009.
Mr. Forbes chairs the Investment Committee at BAML Capital
Partners, the private equity division of the Bank of America
Corporation. From November 2008 to March 2009, Mr. Forbes served
as Head of Asia Pacific Corporate and Investment Banking based
in Hong Kong. From August 2002 to November 2008, he served as
Global Head of Healthcare Investment Banking at Merrill Lynch.
Before joining Merrill Lynch in 1995, Mr. Forbes worked at
CS First Boston where he was part of its Debt Capital Markets
Group. Mr. Forbes also serves on the Board of Conversus
Capital, L.P. and Sterling Stamos Capital Management, L.P.
Kenneth W. Freeman has been a senior advisor of Kohlberg
Kravis Roberts & Co. since August 2010 and, in August 2010,
was appointed Dean of Boston University School of Management.
From October 2009 to August 2010, Mr. Freeman was a member
of KKR Management LLC, the general partner of KKR & Co.
L.P. Before that, he was a member of the limited liability
company which served as the general partner of Kohlberg Kravis
Roberts & Co. L.P. since 2007 and joined the firm as
Managing Director in May 2005. From May 2004 to December 2004,
Mr. Freeman was Chairman of Quest Diagnostics Incorporated,
and from January 1996 to May 2004, he served as Chairman and
Chief Executive Officer of Quest Diagnostics Incorporated. From
May 1995 to December 1996, Mr. Freeman was President and
Chief Executive Officer of Corning Clinical Laboratories, the
predecessor company to Quest Diagnostics. Prior to that, he
served in various general management and financial roles with
Corning Incorporated. Mr. Freeman currently serves as a
director of Accellent, Inc. and Masonite, Inc., and is chairman
of the board of trustees of Bucknell University.
Thomas F. Frist III is a principal of Frist Capital
LLC, a private investment vehicle for Mr. Frist and certain
related persons and has held such position since 1998.
Mr. Frist is also a general partner at Frisco Partners,
another Frist family investment vehicle. Mr. Frist served
as a director of Triad Hospitals, Inc. from 1998 to October 2006
and currently serves as a director of SAIC, Inc. Mr. Frist
is the brother of William R. Frist, who also serves as a
director of the Company.
William R. Frist is a principal of Frist Capital LLC, a
private investment vehicle for Mr. Frist and certain
related persons and has held such position since 2003.
Mr. Frist is also a general partner at Frisco Partners,
another Frist family investment vehicle. Mr. Frist is the
brother of Thomas F. Frist III, who also serves as a director of
the Company.
Christopher R. Gordon is a Managing Director of Bain
Capital Partners, LLC and joined the firm in 1997. Prior to
joining Bain Capital, Mr. Gordon was a consultant at
Bain & Company. Mr. Gordon currently serves as a
director of Accellent, Inc., Air Medical Group Holdings, Inc.,
CRC Health Corporation and Quintiles Transnational Corp.
Michael W. Michelson has been a member of KKR Management
LLC, the general partner of KKR & Co. L.P., since
October 1, 2009. Before that, he was a member of the
limited liability company which served as the general partner of
Kohlberg Kravis Roberts & Co. L.P. since 1996. Prior
to that, he was a general partner of Kohlberg Kravis
Roberts & Co. L.P. Mr. Michelson served as a director
of Accellent Inc. from 2005 to 2009 and Alliance Imaging from
1999 to 2007. Mr. Michelson is currently a director of
Biomet, Inc. and Jazz Pharmaceuticals, Inc.
James C. Momtazee has been a member of KKR Management
LLC, the general partner of KKR & Co. L.P. since
October 1, 2009. Before that, he was a member of the
limited liability company which served as the general partner of
Kohlberg Kravis Roberts & Co. L.P. since 2009. From
1996 to 2009, he was an executive of
98
Kohlberg Kravis Roberts & Co. L.P. From 1994 to 1996,
Mr. Momtazee was with Donaldson, Lufkin &
Jenrette in its investment banking department. Mr. Momtazee
served as a director of Alliance Imaging from 2002 to 2007 and
Accuride from March 2005 to December 2005 and currently serves
as a director of Accellent, Inc. and Jazz Pharmaceuticals, Inc.
Stephen G. Pagliuca is a Managing Director of Bain
Capital Partners, LLC. Mr. Pagliuca is also a Managing
Partner and an owner of the Boston Celtics basketball franchise.
Mr. Pagliuca joined Bain & Company in 1982 and
founded the Information Partners private equity fund for Bain
Capital in 1989. He also worked as a senior accountant and
international tax specialist for Peat Marwick
Mitchell & Company in the Netherlands.
Mr. Pagliuca served as a director of Warner Chilcott, Ltd.
from 2005 to 2009, HCA Inc. from November 2006 to September
2009, Quintiles Transnational Corp. from 2008 to 2009, M/C
Communications from 2004 to 2009, FCI, S.A. from 2005 to 2009
and Burger King Holdings Inc. from 2002 to 2010 and currently
serves as a director of Gartner, Inc.
Nathan C. Thorne was a Senior Vice President of Merrill
Lynch & Co., Inc., a subsidiary of Bank of America
Corporation, from February 2006 to July 2009, and President of
Merrill Lynch Global Private Equity from 2002 to 2009.
Mr. Thorne joined Merrill Lynch in 1984. Mr. Thorne
served as a director of Nuveen Investments, Inc. from December
2007 to February 2011.
Jay O. Light will be an independent director upon the
pricing of this offering. Mr. Light has also served as a
member of the board of directors of The Blackstone Group
L.P.s general partner since September 2008. Mr. Light
is the Dean Emeritus of Harvard Business School and, prior to
becoming Dean in April 2006, Mr. Light was Senior Associate
Dean, Chairman of the Finance Area, and a professor teaching
Investment Management, Capital Markets, and Entrepreneurial
Finance for 30 years. Mr. Light is a director of the
Harvard Management Company, a director of Partners HealthCare
(the Mass General and Brigham & Womens
Hospitals) and chairman of its Investment Committee, a member of
the Investment Committee of several endowments and a director of
several private firms. In prior years until 2008, Mr. Light
was a Trustee of the GMO Trusts, a family of mutual funds for
institutional investors.
Geoffrey G. Meyers will be an independent director upon
the pricing of this offering. Mr. Meyers has also served as
a director PharMerica Corporation since November 2009, and
currently is Chairman of the Board and, in February 2010, became
a member of its Nominating and Governance Committee.
Mr. Meyers is the retired Chief Financial Officer and
Executive Vice President and Treasurer for Manor Care, Inc.
where he had responsibility for administration and financial
management from 1988 until 2006 and was a director of Health
Care and Retirement Corp., a predecessor of Manor Care, Inc.,
from 1991 to 1998. Mr. Meyers currently is Chairman of the
Board of the Trust Company of Toledo, a northwestern Ohio
trust bank. He is also Treasurer of the Board of Directors of
Mercy Health Partners, the northern region of Catholic Health
Partners. He has been appointed a part-time member of senior
management at flexible solar panel manufacturer, Xunlight
Corporation. He received his BS from Northwestern University and
his MBA from The Ohio State University.
99
Executive
Officers
As of February 11, 2011, our executive officers (other than
Messrs. Bracken and Johnson who are listed above) were as
follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
David G. Anderson
|
|
|
63
|
|
|
Senior Vice President Finance and Treasurer
|
Victor L. Campbell
|
|
|
64
|
|
|
Senior Vice President
|
Jana J. Davis
|
|
|
52
|
|
|
Senior Vice President Communications
|
Jon M. Foster
|
|
|
49
|
|
|
Group President
|
Charles J. Hall
|
|
|
57
|
|
|
Group President
|
Samuel N. Hazen
|
|
|
50
|
|
|
President Operations
|
A. Bruce Moore, Jr.
|
|
|
50
|
|
|
Group President Service Line and Operations
Integration
|
Jonathan B. Perlin, M.D.
|
|
|
49
|
|
|
President Clinical and Physician Services Group and
Chief Medical Officer
|
W. Paul Rutledge
|
|
|
56
|
|
|
Group President
|
Joseph A. Sowell, III
|
|
|
54
|
|
|
Senior Vice President and Chief Development Officer
|
Joseph N. Steakley
|
|
|
56
|
|
|
Senior Vice President Internal Audit Services
|
John M. Steele
|
|
|
55
|
|
|
Senior Vice President Human Resources
|
Donald W. Stinnett
|
|
|
54
|
|
|
Senior Vice President and Controller
|
Juan Vallarino
|
|
|
50
|
|
|
Senior Vice President Strategic Pricing and Analytics
|
Beverly B. Wallace
|
|
|
60
|
|
|
President NewCo Business Solutions
|
Robert A. Waterman
|
|
|
57
|
|
|
Senior Vice President, General Counsel and Chief Labor Relations
Officer
|
Noel Brown Williams
|
|
|
55
|
|
|
Senior Vice President and Chief Information Officer
|
Alan R. Yuspeh
|
|
|
61
|
|
|
Senior Vice President and Chief Ethics and Compliance Officer
|
David G. Anderson has served as Senior Vice
President Finance and Treasurer of the Company since
July 1999. Mr. Anderson served as Vice
President Finance of the Company from September 1993
to July 1999 and was appointed to the additional position of
Treasurer in November 1996. From March 1993 until September
1993, Mr. Anderson served as Vice President
Finance and Treasurer of Galen Health Care, Inc. From July 1988
to March 1993, Mr. Anderson served as Vice
President Finance and Treasurer of Humana Inc.
Victor L. Campbell has served as Senior Vice President of
the Company since February 1994. Prior to that time,
Mr. Campbell served as HCA-Hospital Corporation of
Americas Vice President for Investor, Corporate and
Government Relations. Mr. Campbell joined HCA-Hospital
Corporation of America in 1972. Mr. Campbell serves on the
board of the Nashville Health Care Council, as a member of the
American Hospital Associations Presidents Forum, and
on the board and Executive Committee of the Federation of
American Hospitals.
Jana J. Davis was appointed Senior Vice
President Communications in February 2011. Prior to
that time, she served as Vice President of Communications for
the Company from November 1997 to February 2011. Ms. Davis
joined HCA in 1997 from
Burson-Marsteller,
where she was a Managing Director and served as Corporate
Practice Chair for Latin American operations. Ms. Davis
also held a number of Public Affairs positions in the
George H.W. Bush and Reagan Administrations. Ms. Davis
is an attorney and serves as chair of the Public Relations
Committee for the Federation of American Hospitals.
Jon M. Foster was appointed Group President in February
2011. Prior to that, Mr. Foster served as Division
President for the Central and West Texas Division from
January 2006 to February 2011. Mr. Foster
100
joined HCA in March 2001 as President and CEO of
St. Davids HealthCare in Austin, Texas and served in
that position until February 2011. Prior to joining the Company,
Mr. Foster served in various executive capacities within
the Baptist Health System, Knoxville, Tennessee and The
Methodist Hospital System in Houston, Texas.
Charles J. Hall was appointed Group President in October
2006; his formal title prior to February 2011 was
President Eastern Group. Prior to that time,
Mr. Hall had served as President North Florida
Division since April 2003. Mr. Hall had previously served
the Company as President of the East Florida Division from
January 1999 until April 2003, as a Market President in the East
Florida Division from January 1998 until December 1998, as
President of the South Florida Division from February 1996 until
December 1997, and as President of the Southwest Florida
Division from October 1994 until February 1996, and in various
other capacities since 1987.
Samuel N. Hazen was appointed President
Operations of the Company in February 2011. Mr. Hazen
served as President Western Group from July 2001 to
February 2011 and as Chief Financial Officer Western
Group of the Company from August 1995 to July 2001.
Mr. Hazen served as Chief Financial Officer
North Texas Division of the Company from February 1994 to July
1995. Prior to that time, Mr. Hazen served in various
hospital and regional Chief Financial Officer positions with
Humana Inc. and Galen Health Care, Inc.
A. Bruce Moore, Jr. was appointed Group
President Service Line and Operations Integration in
February 2011. Mr. Moore had served as
President Outpatient Services Group since January
2006. Mr. Moore served as Senior Vice President and as Chief
Operating Officer Outpatient Services Group from
July 2004 to January 2006 and as Senior Vice
President Operations Administration from July 1999
until July 2004. Mr. Moore served as Vice
President Operations Administration of the Company
from September 1997 to July 1999, as Vice President
Benefits from October 1996 to September 1997, and as Vice
President Compensation from March 1995 until October
1996.
Dr. Jonathan B. Perlin was appointed
President Clinical and Physician Services Group and
Chief Medical Officer in February 2011. Dr. Perlin had
served as President Clinical Services Group and
Chief Medical Officer from November 2007 to February 2011 and as
Chief Medical Officer and Senior Vice President
Quality of the Company from August 2006 to November 2007. Prior
to joining the Company, Dr. Perlin served as Under
Secretary for Health in the U.S. Department of Veterans
Affairs since April 2004. Dr. Perlin joined the Veterans
Health Administration in November 1999 where he served in
various capacities, including as Deputy Under Secretary for
Health from July 2002 to April 2004, and as Chief Quality and
Performance Officer from November 1999 to September 2002.
W. Paul Rutledge was appointed as Group President in
October 2005; his formal title prior to February 2011 was
President Central Group. Mr. Rutledge had
served as President of the MidAmerica Division since January
2001. He served as President of TriStar Health System from June
1996 to January 2001 and served as President of Centennial
Medical Center from May 1993 to June 1996. He has served in
leadership capacities with HCA for more than 28 years,
working with hospitals in the United States and London, England.
Joseph A. Sowell, III was appointed as Senior Vice
President and Chief Development Officer of the Company in
December 2009. From 1987 to 1996 and again from 1999 to 2009,
Mr. Sowell was a partner at the law firm of Waller Lansden
Dortch & Davis where he specialized in the areas of
health care law, mergers and acquisitions, joint ventures,
private equity financing, tax law and general corporate law. He
also co-managed the firms corporate and commercial
transactions practice. From 1996 to 1999, Mr. Sowell served
as the head of development, and later as the Chief Operating
Officer of Arcon Healthcare.
Joseph N. Steakley has served as Senior Vice
President Internal Audit Services of the Company
since July 1999. Mr. Steakley served as Vice
President Internal Audit Services from November 1997
to July 1999. From October 1989 until October 1997,
Mr. Steakley was a partner with Ernst & Young
LLP. Mr. Steakley is a member of the board of directors of
J. Alexanders Corporation, where he serves on the
compensation committee and as chairman of the audit committee.
101
John M. Steele has served as Senior Vice
President Human Resources of the Company since
November 2003. Mr. Steele served as Vice
President Compensation and Recruitment of the
Company from November 1997 to October 2003. From March 1995
to November 1997, Mr. Steele served as Assistant Vice
President Recruitment.
Donald W. Stinnett has served as Senior Vice President
and Controller since December 2008. Mr. Stinnett served as
Chief Financial Officer Eastern Group from October
2005 to December 2008 and Chief Financial Officer of the Far
West Division from July 1999 to October 2005. Mr. Stinnett
served as Chief Financial Officer and Vice President of Finance
of Franciscan Health System of the Ohio Valley from 1995 until
1999, and served in various capacities with Franciscan Health
System of Cincinnati and Providence Hospital in Cincinnati prior
to that time.
Juan Vallarino was appointed Senior Vice
President Strategic Pricing and Analytics in
February 2011. Prior to that time, Mr. Vallarino had served
as Vice President Strategic Pricing and Analytics
since October 2006. Prior to that, Mr. Vallarino served as
Vice President of Managed Care for the Western Group of the
Company from January 1998 to October 2006.
Beverly B. Wallace was appointed President
NewCo Business Solutions in February 2011. From March 2006 until
February 2011, Ms. Wallace served as President
Shared Services Group, and from January 2003 until March 2006,
Ms. Wallace served as President Financial
Services Group. Ms. Wallace served as Senior Vice
President Revenue Cycle Operations Management of the
Company from July 1999 to January 2003. Ms. Wallace served
as Vice President Managed Care of the Company from
July 1998 to July 1999. From 1997 to 1998, Ms. Wallace
served as President Homecare Division of the
Company. From 1996 to 1997, Ms. Wallace served as Chief
Financial Officer Nashville Division of the Company.
From 1994 to 1996, Ms. Wallace served as Chief Financial
Officer
Mid-America
Division of the Company.
Robert A. Waterman has served as Senior Vice President
and General Counsel of the Company since November 1997 and Chief
Labor Relations Officer since March 2009. Mr. Waterman
served as a partner in the law firm of Latham &
Watkins from September 1993 to October 1997; he was Chair of the
firms health care group during 1997.
Noel Brown Williams has served as Senior Vice President
and Chief Information Officer of the Company since October 1997.
From October 1996 to September 1997, Ms. Williams served as
Chief Information Officer for American Service Group/Prison
Health Services, Inc. From September 1995 to September 1996,
Ms. Williams worked as an independent consultant. From June
1993 to June 1995, Ms. Williams served as Vice President,
Information Services for HCA Information Services. From February
1979 to June 1993, she held various positions with HCA-Hospital
Corporation of America Information Services.
Alan R. Yuspeh has served as Senior Vice President and
Chief Ethics and Compliance Officer of the Company since May
2007. From October 1997 to May 2007, Mr. Yuspeh served as
Senior Vice President Ethics, Compliance and
Corporate Responsibility of the Company. From September 1991
until October 1997, Mr. Yuspeh was a partner with the law
firm of Howrey & Simon. As a part of his law practice,
Mr. Yuspeh served from 1987 to 1997 as Coordinator of the
Defense Industry Initiative on Business Ethics and Conduct.
Board of
Directors
Our Board of Directors currently consists of thirteen directors,
who are each managers of Hercules Holding. Upon the consummation
of this offering, we will enter into a stockholders
agreement (the Stockholders Agreement) with
Hercules Holding and the Investors (other than the Sponsor
Assignees) which, among other things, will provide for certain
rights of the Sponsors and the Frist Entities to nominate
members of our Board of Directors. See Certain
Relationships and Related Party Transactions. In addition,
Mr. Brackens and Mr. Johnsons employment
agreements provide that they will continue to serve as a member
of our Board of Directors so long as they remain an officer of
HCA. Because of these requirements, together with Hercules
Holdings ownership of approximately 96.8% of our
outstanding common stock prior to this offering, we do not
currently have a policy or procedures with respect to
stockholder recommendations for nominees to the Board of
Directors, nor do we have a nominating and corporate governance
committee, or
102
a committee that serves a similar purpose. We intend to
establish a nominating and corporate governance committee and
stockholder nomination recommendation procedures upon the
pricing this offering.
Upon the pricing of this offering, we intend to appoint
Jay O. Light and Geoffrey G. Meyers as new members of
our Board of Directors. Our Board has affirmatively determined
that each of such nominees meets the definition of
independent director for purposes of the New York
Stock Exchange rules.
Controlled
Company Exception
After completion of this offering, the Investors will continue
to control a majority of our outstanding common stock. As a
result, we will be a controlled company within the
meaning of the New York Stock Exchange corporate governance
standards. Under the New York Stock Exchange rules, a company of
which more than 50% of the voting power is held by an
individual, group or another company is a controlled
company and may elect not to comply with certain New York
Stock Exchange corporate governance requirements, including:
|
|
|
|
|
the requirement that a majority of the Board of Directors
consist of independent directors;
|
|
|
|
the requirement that we have a nominating and corporate
governance committee that is composed entirely of independent
directors with a written charter addressing the committees
purpose and responsibilities;
|
|
|
|
the requirement that we have a compensation committee that is
composed entirely of independent directors with a written
charter addressing the committees purpose and
responsibilities; and
|
|
|
|
the requirement for an annual performance evaluation of the
nominating and corporate governance and compensation committees.
|
Following this offering, we intend to rely on these exemptions.
As a result, we will not have a majority of independent
directors on our Board of Directors nor will our compensation
committee or nominating and corporate governance committee
consist entirely of independent directors and such committees
will not be subject to annual performance evaluations.
Accordingly, you will not have the same protections afforded to
stockholders of companies that are subject to all of the New
York Stock Exchange corporate governance requirements.
103
Committees
of the Board of Directors
Our Board of Directors currently has four standing committees:
the Audit and Compliance Committee, the Compensation Committee,
the Executive Committee and the Patient Safety and Quality of
Care Committee. Currently each of the Investors (other than the
Sponsor Assignees) has the right to have at least one director
serve on all standing committees. Upon consummation of this
offering and the entering into of our new Stockholders
Agreement, each of the Investors (except for the Sponsor
Assignees) has the right to have at least one director serve on
all standing committees, except as precluded by applicable law,
rule, regulation or listing standards. The chart below reflects
the composition of the standing committees upon the pricing of
this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient
|
|
|
|
|
|
|
Nominating and
|
|
Safety and
|
|
|
Audit and
|
|
|
|
Corporate
|
|
Quality of
|
Name of Director
|
|
Compliance
|
|
Compensation
|
|
Governance
|
|
Care
|
|
Christopher J. Birosak
|
|
|
|
|
|
|
|
|
Richard M. Bracken*
|
|
|
|
|
|
|
|
|
John P. Connaughton
|
|
|
|
X
|
|
|
|
|
James D. Forbes
|
|
|
|
X
|
|
X
|
|
|
Kenneth W. Freeman
|
|
|
|
|
|
|
|
X
|
Thomas F. Frist III
|
|
|
|
|
|
X
|
|
|
William R. Frist
|
|
|
|
|
|
|
|
X
|
Christopher R. Gordon
|
|
|
|
|
|
|
|
|
R. Milton Johnson*
|
|
|
|
|
|
|
|
|
Michael W. Michelson
|
|
|
|
X
|
|
X
|
|
|
James C. Momtazee
|
|
|
|
|
|
|
|
|
Stephen G. Pagliuca
|
|
|
|
|
|
X
|
|
X
|
Nathan C. Thorne
|
|
|
|
|
|
|
|
X
|
Jay O. Light
|
|
X
|
|
X
|
|
|
|
|
Geoffrey G. Meyers
|
|
X
|
|
X
|
|
|
|
|
|
|
|
* |
|
Indicates management director. |
Audit and Compliance Committee. Our Audit and
Compliance Committee is currently composed of Christopher R.
Gordon, Chairman, Christopher J. Birosak, Thomas F. Frist III,
and James C. Momtazee. In light of our status as a closely held
company and the absence of a public trading market for our
common stock, our Board has not designated any member of the
Audit and Compliance Committee as an audit committee
financial expert within the meaning of the SEC
regulations. None of the current members of the Audit and
Compliance Committee would meet the independence requirements of
Rule 10A-1
of the Exchange Act or the NYSEs audit committee
independence requirements, because of their relationships with
certain affiliates of the funds and other entities which hold
significant interests in Hercules Holding, which, as of
February 11, 2011, owned approximately 96.8% of our
outstanding common stock, and other relationships with us. See
Certain Relationships and Related Party
Transactions. This committee reviews the programs of our
internal auditors, the results of their audits, and the adequacy
of our system of internal controls and accounting practices.
This committee also reviews the scope of the annual audit by our
independent registered public accounting firm before its
commencement, reviews the results of the audit and reviews the
types of services for which we retain our independent registered
public accounting firm. The Audit and Compliance Committee has
adopted a charter which can be obtained on the Corporate
Governance page of the Companys website at
www.hcahealthcare.com. In 2010, the Audit and Compliance
Committee met seven times.
Upon the pricing of this offering, the current Audit and
Compliance Committee members will resign and Jay O. Light and
Geoffrey G. Meyers will be the members of our Audit and
Compliance Committee. Our Board has affirmatively determined
that each of such nominees meets the definition of
independent director for purposes of the New York
Stock Exchange rules and the independence requirements of
Rule 10A-3
of the Exchange Act. Our Board intends to name Geoffrey G.
Meyers as the member of our Audit and Compliance Committee who
qualifies as an audit committee financial expert
under SEC rules and regulations.
104
Our Audit and Compliance Committee will be responsible for,
among other things:
|
|
|
|
|
selecting the independent auditors,
|
|
|
|
pre-approving all audit engagement fees and terms, as well as
audit and permitted non-audit services to be provided by the
independent auditors,
|
|
|
|
at least annually, obtaining and reviewing a report of the
independent auditors describing the audit firms internal
quality-control procedures and any material issues raised by its
most recent review of internal quality controls,
|
|
|
|
evaluating the qualifications, performance and independence of
the independent auditors,
|
|
|
|
reviewing with the independent auditor any difficulties the
independent auditor encountered during the course of the audit
work, including any restrictions in the scope of activities or
access to requested information or any significant disagreements
with management and managements responses to such matters,
|
|
|
|
setting policies regarding the hiring of current and former
employees of the independent auditors,
|
|
|
|
reviewing and discussing the annual audited and quarterly
unaudited financial statements with management and the
independent auditor,
|
|
|
|
discussing earnings press releases and the financial information
and earnings guidance provided to analysts and rating agencies,
|
|
|
|
discussing policies governing the process by which risk
assessment and risk management is to be undertaken,
|
|
|
|
reviewing disclosures made by the CEO and CFO regarding any
significant deficiencies or material weaknesses in our internal
control over financial reporting,
|
|
|
|
reviewing with the independent auditor the internal audit
responsibilities, budget and staffing, as well as procedures for
implementing recommendations made by the independent auditor and
any significant matters contained in reports from the internal
audit department,
|
|
|
|
establishing procedures for receipt, retention and treatment of
complaints we receive regarding accounting, auditing or internal
controls and the confidential, anonymous submission of anonymous
employee concerns regarding questionable accounting and auditing
matters,
|
|
|
|
discussing with our general counsel legal or regulatory matters
that could reasonably be expected to have a material impact on
business or financial statements,
|
|
|
|
annually evaluating performance of the Audit and Compliance
Committee and periodically reviewing and reassessing the Audit
and Compliance Committee charter,
|
|
|
|
providing information to our Board that may assist the Board in
fulfilling its responsibility to oversee the integrity of the
Companys financial statements, the Companys
compliance with legal and regulatory requirements, the
independent auditors qualifications and independence and
the performance of the Companys internal audit function
and independent auditor, and
|
|
|
|
preparing the report required by the SEC to be included in our
annual report on Form 10-K or our proxy or information
statement.
|
Our Board of Directors will adopt an amended written charter for
the Audit and Compliance Committee which will be available on
our website as soon as practical upon the consummation of this
offering.
Compensation Committee. Our Compensation
Committee is currently composed of James D. Forbes (Chairman),
John P. Connaughton and Michael W. Michelson. None of the
current members of our Compensation Committee would meet the
NYSEs independence requirements. The Compensation
Committee is generally charged with the oversight of our
executive compensation and rewards programs. Responsibilities of
the Compensation Committee include the review and approval of
the following items:
|
|
|
|
|
executive compensation strategy and philosophy,
|
|
|
|
compensation arrangements for executive management,
|
105
|
|
|
|
|
design and administration of the annual cash-based Senior
Officer Performance Excellence Program,
|
|
|
|
design and administration of our equity incentive plans,
|
|
|
|
executive benefits and perquisites (including the HCA
Restoration Plan and the Supplemental Executive Retirement
Plan), and
|
|
|
|
any other executive compensation or benefits related items
deemed noteworthy by the Compensation Committee.
|
The Compensation Committee may retain the services of
independent outside consultants, as it deems appropriate, to
assist in the strategic review of programs and arrangements
relating to executive compensation and performance. In 2010, the
Compensation Committee hired Semler Brossy Consulting Group, LLC
to assist in conducting an assessment of competitive executive
compensation. Semler Brossy Consulting Group is retained by, and
reports directly to, the Compensation Committee. A consultant
from the firm attends most of the Compensation Committee
meetings in person or by phone and supports the Committees
role by providing independent expertise. Its main
responsibilities are to:
|
|
|
|
|
review and advise on the Companys executive compensation
programs, including base salaries, short- and long-term
incentives, and other benefits, if any,
|
|
|
|
review and analyze peer proxy officer compensation, compensation
survey data, and other publicly available data,
|
|
|
|
review and analyze management prepared market pricing analysis
(i.e., review compensation surveys used, job matches, survey
weightings, and
year-over-year
change in analysis results), and
|
|
|
|
advise on current trends in compensation including design and
pay levels.
|
The Compensation Committee may consider recommendations from our
Chief Executive Officer and compensation consultants, among
other factors, in making its compensation determinations. The
Compensation Committee has the authority to delegate any of its
responsibilities to one or more subcommittees as the committee
may deem appropriate. For a discussion of the processes and
procedures for determining executive and director compensation
and the role of executive officers and compensation consultants
in determining or recommending the amount or form of
compensation, see Executive Compensation
Compensation Discussion and Analysis. The Compensation
Committee has adopted a charter which can be obtained on the
Corporate Governance page of our website at
www.hcahealthcare.com. In 2010, the Compensation Committee met
twelve times.
Upon the pricing of this offering, we intend to appoint Jay O.
Light and Geoffrey G. Meyers as additional members of our
Compensation Committee. Our Board of Directors has affirmatively
determined that each of such newly-appointed nominees meets the
definition of independent director for purposes of
the New York Stock Exchange rules, the definition of
outside director for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended, and the
definition of non-employee director for purposes of
Section 16 of the Securities Exchange Act of 1934, as
amended. In addition, we intend to establish a sub-committee of
our Compensation Committee consisting of Jay O. Light and
Geoffrey G. Meyers for purposes of approving any compensation
that may otherwise be subject to Section 162(m) of the
Internal Revenue Code of 1986, as amended.
Nominating and Corporate Governance
Committee. Upon the pricing of this offering, we
will form a Nominating and Corporate Governance Committee that
will consist of James D. Forbes, Thomas F. Frist III, Michael W.
Michelson and Stephen G. Pagliuca. The Nominating and Corporate
Governance Committee will be responsible for
(1) identifying, recruiting and recommending to the Board
of Directors individuals qualified to become members of our
Board of Directors, (2) reviewing the qualifications of
incumbent directors to determine whether to recommend them for
reelection, (3) reviewing and recommending corporate
governance policies, principles and procedures applicable to the
Company and (4) handling such other matters that are
specifically delegated to the Nominating and Corporate
Governance Committee by the Board of Directors from time to time.
Our Board of Directors will adopt a written charter for the
Nominating and Corporate Governance Committee which will be
available on our website as soon as practical after the
consummation of this offering.
106
Patient Safety and Quality of Care
Committee. Our Patient Safety and Quality of Care
Committee is composed of Kenneth W. Freeman (Chairman), William
R. Frist, Stephen G. Pagliuca and Nathan C. Thorne. This
committee reviews our policies and procedures relating to the
delivery of quality medical care to patients as well as matters
concerning or relating to the efforts to advance the quality of
health care provided and patient safety. In 2010, the Patient
Safety and Quality of Care Committee met three times.
Director
Qualification
The Board of Directors seeks to ensure the Board is composed of
members whose particular experience, qualifications, attributes
and skills, when taken together, will allow the Board to satisfy
its oversight responsibilities effectively. In identifying
candidates for membership on the Board, the Board takes into
account (1) minimum individual qualifications, such as high
ethical standards, integrity, mature and careful judgment,
industry knowledge or experience and an ability to work
collegially with the other members of the Board and (2) all
other factors it considers appropriate, including alignment with
our stockholders, especially investment funds affiliated with
the Sponsors. While we do not have any specific diversity
policies for considering Board candidates, we believe each
director contributes to the Board of Directors overall
diversity diversity being broadly construed to mean
a variety of opinions, perspectives, personal and professional
experiences and backgrounds.
In 2010, Messrs. Birosak, Bracken, Connaughton, Forbes,
Freeman, Frist III, Frist, Gordon, Johnson, Michelson, Momtazee,
Pagliuca and Thorne were elected to the Companys Board.
Messrs. Birosak, Connaughton, Forbes, Freeman, Frist III,
Frist, Gordon, Michelson, Momtazee, Pagliuca and Thorne were
appointed to the Board as a consequence of their respective
relationships with investment funds affiliated with the Sponsors
and the Frist Entities. They are collectively referred to as the
Sponsor Directors. Messrs. Bracken and Johnson
are collectively referred to as the Management
Directors.
When considering whether the Boards directors and nominees
have the experience, qualifications, attributes and skills,
taken as a whole, to enable the Board to satisfy its oversight
responsibilities effectively in light of our business and
structure, the Board focused primarily on the information
discussed in each of the Board members and nominees
biographical information set forth above.
Each of our directors and director nominees possesses high
ethical standards, acts with integrity, and exercises careful,
mature judgment. Each is committed to employing their skills and
abilities to aid the long-term interests of the stakeholders of
the Company. In addition, our directors and director nominees
are knowledgeable and experienced in one or more business,
governmental or civic endeavors, which further qualifies them
for service as members of the Board. Alignment with our
stockholders is important in building value at the Company over
time.
Each of the Sponsor Directors was elected to the Board pursuant
to the Amended and Restated Limited Liability Company Agreement
of Hercules Holding. Pursuant to such agreement,
Messrs. Freeman, Michelson and Momtazee were appointed to
the Board as a consequence of their respective relationships
with KKR, Messrs. Birosak, Forbes and Thorne were appointed
to the Board as a consequence of their respective relationships
with BAML Capital Partners, Messrs. Connaughton, Gordon and
Pagliuca were appointed to the Board as a consequence of their
respective relationships with Bain Capital Partners, LLC and
Messrs. Frist III and Frist were appointed to the
Board as a consequence of their respective relationships with
the Frist Entities.
As a group, the Sponsor Directors possess experience in owning
and managing enterprises like the Company and are familiar with
corporate finance, strategic business planning activities and
issues involving stakeholders more generally.
The Management Directors bring leadership, extensive business,
operating, legal and policy experience, and tremendous knowledge
of the Company and the Companys industry, to the Board. In
addition, the Management Directors bring their broad strategic
vision for our Company to the Board. Mr. Brackens
service as the Chairman and Chief Executive Officer of the
Company and Mr. Johnsons service as President, Chief
Financial Officer and Director creates a critical link between
management and the Board, enabling the Board to perform its
oversight function with the benefits of managements
perspectives on the business. In addition, having the Chief
Executive Officer and President and Chief Financial Officer, and
Messrs. Bracken and Johnson in particular, on our Board
provides the Company with ethical, decisive and effective
leadership.
107
Mr. Light was selected as a director in light of his experience
in serving as a director of several firms, including public
companies, his financial expertise and his service with other
health care organizations. Mr. Lights professional
experience will be particularly beneficial in providing
financial and general business expertise to the Board of
Directors. Mr. Meyers was selected as a director in light of his
experience in serving as a director of several firms, including
public companies, and his extensive experience in the health
care industry. In addition, Mr. Meyers experience as a
chief financial officer of a public company will provide
valuable experience in his role as chair of our Audit and
Compliance Committee.
As noted above, upon the consummation of this offering, we will
enter into the Stockholders Agreement which, among other
things, will provide for certain rights of the Sponsors and the
Frist Entities to nominate members of our Board of Directors.
Board
Leadership Structure
The Board appointed the Companys Chief Executive Officer
as Chairman because he is the director most familiar with the
Companys business and industry, and as a result is best
suited to effectively identify strategic priorities and lead the
discussion and execution of strategy. The Board believes the
combined position of Chairman and CEO promotes a unified
direction and leadership for the Board and gives a single, clear
focus for the chain of command for our organization, strategy
and business plans.
Boards
Role in Risk Oversight
Risk is inherent with every business. Management is responsible
for the
day-to-day
management of risks the Company faces, while the Board of
Directors, as a whole and through its committees, has
responsibility for the oversight of risk management. In its risk
oversight role, the Board of Directors has the responsibility to
satisfy itself that the risk management processes designed and
implemented by management are adequate and functioning as
designed. Our Board of Directors oversees an enterprise-wide
approach to risk management, designed to support the achievement
of organizational objectives, including strategic objectives, to
improve long-term organizational performance and enhance
stockholder value. A fundamental aspect of risk management is
not only understanding the risks a company faces and what steps
management is taking to manage those risks, but also
understanding what level of risk is appropriate for the company.
The involvement of the full Board of Directors in setting our
business strategy is a key part of its assessment of
managements appetite for risk and also a determination of
what constitutes an appropriate level of risk for the Company.
We conduct an annual enterprise risk management assessment,
which is facilitated by our enterprise risk management team in
collaboration with our internal auditors. The senior internal
audit executive officer reports to the Chief Executive Officer
and Chairman and to the Audit and Compliance Committee in this
capacity. In this process, we assess risk throughout the Company
by conducting surveys and interviews of our employees and
directors soliciting information regarding business risks that
could significantly adversely affect the Company, including the
achievement of its strategic plan. We then identify any controls
or initiatives in place to mitigate any material risk and the
effectiveness of any such controls or initiatives. The
enterprise risk management team annually prepares a report for
senior management and, ultimately, the Board of Directors
regarding the key identified risks and how we manage these risks
to review and analyze both on an annual and ongoing basis.
Senior management attends the quarterly Board meetings and is
available to address any questions or concerns raised by the
Board regarding risk management and any other matters.
Additionally, each quarter, the Board of Directors receives
presentations from senior management on strategic matters
involving our operations.
While the Board of Directors has the ultimate oversight
responsibility for the risk management process, various
committees of the Board assist the Board in fulfilling its
oversight responsibilities in certain areas of risk. In
particular, the Audit and Compliance Committee focuses on
financial and enterprise risk exposures, including internal
controls, and discusses with management, the senior internal
audit executive officer, the senior chief ethics and compliance
officer and the independent auditor our policies with respect to
risk assessment and risk management. The Audit and Compliance
Committee also assists the Board in fulfilling its duties and
oversight responsibilities relating to the Companys
compliance with applicable laws and regulations, the Company
Code of Conduct and related Company policies and procedures,
including the Corporate Ethics and Compliance Program. The
Compensation Committee assists the Board in fulfilling its
108
oversight responsibilities with respect to the management of
risks arising from our compensation policies and programs. The
Patient Safety and Quality of Care Committee assists the Board
in fulfilling its risk oversight responsibility with respect to
our policies and procedures relating to patient safety and the
delivery of quality medical care to patients.
Board
Meetings
During 2010, our Board of Directors held ten meetings. All
directors attended at least 75% of the Board meetings and
meetings of the committees of the Board on which the director
served. The Company did not have an annual meeting of
stockholders in 2009 or 2010, and our directors were re-elected
through stockholder actions taken on written consent effective
September 21, 2009 and April 28, 2010.
Policy
Regarding Communications with the Board of
Directors
Stockholders and other interested parties may contact the Board
of Directors, a particular director, or the non-management
directors or independent directors as a group by sending a
letter (signed or anonymous) to:
c/o Board
of Directors, HCA Holdings, Inc., One Park Plaza, Nashville, TN
37203, Attention: Corporate Secretary.
We will forward all such communications to the applicable Board
member(s) at least quarterly, except for advertisements or
solicitations which will be discarded. The legal department will
review the communication. Concerns will be addressed through our
regular procedures for addressing such matters. Depending on the
nature of the concern, management also may refer it to our
internal audit, legal, finance or other appropriate department.
If the volume of communication becomes such that the Board
adopts a process for determining which communications will be
relayed to Board members, that process will appear on the
Corporate Governance page of our website at
www.hcahealthcare.com.
Complaints or concerns about our accounting, internal accounting
controls, auditing or other matters may be reported to our legal
department or to the Audit and Compliance Committee in any of
the following ways and may be reported anonymously:
|
|
|
|
|
Call the HCA Ethics Line at
1-800-455-1996
|
|
|
|
Write to the Audit and Compliance Committee at: Audit and
Compliance Committee Chairman, HCA Holdings, Inc.,
c/o General
Counsel, One Park Plaza, Nashville, TN 37203
|
All accounting, internal accounting controls, or auditing
matters will be reported to the Audit and Compliance Committee
on at least a quarterly basis. Depending on the nature of the
concern, it also may be referred to our internal audit, legal,
finance or other appropriate department. We will treat a
complaint or concern about questionable accounting or auditing
matters confidentially if requested, except to the extent
necessary to protect the Companys interests or to comply
with an applicable law, rule or regulation or order of a
judicial or governmental authority.
Our policy prohibits any employee from retaliating or taking any
adverse action against anyone who, in good faith, reports or
helps to resolve an ethical or legal concern.
Code of
Ethics
We have a Code of Conduct, which is applicable to all our
directors, officers and employees (the Code of
Conduct). The Code of Conduct is available on the Ethics
and Compliance and Corporate Governance pages of our website at
www.hcahealthcare.com. To the extent required pursuant to
applicable SEC regulations, we intend to post amendments to or
waivers from our Code of Conduct (to the extent applicable to
our chief executive officer, principal financial officer or
principal accounting officer) at these locations on our website
or report the same on a Current Report on Form
8-K. Our
Code of Conduct is available free of charge upon request to our
Corporate Secretary, HCA Holdings, Inc., One Park Plaza,
Nashville, TN 37203.
109
EXECUTIVE
COMPENSATION
Compensation
Risk Assessment
In consultation with the Compensation Committee (the
Committee) of the Board of Directors, members of
Human Resources, Financial Reporting, Legal, Enterprise Risk
Management and Internal Audit management conducted an assessment
of whether the Companys compensation policies and
practices encourage excessive or inappropriate risk taking by
our employees, including employees other than our named
executive officers. This assessment included a review of the
risk characteristics of our business and the design of our
incentive plans and policies. Although a significant portion of
our executive compensation program is performance-based, the
Compensation Committee has focused on aligning the
Companys compensation policies with the long-term
interests of the Company and avoiding rewards or incentive
structures that could create unnecessary risks to the Company.
Management reported its findings to the Compensation Committee,
which agreed with managements assessment that our plans
and policies do not encourage excessive or inappropriate risk
taking and determined such policies or practices are not
reasonably likely to have a material, adverse effect on the
Company.
Compensation
Discussion and Analysis
The Committee is generally charged with the oversight of our
executive compensation and rewards programs. The Committee is
currently composed of John P. Connaughton, James D. Forbes
and Michael W. Michelson. Responsibilities of the Committee
include the review and approval of the following items:
|
|
|
|
|
Executive compensation strategy and philosophy;
|
|
|
|
Compensation arrangements for executive management;
|
|
|
|
Design and administration of the annual Senior Officer
Performance Excellence Program (PEP);
|
|
|
|
Design and administration of our equity incentive plans;
|
|
|
|
Executive benefits and perquisites (including the HCA
Restoration Plan and the Supplemental Executive Retirement
Plan); and
|
|
|
|
Any other executive compensation or benefits related items
deemed appropriate by the Committee.
|
In addition, the Committee considers the proper alignment of
executive pay policies with Company values and strategy by
overseeing executive compensation policies, corporate
performance measurement and assessment, and Chief Executive
Officer performance assessment. The Committee may retain the
services of independent outside consultants, as it deems
appropriate, to assist in the strategic review of programs and
arrangements relating to executive compensation and performance.
The following executive compensation discussion and analysis
describes the principles underlying our executive compensation
policies and decisions as well as the material elements of
compensation for our named executive officers. Our named
executive officers for 2010 were:
|
|
|
|
|
Richard M. Bracken, Chairman and Chief Executive Officer;
|
|
|
|
R. Milton Johnson, Executive Vice President and Chief
Financial Officer;
|
|
|
|
Samuel N. Hazen, President Western Group;
|
|
|
|
Beverly B. Wallace, President Shared Services
Group; and
|
|
|
|
W. Paul Rutledge, President Central Group.
|
Compensation
Philosophy and Objectives
The core philosophy of our executive compensation program is to
support the Companys primary objective of providing the
highest quality health care to our patients while enhancing the
long-term value of
110
the Company to our stockholders. Specifically, the Committee
believes the most effective executive compensation program (for
all executives, including named executive officers):
|
|
|
|
|
Reinforces HCAs strategic initiatives;
|
|
|
|
Aligns the economic interests of our executives with those of
our stockholders; and
|
|
|
|
Encourages attraction and long-term retention of key
contributors.
|
The Committee is committed to a strong, positive link between
our objectives and our compensation and benefits practices.
Our compensation philosophy also allows for flexibility in
establishing executive compensation based on an evaluation of
information prepared by management or other advisors and other
subjective and objective considerations deemed appropriate by
the Committee, subject to any contractual agreements with our
executives. The Committee will also consider the recommendations
of our Chief Executive Officer. This flexibility is important to
ensure our compensation programs are competitive and that our
compensation decisions appropriately reflect the unique
contributions and characteristics of our executives.
Compensation
Structure and Market Positioning
Our compensation program is heavily weighted towards
performance-based compensation, reflecting our philosophy of
increasing the long-term value of the Company and supporting
strategic imperatives. Total direct compensation and other
benefits consist of the following elements:
|
|
|
|
|
Total Direct Compensation
|
|
|
|
Base Salary
|
|
|
|
|
Annual Incentives (offered through our PEP)
|
|
|
|
|
Long-Term Equity Incentives
|
Other Benefits
|
|
|
|
Retirement Plans
|
|
|
|
|
Limited Perquisites and Other Personal Benefits
|
|
|
|
|
Severance Benefits
|
The Committee does not support rigid adherence to benchmarks or
compensatory formulas and strives to make compensation decisions
which effectively support our compensation objectives and
reflect the unique attributes of the Company and each executive.
Our general practice, however, with respect to pay positioning,
is that executive base salaries and annual incentive (PEP)
target values should generally position total annual cash
compensation between the median and 75th percentile of
similarly-sized general industry companies. We utilize the
general industry as our primary source for competitive pay
levels because HCA is significantly larger than its industry
peers. See the discussion of market positioning below for
further information. The named executive officers pay fell
within the range noted above for jobs with equivalent market
comparisons.
The cash compensation mix between salary and PEP has
historically been more weighted towards salary than competitive
practice among our general industry peers would suggest. Over
time, we have made steps towards a mix of cash compensation that
will place a greater emphasis on annual performance-based
compensation.
Although we look at competitive long-term equity incentive award
values in similarly-sized general industry companies when
assessing the competitiveness of our compensation programs, we
do not make annual executive option grants (and we did not base
our initial post-Merger 2007 stock option grants on these
levels) since equity is structured differently in closely-held
companies than in publicly-traded companies. As is typical in
similar situations, the Investors wanted to share a certain
percentage of the equity with executives shortly after the
consummation of the Merger and establish performance objectives
and incentives up front in lieu of annual grants to ensure our
executives long-term economic interests would be aligned
with those of the Investors. This pool of equity was then
further allocated based on the executives responsibilities
and anticipated impact on, and potential for, driving Company
strategy and performance. On a cumulative basis, the resulting
total direct pay mix is heavily weighted towards
performance-based pay (PEP plus stock options)
111
rather than fixed pay, which the Committee believes reflects the
compensation philosophy and objectives discussed above.
Compensation
Process
The Committee ensures executives pay levels are materially
consistent with the compensation strategy described above, in
part, by conducting annual assessments of competitive executive
compensation. Semler Brossy Consulting Group, LLC has been
retained by, and reports directly to the Committee, and does not
have any other consulting engagements with management or HCA.
Management (but no named executive officer), in collaboration
with Semler Brossy, collects and presents compensation data from
similarly-sized general industry companies, based to the extent
possible on comparable position matches and compensation
components. The following nationally recognized survey sources
were utilized in anticipation of establishing 2010 executive
compensation:
|
|
|
Survey
|
|
Revenue Scope
|
|
Towers Perrin Executive Compensation Database
|
|
Greater than $20B
|
Hewitt Total Compensation Measurement
|
|
$10B - $25B
|
Hewitt Total Compensation Measurement
|
|
Greater than $25B
|
These particular revenue scopes were selected because they were
the closest approximations to HCAs revenue size. Each
survey that provided an appropriate position match and
sufficient sample size to be used in the compensation review was
weighted equally. For this purpose, the two Hewitt survey cuts
were considered as one survey, and we used an average of the two
surveys (50% for the $10B $25B cut and 50% for the
Greater than $25B).
Data was also collected from health care providers within our
industry including Community Health Systems, Inc., Health
Management Associates, Inc., Kindred Healthcare, Inc., LifePoint
Hospitals, Inc., Tenet Healthcare Corporation and Universal
Health Services, Inc. These health care providers are used only
to obtain a general understanding of current industry
compensation practices since we are significantly larger than
these companies. CEO and CFO compensation data was also
collected and reviewed for large public health care companies
which included, in addition to health care providers, companies
in the health insurance, pharmaceutical, medical supplies and
related industries. This peer groups 2009 revenues ranged
from $7.4 billion to $87.1 billion with median
revenues of $24.8 billion. The companies in this analysis
included Abbott Laboratories, Aetna Inc., Amgen Inc., Baxter
International Inc., Boston Scientific Corp., Bristol-Myers
Squibb Company, CIGNA Corp., Coventry Health Care, Inc., Express
Scripts, Inc., Humana Inc., Johnson & Johnson, Eli
Lilly and Company, Medco Health Solutions Inc.,
Merck & Co., Inc., Pfizer Inc., Quest Diagnostics
Incorporated, Thermo Fisher Scientific Inc., UnitedHealth Group
Incorporated and Wellpoint, Inc.
Consistent with our flexible compensation philosophy, the
Committee is not required to approve compensation precisely
reflecting the results of these surveys, and may also consider,
among other factors (typically not reflected in these surveys):
the requirements of the applicable employment agreements, the
executives individual performance during the year, his or
her projected role and responsibilities for the coming year, his
or her actual and potential impact on the successful execution
of Company strategy, recommendations from our Chief Executive
Officer and compensation consultants, an officers prior
compensation, experience, and professional status, internal pay
equity considerations, and employment market conditions and
compensation practices within our peer group. The weighting of
these and other relevant factors is determined on a
case-by-case
basis for each executive upon consideration of the relevant
facts and circumstances.
Employment
Agreements
In connection with the Merger, we entered into employment
agreements with each of our named executive officers and certain
other members of senior management to help ensure the retention
of those executives critical to the future success of the
Company. Among other things, these agreements set the
executives compensation terms, their rights upon a
termination of employment, and restrictive covenants around
non-competition, non-solicitation, and confidentiality. These
terms and conditions are further explained
112
in the remaining portion of this Compensation Discussion and
Analysis and under Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Employment Agreements.
Elements
of Compensation
Base
Salary
Base salaries are intended to provide reasonable and competitive
fixed compensation for regular job duties. The threshold base
salaries for our executives are set forth in their employment
agreements. In light of actual total cash compensation realized
for 2009 and cash compensation opportunities levels for 2010
(including the cash distributions on vested options), we did not
increase named executive officer base salaries in 2010, other
than a 3.7% increase in Mr. Rutledges salary
effective April 1, 2010 as an internal equity adjustment to
internal peer roles. Changes, if any, to the named executive
officers base salaries in 2011 have not yet been
determined by the Committee.
Annual
Incentive Compensation: PEP
The PEP is intended to reward named executive officers for
annual financial performance, with the goals of providing high
quality health care for our patients and increasing stockholder
value. Accordingly, the Companys 2010 Senior Officer
Performance Excellence Program, (the 2010 PEP), was
approved by the Committee to cover annual incentive awards for
2010. Each named executive officer in the 2010 PEP was assigned
a 2010 annual award target expressed as a percentage of salary
ranging from 66% to 130%. For 2010, the Committee had the
ability to apply negative discretion based on performance of
Company-wide quality metrics against industry benchmarks, and
for Ms. Wallace, negative discretion could have been
applied based on performance of individuals goals related to the
operations of the Shared Services Group. The Committee set
Mr. Brackens 2010 target percentage at 130% of his
2010 base salary for his role as Chairman and Chief Executive
Officer and set Mr. Johnsons 2010 target percentage
at 80% of his 2010 base salary for the position of Executive
Vice President and Chief Financial Officer. The 2010 target
percentage for each of Messrs. Hazen and Rutledge and
Ms. Wallace was set at 66% of their respective 2010 base
salaries (see individual targets in the table below). These
targets were intended to provide a meaningful incentive for
executives to achieve or exceed performance goals.
The 2010 PEP was designed to provide 100% of the target award
for target performance, 25% of the target award for a minimum
acceptable (threshold) level of performance, and a maximum of
200% of the target award for maximum performance, while no
payments were to be made for performance below threshold levels.
The Committee believes this payout curve is consistent with
competitive practice. More importantly, it promotes and rewards
continuous growth as performance goals have consistently been
set at increasingly higher levels each year. Actual awards under
the PEP are generally determined using the following two steps:
1. The executives conduct must reflect our mission
and values by upholding our Code of Conduct and following our
compliance policies and procedures. This step is critical to
reinforcing our commitment to integrity and the delivery of high
quality health care. In the event the Committee determines the
participants conduct during the fiscal year is not in
compliance with the first step, he or she will not be eligible
for an incentive award.
2. The actual award amount is determined based upon Company
performance. In 2010, the PEP for all named executive officers,
other than Mr. Hazen and Mr. Rutledge, incorporated
one Company financial performance measure, EBITDA, defined in
the 2010 PEP as earnings before interest, taxes, depreciation,
amortization, minority interest expense (now, net income
attributable to noncontrolling interests), gains or losses on
sales of facilities, gains or losses on extinguishment of debt,
asset or investment impairment charges, restructuring charges,
and any other significant nonrecurring non-cash gains or charges
(but excluding any expenses for share-based compensation under
Financial Accounting Standards Board (FASB) Accounting Standards
Codification Topic 718, Compensation-Stock Compensation
(ASC 718)) (EBITDA). The Company
EBITDA target for 2010, as adjusted, was $5.752 billion for
the named executive officers. Mr. Hazens 2010 PEP, as
the Western Group President, was based 50% on Company EBITDA and
50% on Western Group EBITDA (with a Western Group
113
EBITDA target for 2010 of $2.993 billion, as adjusted) to
ensure his accountability for his groups results.
Similarly, Mr. Rutledges 2010 PEP, as the Central
Group President, was based 50% on Company EBITDA and 50% on
Central Group EBITDA (with a Central Group EBITDA target for
2010 of $1.392 billion, as adjusted). The Committee chose
to base annual incentives on EBITDA for a number of reasons:
|
|
|
|
|
It effectively measures overall Company performance;
|
|
|
|
It can be considered an important surrogate for cash flow, a
critical metric related to paying down the Companys
significant debt obligation;
|
|
|
|
It is the key metric driving the valuation in the internal
Company model, consistent with the valuation approach used by
industry analysts; and
|
|
|
|
It is consistent with the metric used for the vesting of the
financial performance portion of our option grants.
|
These EBITDA targets should not be understood as
managements predictions of future performance or other
guidance and investors should not apply these in any other
context. Our 2010 threshold performance level was set at the
prior years performance level and the maximum performance
goal was set at approximately 5% above the target goal to
reflect likely performance volatility. EBITDA targets were
linked to the Companys short-term and long-term business
objectives to ensure incentives are provided for appropriate
annual growth.
Upon review of the Companys 2010 financial performance,
the Committee determined that Company EBITDA performance for the
fiscal year ended December 31, 2010 was approximately
102.6% of target performance levels as set by the Compensation
Committee, as adjusted, resulting in a 151.8% of target payout.
The EBITDA performance of the Western Group was 103.1% of the
performance target, resulting in a 161.9% of target payout, and
the EBITDA performance of the Central Group was under the
threshold performance level.
|
|
|
|
|
|
|
|
|
|
|
2010 Adjusted
|
|
2010 Actual
|
|
|
EBITDA Target
|
|
Adjusted EBITDA
|
|
Company
|
|
$
|
5.752 billion
|
|
|
$
|
5.901 billion
|
|
Western Group
|
|
$
|
2.993 billion
|
|
|
$
|
3.086 billion
|
|
Central Group
|
|
$
|
1.392 billion
|
|
|
$
|
1.272 billion
|
|
Accordingly, the 2010 PEP will be paid out as follows to the
named executive officers (the actual 2010 PEP payout amounts are
included in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table):
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Actual PEP
|
|
|
2010 Target PEP
|
|
Award
|
Named Executive Officer
|
|
(% of Salary)
|
|
(% of Salary)
|
|
Richard M. Bracken (Chairman and CEO)
|
|
|
130
|
%
|
|
|
197
|
%
|
R. Milton Johnson (Executive Vice President and CFO)
|
|
|
80
|
%
|
|
|
121
|
%
|
Samuel N. Hazen (President, Western Group)
|
|
|
66
|
%
|
|
|
104
|
%
|
Beverly B. Wallace (President, Shared Services Group)
|
|
|
66
|
%
|
|
|
100
|
%
|
W. Paul Rutledge (President, Central Group)
|
|
|
66
|
%
|
|
|
50
|
%
|
Under the 2010 PEP, incentive payouts up to the target will be
paid in cash during the first quarter of 2011. Payouts above the
target will be paid 50% in cash and 50% in Restricted Stock
Units (RSUs). The RSU grants will vest 50% on the
second anniversary of grant date and 50% on the third
anniversary of the grant date. Messrs. Bracken, Johnson and
Hazen and Ms. Wallace will each receive an RSU grant for
achieving PEP payouts over the target level.
The Company can recover (or clawback) incentive
compensation pursuant to our 2010 PEP that was based on
(i) achievement of financial results that are subsequently
the subject of a restatement due to material
114
noncompliance with any financial reporting requirement under
either GAAP or federal securities laws, other than as a result
of changes to accounting rules and regulations, or (ii) a
subsequent finding that the financial information or performance
metrics used by the Committee to determine the amount of the
incentive compensations are materially inaccurate, in each case
regardless of individual fault. In addition, the Company may
recover any incentive compensation awarded or paid pursuant to
this policy based on the participants conduct which is not
in good faith and which materially disrupts, damages, impairs or
interferes with the business of the Company and its affiliates.
The Committee may also provide for incremental additional
payments to then-current executives in the event any restatement
or error indicates that such executives should have received
higher performance-based payments. This policy is administered
by the Committee in the exercise of its discretion and business
judgment based on the relevant facts and circumstances.
The Senior Officer Performance Excellence Program for 2011 has
not yet been adopted by the Committee.
Long-Term Equity Incentive Awards: Options
In connection with the Merger, the Board of Directors of HCA
Inc. approved and adopted the 2006 Stock Incentive Plan for Key
Employees of HCA Inc. and its Affiliates (the 2006
Plan). The 2006 Plan was assumed by HCA Holdings, Inc. on
November 22, 2010 in connection with the Corporate
Reorganization. The purpose of the 2006 Plan is to:
|
|
|
|
|
Promote our long term financial interests and growth by
attracting and retaining management and other personnel and key
service providers with the training, experience and abilities to
enable them to make substantial contributions to the success of
our business;
|
|
|
|
Motivate management personnel by means of growth-related
incentives to achieve long range goals; and
|
|
|
|
Further the alignment of interests of participants with those of
our stockholders through opportunities for increased stock or
stock-based ownership in the Company.
|
In January 2007, pursuant to the terms of the named executive
officers respective employment agreements, the Committee
approved long-term stock option grants to our named executive
officers under the 2006 Plan consisting solely of a one-time,
multi-year stock option grant in lieu of annual long-term equity
incentive award grants (New Options). In addition to
the New Options granted in 2007, the Company committed to grant
the named executive officers 2x Time Options (as defined below)
in their respective employment agreements, as described in more
detail below under Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Employment Agreements. The Committee
believes stock options are the most effective long-term vehicle
to directly align the interests of executives with those of our
stockholders by motivating performance that results in the
long-term appreciation of the Companys value, since they
only provide value to the executive if the value of the Company
increases. As is typical in leveraged buyout situations, the
Committee determined that granting all of the stock options
(except the 2x Time Options) up front rather than annually was
appropriate to aid in retaining key leaders critical to the
Companys success over the next several years and, coupled
with the executives significant personal investments in
connection with the Merger, provide an equity incentive and
stake in the Company that directly aligns the long-term economic
interests of the executives with those of the Investors.
The New Options have a ten year term and are divided so that 1/3
are time vested options, 1/3 are
EBITDA-based
performance vested options and 1/3 are performance options that
vest based on investment return to the Sponsors, each as
described below. The combination of time, performance and
investor return based vesting of these awards is designed to
compensate executives for long term commitment to the Company,
while motivating sustained increases in our financial
performance and helping ensure the Sponsors have received an
appropriate return on their invested capital before executives
receive significant value from these grants.
The time vested options were granted to aid in retention.
Consistent with this goal, the time vested options granted in
2007 vest and become exercisable in equal increments of 20% on
each of the first five
115
anniversaries of the grant date. The time vested options have an
exercise price equivalent to fair market value on the date of
grant. Since our common stock was not then traded on a national
securities exchange, fair market value was determined reasonably
and in good faith by the Board of Directors after consultation
with the Chief Executive Officer and other advisors.
The EBITDA-based performance vested options are intended to
motivate sustained improvement in long-term performance.
Consistent with this goal, the EBITDA-based performance vested
options granted in 2007 are eligible to vest and become
exercisable in equal increments of 20% at the end of fiscal
years 2007, 2008, 2009, 2010 and 2011 if certain annual EBITDA
performance targets are achieved. These EBITDA performance
targets were established at the time of the Merger and can be
adjusted by the Board of Directors in consultation with the
Chief Executive Officer as described below. We chose EBITDA
(defined in the award agreements as earnings before interest,
taxes, depreciation, amortization, minority interest expense
(now, net income attributable to noncontrolling interests),
gains or losses on sales of facilities, gains or losses on
extinguishment of debt, asset or investment impairment charges,
restructuring charges, and any other significant nonrecurring
non-cash gains or charges (but excluding any expenses for
share-based compensation under ASC 718 with respect to any
awards granted under the 2006 Plan)) as the performance metric
since it is a key driver of our valuation and for other reasons
as described above in the Annual Incentive Compensation:
PEP section of this Compensation Discussion and Analysis.
Due to the number of events that can occur within our industry
in any given year that are beyond the control of management but
may significantly impact our financial performance (e.g., health
care regulations, industry-wide significant fluctuations in
volume, etc.), we have incorporated catch up vesting
provisions. The EBITDA-based performance vested options may vest
and become exercisable on a catch up basis, such
that options that were eligible to vest but failed to vest due
to our failure to achieve prior EBITDA targets will vest if at
the end of any subsequent year or at the end of fiscal year
2012, the cumulative total EBITDA earned in all prior years
exceeds the cumulative EBITDA target at the end of such fiscal
year.
As with the EBITDA targets under our PEP, pursuant to the terms
of the 2006 Plan and the Stock Option Agreements governing the
2007 grants, the Board of Directors, in consultation with our
Chief Executive Officer, has the ability to adjust the
established EBITDA targets for significant events, changes in
accounting rules and other customary adjustment events. We
believe these adjustments may be necessary in order to
effectuate the intents and purposes of our compensation plans
and to avoid unintended consequences that are inconsistent with
these intents and purposes. For example, the Board of Directors
exercised its ability to make adjustments to the Companys
2010-2011
EBITDA performance targets (including cumulative EBITDA targets)
for facility acquisitions and accounting changes.
The options that vest based on investment return to the Sponsors
are intended to align the interests of executives with those of
our principal stockholders to ensure stockholders receive their
expected return on their investment before the executives can
receive their gains on this portion of the option grant. These
options vest and become exercisable with respect to 10% of the
common stock subject to such options at the end of fiscal years
2007, 2008, 2009, 2010 and 2011 if the Investor Return (as
defined below) is at least equal to two times the price paid to
stockholders in the Merger (or $22.64), and with respect to an
additional 10% at the end of fiscal years 2007, 2008, 2009, 2010
and 2011 if the Investor Return is at least equal to
two-and-a-half
times the price paid to stockholders in the Merger (or $28.30).
Investor Return means, on any of the first five
anniversaries of the closing date of the Merger, or any date
thereafter, all cash proceeds actually received by affiliates of
the Sponsors after the closing date in respect of their common
stock, including the receipt of any cash dividends or other cash
distributions (including the fair market value of any
distribution of common stock by the Sponsors to their limited
partners), determined on a fully diluted, per share basis. In
addition, the fair market value of the Companys common
stock held by the Sponsors shall be deemed cash
proceeds under the Investor Return options with respect to
one third of such options upon each of the closing of the
Companys initial public offering, December 31, 2011 and
December 31, 2012. The Sponsor investment return options also
may become vested and exercisable on a catch up
basis if the relevant Investor Return is achieved at any time
occurring prior to the expiration of such options.
Upon review of the Companys 2010 financial performance,
the Committee determined the Company achieved the 2010 EBITDA
performance target of $5.066 billion, as adjusted, under
the New Option awards;
116
therefore, pursuant to the terms of the 2007 Stock Option
Agreements, 20% of each named executive officers
EBITDA-based performance vested options vested as of
December 31, 2010. Further, 20% of each named executive
officers time vested options vested on the third
anniversary of their grant date, January 30, 2010. As of
the end of the 2010 fiscal year, no portion of the options that
vest based on Investor Return have vested; however, such options
remain subject to the catch up vesting provisions
described above.
In each of the employment agreements with the named executive
officers, we also committed to grant, among the named executive
officers and certain other executives, 10% of the options
initially authorized for grant under the 2006 Plan at some time
before November 17, 2011 (but with a good faith commitment
to do so before a change in control (as defined in
the 2006 Plan) or a public offering (as defined in
the 2006 Plan) and before the time when our Board of Directors
reasonably believed that the fair market value of our common
stock is likely to exceed the equivalent of $22.64 per share) at
an exercise price per share that is the equivalent of $22.64 per
share (2x Time Options). On October 6, 2009,
the 2x Time Options were granted. The Committee allocated those
options in consultation with our Chief Executive Officer based
on past executive contributions and future anticipated impact on
Company objectives. Forty percent of the 2x Time Options were
vested upon grant to reflect employment served since the Merger,
an additional twenty percent of these options vested on
November 17, 2009 and November 17, 2010, respectively,
and twenty percent of these options will vest on
November 17, 2011. The terms of the 2x Time Options are
otherwise consistent with other time vesting options granted
under the 2006 Plan.
For additional information concerning the options awarded in
2007 and 2009, see the Outstanding Equity Awards at 2010 Fiscal
Year-End Table.
Distributions
on Options
The Company declared cash distributions in respect of the
outstanding common stock of the Company in January, May and
November 2010. In recognition of the value created by management
through effective execution of operating strategies, and as
otherwise required pursuant to the terms of the applicable
option agreements, the Company also made cash distribution
payments to holders of vested stock options outstanding on the
respective distribution record dates, as outlined below.
On January 27, 2010 and May 5, 2010, the Board of
Directors of HCA Inc. declared cash distributions of $3.88 per
share of HCA Inc.s outstanding common stock and $1.11 per
share of HCA Inc.s outstanding common stock (the
February and May Distributions), respectively,
payable to stockholders of record on February 1, 2010 and
May 6, 2010 (the February and May Record
Dates), respectively.
In connection with the February and May Distributions, HCA Inc.
made cash payments to holders of vested options to purchase the
common stock granted pursuant to HCA Inc.s equity
incentive plans. The cash payments equaled the product of
(x) the number of shares of common stock subject to such
options outstanding on the February and May Record Dates,
respectively, multiplied by (y) the per share amount of the
respective February and May Distributions, less (z) any
applicable withholding taxes. In order to effect the cash
payments to holders of vested options granted pursuant to the
2006 Plan, the Committee amended the applicable option
agreements to provide that, in connection with the February and
May Distributions, HCA Inc. made the cash payments described
above to holders of vested options granted pursuant to the 2006
Plan in lieu of adjusting the exercise prices of such options.
HCA Inc. reduced the per share exercise prices of any unvested
options outstanding as of the February and May Record Dates,
respectively, by the respective per share February and May
Distributions amount paid in accordance with the terms of the
option agreements.
On November 23, 2010, the Board of Directors of HCA
Holdings, Inc. declared a cash distribution of $4.44 per share
of the HCA Holdings, Inc.s outstanding common stock (the
November Distribution), payable to stockholders of
record on November 24, 2010 (the November Record
Date).
In connection with the November Distribution, HCA Holdings, Inc.
made a cash payment to holders of vested options to purchase the
HCA Holdings, Inc. common stock granted pursuant to HCA
Holdings, Inc.s equity incentive plans. The cash payment
equaled the product of (x) the number of shares of common
stock subject to such options outstanding on the November Record
Date, multiplied by (y) the per share amount of
117
the November Distribution, less (z) any applicable
withholding taxes. HCA Holdings, Inc. reduced the per share
exercise prices of any unvested options outstanding as of the
November Record Date by the per share November Distribution
amount to the extent the per share exercise price could be
reduced under applicable tax rules. If the per share exercise
price could not be reduced by the full amount of the per share
November Distribution, HCA Holdings, Inc. agreed to pay to each
holder of unvested options to purchase shares of HCA Holdings
Inc.s common stock granted pursuant to HCA Holdings
Inc.s equity incentive plans outstanding on the November
Record Date an amount on a per share basis equal to the balance
of the per share amount of the November Distribution not
permitted to be applied to reduce the exercise price of the
applicable option in respect of each share of common stock
subject to an unvested option to purchase shares of HCA
Holdings, Inc.s common stock as of the November Record
Date on or about the date such option becomes vested.
For additional information concerning the distribution payments
on options held by the named executive officers, see the 2010
Summary Compensation Table.
Ownership
Guidelines
While we have maintained stock ownership guidelines in the past,
as a non-listed company, we no longer have a policy regarding
stock ownership guidelines. However, we do believe equity
ownership aligns our executive officers interests with
those of the Investors. Accordingly, all of our named executive
officers were required to rollover at least half their
pre-Merger equity and, therefore, maintain significant stock
ownership in the Company. See Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
Retirement
Plans
We currently maintain one
tax-qualified
retirement plan in which the named executive officers are
eligible to participate, the HCA 401(k) Plan, to aid in
retention and to assist employees in providing for their
retirement. We also formerly maintained the HCA Retirement Plan,
which as of April 1, 2008, merged into the HCA 401(k) Plan
resulting in one
tax-qualified
retirement plan. Generally all employees who have completed the
required service are eligible to participate in the HCA 401(k)
Plan. Each of our named executive officers participates in the
plan. For additional information on these plans, including
amounts contributed by HCA in 2010 to the named executive
officers, see the Summary Compensation Table and related
footnotes and narratives and 2010 Pension Benefits.
Our key executives, including the named executive officers, also
participate in two supplemental retirement programs. The
Committee and the Board initially approved these supplemental
programs to:
|
|
|
|
|
Recognize significant long-term contributions and commitments by
executives to the Company and to performance over an extended
period of time;
|
|
|
|
Induce our executives to continue in our employ through a
specified normal retirement age (initially 62 through 65,
but reduced to 60 upon the change in control at the time of the
Merger in 2006); and
|
|
|
|
Provide a competitive benefit to aid in attracting and retaining
key executive talent.
|
The HCA Restoration Plan, a non-qualified retirement plan,
provides a benefit to replace a portion of the contributions
lost in the HCA 401(k) Plan due to certain Internal Revenue
Service limitations. Effective January 1, 2008,
participants in the SERP (described below) are no longer
eligible for Restoration Plan contributions. However, the
hypothetical accounts maintained for each named executive
officer under this plan as of January 1, 2008 will continue
to be maintained and were increased or decreased with
hypothetical investment returns based on the actual investment
return of the Mix B fund within the HCA 401(k) Plan through
December 31, 2010. Subsequently, the hypothetical accounts
as of December 31, 2010 will continue to be maintained but
will not be increased or decreased with hypothetical investment
returns. For additional information concerning the Restoration
Plan, see 2010 Nonqualified Deferred Compensation.
Key executives also participate in the Supplemental Executive
Retirement Plan (the SERP), adopted in 2001. The
SERP benefit brings the total value of annual retirement income
to a specific income replacement
118
level. For named executive officers with 25 years or more
of service, this income replacement level is 60% of final
average pay (base salary and PEP payouts) at normal retirement,
a competitive level of benefit at the time the plan was
implemented. Due to the Merger, all participants are fully
vested in their SERP benefits and the plan is now frozen to new
entrants. For additional information concerning the SERP, see
2010 Pension Benefits.
In the event a participant renders service to another health
care organization within five years following retirement or
termination of employment, he or she forfeits the rights to any
further payment, and must repay any payments already made. This
non-competition provision is subject to waiver by the Committee
with respect to the named executive officers.
Personal
Benefits
Our executive officers receive limited, if any, benefits outside
of those offered to our other employees. Generally, we provide
these benefits to increase travel and work efficiencies and
allow for more productive use of the executives time.
Mr. Bracken is permitted to use the Company aircraft for
personal trips, subject to the aircrafts availability. The
named executive officers may have their spouses accompany them
on business trips taken on the Company aircraft, subject to seat
availability. In addition, there are times when it is
appropriate for an executives spouse to attend events
related to our business. On those occasions, we will pay for the
travel expenses of the executives spouse. We will, on an
as needed basis, provide mobile telephones and personal digital
assistants to our employees and certain of our executive
officers have obtained such devices through us. The value of
these personal benefits, if any, is included in the executive
officers income for tax purposes and, in certain limited
circumstances, the additional income attributed to an executive
officer as a result of one or more of these benefits may be
grossed up to cover the taxes due on that income. Except as
otherwise discussed herein, other welfare and employee-benefit
programs are the same for all of our eligible employees,
including our executive officers. For additional information,
see footnote (4) to the Summary Compensation Table.
Severance
and Change in Control Benefits
As noted above, all of our named executive officers have entered
into employment agreements, which provide, among other things,
each executives rights upon a termination of employment in
exchange for
non-competition,
non-solicitation, and confidentiality covenants. We believe that
reasonable severance benefits are appropriate in order to be
competitive in our executive retention efforts. These benefits
should reflect the fact that it may be difficult for such
executives to find comparable employment within a short period
of time. We also believe that these types of agreements are
appropriate and customary in situations such as the Merger
wherein the executives have made significant personal
investments in the Company and that investment is generally
illiquid for a significant period of time. Finally, we believe
formalized severance arrangements are common benefits offered by
employers competing for similar senior executive talent.
Severance
Benefits for Named Executive Officers
If employment is terminated by the Company without
cause or by the executive for good
reason (whether or not the termination was in connection
with a
change-in-control),
the executive would be entitled to accrued rights
(cause, good reason and accrued rights are as defined in
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table Employment
Agreements) plus:
|
|
|
|
|
Subject to restrictive covenants and the signing of a general
release of claims, an amount equal to two times for
Messrs. Hazen and Rutledge and Ms. Wallace and three
times in the case of Messrs. Bracken and Johnson the sum of
base salary plus the annual PEP incentive paid or payable in
respect of the fiscal year immediately preceding the fiscal year
in which termination occurs, payable over a two year period;
|
119
|
|
|
|
|
Pro-rata bonus; and
|
|
|
|
Continued coverage under our group health plans during the
period over which the cash severance is paid.
|
Additionally, unvested options will be forfeited; however,
vested New Options (including 2x Time Options) will remain
exercisable until the first anniversary of the termination of
the executives employment.
Because we believe a termination by the executive for good
reason (a constructive termination) is conceptually the same as
an actual termination by the Company without cause, we believe
it is appropriate to provide severance benefits following such a
constructive termination of the named executive officers
employment. All of our severance provisions are believed to be
within the realm of competitive practice and are intended to
provide fair and reasonable compensation to the executive upon a
termination event.
Change
in Control Benefits
Pursuant to the Stock Option Agreements governing the New
Options granted in 2007 and the 2x Time Options granted in 2009,
both under the 2006 Plan, upon a Change in Control of the
Company (as defined below), all unvested time vesting New
Options and 2x Time Options (that have not otherwise terminated
or become exercisable) shall become immediately exercisable.
Performance options that vest subject to the achievement of
EBITDA targets will become exercisable upon a Change in Control
of the Company if: (i) prior to the date of the occurrence
of such event, all EBITDA targets have been achieved for years
ending prior to such date; (ii) on the date of the
occurrence of such event, the Companys actual cumulative
total EBITDA earned in all years occurring after the performance
option grant date, and ending on the date of the Change in
Control, exceeds the cumulative total of all EBITDA targets in
effect for those same years; or (iii) the Investor Return
is at least
two-and-a-half
times the price paid to the stockholders in the Merger (or
$28.30). For purposes of the vesting provision set forth in
clause (ii) above, the EBITDA target for the year in which
the Change in Control occurs shall be equitably adjusted by the
Board of Directors in good faith in consultation with the chief
executive officer (which adjustment shall take into account the
time during such year at which the Change in Control occurs).
Performance vesting options that vest based on the investment
return to the Sponsors will only vest upon the occurrence of a
Change in Control if, as a result of such event, the applicable
Investor Return (i.e., at least two times the price paid to the
stockholders in the Merger for half of these options and at
least
two-and-one-half
times the price paid to the stockholders in the Merger for the
other half of these options) is also achieved in such
transaction (if not previously achieved). Change in
Control means in one or more of a series of transactions
(i) the transfer or sale of all or substantially all of the
assets of the Company (or any direct or indirect parent of the
Company) to an Unaffiliated Person (as defined below);
(ii) a merger, consolidation, recapitalization or
reorganization of the Company (or any direct or indirect parent
of the Company) with or into another Unaffiliated Person, or a
transfer or sale of the voting stock of the Company (or any
direct or indirect parent of the Company), an Investor, or any
affiliate of any of the Investors to an Unaffiliated Person, in
any such event that results in more than 50% of the common stock
of the Company (or any direct or indirect parent of the Company)
or the resulting company being held by an Unaffiliated Person;
or (iii) a merger, consolidation, recapitalization or
reorganization of the Company (or any direct or indirect parent
of the Company) with or into another Unaffiliated Person, or a
transfer or sale by the Company (or any direct or indirect
parent of the Company), an Investor or any affiliate of any of
the Investors, in any such event after which the Investors and
their affiliates (x) collectively own less than 15% of the
common stock of and (y) collectively have the ability to
appoint less than 50% of the directors to the Board (or any
resulting company after a merger). For purposes of this
definition, the term Unaffiliated Person means a
person or group who is not an Investor, an affiliate of any of
the Investors or an entity in which any Investor holds, directly
or indirectly, a majority of the economic interest in such
entity.
Additional information regarding applicable payments under such
agreements for the named executive officers is provided under
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table Employment
Agreements and Potential Payments Upon Termination
or Change in Control.
120
Recoupment
of Compensation
Information regarding the Companys policy with respect to
recovery of incentive compensation is provided under
Annual Incentive Compensation: PEP above.
Tax
and Accounting Implications
On April 29, 2008, we registered our common stock pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as
amended; and the Company became subject to Section 162(m)
of the Code, for fiscal year 2008 and beyond, so long as the
Companys stock remains registered with the SEC. The
Committee considers the impact of Section 162(m) in the
design of its compensation strategies. Under
Section 162(m), compensation paid to executive officers in
excess of $1,000,000 cannot be taken by us as a tax deduction
unless the compensation qualifies as performance-based
compensation. We have determined, however, that we will not
necessarily seek to limit executive compensation to amounts
deductible under Section 162(m) if such limitation is not
in the best interests of our stockholders. While considering the
tax implications of its compensation decisions, the Committee
believes its primary focus should be to attract, retain and
motivate executives and to align the executives interests
with those of our stakeholders.
The Committee operates its compensation programs with the good
faith intention of complying with Section 409A of the
Internal Revenue Code. We account for stock based payments with
respect to our long term equity incentive award programs in
accordance with the requirements of ASC 718.
2010
Summary Compensation Table
The following table sets forth information regarding the
compensation earned by the Chief Executive Officer, the Chief
Financial Officer and our other three most highly compensated
executive officers during 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Plan
|
|
Deferred
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Compensation
|
|
|
Name and Principal Positions
|
|
Year
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
Earnings ($)(3)
|
|
($)(4)
|
|
Total ($)
|
|
Richard M. Bracken
|
|
|
2010
|
|
|
$
|
1,324,975
|
|
|
|
|
|
|
$
|
2,614,824
|
|
|
$
|
9,250,610
|
|
|
$
|
25,010,638
|
|
|
$
|
38,201,047
|
|
Chairman and Chief
|
|
|
2009
|
|
|
$
|
1,324,975
|
|
|
$
|
3,361,016
|
|
|
$
|
3,445,000
|
|
|
$
|
4,096,368
|
|
|
$
|
25,532
|
|
|
$
|
12,252,891
|
|
Executive Officer
|
|
|
2008
|
|
|
$
|
1,060,872
|
|
|
|
|
|
|
$
|
694,370
|
|
|
$
|
1,740,620
|
|
|
$
|
31,781
|
|
|
$
|
3,527,643
|
|
R. Milton Johnson
|
|
|
2010
|
|
|
$
|
849,984
|
|
|
|
|
|
|
$
|
1,032,267
|
|
|
$
|
3,524,104
|
|
|
$
|
16,520,422
|
|
|
$
|
21,926,777
|
|
Executive Vice President,
|
|
|
2009
|
|
|
$
|
849,984
|
|
|
$
|
2,520,714
|
|
|
$
|
1,360,000
|
|
|
$
|
2,032,089
|
|
|
$
|
17,674
|
|
|
$
|
6,780,461
|
|
Chief Financial Officer and Director
|
|
|
2008
|
|
|
$
|
786,698
|
|
|
|
|
|
|
$
|
355,491
|
|
|
$
|
1,871,790
|
|
|
$
|
38,769
|
|
|
$
|
3,052,748
|
|
Samuel N. Hazen
|
|
|
2010
|
|
|
$
|
788,672
|
|
|
|
|
|
|
$
|
816,431
|
|
|
$
|
2,637,016
|
|
|
$
|
10,759,757
|
|
|
$
|
15,001,876
|
|
President Western Group
|
|
|
2009
|
|
|
$
|
788,672
|
|
|
$
|
997,771
|
|
|
$
|
1,041,067
|
|
|
$
|
1,725,405
|
|
|
$
|
16,499
|
|
|
$
|
4,569,414
|
|
|
|
|
2008
|
|
|
$
|
788,672
|
|
|
|
|
|
|
$
|
350,807
|
|
|
$
|
810,462
|
|
|
$
|
15,651
|
|
|
$
|
1,965,592
|
|
Beverly B. Wallace
|
|
|
2010
|
|
|
$
|
700,000
|
|
|
|
|
|
|
$
|
701,348
|
|
|
$
|
3,293,981
|
|
|
$
|
8,538,321
|
|
|
$
|
13,233,650
|
|
President Shared
|
|
|
2009
|
|
|
$
|
700,000
|
|
|
$
|
997,771
|
|
|
$
|
924,018
|
|
|
$
|
2,047,036
|
|
|
$
|
16,500
|
|
|
$
|
4,685,325
|
|
Services Group
|
|
|
2008
|
|
|
$
|
700,000
|
|
|
|
|
|
|
$
|
314,992
|
|
|
$
|
2,080,836
|
|
|
$
|
15,651
|
|
|
$
|
3,111,479
|
|
W. Paul Rutledge
|
|
|
2010
|
|
|
$
|
693,740
|
|
|
|
|
|
|
$
|
350,667
|
|
|
$
|
2,598,032
|
|
|
$
|
7,944,136
|
|
|
$
|
11,586,575
|
|
President Central Group
|
|
|
2009
|
|
|
$
|
675,000
|
|
|
$
|
997,771
|
|
|
$
|
891,017
|
|
|
$
|
1,510,040
|
|
|
$
|
16,500
|
|
|
$
|
4,090,328
|
|
|
|
|
(1) |
|
Option Awards for 2009 include the aggregate grant date fair
value of the stock option awards granted during fiscal year 2009
in accordance with ASC 718 with respect to the 2x Time
Options to purchase shares of our common stock awarded to the
named executive officers in fiscal year 2009 under the 2006 Plan. |
|
(2) |
|
Non-Equity Incentive Plan Compensation for 2010 reflects amounts
earned for the year ended December 31, 2010 under the 2010
PEP, which amounts will be paid in cash up to the target level
and 50% in cash and 50% through the grant of RSU awards in the
first quarter of 2011 pursuant to the terms of the 2010 PEP. For
2010, the Company achieved its target performance level, but not
did not reach its |
121
|
|
|
|
|
maximum performance level, as adjusted, with respect to the
Companys EBITDA; therefore, pursuant to the terms of the
2010 PEP, 2010 awards under the 2010 PEP will be paid out to the
named executive officers at approximately 151.8% of each such
officers respective target amount, with the exception of
Mr. Hazen, whose award will be paid out at approximately
156.9% his target amount, due to the 50% of his PEP based on the
Western Group EBITDA, which also exceeded the target performance
level but did not reach the maximum performance level, and
Mr. Rutledge, whose award will be paid out at approximately
75.9% of his target amount, due to the 50% of his PEP based on
the Central Group EBITDA, which did not reach the threshold
performance level. |
|
|
|
Non-Equity Incentive Plan Compensation for 2009 reflects amounts
earned for the year ended December 31, 2009 under the
2008-2009
PEP, which amounts were paid in the first quarter of 2010
pursuant to the terms of the
2008-2009
PEP. For 2009, the Company exceeded its maximum performance
level, as adjusted, with respect to the Companys EBITDA
and the Central and Western Group EBITDA; therefore, pursuant to
the terms of the
2008-2009
PEP, awards under the
2008-2009
PEP were paid out to the named executive officers, at the
maximum level of 200% of their respective target amounts. |
|
|
|
Non-Equity Incentive Plan Compensation for 2008 reflects amounts
earned for the year ended December 31, 2008 under the
2008-2009
PEP, which amounts were paid in the first quarter of 2009
pursuant to the terms of the
2008-2009
PEP. For 2008, the Company did not achieve its target
performance level, but exceeded its threshold performance level,
as adjusted, with respect to the Companys EBITDA;
therefore, pursuant to the terms of the
2008-2009
PEP, 2008 awards under the
2008-2009
PEP were paid out to the named executive officers at
approximately 68.2% of each such officers respective
target amount, with the exception of Mr. Hazen, whose award
was paid out at approximately 67.4% of his target amount, due to
the 50% of his PEP based on the Western Group EBITDA, which also
exceeded the threshold performance level but did not reach the
target performance level. |
|
(3) |
|
All amounts for 2010 are attributable to changes in value of the
SERP benefits. Assumptions used to calculate these figures are
provided under the table titled 2010 Pension
Benefits. The changes in the SERP benefit value during
2010 were impacted mainly by: (i) the passage of time which
reflects another year of pay and service plus actual investment
return and (ii) the discount rate changing from 5.00% to
4.25%, which resulted in an increase in the value. The impact of
these events on the SERP benefit values was: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
Passage of Time
|
|
$
|
6,851,260
|
|
|
$
|
2,181,373
|
|
|
$
|
1,351,824
|
|
|
$
|
2,240,652
|
|
|
$
|
1,617,037
|
|
Discount Rate Change
|
|
$
|
2,399,350
|
|
|
$
|
1,342,731
|
|
|
$
|
1,285,192
|
|
|
$
|
1,053,329
|
|
|
$
|
980,995
|
|
|
|
|
|
|
All amounts for 2009 are attributable to changes in value of the
SERP benefits. Assumptions used to calculate these figures are
provided under the table titled 2010 Pension
Benefits. The changes in the SERP benefit value during
2009 were impacted mainly by: (i) the passage of time which
reflects another year of pay and service plus actual investment
return and (ii) the discount rate changing from 6.25% to
5.00%, which resulted in an increase in the value. The impact of
these events on the SERP benefit values was: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
Passage of Time
|
|
$
|
1,655,097
|
|
|
$
|
618,320
|
|
|
$
|
343,653
|
|
|
$
|
788,376
|
|
|
$
|
420,979
|
|
Discount Rate Change
|
|
$
|
2,441,271
|
|
|
$
|
1,413,769
|
|
|
$
|
1,381,752
|
|
|
$
|
1,258,660
|
|
|
$
|
1,089,061
|
|
|
|
|
|
|
All amounts for 2008 are attributable to changes in value of the
SERP benefits. Assumptions used to calculate these figures are
provided under the table titled 2010 Pension
Benefits. The changes in the SERP benefit value during
2008 were impacted mainly by: (i) the passage of time which
reflects another year of pay and service plus actual investment
return and (ii) the discount rate changing from 6.00% to |
122
|
|
|
|
|
6.25%, which resulted in a decrease in the value. The impact of
these events on the SERP benefit values was: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Passage of Time
|
|
$
|
2,142,217
|
|
|
$
|
2,100,290
|
|
|
$
|
1,037,631
|
|
|
$
|
2,301,107
|
|
Discount Rate Change
|
|
$
|
(401,597
|
)
|
|
$
|
(228,500
|
)
|
|
$
|
(227,169
|
)
|
|
$
|
(220,271
|
)
|
|
|
|
(4) |
|
2010 amounts generally consist of: |
|
|
|
|
|
Distributions paid in 2010 on vested stock options held by the
named executive officers on the applicable distribution record
dates. Distributions of $3.88, $1.11 and $4.44, respectively,
per share of common stock subject to such outstanding vested
stock options held on the February 1, May 6 and
November 24, 2010 record dates, respectively, were paid to
the named executive officers in 2010. The total cash
distributions received on vested stock options by the named
executive officers in 2010 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
Cash distributions on vested stock options
|
|
$
|
21,752,083
|
|
|
$
|
14,193,133
|
|
|
$
|
9,264,688
|
|
|
$
|
7,228,640
|
|
|
$
|
6,630,283
|
|
|
|
|
|
|
Distributions that will become payable to the named executive
officers upon the vesting of the applicable unvested stock
option awards held by the named executive officers on the
November 24, 2010 record date. In accordance with the award
agreements governing the New Option awards held by the named
executive officers, the Company reduced the per share exercise
price of any unvested option outstanding as of the
November 24, 2010 record date by the per share distribution
amount ($4.44 per share) to the extent the per share exercise
price could be reduced under applicable tax rules. Pursuant to
such award agreements, to the extent the per share exercise
price could not be reduced by the full $4.44 per share
distribution, the Company will pay the named executive officers
an amount on a per share basis equal to the balance of the per
share distribution amount not permitted to be applied to reduce
the exercise price of the applicable option in respect of each
share of common stock subject to such unvested option
outstanding as of the November 24, 2010 record date upon
the vesting of such option. The total cash distributions
attributable to the November 24, 2010 record date
distribution (such amounts representing the balance of the
distribution amount by which the exercise price of such options
could not be reduced under applicable tax rules) that will
become payable upon vesting of the applicable unvested stock
options awards held by the named executive officers on
November 24, 2010 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
Balance of November 24, 2010 distribution amount payable on
unvested stock options upon vesting of such options
|
|
$
|
3,232,926
|
|
|
$
|
2,309,235
|
|
|
$
|
1,477,896
|
|
|
$
|
1,293,161
|
|
|
$
|
1,293,161
|
|
|
|
|
|
|
Matching Company contributions to our 401(k) Plan as set forth
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
HCA 401(k) matching contribution
|
|
$
|
16,500
|
|
|
$
|
16,500
|
|
|
$
|
16,499
|
|
|
$
|
16,500
|
|
|
$
|
16,499
|
|
|
|
|
|
|
Personal use of corporate aircraft. In 2010,
Messrs. Bracken, Johnson and Rutledge were allowed personal
use of Company aircraft with an estimated incremental cost of
$6,149, $1,554 and $2,339, respectively, to the Company.
Ms. Wallace and Mr. Hazen did not have any personal
travel on Company aircraft in 2010. We calculate the aggregate
incremental cost of the personal use of Company aircraft based
on a methodology that includes the average aggregate cost, on a
per nautical mile basis, of variable expenses incurred in
connection with personal plane usage, including trip-related
maintenance, landing fees, fuel, crew hotels and meals, on-board
catering, trip-related hangar and parking costs and other
variable costs. Because our aircraft are used primarily for
business travel, our incremental cost methodology does not
include fixed costs of owning and operating aircraft that do not
change based on usage. We grossed up the income attributed to
Mr. Bracken with respect to certain trips on Company
aircraft. The additional income attributed to him as a result of
gross ups was $1,891.
|
123
|
|
|
|
|
In addition, we will pay the expenses of our executives
spouses associated with travel to
and/or
attendance at business related events at which spouse attendance
is appropriate. We paid approximately $692, $495 and $1,178 for
travel
and/or other
expenses incurred by Messrs. Bracken, Hazen and
Rutledges spouses, respectively, for such business related
events, and additional income of $397, $179 and $676 was
attributed to Messrs. Bracken, Hazen and Rutledge,
respectively, as a result of the gross up on such amounts.
|
2009 amounts generally consist of:
|
|
|
|
|
Matching Company contributions to our 401(k) Plan as set forth
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
Rutledge
|
|
HCA 401(k) matching contribution
|
|
$
|
16,500
|
|
|
$
|
16,500
|
|
|
$
|
16,499
|
|
|
$
|
16,500
|
|
|
$
|
16,500
|
|
|
|
|
|
|
Personal use of corporate aircraft. In 2009,
Messrs. Bracken and Johnson were allowed personal use of
Company aircraft with an estimated incremental cost of $5,025
and $1,129, respectively, to the Company. Ms. Wallace and
Messrs. Hazen and Rutledge did not have any personal travel
on Company aircraft in 2009. We calculate the aggregate
incremental cost of the personal use of Company aircraft based
on a methodology that includes the average aggregate cost, on a
per nautical mile basis, of variable expenses incurred in
connection with personal plane usage, including trip-related
maintenance, landing fees, fuel, crew hotels and meals, on-board
catering, trip-related hangar and parking costs and other
variable costs. Because our aircraft are used primarily for
business travel, our incremental cost methodology does not
include fixed costs of owning and operating aircraft that do not
change based on usage. We grossed up the income attributed to
Mr. Bracken with respect to certain trips on Company
aircraft. The additional income attributed to him as a result of
gross ups was $594. In addition, we will pay the expenses of our
executives spouses associated with travel to
and/or
attendance at business related events at which spouse attendance
is appropriate. We paid approximately $2,477 for travel
and/or other
expenses incurred by Mr. Brackens spouse for such
business related events, and additional income of $891 was
attributed to Mr. Bracken as a result of the gross up on
such amount.
|
2008 amounts consist of:
|
|
|
|
|
Company contributions to our former Retirement Plan and matching
Company contributions to our 401(k) Plan as set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bracken
|
|
Johnson
|
|
Hazen
|
|
Wallace
|
|
HCA Retirement Plan
|
|
$
|
3,163
|
|
|
$
|
3,163
|
|
|
$
|
3,163
|
|
|
$
|
3,163
|
|
HCA 401(k) matching contribution
|
|
$
|
12,488
|
|
|
$
|
12,488
|
|
|
$
|
12,488
|
|
|
$
|
12,488
|
|
|
|
|
|
|
Personal use of corporate aircraft. In 2008,
Messrs. Bracken and Johnson were allowed personal use of
Company aircraft with an estimated incremental cost of $15,233
and $4,546, respectively, to the Company. Ms. Wallace and
Mr. Hazen did not have any personal travel on Company
aircraft in 2008. We calculate the aggregate incremental cost of
the personal use of Company aircraft based on a methodology that
includes the average aggregate cost, on a per nautical mile
basis, of variable expenses incurred in connection with personal
plane usage, including trip-related maintenance, landing fees,
fuel, crew hotels and meals, on-board catering, trip-related
hangar and parking costs and other variable costs. Because our
aircraft are used primarily for business travel, our incremental
cost methodology does not include fixed costs of owning and
operating aircraft that do not change based on usage. We grossed
up the income attributed to Mr. Bracken with respect to
certain trips on Company aircraft. The additional income
attributed to him as a result of gross ups was $599. In
addition, we will pay the expenses of our executives
spouses associated with travel to
and/or
attendance at business related events at which spouse attendance
is appropriate. We paid approximately $189 and $13,660 for
travel
and/or other
expenses incurred by Messrs. Brackens and
Johnsons spouses, respectively, for such business related
events, and additional income of $109 and $4,912 was attributed
to Messrs. Bracken and Johnson, respectively, as a result
of the gross up on such amounts.
|
124
2010
Grants of Plan-Based Awards
The following table provides information with respect to awards
made under our 2010 PEP during the 2010 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
|
|
Estimated Possible Payouts
|
|
Awards:
|
|
Exercise or
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
Under Equity Incentive
|
|
Number of
|
|
Base Price
|
|
Grant Date
|
|
|
|
|
Plan Awards ($)(1)
|
|
Plan Awards (#)
|
|
Securities
|
|
of Option
|
|
Fair Value
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Underlying
|
|
Awards
|
|
of Option
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
Options(2)
|
|
($/sh)
|
|
Awards
|
|
Richard M. Bracken
|
|
|
N/A
|
|
|
$
|
430,625
|
|
|
$
|
1,722,500
|
|
|
$
|
3,445,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Milton Johnson
|
|
|
N/A
|
|
|
$
|
170,000
|
|
|
$
|
680,000
|
|
|
$
|
1,360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel N. Hazen
|
|
|
N/A
|
|
|
$
|
130,133
|
|
|
$
|
520,534
|
|
|
$
|
1,041,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverly B. Wallace
|
|
|
N/A
|
|
|
$
|
115,502
|
|
|
$
|
462,009
|
|
|
$
|
924,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Paul Rutledge
|
|
|
N/A
|
|
|
$
|
115,500
|
|
|
$
|
462,000
|
|
|
$
|
924,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-equity incentive awards granted to each of the named
executive officers pursuant to our 2010 PEP for the 2010 fiscal
year, as described in more detail under Compensation
Discussion and Analysis Annual Incentive
Compensation: PEP. The amounts shown in the
Threshold column reflect the threshold payment,
which is 25% of the amount shown in the Target
column. The amount shown in the Maximum column is
200% of the target amount. Pursuant to the terms of the 2010
PEP, the Company achieved its target performance level, as
adjusted, but not did not reach its maximum performance level,
as adjusted, with respect to the Companys EBITDA and the
Western Group EBITDA; however, the Company did not reach the
threshold performance level, as adjusted, with respect to the
Central Group EBITDA. Therefore, 2010 awards under the 2010 PEP
will be paid out to the named executive officers at
approximately 151.8% of each such officers respective
target amount, with the exception of Mr. Hazen, whose award
will be paid out at approximately 156.9% his target amount, due
to the 50% of his PEP based on the Western Group EBITDA, and
Mr. Rutledge, whose award will be paid out at approximately
75.9% of his target amount, due to the 50% of his PEP based on
the Central Group EBITDA (including the International Division).
Under the 2010 PEP for the 2010 fiscal year,
Messrs. Bracken, Johnson, Hazen and Rutledge and
Ms. Wallace will receive cash payments of $2,168,662,
$856,134, $668,482, $350,667 and $581,678, respectively, and
approximately $446,162, $176,133, $147,949, $0 and $119,670,
respectively, payable in RSU awards at a grant price to be
determined by the Board of Directors in consultation with the
CEO in accordance with the 2010 PEP and our equity award policy,
which RSU awards will vest 50% on the second anniversary of
grant date and 50% on the third anniversary of the grant date.
Such amounts are reflected in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation Table. |
Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table
Total
Compensation
In 2010, 2009 and 2008, total direct compensation, as described
in the Summary Compensation Table, consisted primarily of base
salary, annual PEP awards payable in cash, and, in 2009, 2x Time
Option grants as set forth in each named executive
officers employment agreement to be fully vested on the
fifth anniversary of the Merger, and in 2010, distributions paid
on the vested stock options held by the named executive officers
on the applicable record dates and distributions that will
become payable to the named executive officers upon the vesting
of the certain unvested stock option awards held by the named
executive officers on the November 24, 2010 distribution
record date to the extent the exercise price of such options
could not be fully reduced by the distribution amount under
applicable tax rules. This mix was intended to reflect our
philosophy that a significant portion of an executives
compensation should be equity-linked
and/or tied
to our operating performance. In addition, we provided an
opportunity for executives to participate in two supplemental
retirement plans; however, effective January 1, 2008,
participants in the SERP are no longer eligible for Restoration
Plan contributions, although Restoration Plan accounts will
continue to be maintained for such participants (for additional
information concerning the Restoration Plan, see 2010
Nonqualified Deferred Compensation).
125
Options
In January 2007, New Options to purchase common stock of the
Company were granted under the 2006 Plan to members of
management and key employees, including the named executive
officers. The New Options were designed to be long term equity
incentive awards, constituting a one-time stock option grant in
lieu of annual equity grants. The New Options granted in 2007
have a ten year term and are structured so that 1/3 are time
vested options (vesting in five equal installments on the first
five anniversaries of the grant date),
1/3 are
EBITDA-based performance vested options and 1/3 are performance
options that vest based on investment return to the Sponsors.
The terms of the New Options granted in 2007 are described in
greater detail under Compensation Discussion and Analysis
Long Term Equity Incentive Awards: Options.
In accordance with their employment agreements entered into at
the time of the Merger, as each may have been or may be
subsequently amended, our named executive officers received the
2x Time Options in October 2009 with an exercise price equal to
two times the share price at the Merger (or $22.64). The
Committee allocated the 2x Time Options in consultation with our
Chief Executive Officer, based on past executive contributions
and future anticipated impact on Company objectives. The 2x Time
Options have a ten year term and are structured so that forty
percent were vested upon grant, an additional twenty percent of
the options vested on November 17, 2009 and
November 17, 2010, respectively, and twenty percent of the
options granted to each recipient will vest on November 17,
2011. Thereby, a portion of the grant was vested on the date of
the grant based on employment served since the Merger. The terms
of the 2x Time Options are otherwise consistent with other time
vesting options granted under the 2006 Plan. The terms of the 2x
Time Options granted in 2009 are described in greater detail
under Compensation Discussion and Analysis
Long Term Equity Incentive Awards: Options. The aggregate
grant date fair value of the 2x Time Options granted in 2009 in
accordance with ASC 718 is included under the Option
Awards column of the Summary Compensation Table.
As a result of the Merger, all unvested awards under the HCA
2005 Equity Incentive Plan (the 2005 Plan) (and all
predecessor equity incentive plans) vested in November 2006.
Generally, all outstanding options under the 2005 Plan (and any
predecessor plans) were cancelled and converted into the right
to receive a cash payment equal to the number of shares of
common stock underlying the option multiplied by the amount by
which the Merger consideration of $11.32 per share exceeded the
exercise price for the options (without interest and less any
applicable withholding taxes). However, certain members of
management, including the named executive officers, were given
the opportunity to convert options held by them prior to
consummation of the Merger into options to purchase shares of
common stock of the surviving corporation (Rollover
Options). Immediately after the consummation of the
Merger, all Rollover Options (other than those with an exercise
price below $2.83) were adjusted so that they retained the same
spread value (as defined below) as immediately prior
to the Merger, but the new per share exercise price for all
Rollover Options became $2.83. The term spread value
means the difference between (x) the aggregate fair market
value of the common stock (determined using the Merger
consideration of $11.32 per share) subject to the outstanding
options held by the participant immediately prior to the Merger
that became Rollover Options, and (y) the aggregate
exercise price of those options.
New Options, 2x Time Options and Rollover Options held by the
named executive officers are described in the Outstanding Equity
Awards at 2010 Fiscal Year-End Table.
Employment
Agreements
In connection with the Merger, on November 16, 2006,
Hercules Holding entered into substantially similar employment
agreements with each of the named executive officers and certain
other executives, which agreements were shortly thereafter
assumed by HCA Inc., and then in November 2010, to the extent
applicable, by HCA Holdings, Inc., and which agreements govern
the terms of each executives employment. The Company
entered into an amendment to Mr. Brackens employment
agreement, effective January 1, 2009, to reflect his
appointment to the position of Chief Executive Officer.
Effective as of February 9, 2011, the Company entered into
amendments to Messrs. Brackens, Johnsons,
Hazens and Ms. Wallaces employment agreements
reflecting the new titles and new responsibilities resulting
from the Companys internal
126
reorganization. In addition, Mr. Johnsons amendment
reflects that he shall serve as a member of the Board of
Directors of the Company for so long as he is an officer of the
Company.
Executive
Employment Agreements
The term of employment under each of these agreements is
indefinite, and they are terminable by either party at any time;
provided that an executive must give no less than 90 days
notice prior to a resignation.
Each employment agreement sets forth the executives annual
base salary, which will be subject to discretionary annual
increases upon review by the Board of Directors, and states that
the executive will be eligible to earn an annual bonus as a
percentage of salary with respect to each fiscal year, based
upon the extent to which annual performance targets established
by the Board of Directors are achieved. The employment
agreements committed us to provide each executive with annual
bonus opportunities in 2008 that were consistent with those
applicable to the 2007 fiscal year, unless doing so would be
adverse to our interests or the interests of our stockholders,
and for later fiscal years, the agreements provide that the
Board of Directors will set bonus opportunities in consultation
with our Chief Executive Officer. With respect to the 2010
fiscal year and the 2009 and 2008 fiscal years, each executive
was eligible to earn under the 2010 PEP and the
2008-2009
PEP, respectively, (i) a target bonus, if performance
targets were met; (ii) a specified percentage of the target
bonus, if threshold levels of performance were
achieved but performance targets were not met; or (iii) a
multiple of the target bonus if maximum performance
goals were achieved, with the annual bonus amount being
interpolated, in the sole discretion of the Board of Directors,
for performance results that exceeded threshold
levels but do not meet or exceed maximum levels. The
annual bonus opportunities for 2010 were set forth in the 2010
PEP, as described in more detail under Compensation
Discussion and Analysis Annual Incentive
Compensation: PEP. As described above, the Company
achieved its target performance level, as adjusted, for 2010 but
did not reach its maximum performance level, as adjusted, with
respect to the Companys EBITDA and the Western Group
EBITDA; however, the Company did not reach the threshold
performance level, as adjusted, with respect to the Central
Group EBITDA. Therefore, 2010 awards under the 2010 PEP will be
paid out to the named executive officers at approximately 151.8%
of each such officers respective target amount, with the
exception of Mr. Hazen, whose award will be paid out at
approximately 156.9% of his target amount, due to the 50% of his
PEP based on the Western Group EBITDA, and Mr. Rutledge,
whose award will be paid out at approximately 75.9% of his
target amount, due to the 50% of his PEP based on the Central
Group EBITDA. As described above, the Company exceeded its
maximum performance level, as adjusted, for 2009 with respect to
the Companys EBITDA and the Central and Western Group
EBITDA; therefore, pursuant to the terms of the
2008-2009
PEP, awards were paid out to the named executive officers, at
the maximum level of 200% of their respective target amounts for
2009. As described above, awards under the 2008 PEP were paid
out to the named executive officers at approximately 68.2% of
each such officers respective target amount, with the
exception of Mr. Hazen, whose award was paid out at
approximately 67.4% of the target amount. Each employment
agreement also sets forth the number of options that the
executive received pursuant to the 2006 Plan as a percentage of
the total equity initially made available for grants pursuant to
the 2006 Plan. Such option awards, the New Options, were made
January 30, 2007 and are described above under
Options. In each of the employment agreements with
the named executive officers, we also committed to grant, among
the named executive officers and certain other executives, the
2x Time Options, which were granted, as described above, on
October 6, 2009. Additionally, pursuant to the employment
agreements, we agree to indemnify each executive against any
adverse tax consequences (including, without limitation, under
Section 409A and 4999 of the Internal Revenue Code), if
any, that result from the adjustment by us of stock options held
by the executive in connection with Merger or the future payment
of any extraordinary cash dividends.
Pursuant to each employment agreement, if an executives
employment terminates due to death or disability, the executive
would be entitled to receive (i) any base salary and any
bonus that is earned and unpaid through the date of termination;
(ii) reimbursement of any unreimbursed business expenses
properly incurred by the executive; (iii) such employee
benefits, if any, as to which the executive may be entitled
under our employee benefit plans (the payments and benefits
described in (i) through (iii) being accrued
rights); and (iv) a pro rata portion of any annual
bonus that the executive would have been entitled to receive
pursuant
127
to the employment agreement based upon our actual results for
the year of termination (with such proration based on the
percentage of the fiscal year that shall have elapsed through
the date of termination of employment, payable to the executive
when the annual bonus would have been otherwise payable (the
pro rata bonus)).
If an executives employment is terminated by us without
cause (as defined below) or by the executive for
good reason (as defined below) (each a
qualifying termination), the executive would be
(i) entitled to the accrued rights; (ii) subject to
compliance with certain confidentiality, non-competition and
non-solicitation covenants contained in his or her employment
agreement and execution of a general release of claims on behalf
of the Company, an amount equal to the product of (x) two
(three in the case of Richard M. Bracken and R. Milton Johnson)
and (y) the sum of (A) the executives base
salary and (B) annual bonus paid or payable in respect of
the fiscal year immediately preceding the fiscal year in which
termination occurs, payable over a two- year period;
(iii) entitled to the pro rata bonus; and
(iv) entitled to continued coverage under our group health
plans during the period over which the cash severance described
in clause (ii) is paid. The executives vested New
Options and 2x Time Options would also remain exercisable until
the first anniversary of the termination of the executives
employment. However, in lieu of receiving the payments and
benefits described in (ii), (iii) and (iv) immediately
above, the executive may instead elect to have his or her
covenants not to compete waived by us. The same severance
applies regardless of whether the termination was in connection
with a change in control of the Company.
Cause is defined as an executives
(i) willful and continued failure to perform his material
duties to the Company which continues beyond 10 business days
after a written demand for substantial performance is delivered;
(ii) willful or intentional engagement in material
misconduct that causes material and demonstrable injury,
monetarily or otherwise, to the Company or the Sponsors;
(iii) conviction of, or a plea of nolo contendere
to, a crime constituting a felony, or a misdemeanor for
which a sentence of more than six months imprisonment is
imposed; or (iv) willful and material breach of his
covenants under the employment agreement which continues beyond
the designated cure period or of the agreements relating to the
new equity. Good Reason is defined as (i) a
reduction in the executives base salary (other than a
general reduction that affects all similarly situated employees
in substantially the same proportions which is implemented by
the Board in good faith after consultation with the chief
executive officer and chief operating officer), a reduction in
the executives annual incentive compensation opportunity,
or the reduction of benefits payable to the executive under the
SERP; (ii) a substantial diminution in the executives
title, duties and responsibilities; or (iii) a transfer of
the executives primary workplace to a location that is
more than 20 miles from his or her current workplace (other
than, in the case of (i) and (ii), any isolated,
insubstantial and inadvertent failure that is not in bad faith
and is cured within 10 business days after the executives
written notice to the Company).
In the event of an executives termination of employment
that is not a qualifying termination or a termination due to
death or disability, he or she will only be entitled to the
accrued rights (as defined above).
Additional information with respect to potential payments to the
named executive officers pursuant to their employment agreements
and the 2006 Plan is contained in Potential Payments Upon
Termination or Change in Control.
128
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table includes certain information with respect to
options held by the named executive officers as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
Plan Awards:
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
Number of
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Securities
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Underlying
|
|
Option
|
|
|
|
|
Options
|
|
Options
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
|
Exercisable
|
|
Unexercisable
|
|
Unearned
|
|
Price
|
|
Expiration
|
Name
|
|
(#)(1)(2)(3)
|
|
(#)(2)(3)
|
|
Options(#)(2)
|
|
($)(4)(5)(6)
|
|
Date
|
|
Richard M. Bracken
|
|
|
134,852
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/24/2012
|
|
Richard M. Bracken
|
|
|
182,407
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2013
|
|
Richard M. Bracken
|
|
|
136,208
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2014
|
|
Richard M. Bracken
|
|
|
48,378
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/27/2015
|
|
Richard M. Bracken
|
|
|
31,961
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/26/2016
|
|
Richard M. Bracken
|
|
|
105,011
|
|
|
|
210,032
|
|
|
|
630,078
|
|
|
$
|
5.31
|
|
|
|
1/30/2017
|
|
Richard M. Bracken
|
|
|
630,068
|
|
|
|
|
|
|
|
|
|
|
$
|
11.32
|
|
|
|
1/30/2017
|
|
Richard M. Bracken
|
|
|
|
|
|
|
284,490
|
|
|
|
|
|
|
$
|
13.21
|
|
|
|
10/6/2019
|
|
Richard M. Bracken
|
|
|
284,481
|
|
|
|
|
|
|
|
|
|
|
$
|
17.65
|
|
|
|
10/6/2019
|
|
Richard M. Bracken
|
|
|
853,445
|
|
|
|
|
|
|
|
|
|
|
$
|
22.64
|
|
|
|
10/6/2019
|
|
R. Milton Johnson
|
|
|
43,153
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/24/2012
|
|
R. Milton Johnson
|
|
|
41,689
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2013
|
|
R. Milton Johnson
|
|
|
36,319
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2014
|
|
R. Milton Johnson
|
|
|
117,188
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
7/22/2014
|
|
R. Milton Johnson
|
|
|
29,016
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/27/2015
|
|
R. Milton Johnson
|
|
|
19,374
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/26/2016
|
|
R. Milton Johnson
|
|
|
75,008
|
|
|
|
150,021
|
|
|
|
450,057
|
|
|
$
|
5.31
|
|
|
|
1/30/2017
|
|
R. Milton Johnson
|
|
|
450,048
|
|
|
|
|
|
|
|
|
|
|
$
|
11.32
|
|
|
|
1/30/2017
|
|
R. Milton Johnson
|
|
|
|
|
|
|
213,365
|
|
|
|
|
|
|
$
|
13.21
|
|
|
|
10/6/2019
|
|
R. Milton Johnson
|
|
|
213,356
|
|
|
|
|
|
|
|
|
|
|
$
|
17.65
|
|
|
|
10/6/2019
|
|
R. Milton Johnson
|
|
|
640,070
|
|
|
|
|
|
|
|
|
|
|
$
|
22.64
|
|
|
|
10/6/2019
|
|
Samuel N. Hazen
|
|
|
86,306
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/24/2012
|
|
Samuel N. Hazen
|
|
|
104,232
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2013
|
|
Samuel N. Hazen
|
|
|
75,670
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2014
|
|
Samuel N. Hazen
|
|
|
29,016
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/27/2015
|
|
Samuel N. Hazen
|
|
|
19,374
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/26/2016
|
|
Samuel N. Hazen
|
|
|
48,005
|
|
|
|
96,015
|
|
|
|
288,031
|
|
|
$
|
5.31
|
|
|
|
1/30/2017
|
|
Samuel N. Hazen
|
|
|
288,030
|
|
|
|
|
|
|
|
|
|
|
$
|
11.32
|
|
|
|
1/30/2017
|
|
Samuel N. Hazen
|
|
|
|
|
|
|
84,464
|
|
|
|
|
|
|
$
|
13.21
|
|
|
|
10/6/2019
|
|
Samuel N. Hazen
|
|
|
84,450
|
|
|
|
|
|
|
|
|
|
|
$
|
17.65
|
|
|
|
10/6/2019
|
|
Samuel N. Hazen
|
|
|
253,352
|
|
|
|
|
|
|
|
|
|
|
$
|
22.64
|
|
|
|
10/6/2019
|
|
Beverly B. Wallace
|
|
|
62,538
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2013
|
|
Beverly B. Wallace
|
|
|
51,456
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2014
|
|
Beverly B. Wallace
|
|
|
20,726
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/27/2015
|
|
Beverly B. Wallace
|
|
|
16,032
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/26/2016
|
|
Beverly B. Wallace
|
|
|
42,004
|
|
|
|
84,013
|
|
|
|
252,027
|
|
|
$
|
5.31
|
|
|
|
1/30/2017
|
|
Beverly B. Wallace
|
|
|
252,026
|
|
|
|
|
|
|
|
|
|
|
$
|
11.32
|
|
|
|
1/30/2017
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
Plan Awards:
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
Number of
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Securities
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Underlying
|
|
Option
|
|
|
|
|
Options
|
|
Options
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
|
Exercisable
|
|
Unexercisable
|
|
Unearned
|
|
Price
|
|
Expiration
|
Name
|
|
(#)(1)(2)(3)
|
|
(#)(2)(3)
|
|
Options(#)(2)
|
|
($)(4)(5)(6)
|
|
Date
|
|
Beverly B. Wallace
|
|
|
|
|
|
|
84,464
|
|
|
|
|
|
|
$
|
13.21
|
|
|
|
10/6/2019
|
|
Beverly B. Wallace
|
|
|
84,450
|
|
|
|
|
|
|
|
|
|
|
$
|
17.65
|
|
|
|
10/6/2019
|
|
Beverly B. Wallace
|
|
|
253,352
|
|
|
|
|
|
|
|
|
|
|
$
|
22.64
|
|
|
|
10/6/2019
|
|
W. Paul Rutledge
|
|
|
37,756
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/24/2012
|
|
W. Paul Rutledge
|
|
|
41,689
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2013
|
|
W. Paul Rutledge
|
|
|
24,214
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/29/2014
|
|
W. Paul Rutledge
|
|
|
10,346
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/27/2015
|
|
W. Paul Rutledge
|
|
|
24,304
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
10/1/2015
|
|
W. Paul Rutledge
|
|
|
19,374
|
|
|
|
|
|
|
|
|
|
|
$
|
2.83
|
|
|
|
1/26/2016
|
|
W. Paul Rutledge
|
|
|
42,004
|
|
|
|
84,013
|
|
|
|
252,027
|
|
|
$
|
5.31
|
|
|
|
1/30/2017
|
|
W. Paul Rutledge
|
|
|
252,026
|
|
|
|
|
|
|
|
|
|
|
$
|
11.32
|
|
|
|
1/30/2017
|
|
W. Paul Rutledge
|
|
|
|
|
|
|
84,464
|
|
|
|
|
|
|
$
|
13.21
|
|
|
|
10/6/2019
|
|
W. Paul Rutledge
|
|
|
84,450
|
|
|
|
|
|
|
|
|
|
|
$
|
17.65
|
|
|
|
10/6/2019
|
|
W. Paul Rutledge
|
|
|
253,352
|
|
|
|
|
|
|
|
|
|
|
$
|
22.64
|
|
|
|
10/6/2019
|
|
|
|
|
(1) |
|
Reflects Rollover Options, as further described under
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table
Options, the 60% of the named executive officers
time vested New Options, comprised of the 20% that vested as of
January 30, 2008, January 30, 2009 and
January 30, 2010, respectively, the 80% of the named
executive officers EBITDA-based performance vested New
Options, comprised of the 20% that vested as of
December 31, 2007, December 31, 2008,
December 31, 2009 and December 31, 2010, respectively
(upon the Committees determination that the Company
achieved the 2007, 2008, 2009 and 2010 EBITDA performance
targets under the option awards, as adjusted, as described in
more detail under Compensation Discussion and
Analysis Long Term Equity Incentive Awards:
Options) and the 80% of the named executive officers
vested 2x Time Options, comprised of the 40% that were vested on
the grant date and the 20% that vested on November 17, 2009
and November 17, 2010, respectively. |
|
(2) |
|
Reflects New Options awarded in January 2007 under the 2006 Plan
by the Compensation Committee as part of the named executive
officers long term equity incentive award. The New Options
granted in 2007 are structured so that
1/3 are time
vested options (vesting in five equal installments on the first
five anniversaries of the January 30, 2007 grant date),
1/3 are
EBITDA-based performance vested options (vesting in equal
increments of 20% at the end of fiscal years 2007, 2008, 2009,
2010 and 2011 if certain annual EBITDA performance targets are
achieved, subject to catch up vesting, such that,
options that were eligible to vest but failed to vest due to our
failure to achieve prior EBITDA targets will vest if at the end
of any subsequent year or at the end of fiscal year 2012, the
cumulative total EBITDA earned in all prior years exceeds the
cumulative EBITDA target at the end of such fiscal year) and
1/3 are
performance options that vest based on investment return to the
Sponsors (vesting with respect to 10% of the common stock
subject to such options at the end of fiscal years 2007, 2008,
2009, 2010 and 2011 if the Investor Return is at least $22.64
and with respect to an additional 10% at the end of fiscal years
2007, 2008, 2009, 2010 and 2011 if the Investor Return is at
least $28.30, subject to catch up vesting if the
relevant Investor Return is achieved at any time occurring prior
to January 30, 2017, so long as the named executive officer
remains employed by the Company). The time vested options are
reflected in the Number of Securities Underlying
Unexercised Options Unexercisable column (with the
exception of the 60% of the time vested options that were vested
as of December 31, 2010, which are reflected in the
Number of Securities Underlying Unexercised Options
Exercisable column), and the EBITDA-based |
130
|
|
|
|
|
performance vested options and investment return performance
vested options are both reflected in the Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised
Unearned Options column (with the exception of the 80% of
the EBITDA-based performance vested options that were vested as
of December 31, 2010, which are reflected in the
Number of Securities Underlying Unexercised Options
Exercisable column). The terms of these option awards are
described in more detail under Narrative Disclosure to
Summary Compensation Table and 2010 Grants of Plan-Based Awards
Table Options. |
|
(3) |
|
Reflects 2x Time Options awarded in October 2009 under the 2006
Plan by the Compensation Committee, pursuant to the named
executive officers employment agreement, as part of the
named executive officers long term equity incentive award.
The 2x Time Options are structured, pursuant to the named
executive officers respective employment agreements, so
that 40% were vested on the grant date, an additional 20% vested
on November 17, 2009 and November 17, 2010,
respectively, and an additional 20% will vest on
November 17, 2011. The 80% of the 2x Time Options that were
vested as of December 31, 2010 are reflected in the
Number of Securities Underlying Unexercised Options
Exercisable column, and the 20% of the 2x Time Options
that were not vested as of December 31, 2010 are reflected
in the Number of Securities Underlying Unexercised Options
Unexercisable column. The terms of these option awards are
described in more detail under Narrative Disclosure to
Summary Compensation Table and 2010 Grants of Plan-Based Awards
Table Options. |
|
(4) |
|
Immediately after the consummation of the Merger, all Rollover
Options (other than those with an exercise price below $2.83)
were adjusted such that they retained the same spread
value (as defined below) as immediately prior to the
Merger, but the new per share exercise price for all Rollover
Options would be $2.83. The term spread value means
the difference between (x) the aggregate fair market value
of the common stock (determined using the Merger consideration
of $11.32 per share) subject to the outstanding options held by
the participant immediately prior to the Merger that became
Rollover Options, and (y) the aggregate exercise price of
those options. |
|
(5) |
|
The exercise price for the New Options granted under the 2006
Plan to the named executive officers on January 30, 2007
was equal to the fair value of our common stock on the date of
the grant, as determined by our Board of Directors in
consultation with our Chief Executive Officer and other
advisors, pursuant to the terms of the 2006 Plan. Pursuant to
the New Options award agreements, in connection with the
distributions of $3.88, $1.11 and $4.44, respectively, per share
of outstanding common stock and outstanding vested stock option
held on the February 1, May 6 and November 24, 2010
record dates, respectively, the Company reduced the per share
exercise price of any unvested New Options outstanding as of the
applicable record dates by the per share distribution amount to
the extent the per share exercise price could be reduced under
applicable tax rules. With respect to the November 24, 2010
distribution and pursuant the New Option award agreements, to
the extent the per share exercise price could not be reduced by
the full $4.44 per share distribution, the Company will pay the
named executive officers an amount on a per share basis equal to
the balance of the per share distribution amount not permitted
to be applied to reduce the exercise price of the applicable
option in respect of each share of common stock subject to such
unvested option outstanding as of the November 24, 2010
record date upon the vesting of such option. The total cash
distributions attributable to the November 24, 2010 record
date distribution (such amounts representing the balance of the
distribution amount by which the exercise price of such options
could not be reduced under applicable tax rules) that will
become payable upon vesting of the applicable unvested stock
options awards held by the named executive officers on
November 24, 2010 are reflected in the All Other
Compensation column of the Summary Compensation Table. |
|
(6) |
|
The exercise price for the 2x Time Options granted under the
2006 Plan to the named executive officers on October 6,
2009 was $22.64, pursuant to the named executive officers
employment agreements. Pursuant to the New Options award
agreements, in connection with the distributions of $3.88, $1.11
and $4.44, respectively, per share of outstanding common stock
and outstanding vested stock option held on the February 1,
May 6 and November 24, 2010 record dates, respectively, the
Company reduced the per share exercise price of any unvested 2x
Time Options outstanding as of the applicable record dates by
the per share distribution amount to the extent the per share
exercise price could be reduced under applicable tax rules. |
131
Option
Exercises and Stock Vested in 2010
The following table includes certain information with respect to
options exercised by the named executive officers during the
fiscal year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of Shares
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
Name
|
|
Exercise(1)
|
|
Exercise ($)(2)
|
|
Richard M. Bracken
|
|
|
154,521
|
|
|
$
|
3,137,421
|
|
R. Milton Johnson
|
|
|
15,173
|
|
|
$
|
552,387
|
|
Samuel N. Hazen
|
|
|
86,328
|
|
|
$
|
1,752,840
|
|
Beverly B. Wallace
|
|
|
70,358
|
|
|
$
|
1,428,578
|
|
|
|
|
(1) |
|
Messrs. Bracken and Hazen and Ms. Wallace elected a
cash exercise of 154,521, 86,328 and 70,358 stock options,
respectively, resulting in net shares realized of 154,521,
86,328 and 70,358, respectively. Mr. Johnson elected a
cashless exercise of 27,205 stock options, resulting in net
shares realized of 15,173. |
|
(2) |
|
Represents the difference between the exercise price of the
options and the fair market value of the common stock on the
date of exercise, as determined by our Board of Directors in
consultation with our Chief Executive Officer and other advisors. |
2010
Pension Benefits
Our SERP is intended to qualify as a top-hat plan
designed to benefit a select group of management or highly
compensated employees. There are no other defined benefit plans
that provide for payments or benefits to any of the named
executive officers. Information about benefits provided by the
SERP is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Number of Years
|
|
Present Value of
|
|
Payments During
|
Name
|
|
Name
|
|
Credited Service
|
|
Accumulated Benefit
|
|
Last Fiscal Year
|
|
Richard M. Bracken
|
|
|
SERP
|
|
|
|
29
|
|
|
$
|
23,554,306
|
|
|
|
|
|
R. Milton Johnson
|
|
|
SERP
|
|
|
|
28
|
|
|
$
|
9,877,428
|
|
|
|
|
|
Samuel N. Hazen
|
|
|
SERP
|
|
|
|
28
|
|
|
$
|
7,967,999
|
|
|
|
|
|
Beverly B. Wallace
|
|
|
SERP
|
|
|
|
27
|
|
|
$
|
11,990,524
|
|
|
|
|
|
W. Paul Rutledge
|
|
|
SERP
|
|
|
|
29
|
|
|
$
|
8,102,058
|
|
|
|
|
|
Messrs. Bracken and Rutledge and Ms. Wallace are
eligible for early retirement. The remaining named executive
officers have not satisfied the eligibility requirements for
normal or early retirement. All of the named executive officers
are 100% vested in their accrued SERP benefit.
Plan
Provisions
In the event the employees accrued benefits under
the Companys Plans (computed using actuarial
factors) are insufficient to provide the life
annuity amount, the SERP will provide a benefit equal to
the amount of the shortfall. Benefits can be paid in the form of
an annuity or a lump sum. The lump sum is calculated by
converting the annuity benefit using the actuarial
factors. All benefits with a present value not exceeding
one million dollars are paid as a lump sum regardless of the
election made.
Normal retirement eligibility requires attainment of age 60
for employees who were participants at the time of the change in
control which occurred as a result of the Merger, including all
of the named executive officers. Early retirement eligibility
requires age 55 with 20 or more years of service. The
service requirement for early retirement is waived for employees
participating in the SERP at the time of its inception in 2001,
including all of the named executive officers. The life
annuity amount payable to a participant who takes early
retirement is reduced by three percent for each full year or
portion thereof that the participant retires prior to normal
retirement age.
The life annuity amount is the annual benefit
payable as a life annuity to a participant upon normal
retirement. It is equal to the participants accrual
rate multiplied by the product of the participants
years of
132
service times the participants pay
average. The SERP benefit for each year equals the life
annuity amount less the annual life annuity amount produced by
the employees accrued benefit under the
Companys Plans.
The accrual rate is a percentage assigned to each
participant, and is either 2.2% or 2.4%. All of the named
executive officers are assigned a percentage of 2.4%.
A participant is credited with a year of service for
each calendar year that the participant performs
1,000 hours of service for HCA Inc. or one of its
subsidiaries, or for each year the participant is otherwise
credited by us, subject to a maximum credit of 25 years of
service.
A participants pay average is an amount equal
to one-fifth of the sum of the compensation during the period of
60 consecutive months for which total compensation is greatest
within the 120 consecutive month period immediately preceding
the participants retirement. For purposes of this
calculation, the participants compensation includes base
compensation, payments under the PEP, and bonuses paid prior to
the establishment of the PEP.
The accrued benefits under the Companys Plans
for an employee equals the sum of the employer-funded benefits
accrued under the former HCA Retirement Plan (which was merged
into the HCA 401(k) Plan in 2008), the HCA 401(k) Plan and any
other tax-qualified plan maintained by HCA Inc. or one of its
subsidiaries, the income/loss adjusted amount distributed to the
participant under any of these plans, the account credit and the
income/loss adjusted amount distributed to the participant under
the Restoration Plan and any other nonqualified retirement plans
sponsored by HCA Inc. or one of its subsidiaries.
The actuarial factors include (a) interest at
the long term Applicable Federal Rate under Section 1274(d)
of the Code or any successor thereto as of the first day of
November preceding the plan year in which the participants
retirement, death, disability, or termination with benefit
rights under Section 5.3 or 6.2 occurs, and
(b) mortality being the applicable Section 417(e)(3)
of the Code mortality table, as specified and changed by the
U.S. Treasury Department.
Credited service does not include any amount other than service
with HCA Inc. or one of its subsidiaries.
Assumptions
The Present Value of Accumulated Benefit is based on a
measurement date of December 31, 2010. The measurement date
for valuing plan liabilities on the Companys balance sheet
is December 31, 2010.
The assumption is made that there is no probability of
pre-retirement death or termination. Retirement age is assumed
to be the Normal Retirement Age as defined in the SERP for all
named executive officers, as adjusted by the provisions relating
to change in control, or age 60. Age 60 also
represents the earliest date the named executive officers are
eligible to receive an unreduced benefit.
All other assumptions used in the calculations are the same as
those used for the valuation of the plan liabilities in the
plans most recent annual valuation.
Supplemental
Information
In the event a participant renders service to another health
care organization within five years following retirement or
termination of employment, he or she forfeits his rights to any
further payment, and must repay any benefits already paid. This
non-competition provision is subject to waiver by the Committee
with respect to the named executive officers.
133
2010
Nonqualified Deferred Compensation
Amounts shown in the table are attributable to the HCA
Restoration Plan, an unfunded, nonqualified defined contribution
plan designed to restore benefits under the HCA 401(k) Plan
based on compensation in excess of the Code
Section 401(a)(17) compensation limit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
|
|
Aggregate
|
|
|
Contributions
|
|
Contributions
|
|
Earnings
|
|
Aggregate
|
|
Balance
|
|
|
in Last
|
|
in Last
|
|
in Last
|
|
Withdrawals/
|
|
at Last
|
Name
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Distributions
|
|
Fiscal Year End
|
|
Richard M. Bracken
|
|
|
|
|
|
|
|
|
|
$
|
206,549
|
|
|
|
|
|
|
$
|
1,624,946
|
|
R. Milton Johnson
|
|
|
|
|
|
|
|
|
|
$
|
84,699
|
|
|
|
|
|
|
$
|
666,338
|
|
Samuel N. Hazen
|
|
|
|
|
|
|
|
|
|
$
|
113,066
|
|
|
|
|
|
|
$
|
889,505
|
|
Beverly B. Wallace
|
|
|
|
|
|
|
|
|
|
$
|
69,780
|
|
|
|
|
|
|
$
|
548,966
|
|
W. Paul Rutledge
|
|
|
|
|
|
|
|
|
|
$
|
62,128
|
|
|
|
|
|
|
$
|
488,770
|
|
The following amounts from the column titled Aggregate
Balance at Last Fiscal Year have been reported in the
Summary Compensation Tables in prior years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restoration Contribution
|
Name
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Richard M. Bracken
|
|
$
|
87,924
|
|
|
$
|
146,549
|
|
|
$
|
162,344
|
|
|
$
|
192,858
|
|
|
$
|
172,571
|
|
|
$
|
409,933
|
|
|
$
|
91,946
|
|
R. Milton Johnson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,441
|
|
|
$
|
212,109
|
|
|
$
|
57,792
|
|
Samuel N. Hazen
|
|
|
|
|
|
|
|
|
|
$
|
79,510
|
|
|
$
|
101,488
|
|
|
$
|
97,331
|
|
|
$
|
247,060
|
|
|
$
|
62,004
|
|
Beverly B. Wallace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,250
|
|
Plan
Provisions
Until 2008, hypothetical accounts for each participant were
credited each year with a contribution designed to restore the
HCA Retirement Plan based on compensation in excess of the Code
Section 401(a)(17) compensation limit, based on years of
service. Effective January 1, 2008, participants in the
SERP are no longer eligible for Restoration Plan contributions.
However, the hypothetical accounts as of January 1, 2008
will continue to be maintained and were increased or decreased
with hypothetical investment returns based on the actual
investment return of the Mix B fund of the HCA 401(k) Plan
through December 31, 2010. Subsequently, the hypothetical
accounts as of December 31, 2010 will continue to be
maintained but will not be increased or decreased with
hypothetical investment returns.
No employee deferrals are allowed under this or any other
nonqualified deferred compensation plan.
Prior to April 30, 2009, eligible employees made a one-time
election prior to participation (or prior to December 31,
2006, if earlier) regarding the form of distribution of the
benefit. Participants chose between a lump sum and five or
ten-year installments. All distributions are paid in the form of
a lump-sum distribution unless the participant submitted an
installment payment election prior to April 30, 2009.
Distributions are paid (or begin) during the July following the
year of termination of employment or retirement. All balances
not exceeding $500,000 are automatically paid as a lump sum,
regardless of election.
Supplemental
Information
In the event a named executive officer renders service to
another health care organization within five years following
retirement or termination of employment, he or she forfeits the
rights to any further payment, and must repay any payments
already made. This non-competition provision is subject to
waiver by the Committee with respect to the named executive
officers.
Potential
Payments Upon Termination or Change in Control
The following tables show the estimated amount of potential cash
severance payable to each of the named executive officers (based
upon his or her 2010 base salary and PEP payment received in
2010 for 2009
134
performance), as well as the estimated value of continuing
benefits, based on compensation and benefit levels in effect on
December 31, 2010, assuming the executives employment
terminates or the Company undergoes a Change in Control (as
defined in the 2006 Plan and set forth above under
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table
Options) effective December 31, 2010. Due to the
numerous factors involved in estimating these amounts, the
actual value of benefits and amounts to be paid can only be
determined upon an executives termination of employment.
As noted above, in the event a named executive officer breaches
or violates those certain confidentiality, non-competition
and/or
non-solicitation covenants contained in his or her employment
agreement, the SERP or the HCA Restoration Plan, certain of the
payments described below may be subject to forfeiture
and/or
repayment. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements,
2010 Pension Benefits Supplemental
Information, and 2010 Nonqualified Deferred
Compensation Supplemental Information.
Richard
M. Bracken
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Early
|
|
|
Normal
|
|
|
Without
|
|
|
Termination
|
|
|
for Good
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
Termination
|
|
|
Retirement
|
|
|
Retirement
|
|
|
Cause
|
|
|
for Cause
|
|
|
Reason
|
|
|
Disability
|
|
|
Death
|
|
|
Control
|
|
|
Cash Severance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,310,001
|
|
|
|
|
|
|
$
|
14,310,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Bonus(2)
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
|
|
|
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
|
$
|
2,614,824
|
|
Unvested Stock Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,800,598
|
|
SERP(4)
|
|
$
|
22,425,973
|
|
|
$
|
22,425,973
|
|
|
|
|
|
|
$
|
22,425,973
|
|
|
$
|
22,425,973
|
|
|
$
|
22,425,973
|
|
|
$
|
22,425,973
|
|
|
$
|
19,717,244
|
|
|
|
|
|
Retirement Plans(5)
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
$
|
2,901,084
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability Income(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,727,128
|
|
|
|
|
|
|
|
|
|
Life Insurance Benefits(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,401,000
|
|
|
|
|
|
Accrued Vacation Pay
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
$
|
183,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,125,343
|
|
|
$
|
28,125,343
|
|
|
$
|
5,699,370
|
|
|
$
|
42,435,344
|
|
|
$
|
25,510,519
|
|
|
$
|
42,435,344
|
|
|
$
|
29,852,471
|
|
|
$
|
26,817,614
|
|
|
$
|
20,415,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts Mr. Bracken would be entitled to receive
pursuant to his employment agreement. See Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table Executive Employment
Agreements. |
|
(2) |
|
Represents the amount Mr. Bracken would be entitled to
receive for the 2010 fiscal year pursuant to the 2010 PEP and
his employment agreement, which amount is also included in the
Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. Under the 2010 PEP, incentive
payouts up to the target will be paid in cash during the first
quarter of 2011. Payouts above the target will be paid 50% in
cash and 50% in RSUs. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements. |
|
(3) |
|
Represents the intrinsic value of all unvested stock options,
which will become vested upon the Change in Control, calculated
as the difference between the exercise price of
Mr. Brackens unvested New Options and the fair value
price of our common stock on December 31, 2010 as
determined by our Board of Directors in consultation with our
Chief Executive Officer and other advisors for internal purposes
($23.13 per share). For the purposes of this calculation, it is
assumed that the Company achieved an Investor Return of at least
2.5 times the Base Price of $11.32 at the end of the 2010 fiscal
year. |
|
(4) |
|
Reflects the actual lump sum value of the SERP based on the 2010
interest rate of 4.01%. |
|
(5) |
|
Reflects the estimated lump sum present value of qualified and
nonqualified retirement plans to which Mr. Bracken would be
entitled. The value includes $1,276,138 from the HCA 401(k) Plan
(which represents the value of the Companys contributions)
and $1,624,946 from the HCA Restoration Plan. |
|
(6) |
|
Reflects the estimated lump sum present value of all future
payments which Mr. Bracken would be entitled to receive
under our disability program, including five months of salary
continuation, monthly long term disability benefits of $10,000
per month payable after the five-month elimination period until |
135
|
|
|
|
|
age 66, and monthly benefits of $10,000 per month from our
Supplemental Insurance Program payable after the 180 day
elimination period to age 65. |
|
(7) |
|
No post-retirement or post-termination life insurance or death
benefits are provided to Mr. Bracken.
Mr. Brackens payment upon death while actively
employed includes $1,326,000 of Company-paid life insurance and
$75,000 from the Executive Death Benefit Plan. |
R. Milton
Johnson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Early
|
|
|
Normal
|
|
|
Without
|
|
|
Termination
|
|
|
for Good
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
Termination
|
|
|
Retirement
|
|
|
Retirement
|
|
|
Cause
|
|
|
for Cause
|
|
|
Reason
|
|
|
Disability
|
|
|
Death
|
|
|
Control
|
|
|
Cash Severance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,630,001
|
|
|
|
|
|
|
$
|
6,630,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Bonus(2)
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
|
|
|
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
|
$
|
1,032,267
|
|
Unvested Stock Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,815,562
|
|
SERP(4)
|
|
$
|
10,627,544
|
|
|
|
|
|
|
|
|
|
|
$
|
10,627,544
|
|
|
$
|
10,627,544
|
|
|
$
|
10,627,544
|
|
|
$
|
10,627,544
|
|
|
$
|
9,724,399
|
|
|
|
|
|
Retirement Plans(5)
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
$
|
1,789,401
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability Income(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,047,604
|
|
|
|
|
|
|
|
|
|
Life Insurance Benefits(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
851,000
|
|
|
|
|
|
Accrued Vacation Pay
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
$
|
117,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,566,904
|
|
|
$
|
2,939,360
|
|
|
$
|
2,939,360
|
|
|
$
|
20,196,905
|
|
|
$
|
12,534,637
|
|
|
$
|
20,196,905
|
|
|
$
|
15,614,508
|
|
|
$
|
13,514,759
|
|
|
$
|
13,847,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts Mr. Johnson would be entitled to receive
pursuant to his employment agreement. See Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table Executive Employment
Agreements. |
|
(2) |
|
Represents the amount Mr. Johnson would be entitled to
receive for the 2010 fiscal year pursuant to the 2010 PEP and
his employment agreement, which amount is also included in the
Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. Under the 2010 PEP, incentive
payouts up to the target will be paid in cash during the first
quarter of 2011. Payouts above the target will be paid 50% in
cash and 50% in RSUs. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements. |
|
(3) |
|
Represents the intrinsic value of all unvested stock options,
which will become vested upon the Change in Control, calculated
as the difference between the exercise price of
Mr. Johnsons unvested New Options and the fair value
price of our common stock on December 31, 2010 as
determined by our Board of Directors in consultation with our
Chief Executive Officer and other advisors for internal purposes
($23.13 per share). For the purposes of this calculation, it is
assumed that the Company achieved an Investor Return of at least
2.5 times the Base Price of $11.32 at the end of the 2010 fiscal
year. |
|
(4) |
|
Reflects the actual lump sum value of the SERP based on the 2010
interest rate of 4.01%. |
|
(5) |
|
Reflects the estimated lump sum present value of qualified and
nonqualified retirement plans to which Mr. Johnson would be
entitled. The value includes $1,123,063 from the HCA 401(k) Plan
(which represents the value of the Companys contributions)
and $666,338 from the HCA Restoration Plan. |
|
(6) |
|
Reflects the estimated lump sum present value of all future
payments which Mr. Johnson would be entitled to receive
under our disability program, including five months of salary
continuation, monthly long term disability benefits of $10,000
per month payable after the five-month elimination period until
age 66 and 4 months, and monthly benefits of $10,000
per month from our Supplemental Insurance Program payable after
the 180 day elimination period to age 65. |
|
(7) |
|
No post-retirement or post-termination life insurance or death
benefits are provided to Mr. Johnson.
Mr. Johnsons payment upon death while actively
employed with the Company includes $851,000 of Company-paid life
insurance. |
136
Samuel
N. Hazen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Early
|
|
|
Normal
|
|
|
Without
|
|
|
Termination
|
|
|
for Good
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
Termination
|
|
|
Retirement
|
|
|
Retirement
|
|
|
Cause
|
|
|
for Cause
|
|
|
Reason
|
|
|
Disability
|
|
|
Death
|
|
|
Control
|
|
|
Cash Severance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,659,479
|
|
|
|
|
|
|
$
|
3,659,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Bonus(2)
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
|
|
|
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
|
$
|
816,431
|
|
Unvested Stock Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,684,802
|
|
SERP(4)
|
|
$
|
8,384,265
|
|
|
|
|
|
|
|
|
|
|
$
|
8,384,265
|
|
|
$
|
8,384,265
|
|
|
$
|
8,384,265
|
|
|
$
|
8,384,265
|
|
|
$
|
8,059,608
|
|
|
|
|
|
Retirement Plans(5)
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
$
|
1,533,429
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability Income(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,380,816
|
|
|
|
|
|
|
|
|
|
Life Insurance Benefits(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
789,000
|
|
|
|
|
|
Accrued Vacation Pay
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
$
|
109,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,843,328
|
|
|
$
|
2,459,063
|
|
|
$
|
2,459,063
|
|
|
$
|
14,502,807
|
|
|
$
|
10,026,897
|
|
|
$
|
14,502,807
|
|
|
$
|
13,224,144
|
|
|
$
|
11,307,671
|
|
|
$
|
8,501,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts Mr. Hazen would be entitled to receive
pursuant to his employment agreement. See Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table Executive Employment
Agreements. |
|
(2) |
|
Represents the amount Mr. Hazen would be entitled to
receive for the 2010 fiscal year pursuant to the 2010 PEP and
his employment agreement, which amount is also included in the
Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. Under the 2010 PEP, incentive
payouts up to the target will be paid in cash during the first
quarter of 2011. Payouts above the target will be paid 50% in
cash and 50% in RSUs. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements. |
|
(3) |
|
Represents the intrinsic value of all unvested stock options,
which will become vested upon the Change in Control, calculated
as the difference between the exercise price of
Mr. Hazens unvested New Options and the fair value
price of our common stock on December 31, 2010 as
determined by our Board of Directors in consultation with our
Chief Executive Officer and other advisors for internal purposes
($23.13 per share). For the purposes of this calculation, it is
assumed that the Company achieved an Investor Return of at least
2.5 times the Base Price of $11.32 at the end of the 2010 fiscal
year. |
|
(4) |
|
Reflects the actual lump sum value of the SERP based on the 2010
interest rate of 4.01%. |
|
(5) |
|
Reflects the estimated lump sum present value of qualified and
nonqualified retirement plans to which Mr. Hazen would be
entitled. The value includes $643,924 from the HCA 401(k) Plan
(which represents the value of the Companys contributions)
and $889,505 from the HCA Restoration Plan. |
|
(6) |
|
Reflects the estimated lump sum present value of all future
payments which Mr. Hazen would be entitled to receive under
our disability program, including five months of salary
continuation, monthly long term disability benefits of $10,000
per month payable after the five-month elimination period until
age 67, and monthly benefits of $10,000 per month from our
Supplemental Insurance Program payable after the 180 day
elimination period to age 65. |
|
(7) |
|
No post-retirement or post-termination life insurance or death
benefits are provided to Mr. Hazen. Mr. Hazens
payment upon death while actively employed with the Company
includes $789,000 of Company-paid life insurance. |
137
Beverly
B. Wallace
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Early
|
|
|
Normal
|
|
|
Without
|
|
|
Termination
|
|
|
for Good
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
Termination
|
|
|
Retirement
|
|
|
Retirement
|
|
|
Cause
|
|
|
for Cause
|
|
|
Reason
|
|
|
Disability
|
|
|
Death
|
|
|
Control
|
|
|
Cash Severance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,248,035
|
|
|
|
|
|
|
$
|
3,248,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Bonus(2)
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
|
|
|
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
|
$
|
701,348
|
|
Unvested Stock Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,829,019
|
|
SERP(4)
|
|
$
|
10,679,246
|
|
|
$
|
10,679,246
|
|
|
|
|
|
|
$
|
10,679,246
|
|
|
$
|
10,679,246
|
|
|
$
|
10,679,246
|
|
|
$
|
10,679,246
|
|
|
$
|
9,554,436
|
|
|
|
|
|
Retirement Plans(5)
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
$
|
1,084,745
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability Income(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,235,049
|
|
|
|
|
|
|
|
|
|
Life Insurance Benefits(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
701,000
|
|
|
|
|
|
Accrued Vacation Pay
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
$
|
96,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,562,264
|
|
|
$
|
12,562,264
|
|
|
$
|
1,883,018
|
|
|
$
|
15,810,299
|
|
|
$
|
11,860,916
|
|
|
$
|
15,810,299
|
|
|
$
|
13,797,313
|
|
|
$
|
12,138,454
|
|
|
$
|
7,530,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts Ms. Wallace would be entitled to receive
pursuant to her employment agreement. See Narrative
Disclosure to Summary Compensation Table and 2010 Grants of
Plan-Based Awards Table Executive Employment
Agreements. |
|
(2) |
|
Represents the amount Ms. Wallace would be entitled to
receive for the 2010 fiscal year pursuant to the 2010 PEP and
her employment agreement, which amount is also included in the
Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. Under the 2010 PEP, incentive
payouts up to the target will be paid in cash during the first
quarter of 2011. Payouts above the target will be paid 50% in
cash and 50% in RSUs. See Narrative Disclosure to Summary
Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements. |
|
(3) |
|
Represents the intrinsic value of all unvested stock options,
which will become vested upon the Change in Control, calculated
as the difference between the exercise price of
Ms. Wallaces unvested New Options and the fair value
price of our common stock on December 31, 2010 as
determined by our Board of Directors in consultation with our
Chief Executive Officer and other advisors for internal purposes
($23.13 per share). For the purposes of this calculation, it is
assumed that the Company achieved an Investor Return of at least
2.5 times the Base Price of $11.32 at the end of the 2010 fiscal
year. |
|
(4) |
|
Reflects the actual lump sum value of the SERP based on the 2010
interest rate of 4.01%. |
|
(5) |
|
Reflects the estimated lump sum present value of qualified and
nonqualified retirement plans to which Ms. Wallace would be
entitled. The value includes $535,779 from the HCA 401(k) Plan
(which represents the value of the Companys contributions)
and $548,966 from the HCA Restoration Plan. |
|
(6) |
|
Reflects the estimated lump sum present value of all future
payments which Ms. Wallace would be entitled to receive
under our disability program, including five months of salary
continuation, monthly long term disability benefits of $10,000
per month payable after the five-month elimination period until
age 66, and monthly benefits of $10,000 per month from our
Supplemental Insurance Program payable after the 180 day
elimination period to age 65. |
|
(7) |
|
No post-retirement or post-termination life insurance or death
benefits are provided to Ms. Wallace.
Ms. Wallaces payment upon death while actively
employed includes $701,000 of Company-paid life insurance. |
138
W.
Paul Rutledge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
Early
|
|
|
Normal
|
|
|
Without
|
|
|
Termination
|
|
|
for Good
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
Termination
|
|
|
Retirement
|
|
|
Retirement
|
|
|
Cause
|
|
|
for Cause
|
|
|
Reason
|
|
|
Disability
|
|
|
Death
|
|
|
Control
|
|
|
Cash Severance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,182,034
|
|
|
|
|
|
|
$
|
3,182,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Bonus(2)
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
|
|
|
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
|
$
|
350,667
|
|
Unvested Stock Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,829,019
|
|
SERP(4)
|
|
$
|
8,479,517
|
|
|
$
|
8,479,517
|
|
|
|
|
|
|
$
|
8,479,517
|
|
|
$
|
8,479,517
|
|
|
$
|
8,479,517
|
|
|
$
|
8,479,517
|
|
|
$
|
7,673,752
|
|
|
|
|
|
Retirement Plans(5)
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
$
|
1,308,476
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability Income(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,770,423
|
|
|
|
|
|
|
|
|
|
Life Insurance Benefits(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
776,000
|
|
|
|
|
|
Accrued Vacation Pay
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
$
|
96,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,235,583
|
|
|
$
|
10,235,583
|
|
|
$
|
1,756,066
|
|
|
$
|
13,417,617
|
|
|
$
|
9,884,916
|
|
|
$
|
13,417,617
|
|
|
$
|
12,006,006
|
|
|
$
|
10,205,818
|
|
|
$
|
7,179,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts Mr. Rutledge would be entitled to
receive pursuant to his employment agreement. See
Narrative Disclosure to Summary Compensation Table and
2010 Grants of Plan-Based Awards Table Executive
Employment Agreements. |
|
(2) |
|
Represents the amount Mr. Rutledge would be entitled to
receive for the 2010 fiscal year pursuant to the 2010 PEP and
his employment agreement, which amount is also included in the
Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. See Narrative Disclosure to
Summary Compensation Table and 2010 Grants of Plan-Based Awards
Table Executive Employment Agreements. |
|
(3) |
|
Represents the intrinsic value of all unvested stock options,
which will become vested upon the Change in Control, calculated
as the difference between the exercise price of
Mr. Rutledges unvested New Options and the fair value
price of our common stock on December 31, 2010 as
determined by our Board of Directors in consultation with our
Chief Executive Officer and other advisors for internal purposes
($23.13 per share). For the purposes of this calculation, it is
assumed that the Company achieved an Investor Return of at least
2.5 times the Base Price of $11.32 at the end of the 2010 fiscal
year. |
|
(4) |
|
Reflects the actual lump sum value of the SERP based on the 2010
interest rate of 4.01%. |
|
(5) |
|
Reflects the estimated lump sum present value of qualified and
nonqualified retirement plans to which Mr. Rutledge would
be entitled. The value includes $819,706 from the HCA 401(k)
Plan (which represents the value of the Companys
contributions) and $488,770 from the HCA Restoration Plan. |
|
(6) |
|
Reflects the estimated lump sum present value of all future
payments which Mr. Rutledge would be entitled to receive
under our disability program, including five months of salary
continuation, monthly long term disability benefits of $10,000
per month payable after the five-month elimination period until
age 66 and 2 months, and monthly benefits of $10,000
per month from our Supplemental Insurance Program payable after
the 180 day elimination period to age 65. |
|
(7) |
|
No post-retirement or post-termination life insurance or death
benefits are provided to Mr. Rutledge.
Mr. Rutledges payment upon death while actively
employed includes $701,000 of Company-paid life insurance and
$75,000 from the Executive Death Benefit Plan. |
Director
Compensation
During the year ended December 31, 2010, none of our
directors received compensation for their service as a member of
our Board. Our directors are reimbursed for any expenses
incurred in connection with their service.
Our Board of Directors has adopted a director compensation
program to be effective upon the completion of this offering.
Pursuant to this program, each member of our Board of Directors
who is not an employee of
139
the Company will receive quarterly payment of the following cash
compensation, as applicable, for Board services:
|
|
|
|
|
$100,000 annual retainer for service as a Board member (prorated
for partial years);
|
|
|
|
$15,000 annual retainer for service as a member of the Audit and
Compliance Committee;
|
|
|
|
$10,000 annual retainer for service as a member on each of the
Compensation Committee, Nominating and Corporate Governance
Committee or Patient Safety and Quality of Care Committee;
|
|
|
|
$20,000 annual retainer for service as Chairman of the Audit and
Compliance Committee; and
|
|
|
|
$12,500 annual retainer for service as Chairman on each of the
Compensation Committee, Nominating and Corporate Governance
Committee or Patient Safety and Quality of Care Committee.
|
We expect that we will continue to reimburse our directors for
their reasonable expenses incurred in their service as Board
members.
In addition to the director compensation described above, we
anticipate that each non-employee director, upon joining the
Board of Directors, will receive a one-time initial equity award
with a value of $150,000. These equity grants will consist of
restricted stock units (RSUs) ultimately payable in
shares of our common stock. These RSUs will vest as to 100% of
the award on the third anniversary of the grant date, subject to
the directors continued service on our Board of Directors.
Each non-employee director will also receive an annual board
equity award with a value of $125,000, awarded upon joining the
Board of Directors (prorated at the time of hire for months of
service) and at each annual meeting of the stockholders
thereafter. These RSUs will vest as to 100% of the award on the
subsequent annual meeting of the stockholders after each award
was granted, each subject to the directors continued
service on our Board of Directors. We also anticipate allowing
our directors to elect to defer receipt of shares under the RSUs.
Each non-employee director is expected to directly or indirectly
acquire a number of shares of our common stock with a value of
three times the value of the annual cash retainer for a
directors service on the Board of Directors within three
years from the later of the Companys listing on the NYSE
or the date on which they are elected to the Board of Directors.
Compensation
Committee Interlocks and Insider Participation
During 2010, the Compensation Committee of the Board of
Directors was composed of John P. Connaughton, James D. Forbes
and Michael W. Michelson. None of the members of the
Compensation Committee have at any time been an officer or
employee of HCA or any of its subsidiaries. In addition, none of
our executive officers serves as a member of the board of
directors or compensation committee of any entity which has one
or more executive officers serving as a member of our Board of
Directors or Compensation Committee. Each member of the
Compensation Committee is also a manager of Hercules Holding,
and the Amended and Restated Limited Liability Company Agreement
of Hercules Holding requires that the members of Hercules
Holding take all necessary action to ensure that the persons who
serve as managers of Hercules Holding also serve on our Board of
Directors. Messrs. Michelson, Forbes and Connaughton are
affiliated with KKR, BAML Capital Partners (the private equity
division of Bank of America Corporation) and Bain Capital
Partners, LLC respectively, each of which is a party to the
sponsor management agreement with us. The Amended and Restated
Limited Liability Company Agreement of Hercules Holding, the
sponsor management agreement and certain transactions with
affiliates of BAML Capital Partners and KKR are described in
greater detail in Certain Relationships and Related Party
Transactions.
140
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table shows the amount of our common stock
beneficially owned as of February 11, 2011, and as adjusted
to reflect the 126,200,000 shares of our common stock
offered hereby, by those who were known by us to beneficially
own more than 5% of our common stock, by each selling
stockholder, by our directors and named executive officers
individually and by our directors and all of our executive
officers as a group.
The percentages of shares outstanding provided in the tables are
based on 427,485,767 shares of our common stock, par value
$0.01 per share, outstanding as of February 11, 2011.
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Shares issuable upon the exercise of
options that are exercisable within 60 days of
February 11, 2011 are considered outstanding for the
purpose of calculating the percentage of outstanding shares of
our common stock held by the individual, but not for the purpose
of calculating the percentage of outstanding shares held by any
other individual. Unless otherwise indicated, the address of
each of the directors, executive officers and selling
stockholders listed below is
c/o HCA
Holdings, Inc., One Park Plaza, Nashville, Tennessee 37203.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Common
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
Percentage of
|
|
|
|
Shares of
|
|
|
Stock
|
|
|
Shares of
|
|
|
Shares of
|
|
|
Stock Beneficially
|
|
|
Common Stock
|
|
|
|
Common Stock
|
|
|
Beneficially
|
|
|
Common
|
|
|
Common
|
|
|
Owned After this
|
|
|
Beneficially Owned
|
|
|
|
Beneficially
|
|
|
Owned
|
|
|
Stock
|
|
|
Stock
|
|
|
Offering
|
|
|
After this Offering
|
|
|
|
Owned Prior to
|
|
|
Prior to this
|
|
|
Being
|
|
|
Subject to
|
|
|
Without
|
|
|
With
|
|
|
Without
|
|
|
With
|
|
Name of Beneficial Owner
|
|
this Offering
|
|
|
Offering
|
|
|
Offered
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
5% Stockholders and other Selling Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hercules Holding II, LLC
|
|
|
413,764,840
|
(1)
|
|
|
96.8
|
%
|
|
|
37,908,852
|
|
|
|
18,240,867
|
|
|
|
375,855,988
|
|
|
|
357,615,121
|
|
|
|
72.9
|
%
|
|
|
69.3
|
%
|
Jack Bovender, Jr.
|
|
|
2,805,407
|
(2)
|
|
|
|
*
|
|
|
237,766
|
|
|
|
70,702
|
|
|
|
2,567,641
|
|
|
|
2,427,084
|
|
|
|
|
*
|
|
|
|
*
|
Fidelity Investments Charitable Gift Fund
|
|
|
68,160
|
(3)(4)
|
|
|
|
*
|
|
|
68,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Jewish Philanthropies of Greater Boston, Inc.
|
|
|
104,194
|
(3)(5)
|
|
|
|
*
|
|
|
104,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston Foundation, Inc.
|
|
|
2,511
|
(3)(6)
|
|
|
|
*
|
|
|
2,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Stockholders as a group
|
|
|
1,501,632
|
(7)
|
|
|
|
*
|
|
|
159,217
|
|
|
|
69,990
|
|
|
|
1,342,415
|
|
|
|
1,272,425
|
|
|
|
|
*
|
|
|
|
*
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher J. Birosak
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard M. Bracken
|
|
|
3,033,420
|
(8)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
3,033,420
|
|
|
|
3,033,420
|
|
|
|
|
*
|
|
|
|
*
|
John P. Connaughton
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James D. Forbes
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth W. Freeman
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas F. Frist III
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William R. Frist
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher R. Gordon
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Milton Johnson
|
|
|
1,948,092
|
(9)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
1,948,092
|
|
|
|
1,948,092
|
|
|
|
|
*
|
|
|
|
*
|
Michael W. Michelson
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James C. Momtazee
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen G. Pagliuca
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan C. Thorne
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David G. Anderson
|
|
|
335,092
|
(10)
|
|
|
|
*
|
|
|
|
|
|
|
28,246
|
|
|
|
335,092
|
|
|
|
289,551
|
|
|
|
|
*
|
|
|
|
*
|
Victor L. Campbell
|
|
|
541,081
|
(11)
|
|
|
|
*
|
|
|
|
|
|
|
41,066
|
|
|
|
541,081
|
|
|
|
485,160
|
|
|
|
|
*
|
|
|
|
*
|
Jon M. Foster
|
|
|
179,968
|
(12)
|
|
|
|
*
|
|
|
|
|
|
|
17,622
|
|
|
|
179,968
|
|
|
|
161,229
|
|
|
|
|
*
|
|
|
|
*
|
Samuel N. Hazen
|
|
|
1,275,811
|
(13)
|
|
|
|
*
|
|
|
|
|
|
|
77,716
|
|
|
|
1,275,811
|
|
|
|
1,198,095
|
|
|
|
|
*
|
|
|
|
*
|
A. Bruce Moore, Jr.
|
|
|
752,039
|
(14)
|
|
|
|
*
|
|
|
|
|
|
|
42,303
|
|
|
|
752,039
|
|
|
|
680,434
|
|
|
|
|
*
|
|
|
|
*
|
Jonathan B. Perlin
|
|
|
295,025
|
(15)
|
|
|
|
*
|
|
|
|
|
|
|
19,693
|
|
|
|
295,025
|
|
|
|
259,561
|
|
|
|
|
*
|
|
|
|
*
|
W. Paul Rutledge
|
|
|
979,054
|
(16)
|
|
|
|
*
|
|
|
|
|
|
|
94,178
|
|
|
|
979,054
|
|
|
|
884,876
|
|
|
|
|
*
|
|
|
|
*
|
Joseph N. Steakley
|
|
|
330,929
|
(17)
|
|
|
|
*
|
|
|
|
|
|
|
39,107
|
|
|
|
330,929
|
|
|
|
291,822
|
|
|
|
|
*
|
|
|
|
*
|
John M. Steele
|
|
|
237,321
|
(18)
|
|
|
|
*
|
|
|
|
|
|
|
20,482
|
|
|
|
237,321
|
|
|
|
204,991
|
|
|
|
|
*
|
|
|
|
*
|
Beverly B. Wallace
|
|
|
905,756
|
(19)
|
|
|
|
*
|
|
|
|
|
|
|
52,911
|
|
|
|
905,756
|
|
|
|
814,422
|
|
|
|
|
*
|
|
|
|
*
|
Robert A. Waterman
|
|
|
842,578
|
(20)
|
|
|
|
*
|
|
|
|
|
|
|
75,783
|
|
|
|
842,578
|
|
|
|
701,579
|
|
|
|
|
*
|
|
|
|
*
|
Noel Brown Williams
|
|
|
299,459
|
(21)
|
|
|
|
*
|
|
|
|
|
|
|
23,844
|
|
|
|
299,459
|
|
|
|
261,903
|
|
|
|
|
*
|
|
|
|
*
|
Alan R. Yuspeh
|
|
|
173,771
|
(22)
|
|
|
|
*
|
|
|
|
|
|
|
15,490
|
|
|
|
173,771
|
|
|
|
150,479
|
|
|
|
|
*
|
|
|
|
*
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Common
|
|
|
|
|
|
|
|
|
Shares of Common
|
|
|
Percentage of
|
|
|
|
Shares of
|
|
|
Stock
|
|
|
Shares of
|
|
|
Shares of
|
|
|
Stock Beneficially
|
|
|
Common Stock
|
|
|
|
Common Stock
|
|
|
Beneficially
|
|
|
Common
|
|
|
Common
|
|
|
Owned After this
|
|
|
Beneficially Owned
|
|
|
|
Beneficially
|
|
|
Owned
|
|
|
Stock
|
|
|
Stock
|
|
|
Offering
|
|
|
After this Offering
|
|
|
|
Owned Prior to
|
|
|
Prior to this
|
|
|
Being
|
|
|
Subject to
|
|
|
Without
|
|
|
With
|
|
|
Without
|
|
|
With
|
|
Name of Beneficial Owner
|
|
this Offering
|
|
|
Offering
|
|
|
Offered
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Directors and all executive officers as a group (31 persons)
|
|
|
13,490,368
|
(23)
|
|
|
3.1
|
%
|
|
|
|
|
|
|
548,441
|
|
|
|
13,490,368
|
|
|
|
12,726,586
|
|
|
|
2.4
|
%
|
|
|
2.3
|
%
|
|
|
|
(1) |
|
Hercules Holding holds 413,764,840 shares, or approximately
96.8%, of our outstanding common stock. Hercules Holding is held
by a private investor group, including affiliates of Bain
Capital, KKR and MLGPE, now BAML Capital Partners (the private
equity arm of Merrill Lynch & Co., Inc., which is a
wholly-owned subsidiary of Bank of America Corporation), and
affiliates of our founder Dr. Thomas F. Frist, Jr.,
including Mr. Thomas F. Frist III and Mr. William
R. Frist, who serve as directors. Messrs. Connaughton,
Gordon and Pagliuca are affiliated with Bain Capital, whose
affiliated funds may be deemed to have indirect beneficial
ownership of 105,296,865 shares, or 24.6%, of our
outstanding common stock (with 10,989,649 of such shares to be
sold in the offering and 4,629,984 of such shares subject to
option) through their interests in Hercules Holding.
Messrs. Michelson, Momtazee and Freeman are affiliated with
KKR, which indirectly holds 105,296,860 shares, or 24.6%,
of our outstanding common stock (with 11,164,514 of such shares
to be sold in the offering and 4,629,984 of such shares subject
to option) through the interests of certain of its affiliated
funds in Hercules Holding. Messrs. Birosak, Forbes and
Thorne are affiliated with Bank of America Corporation, which
indirectly through MLGPE, now BAML Capital Partners, holds
105,296,865 shares, or 24.6%, of our outstanding common
stock (with 13,349,514 of such shares to be sold in the offering
and 7,639,942 of such shares subject to option) through the
interests of certain of its affiliated funds in Hercules
Holding. Thomas F. Frist III and William R. Frist may each
be deemed to indirectly, beneficially hold
80,207,583 shares, or 18.8%, of our outstanding common
stock (with 531,995 of such shares to be sold in the offering
and 204,106 of such shares subject to the overallotment option)
through their interests in Hercules Holding. Each of such
persons, other than Hercules Holding, disclaims membership in
any such group and disclaims beneficial ownership of these
securities, except to the extent of its pecuniary interest
therein. The principal office addresses of Hercules Holding are
c/o Bain
Capital Partners, LLC, 111 Huntington Avenue, Boston, MA 02199;
c/o Kohlberg
Kravis Roberts & Co. L.P., 2800 Sand Hill Road, Suite
200, Menlo Park, CA 94025;
c/o BAML
Capital Partners, 767 Fifth Avenue, 7th Floor, New York, NY
10153; and
c/o Dr. Thomas
F. Frist, Jr., 3100 West End Ave., Suite 500,
Nashville, TN 37203. |
|
|
|
(2) |
|
Includes 1,457,941 shares issuable upon exercise of options. |
|
(3) |
|
Represents shares received by such entities as a result of
charitable contributions by certain partners and other employees
of the Bain Capital Entities subsequent to February 11,
2011. |
|
(4) |
|
The address of Fidelity Investments Charitable Gift Fund is 200
Seaport Boulevard, ZE7, Boston, MA 02109. |
|
(5) |
|
The address of the Combined Jewish Philanthropies of Greater
Boston, Inc. is 126 High Street, Boston, MA 02110. |
|
(6) |
|
The address of the Boston Foundation, Inc. is 75 Arlington
Street, Boston, MA 02116. |
|
(7) |
|
Includes shares owned by the selling shareholders other than
those named in the table that in the aggregate beneficially own
less than 1.0% of our common stock as of February 11, 2011. |
|
(8) |
|
Includes 2,511,819 shares issuable upon exercise of options. |
|
(9) |
|
Includes 1,740,228 shares issuable upon exercise of options. |
|
(10) |
|
Includes 262,220 shares issuable upon exercise of options. |
|
(11) |
|
Includes 228,630 shares issuable upon exercise of options. |
|
(12) |
|
Includes 167,291 shares issuable upon exercise of options. |
142
|
|
|
(13) |
|
Includes 1,036,439 shares issuable upon exercise of options. |
|
(14) |
|
Includes 639,106 shares issuable upon exercise of options. |
|
(15) |
|
Includes 295,025 shares issuable upon exercise of options. |
|
(16) |
|
Includes 831,516 shares issuable upon exercise of options. |
|
(17) |
|
Includes 239,050 shares issuable upon exercise of options. |
|
(18) |
|
Includes 195,416 shares issuable upon exercise of options. |
|
(19) |
|
Includes 824,585 shares issuable upon exercise of options. |
|
(20) |
|
Includes 359,260 shares issuable upon exercise of options. |
|
(21) |
|
Includes 196,971 shares issuable upon exercise of options. |
|
(22) |
|
Includes 173,771 shares issuable upon exercise of options. |
|
(23) |
|
Includes 10,773,814 shares issuable upon exercise of
options. |
143
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In accordance with its charter, our Audit and Compliance
Committee reviews and approves all material related party
transactions. Prior to its approval of any material related
party transaction, the Audit and Compliance Committee will
discuss the proposed transaction with management and our
independent auditor. In addition, our Code of Conduct requires
that all of our employees, including our executive officers,
remain free of conflicts of interest in the performance of their
responsibilities to the Company. An executive officer who wishes
to enter into a transaction in which their interests might
conflict with ours must first receive the approval of the Audit
and Compliance Committee. The Amended and Restated Limited
Liability Company Agreement of Hercules Holding generally
requires that an Investor must obtain the prior written consent
of each other Investor (other than the Sponsor Assignees) before
it or any of its affiliates (including our directors) enter into
any transaction with us.
Stockholder
Agreements
On January 30, 2007, our Board of Directors awarded to
members of management and certain key employees New Options to
purchase shares of our common stock (the New Options together
with the Rollover Options, Options) pursuant to the
2006 Plan. Our Compensation Committee approved additional option
awards periodically throughout 2010, 2009, 2008 and 2007 to
members of management and certain key employees in cases of
promotions, significant contributions to the Company and new
hires. In connection with their option awards, the participants
under the 2006 Plan were required to enter into a Management
Stockholders Agreement, a Sale Participation Agreement,
and an Option Agreement with respect to the New Options. In
addition, in accordance with agreements entered into at the time
of the Recapitalization, our named executive officers received
the 2x Time Options. Below are brief summaries of the principal
terms of the Management Stockholders Agreement and the
Sale Participation Agreement, each of which are qualified in
their entirety by reference to the agreements themselves, forms
of which were filed as Exhibits 10.12 and 10.13,
respectively, to our annual report on
Form 10-K
for the fiscal year ended December 31, 2006 filed on
March 27, 2007. The Management Stockholders Agreement
was assumed by HCA Holdings, Inc. in connection with the
Corporate Reorganization. The terms of the Option Agreement with
respect to 2x Time Options, New Options and the 2006 Plan, all
of which were assumed by HCA Holdings, Inc. in connection with
the Corporate Reorganization, are described in more detail in
Executive Compensation Compensation Discussion
and Analysis Elements of Compensation
Long-Term Equity Incentive Awards: Options.
Management
Stockholders Agreement
The Management Stockholders Agreement imposes significant
restrictions on transfers of shares of our common stock.
Generally, shares will be nontransferable by any means at any
time prior to the earlier of a Change in Control (as
defined in the Management Stockholders Agreement) or the
fifth anniversary of the closing date of the Recapitalization,
except (i) sales pursuant to an effective registration
statement under the Securities Act filed by the Company in
accordance with the Management Stockholders Agreement,
(ii) a sale pursuant to the Sale Participation Agreement
(described below), (iii) a sale to certain Permitted
Transferees (as defined in the Management
Stockholders Agreement), or (iv) as otherwise
permitted by our Board of Directors or pursuant to a waiver of
the restrictions on transfers given by unanimous agreement of
the Sponsors. On and after such fifth anniversary through the
earlier of a Change in Control or the eighth anniversary of the
closing date of the Recapitalization, a management stockholder
will be able to transfer shares of our common stock, but only to
the extent that, on a cumulative basis, the management
stockholders in the aggregate do not transfer a greater
percentage of their equity than the percentage of equity sold or
otherwise disposed of by the Sponsors. In connection with this
offering, we have agreed to waive such transfer restrictions for
all employees subject to the Management Stockholders
Agreement that were not permitted to participate in this
offering with respect to the number of shares of our common
stock equal to the number of shares of common stock such
employees could have required us to register in this offering
had we elected to grant them piggyback rights. We
intend to amend the Management Stockholders Agreement so
that shares acquired in the open market or through the directed
share program will not be subject to such transfer restrictions.
144
In the event that a management stockholder wishes to sell his or
her stock at any time following the fifth anniversary of the
closing date of the Recapitalization but prior to an initial
public offering of our common stock, the Management
Stockholders Agreement provides the Company with a right
of first offer on those shares upon the same terms and
conditions pursuant to which the management stockholder would
sell them to a third party. In the event that a registration
statement is filed with respect to our common stock in the
future, the Management Stockholders Agreement prohibits
management stockholders from selling shares not included in the
registration statement from the time of receipt of notice until
180 days (in the case of an initial public offering) or
90 days (in the case of any other public offering) of the
date of the registration statement. The Management
Stockholders Agreement also provides for the management
stockholders ability to cause us to repurchase their
outstanding stock and options in the event of the management
stockholders death or disability, and for our ability to
cause the management stockholder to sell their stock or options
back to the Company upon certain termination events.
The Management Stockholders Agreement provides that, in
the event we propose to sell shares to the Sponsors, certain
members of senior management, including the executive officers
(the Senior Management Stockholders) have a
preemptive right to purchase shares in the offering. The maximum
shares a Senior Management Stockholder may purchase is a
proportionate number of the shares offered to the percentage of
shares owned by the Senior Management Stockholder prior to the
offering. Additionally, following the initial public offering of
our common stock, the Senior Management Stockholders will have
limited piggyback registration rights with respect
to their shares of common stock. The maximum number of shares of
Common Stock which a Senior Management Stockholder may register
is generally proportionate with the percentage of common stock
being sold by the Sponsors (relative to their holdings thereof).
Sale
Participation Agreement
The Sale Participation Agreement grants the Senior Management
Stockholders the right to participate in any private direct or
indirect sale of shares of common stock by the Sponsors (such
right being referred to herein as the Tag-Along
Right), and requires all management stockholders to
participate in any such private sale if so elected by the
Sponsors in the event that the Sponsors are proposing to sell at
least 50% of the outstanding common stock held by the Sponsors,
whether directly or through their interests in Hercules Holding
(such right being referred to herein as the Drag-Along
Right). The number of shares of common stock which would
be required to be sold by a management stockholder pursuant to
the exercise of the Drag-Along Right will be the sum of the
number of shares of common stock then owned by the management
stockholder and his affiliates plus all shares of common stock
the management stockholder is entitled to acquire under any
unexercised Options (to the extent such Options are exercisable
or would become exercisable as a result of the consummation of
the proposed sale), multiplied by a fraction (x) the
numerator of which shall be the aggregate number of shares of
common stock proposed to be transferred by the Sponsors in the
proposed sale and (y) the denominator of which shall be the
total number of shares of common stock owned by the Sponsors
entitled to participate in the proposed sale. Management
stockholders will bear their pro rata share of any fees,
commissions, adjustments to purchase price, expenses or
indemnities in connection with any sale under the Sale
Participation Agreement.
Amended
and Restated Limited Liability Company Agreement of Hercules
Holding II, LLC
The Investors and certain other investment funds who agreed to
co-invest with them through a vehicle jointly controlled by the
Investors to provide equity financing for the Recapitalization
entered into a limited liability company operating agreement in
respect of Hercules Holding (the LLC Agreement). The
LLC Agreement was amended upon pricing of the offering and many
of its operative provisions have been replaced by the
Stockholders Agreement described below.
A copy of the form of amended LLC Agreement that was entered
into has been filed as Exhibit 10.33 to the registration
statement of which this prospectus is a part.
145
Stockholders
Agreement
Upon the pricing of this offering, we entered into the
Stockholders Agreement with Hercules Holding and the
Investors (other than the Sponsor Assignees).
Board Composition. Upon the pricing of this
offering, our Board of Directors was comprised of 15 members.
Under the Stockholders Agreement, until we cease to be a
controlled company within the meaning of the New
York Stock Exchange rules, each of the Sponsors has the right to
nominate three directors to our Board of Directors and the Frist
Entities has the right to nominate two directors to our board of
directors. Once we cease to be a controlled company,
(i) each Sponsor will continue to have the right to
nominate three directors to our Board of Directors; however,
once a Sponsor owns less than 10% of our outstanding shares of
common stock, such Sponsor will only be entitled to nominate one
director to our Board of Directors and a Sponsor will lose its
right to nominate any directors to our Board of Directors once
such Sponsor owns less than 3% of our outstanding shares of
common stock; and (ii) the Frist Entities will continue to
have the right to nominate two directors to our Board of
Directors; however, the Frist Entities will lose their right to
nominate any directors to our Board of Directors once the Frist
Entities own less than 3% of our outstanding shares of common
stock.
Board Committees. Under the Stockholders
Agreement, until we cease to be a controlled company
each of the Sponsors and the Frist Entities will have the right
to designate one member of each committee of our Board of
Directors except to the extent that such a designee is not
permitted to serve on a committee under applicable law, rule,
regulation or listing standards. Once we cease to be a
controlled company, the Board of Directors will
determine the composition of each committee of the board of
directors.
Investor Approvals. Under the
Stockholders Agreement, the following actions will require
the requisite approval of the Investors (other than the Sponsor
Assignees) for so long as Hercules Holding
and/or the
Investors (other than the Sponsor Assignees) own at least 35% of
our outstanding shares of common stock:
|
|
|
|
|
any merger, consolidation, recapitalization, liquidation, or
sale of us or all or substantially all of our assets;
|
|
|
|
initiating any liquidation, dissolution or winding up or other
bankruptcy proceeding involving us or any of our subsidiaries;
|
|
|
|
we or any of our subsidiaries entering into any business or
operations other than those businesses and operations of a same
or similar nature to those which are currently conducted by us
or our subsidiaries.
|
For purposes of these approval rights, requisite approval means
the approval of the Investors (other than the Sponsor Assignees)
owning a majority of the shares of our common stock that are
then owned by the Investors (other than the Sponsor Assignees),
including at all times for so long as there are at least two
Sponsors that continue to own at least 20% of the shares of our
common stock that are currently owned by such Sponsors, the
approval of at least two Sponsors and at any time as there is
only one Sponsor that continues to own at least 20% of the
shares of our common stock currently owned by such Sponsor, the
approval of such Sponsor.
A copy of the form of Stockholders Agreement that was
entered into has been filed as Exhibit 10.38 to the
registration statement of which this prospectus is a part.
Registration
Rights Agreement
Hercules Holding and the Investors entered into a registration
rights agreement with HCA Inc. upon completion of the
Recapitalization. Pursuant to this agreement, the Investors
(with certain exceptions as to the Sponsor Assignees) can cause
us to register shares of our common stock held by Hercules
Holding under the Securities Act and, if requested, to maintain
a shelf registration statement effective with respect to such
shares. The Investors are also entitled to participate on a pro
rata basis in any registration of our common stock under the
Securities Act that we may undertake. In connection with the
Corporate Reorganization, Hercules Holding and the Investors
entered into a registration rights agreement with HCA Holdings,
Inc. that replaces and
146
supersedes the agreement with HCA Inc. but whose terms are
substantively the same. A copy of this agreement has been filed
as Exhibit 4.21 to the registration statement of which this
prospectus is a part.
Sponsor
Management Agreement
In connection with the Recapitalization, we entered into a
management agreement with affiliates of each of the Sponsors and
certain members of the Frist family, including Thomas F.
Frist, Jr., M.D., Thomas F. Frist III and William
R. Frist, pursuant to which such entities or their affiliates
will provide management services to us. Pursuant to the
agreement, in 2010, we paid management fees of
$17.5 million and reimbursed
out-of-pocket
expenses incurred in connection with the provision of services
pursuant to the agreement. The agreement provides that the
aggregate annual management fee, initially set at
$15 million, increases annually beginning in 2008 at a rate
equal to the percentage increase of Adjusted EBITDA (as defined
in the Management Agreement) in the applicable year compared to
the preceding year. The agreement also provides that we will pay
a 1% fee in connection with certain subsequent financing,
acquisition, disposition and change of control transactions, as
well as a termination fee based on the net present value of
future payment obligations under the management agreement, in
the event of an initial public offering or under certain other
circumstances. No fees were paid under either of these
provisions in 2010. The agreement includes customary exculpation
and indemnification provisions in favor of the Sponsors and
their affiliates and the Frists. This agreement will be
terminated pursuant to its terms upon completion of this
offering, and the Sponsors and certain members of the Frist
family will be paid a final fee estimated at $211 million,
consisting of $26 million for services performed in
connection with this offering and $185 million for the
remaining amount payable under this agreement. A copy of this
agreement has been filed as Exhibit 10.24 to the
registration statement of which this prospectus is a part.
Other
Relationships
In 2008, we paid approximately $25.5 million, to HCP, Inc.
(NYSE: HCP), representing the aggregate annual lease payments
for certain medical office buildings leased by the Company.
Charles A. Elcan was an executive officer of HCP, Inc. until
April 30, 2008 and is the
son-in-law
of Dr. Thomas F. Frist, Jr. (who was a member of our
Board of Directors in 2008) and
brother-in-law
of Thomas F. Frist III and William R. Frist, who are
members of our Board of Directors.
Christopher S. George serves as the chief executive officer of
an HCA-affiliated hospital, and in 2009 and 2008,
Mr. George earned total compensation in respect of base
salary and bonus of approximately $370,000 and $440,000,
respectively, for his services. Mr. George also received
certain other benefits, including awards of equity, customary to
similar positions within the Company. Mr. Georges
father, V. Carl George, was an executive officer of HCA until
March 31, 2009.
Dustin A. Greene serves as the chief operating officer of an
HCA-affiliated hospital, and in 2010, Mr. Greene earned a
base salary of approximately $145,000 for his services.
Mr. Greenes bonus based upon 2010 performance has not
been determined at this time. In 2009 and 2008, Mr. Greene
earned total compensation in respect of base salary and bonus of
approximately $160,000 and $143,000, respectively, for his
services. Mr. Greene also received certain other benefits,
including awards of equity, customary to similar positions
within the Company. Mr. Greenes
father-in-law,
W. Paul Rutledge, is an executive officer of HCA.
Bank of America, N.A. acts as administrative agent and is a
lender under each of our senior secured cash flow credit
facility and our asset-based revolving credit facility.
Affiliates of Bank of America indirectly own approximately 25.7%
of the shares of the Company. We engaged Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of Bank of
America, as arranger and documentation agent in connection with
certain amendments to our cash flow credit facility and our
asset-based revolving credit facility in March 2009. Under that
engagement, upon such amendments becoming effective, we paid
Merrill Lynch, Pierce, Fenner & Smith Incorporated
aggregate fees of $6 million relating to the amendments to
our senior secured credit facilities. Bank of America, N.A. also
received its pro rata share of consent fees, amounting to
$121,816, paid to the lenders under our senior secured cash flow
credit facility in connection with certain amendments to those
facilities in June 2009.
147
In addition, Merrill Lynch, Pierce, Fenner & Smith
Incorporated acted as joint book-running manager and a
representative of the initial purchasers of the
97/8% Senior
Secured Notes due 2017 (the outstanding 2017 notes)
that HCA Inc. issued on February 19, 2009, the
81/2% senior
secured notes due 2019 that HCA Inc. issued on April 22,
2009 (the outstanding 2019 notes), the
77/8% senior
secured notes due 2020 that HCA Inc. issued on August 11,
2009 (the outstanding February 2020 notes) and the
71/4% senior
secured notes due 2020 that HCA Inc. issued on March 10,
2010 (the outstanding September 2020 notes). The
proceeds of the issuance of the outstanding 2017 notes, the
outstanding 2019 notes, the outstanding February 2020 notes and
the outstanding September 2020 notes were used to repay
indebtedness under the senior secured credit facilities, and
Bank of America received its pro rata portion of such repayment.
In addition, Merrill Lynch, Pierce, Fenner & Smith
Incorporated received placement fees of $1.4 million in
connection with the issuance of the outstanding 2017 notes,
placement fees of $8.0 million in connection with the
issuance of the outstanding 2019 notes and the outstanding
February 2020 notes, and placement fees of $3.8 million in
connection with the issuance of the outstanding September 2020
notes.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
also acted as joint book-running manager and a representative of
the initial purchasers of the
73/4% senior
notes due 2021 (the outstanding 2021 notes) that we
issued on November 23, 2010. The proceeds of the issuance
of the outstanding 2021 notes were used to fund a distribution
to our stockholders and holders of vested stock options, and
affiliates of Bank of America received their pro rata portion of
such distribution. In addition, Merrill Lynch, Pierce,
Fenner & Smith Incorporated received placement fees of
$3.66 million in connection with the issuance of the
outstanding 2021 notes.
We also engaged Merrill Lynch, Pierce, Fenner & Smith
Incorporated in connection with certain amendments to our senior
secured cash flow credit facility in April 2010. Under that
engagement, we paid Merrill Lynch, Pierce, Fenner &
Smith Incorporated aggregate fees of approximately
$2.0 million relating to those amendments.
KKR Capital Markets LLC, one of the other initial purchasers of
the outstanding 2017 notes, is an affiliate of KKR, whose
affiliates own approximately 24.7% of our shares, and received
placement fees of $191,050 in connection with the issuance of
the outstanding 2017 notes.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, an
affiliate of Bank of America, is acting as a joint book-running
manager for this offering and as a broker for our directed share
program and the plan administrator for our equity incentive
plans. See Underwriting Conflicts of
Interest.
Wells Fargo Shareowner Services acts as the transfer agent and
registrar for our common stock and is an affiliate of Wells
Fargo Securities, LLC, one of the underwriters of this offering.
148
DESCRIPTION
OF INDEBTEDNESS
The summaries set forth below are qualified in their entirety by
the actual text of the applicable agreements and indentures,
each of which has been filed as an exhibit to the registration
statement, of which this prospectus is a part, or which may be
obtained on publicly available websites at the addresses set
forth under Where You Can Find More Information.
Senior
Secured Credit Facilities
The senior secured credit facilities provide senior secured
financing of $16.800 billion, consisting of:
|
|
|
|
|
$12.800 billion-equivalent in term loan facilities,
comprised of a $2.750 billion senior secured term loan A
facility maturing on November 17, 2012, a
$8.800 billion senior secured term loan B facility
consisting of a $6.800 billion senior secured term loan
B-1 facility
maturing on November 17, 2013 and a $2.000 billion
senior secured term loan
B-2 facility
maturing on March 31, 2017 and a 1.000 billion
senior secured European term loan facility maturing on
November 17, 2013; and
|
|
|
|
$4.000 billion in revolving credit facilities, comprised of
a $2.000 billion senior secured asset-based revolving
credit facility available in dollars maturing on
November 16, 2012 and a $2.000 billion senior secured
revolving credit facility available in dollars, euros and pounds
sterling currently maturing on November 17, 2012 and to be
extended to November 17, 2015 pursuant to the amended and
restated joinder agreement entered into on November 8, 2010
as described below. Availability under the asset-based revolving
credit facility is subject to a borrowing base of 85% of
eligible accounts receivable less customary reserves.
|
We refer to these senior secured credit facilities, excluding
the asset-based revolving credit facility, as the cash
flow credit facility and, collectively with the
asset-based revolving credit facility, the senior secured
credit facilities. The asset-based revolving credit
facility is documented in a separate loan agreement from the
other senior secured credit facilities.
HCA Inc. is the primary borrower under the senior secured credit
facilities, except that a U.K. subsidiary is the borrower under
the European term loan facility. The revolving credit facilities
include capacity available for the issuance of letters of credit
and for borrowings on
same-day
notice, referred to as the swingline loans. A portion of the
letter of credit availability under the cash-flow revolving
credit facility is available in euros and pounds sterling.
Lenders under the cash flow credit facility are subject to a
loss sharing agreement pursuant to which, upon the occurrence of
certain events, including a bankruptcy event of default under
the cash flow credit facility, each such lender will
automatically be deemed to have exchanged its interest in a
particular tranche of the cash flow credit facility for a pro
rata percentage in all of the tranches of the cash flow credit
facility.
On February 16, 2007, the cash flow credit facility was
amended to reduce the applicable margins with respect to the
term borrowings thereunder. On June 20, 2007, the
asset-based revolving credit facility was amended to reduce the
applicable margin with respect to borrowings thereunder.
On March 2, 2009, the cash flow credit facility was amended
to allow for one or more future issuances of additional secured
notes, which may include notes that are secured on a pari
passu basis or on a junior basis with the obligations under
the cash flow credit facility, so long as (1) such notes do
not require, subject to certain exceptions, scheduled
repayments, payment of principal or redemption prior to the
scheduled term loan
B-1 maturity
date, (2) the terms of such notes, taken as a whole, are
not more restrictive than those in the cash flow credit facility
and (3) no subsidiary of HCA Inc. that is not a U.S.
guarantor is an obligor of such additional secured notes, and
such notes are not secured by any European collateral securing
the cash flow credit facility. The U.S. security documents
related to the cash flow credit facility were also amended and
restated in connection with the amendment in order to give
effect to the security interests to be granted to holders of
such additional secured notes.
On March 2, 2009, the asset-based revolving credit facility
was amended to allow for one or more future issuances of
additional secured notes or loans, which may include notes or
loans that are secured on a pari
149
passu basis or on a junior basis with the obligations
under the cash flow credit facility, so long as (1) such
notes or loans do not require, subject to certain exceptions,
scheduled repayments, payment of principal or redemption prior
to the scheduled term loan
B-1 maturity
date, (2) the terms of such notes or loans, as applicable,
taken as a whole, are not more restrictive than those in the
cash flow credit facility and (3) no subsidiary of HCA Inc.
that is not a U.S. guarantor is an obligor of such additional
secured notes. The amendment to the asset-based revolving credit
facility also altered the excess facility availability
requirement to include a separate minimum facility availability
requirement applicable to the asset-based revolving credit
facility and increased the applicable LIBOR and asset-based
revolving margins for all borrowings under the asset-based
revolving credit facility by 0.25% each.
On June 18, 2009, the cash flow credit facility was amended
to permit unlimited refinancings of the term loans initially
incurred in November 2006 under the cash flow credit facility
(the initial term loans), as well as any previously
incurred refinancing term loans through the incurrence of new
term loans under the cash flow credit facility
(refinancing term loans), (collectively, with the
initial term loans, the then-existing term loans),
and to permit the establishment of one or more series of
commitments under replacement cash flow revolvers under the cash
flow credit facility (replacement revolver) to
replace all or a portion of the revolving commitments initially
established in November 2006 under the cash flow credit facility
(the initial revolver) as well as any previously
issued replacement revolvers (with no more than three series of
revolving commitments to be outstanding at any time) in each
case, subject to the terms described below. The amendment to the
cash flow credit facility further permits the maturity date of
any then-existing term loan to be extended (any such loans so
extended, the extended term loans). The amendment to
the cash flow credit facility provides that:
|
|
|
|
|
As to refinancing term loans, (1) the proceeds from such
refinancing term loans be used to repay in full the initial term
loans before being used to repay any previously issued
refinancing term loans; (2) the refinancing term loans
mature no earlier than the latest maturity date of any of the
initial term loans; (3) the weighted average life to
maturity for the refinancing term loans be no shorter than the
remaining weighted average life to maturity of the
tranche B term loan under the cash flow credit facility
measured at the time such refinancing term loans are incurred;
and (4) refinancing term loans will not share in mandatory
prepayments resulting from the creation or issuance of extended
term loans
and/or first
lien notes until the initial term loans are repaid in full but
will share in other mandatory prepayments such as those from
asset sales.
|
|
|
|
As to replacement revolvers, terms of such replacement revolver
be substantially identical to the commitments being replaced,
other than with respect to maturity, size of any swingline loan
and/or
letter of credit subfacilities and pricing.
|
|
|
|
As to extended term loans, (1) any offer to extend must be
made to all lenders under the term loan being extended, and, if
such offer is oversubscribed, the extension will be allocated
ratably to the lenders according to the respective amounts then
held by the accepting lenders; (2) each series of extended
term loans having the same interest margins, extension fees and
amortization schedule shall be a separate class of term loans;
and (3) extended term loans will not share in mandatory
prepayments resulting from the creation or issuance of
refinancing term loans
and/or first
lien notes until the initial term loans are repaid in full but
will share in other mandatory prepayments such as those from
asset sales.
|
|
|
|
Any refinancing term loans and any obligations under replacement
revolvers will have a pari passu claim on the collateral
securing the initial term loans and the initial revolver.
|
On April 6, 2010, the cash flow credit facility was amended to
(i) extend the maturity date for $2.0 billion of the
tranche B term loans from November 17, 2013 to
March 31, 2017 and (ii) increase the ABR margin and
LIBOR margin with respect to such extended term loans to 2.25%
and 3.25%, respectively. The maturity date, interest margins and
fees, as applicable, with respect to all other loans, and all
commitments and letters of credit, outstanding under the cash
flow credit facility remain unchanged.
150
On November 8, 2010, an amended and restated joinder
agreement was entered into with respect to the cash flow credit
facility to establish a new replacement revolving credit series,
which will mature on November 17, 2015. The replacement
revolving credit commitments will become effective upon the
earlier of (i) our receipt of all or a portion of the
proceeds (including by way of contribution) from an initial
public offering of the common stock of HCA Inc. or its direct or
indirect parent company (the IPO Proceeds Condition)
and (ii) May 17, 2012, subject to the satisfaction of
certain other conditions. If the IPO Proceeds Condition has not
been satisfied, on May 17, 2012 or, if the IPO Proceeds
Condition has been satisfied prior to May 17, 2012, on
November 17, 2012, the applicable ABR and LIBOR margins
with respect to the replacement revolving loans will be
increased from the applicable ABR and LIBOR margins of the
existing revolving loans based upon the achievement of a certain
leverage ratio, which level will decrease from the levels of the
existing revolving loans.
See also Certain Relationships and Related Party
Transactions for a description of certain relationships
between us and Bank of America, N.A., the administrative agent
under the cash flow credit facility and the asset-based
revolving credit facility.
Interest
Rate and Fees
Borrowings under the senior secured credit facilities bear
interest at a rate equal to, at HCA Inc.s option, either
(a) LIBOR for deposits in the applicable currency plus an
applicable margin or (b) the higher of (1) the prime
rate of Bank of America, N.A. and (2) the federal funds
effective rate plus 0.50%, plus an applicable margin. The
applicable margins in effect for borrowings as of
December 31, 2010 are (u) under the asset-based
revolving credit facility, 0.50% with respect to base rate
borrowings and 1.50% with respect to LIBOR borrowings,
(v) under the senior secured revolving credit facility,
0.75% with respect to base rate borrowings and 1.75% with
respect to LIBOR borrowings, (w) under the term loan A
facility, 0.50% with respect to base rate borrowings and 1.50%
with respect to LIBOR borrowings, (x) under the term loan
B-1
facility, 1.25% with respect to base rate borrowings and 2.25%
with respect to LIBOR borrowings, (y) under the term loan
B-2
facility, 2.25% with respect to base rate borrowings and 3.25%
with respect to LIBOR borrowings, and (z) under the
European term loan facility, 2.00% with respect to LIBOR
borrowings. Certain of the applicable margins may be reduced or
increased depending on HCA Inc.s leverage ratios.
In addition to paying interest on outstanding principal under
the senior secured credit facilities, HCA Inc. is required to
pay a commitment fee to the lenders under the revolving credit
facilities in respect of the unutilized commitments thereunder.
The commitment fee rate as of December 31, 2010 is 0.375%
per annum for the revolving credit facility and the asset-based
revolving credit facility. The commitment fee rates may
fluctuate due to changes in specified leverage ratios. HCA Inc.
must also pay customary letter of credit fees.
Prepayments
The cash flow credit facility requires HCA Inc. to prepay
outstanding term loans, subject to certain exceptions, with:
|
|
|
|
|
50% (which percentage will be reduced to 25% if HCA Inc.s
total leverage ratio is 5.50x or less and to 0% if HCA
Inc.s total leverage ratio is 5.00x or less) of HCA
Inc.s annual excess cash flow;
|
|
|
|
100% of the compensation for any casualty event, proceeds from
permitted
sale-leasebacks
and the net cash proceeds of all nonordinary course asset sales
or other dispositions of property, other than the Receivables
Collateral, as defined below, if HCA Inc. does not
(1) reinvest or commit to reinvest those proceeds in assets
to be used in our business or to make certain other permitted
investments within 15 months as long as, in the case of any
such commitment to reinvest or make certain other permitted
investments, such investment is completed within such
15-month
period or, if later, within 180 days after such commitment
is made or (2) apply such proceeds within 15 months to
repay debt of HCA Inc. that was outstanding on the effective
date of the Recapitalization scheduled to mature prior to the
earliest final maturity of the senior secured credit facilities
then outstanding; and
|
151
|
|
|
|
|
100% of the net cash proceeds of any incurrence of debt, other
than proceeds from the receivables facilities and other debt
permitted under the senior secured credit facilities.
|
The foregoing mandatory prepayments are applied among the term
loan facilities (1) during the first three years after the
effective date of the Recapitalization, pro rata to such
facilities based on the respective aggregate amounts of unpaid
principal installments thereof due during such period, with
amounts allocated to each facility being applied to the
remaining installments thereof in direct order of maturity and
(2) thereafter, pro rata to such facilities, with amounts
allocated to each facility being applied pro rata among the term
loan A facility, the term loan
B-1
facility, the term loan
B-2 facility
and the European term loan facility based upon the applicable
remaining repayment amounts due thereunder. Notwithstanding the
foregoing, (i) proceeds of asset sales by foreign
subsidiaries are applied solely to prepay European term loans
until such term loans have been repaid in full and (ii) HCA
Inc. is not required to prepay loans under the term loan A
facility or the term loan B facility with net cash proceeds of
asset sales or with excess cash flow, in each case attributable
to foreign subsidiaries, to the extent that the repatriation of
such amounts is prohibited or delayed by applicable local law or
would result in material adverse tax consequences.
The asset-based revolving credit facility requires HCA Inc. to
prepay outstanding loans if borrowings exceed the borrowing base.
HCA Inc. may voluntarily repay outstanding loans under the
senior secured credit facilities at any time without premium or
penalty, other than customary breakage costs with
respect to LIBOR loans.
Amortization
HCA Inc. is required to repay the loans under the term loan
facilities as follows:
|
|
|
|
|
the term loan A facility amortizes in quarterly installments
such that the aggregate amount of the original funded principal
amount of such facility repaid pursuant to such amortization
payments in each year, commencing with the year ending
December 31, 2007, is equal to $112.5 million in years
1 and 2, $225 million in years 3 and 4, $450 million
in year 5 and $1.625 billion in year 6;
|
|
|
|
each of the term loan
B-1 facility
and the European term loan facility amortizes in equal quarterly
installments that commenced on March 31, 2007 in aggregate
annual amounts equal to 1% of the original funded principal
amount of such facility, with the balance being payable on the
final maturity date of such term loans; and
|
|
|
|
the term loan B-2 facility amortizes in equal quarterly
installments commencing December 31, 2013 in aggregate
annual amounts equal to 1% of the original funded principal
amount of such facility, with the balance payable on the final
maturity date of such term loans.
|
Due to prior mandatory prepayments, amortization payments under
the term loan A facility are not required until June 30,
2011, and no further amortization payments are required for
either the term loan B facility or the European term loan.
Principal amounts outstanding under the revolving credit
facilities are due and payable in full at maturity.
Guarantee
and Security
All obligations under the senior secured credit facilities are
unconditionally guaranteed by substantially all existing and
future, direct and indirect, wholly-owned material domestic
subsidiaries that are unrestricted subsidiaries under the 1993
Indenture (except for certain special purpose subsidiaries that
only guarantee and pledge their assets under the asset-based
revolving credit facility), and the obligations under the
European term loan facility are also unconditionally guaranteed
by HCA Inc. and each of its existing and future wholly-owned
material subsidiaries formed under the laws of England and
Wales, subject, in each of the foregoing cases, to any
applicable legal, regulatory or contractual constraints and to
the requirement that such guarantee does not cause adverse tax
consequences.
All obligations under the asset-based revolving credit facility,
and the guarantees of those obligations, are secured, subject to
permitted liens and other exceptions, by a first-priority lien
on substantially all of the
152
receivables of the borrowers and each guarantor under such
asset-based revolving credit facility (the Receivables
Collateral).
All obligations under the cash flow credit facility and the
guarantees of such obligations, are secured, subject to
permitted liens and other exceptions, by:
|
|
|
|
|
a first-priority lien on the capital stock owned by HCA Inc. or
by any U.S. guarantor in each of their respective
first-tier subsidiaries (limited, in the case of foreign
subsidiaries, to 65% of the voting stock of such subsidiaries);
|
|
|
|
a first-priority lien on substantially all present and future
assets of HCA Inc. and of each U.S. guarantor other than
(i) Principal Properties (as defined in the
1993 Indenture), except for certain Principal
Properties the aggregate amount of indebtedness secured
thereby in respect of the cash flow credit facility and the
first lien notes and any future first lien obligations, taken as
a whole, do not exceed 10% of Consolidated Net Tangible
Assets (as defined under the 1993 Indenture),
(ii) certain other real properties and (iii) deposit
accounts, other bank or securities accounts, cash, leaseholds,
motor-vehicles and certain other exceptions (such collateral
under this and the preceding bullet, the Non-Receivables
Collateral); and
|
|
|
|
a second-priority lien on certain of the Receivables Collateral
(such portion of the Receivables Collateral, the Shared
Receivables Collateral; the Receivables Collateral that
does not secure such cash flow credit facility on a
second-priority basis is referred to as the Separate
Receivables Collateral).
|
The obligations of the borrowers and the guarantors under the
European term loan facility are also secured by substantially
all present and future assets of the European subsidiary
borrower and each European guarantor (the European
Collateral), subject to permitted liens and other
exceptions (including, without limitation, exceptions for
deposit accounts, other bank or securities accounts, cash,
leaseholds, motor-vehicles and certain other exceptions) and
subject to such security interests otherwise being permitted by
applicable law and contract and not resulting in adverse tax
consequences. Neither our first lien notes nor our second lien
notes are secured by any of the European Collateral.
Certain
Covenants and Events of Default
The senior secured credit facilities contain a number of
covenants that, among other things, restrict, subject to certain
exceptions, HCA Inc.s ability and the ability of its
restricted subsidiaries to:
|
|
|
|
|
incur additional indebtedness;
|
|
|
|
create liens;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
engage in mergers or consolidations;
|
|
|
|
sell or transfer assets;
|
|
|
|
pay dividends and distributions or repurchase capital stock;
|
|
|
|
make investments, loans or advances;
|
|
|
|
prepay certain subordinated indebtedness, the second lien notes
and certain other indebtedness existing on the effective date of
the Recapitalization (Retained Indebtedness),
subject to exceptions, including for repayments of Retained
Indebtedness maturing prior to the senior secured credit
facilities and, in certain cases, to satisfaction of a maximum
first lien leverage condition;
|
|
|
|
make certain acquisitions;
|
|
|
|
engage in certain transactions with affiliates;
|
153
|
|
|
|
|
make certain material amendments to agreements governing certain
subordinated indebtedness, the second lien notes or Retained
Indebtedness; and
|
|
|
|
change lines of business.
|
In addition, the senior secured credit facilities require the
following financial covenants to be maintained:
|
|
|
|
|
in the case of the asset-based revolving credit facility, a
minimum interest coverage ratio (applicable only when
availability under such facility is less than 10% of the
borrowing base thereunder); and
|
|
|
|
in the case of the other senior secured credit facilities, a
maximum total leverage ratio.
|
The senior secured credit facilities also contain certain
customary affirmative covenants and events of default, including
a change of control.
Senior
Secured Notes
In connection with the Corporate Reorganization, HCA Holdings,
Inc. became a guarantor of HCA Inc.s senior secured notes
described below but is not subject to the covenants that apply
to HCA Inc. or HCA Inc.s restricted subsidiaries under
those notes.
Overview
of Senior Secured First Lien Notes
As of December 31, 2010, HCA Inc. had $4.150 billion
aggregate principal amount of senior secured first lien notes
consisting of:
|
|
|
|
|
$1.500 billion aggregate principal amount of
81/2% senior
secured notes due 2019 issued on April 22, 2009 at a price
of 96.755% of their face value, resulting in $1.451 billion
of gross proceeds;
|
|
|
|
$1.250 billion aggregate principal amount of
77/8% senior
secured notes due 2020 issued on August 11, 2009 at a price
of 98.254% of their face value, resulting in $1.228 billion
of gross proceeds; and
|
|
|
|
$1.400 billion aggregate principal amount of
71/4% senior
secured first lien notes due 2020 issued on March 10, 2010
at a price of 99.095% of their face value, resulting in
$1.387 billion of gross proceeds.
|
We refer to these notes issued on April 22, 2009,
August 11, 2009 and March 10, 2010 as the first
lien notes and the indentures governing the first lien
notes as the first lien indentures.
The first lien notes and the related guarantees are secured by
first-priority liens, subject to permitted liens, on HCA
Inc.s subsidiary guarantors assets, subject to
certain exceptions, that secure HCA Inc.s cash flow credit
facility on a first-priority basis and are secured by
second-priority liens, subject to permitted liens, on HCA
Inc.s subsidiary guarantors assets that secure HCA
Inc.s asset-based revolving credit facility on a
first-priority basis and HCA Inc.s cash flow credit
facility on a second-priority basis.
Overview
of Senior Secured Second Lien Notes
As of December 31, 2010, HCA Inc. had $6.088 billion
aggregate principal amount of senior secured second lien notes
consisting of:
|
|
|
|
|
$4.200 billion of second lien notes (comprised of
$1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016) and $1.578 billion of
95/8%
cash/103/8%
pay-in-kind
second lien toggle notes due 2016 (which toggle notes allow us,
at HCA Inc.s option, to pay interest in-kind during the
first five years at the higher interest rate of
103/8%).
HCA Inc. elected in November 2008 to pay interest in-kind in the
amount of $78 million for the interest period ending in May
2009.
|
|
|
|
$310 million aggregate principal amount of
97/8% senior
secured notes due 2017.
|
We refer to these notes as the second lien notes
and, together with the first lien notes, the secured
notes. We refer to the indentures governing the second
lien notes as the second lien indentures and,
together with the first lien indentures, the indentures
governing the secured notes.
154
These second lien notes and the related guarantees are secured
by second-priority liens, subject to permitted liens, on HCA
Inc.s subsidiary guarantors assets, subject to
certain exceptions, that secure the cash flow credit facility on
a first-priority basis and are secured by third-priority liens,
subject to permitted liens, on HCA Inc.s and its
subsidiary guarantors assets that secure the asset-based
revolving credit facility on a first-priority basis and the cash
flow credit facility on a second-priority basis.
Optional
Redemption
The indentures governing the secured notes permit HCA Inc. to
redeem some or all of the secured notes at any time at
redemption prices described or set forth in the respective
indenture. In particular, in the event of an equity offering,
HCA Inc. may, for approximately three years following the date
of issuance of that series, redeem up to 35% of the principal
amount of such series at a redemption price equal to 100% plus
the amount of the respective coupon, using the net cash proceeds
raised in the equity offering.
Change
of Control
In addition, the indentures governing the secured notes provide
that, upon the occurrence of a change of control as defined
therein, each holder of secured notes has the right to require
us to repurchase some or all of such holders secured notes
at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date.
Covenants
The indentures governing the secured notes contain covenants
limiting, among other things, HCA Inc.s ability and the
ability of its restricted subsidiaries to, subject to certain
exceptions:
|
|
|
|
|
incur additional debt or issue certain preferred stock;
|
|
|
|
pay dividends on or make certain distributions of our capital
stock or make other restricted payments;
|
|
|
|
create certain liens or encumbrances;
|
|
|
|
sell certain assets;
|
|
|
|
enter into certain transactions with affiliates;
|
|
|
|
make certain investments; and
|
|
|
|
consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets.
|
The indentures governing the secured notes also contain a
covenant limiting HCA Inc.s ability to prepay certain
series of unsecured notes based on the maturity of those
unsecured notes. In particular, the indenture governing the
first lien notes issued in April 2009 permits HCA Inc. to prepay
only those unsecured notes maturing on or prior to
April 15, 2019, the indenture governing the first lien
notes issued in August 2009 permits HCA Inc. to prepay only
those unsecured notes maturing on or prior to February 15,
2020 and the indentures governing the notes issued in November
2006 and in February 2009 permit HCA Inc. to prepay only those
unsecured notes maturing on or prior to November 15, 2016.
Events
of Default
The indentures governing the secured notes also provide for
events of default which, if any of them occurs, would permit or
require the principal of and accrued interest on the secured
notes to become or to be declared due and payable.
Other
Secured Indebtedness
As of December 31, 2010, HCA Inc. had approximately
$322 million of capital leases and other secured debt
outstanding.
155
Under the lease with HRT of Roanoke, Inc., effective
December 20, 2005, HCA Inc. makes annual payments for rent
and additional expenses for the use of premises in Roanoke and
Salem, Virginia. The rent payments will increase each year
beginning January 1, 2007 by the lesser of 3% or the change
in the Consumer Price Index. The lease is for a fixed term of
12 years with the option to extend the lease for another
ten years.
Under the lease with Medical City Dallas Limited, effective
March 18, 2004, HCA Inc. makes annual payments for rent for
the use of premises that are a part of a complex known as
Medical City Dallas located in Dallas, Texas. The
rent payment is adjusted yearly based on the fair market value
of the premises and a capitalization rate. The initial term is
240 months with the option to extend for two more terms of
240 months each.
Unsecured
Indebtedness of HCA Inc.
As of December 31, 2010, HCA Inc. had outstanding an
aggregate principal amount of $5.853 billion, consisting of
the following series:
|
|
|
|
|
$273,321,000 aggregate principal amount of 7.875% Senior
Notes due 2011;
|
|
|
|
$402,499,000 aggregate principal amount of 6.95% Senior
Notes due 2012;
|
|
|
|
$500,000,000 aggregate principal amount of 6.30% Senior
Notes due 2012;
|
|
|
|
$500,000,000 aggregate principal amount of 6.25% Senior
Notes due 2013;
|
|
|
|
$500,000,000 aggregate principal amount of 6.75% Senior
Notes due 2013;
|
|
|
|
$500,000,000 aggregate principal amount of 5.75% Senior
Notes due 2014;
|
|
|
|
$750,000,000 aggregate principal amount of 6.375% Senior
Notes due 2015;
|
|
|
|
$1,000,000,000 aggregate principal amount of 6.50% Senior
Notes due 2016;
|
|
|
|
$291,436,000 aggregate principal amount of 7.69% Notes due
2025;
|
|
|
|
$250,000,000 aggregate principal amount of 7.50% Senior
Notes due 2033;
|
|
|
|
$150,000,000 aggregate principal amount of 7.19% Debentures
due 2015;
|
|
|
|
$135,645,000 aggregate principal amount of 7.50% Debentures
due 2023;
|
|
|
|
$150,000,000 aggregate principal amount of 8.36% Debentures
due 2024;
|
|
|
|
$150,000,000 aggregate principal amount of 7.05% Debentures
due 2027;
|
|
|
|
$100,000,000 aggregate principal amount of 7.75% Debentures
due 2036; and
|
|
|
|
$200,000,000 aggregate principal amount of 7.50% Debentures
due 2095.
|
As of December 31, 2010, HCA Inc. also had outstanding
$121,110,000 aggregate principal amount of HCA Inc.s 9.00%
Medium Term Notes due 2014 and $125,000,000 aggregate principal
amount of HCA Inc.s 7.58% Medium Term Notes due 2025.
All of HCA Inc.s outstanding series of senior notes,
debentures and medium term notes, which we refer to collectively
as the unsecured notes, were issued under an
indenture, which we refer to as the 1993 Indenture.
Optional
Redemption
If permitted by the respective supplemental indenture, HCA Inc.
is permitted to redeem some or all of that series of unsecured
notes at any time at redemption prices described or set forth in
such supplemental indenture.
156
Covenants
The 1993 Indenture contains covenants limiting, among other
things, HCA Inc.s ability
and/or the
ability of HCA Inc.s restricted subsidiaries to (subject
to certain exceptions):
|
|
|
|
|
assume or guarantee indebtedness or obligation secured by
mortgages, liens, pledges or other encumbrances;
|
|
|
|
enter into sale and lease-back transactions with respect to any
Principal Property (as such term is defined in the
1993 Indenture);
|
|
|
|
create, incur, issue, assume or otherwise become liable with
respect to, extend the maturity of, or become responsible for
the payment of, any debt or preferred stock; and
|
|
|
|
consolidate, merge, sell or otherwise dispose of all or
substantially all of HCA Inc.s assets.
|
In addition, the 1993 Indenture provides that the aggregate
amount of all other indebtedness of HCA Inc. secured by
mortgages on Principal Properties (as such term is
defined in the 1993 Indenture) together with the aggregate
principal amount of all indebtedness of restricted subsidiaries
(as such term is defined in the 1993 Indenture) and the
attributable debt in respect of sale-leasebacks of Principal
Properties, may not exceed 15% of the consolidated net tangible
assets of HCA Inc. and its consolidated subsidiaries, subject to
exceptions for certain permitted mortgages and debt.
Events
of Default
The 1993 Indenture contains certain events of default, which, if
any of them occurs, would permit or require the principal of and
accrued interest on such series to become or to be declared due
and payable.
Unsecured
Indebtedness of HCA Holdings, Inc.
Overview
On November 23, 2010, HCA Holdings, Inc. issued
$1.525 billion aggregate principal amount of
73/4% senior
notes due 2021 at a price of 100% of their face value, resulting
in $1.525 billion of gross proceeds. We refer to these
notes as the outstanding 2021 notes and the
indenture governing the outstanding 2021 notes as the 2021
notes indenture.
Ranking
The outstanding 2021 notes are our senior unsecured obligations
and rank equally in right of payment with all of our future
unsecured and unsubordinated indebtedness, rank senior in right
of payment to any of our future subordinated indebtedness, and
are structurally subordinated in right of payment to
indebtedness of our subsidiaries. The outstanding 2021 notes are
not guaranteed by any of our subsidiaries. Our future secured
indebtedness and other future secured obligations will be
effectively senior to the outstanding 2021 notes to the extent
of the value of the assets securing such other indebtedness and
other obligations.
Optional
Redemption
The 2021 notes indenture permits us to redeem some or all of the
outstanding 2021 notes at any time at redemption prices
described or set forth in the respective indenture. In
particular, in the event of an equity offering, we may, until
November 15, 2013, redeem up to 35% of the principal amount
of the outstanding 2021 notes at a redemption price equal to
107.750%, using the net cash proceeds raised in the equity
offering.
Change
of Control
Upon the occurrence of a change of control, which is defined in
the 2021 notes indenture, each holder of the outstanding 2021
notes has the right to require us to repurchase some or all of
such holders notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the repurchase date.
157
Covenants
The 2021 notes indenture contains covenants limiting, among
other things, HCA Holdings, Inc.s ability and the ability
of HCA Holdings, Inc.s restricted subsidiaries to (subject
to certain exceptions):
|
|
|
|
|
pay dividends on or make other distributions in respect of our
capital stock or make other restricted payments;
|
|
|
|
create liens on certain assets to secure debt;
|
|
|
|
enter into certain sale and lease-back transactions; and
|
|
|
|
consolidate, merge, sell or otherwise dispose of all or
substantially all of HCA Holdings, Inc.s assets.
|
The covenant limiting the payment of dividends or making other
distributions in respect of our capital stock or making other
restricted payments will no longer be in effect following
certain initial public offerings, including this offering.
Events
of Default
The 2021 notes indenture contains certain events of default,
which, if any of them occurs, would permit or require the
principal of and accrued interest on the outstanding 2021 notes
to become or to be declared due and payable.
158
DESCRIPTION
OF CAPITAL STOCK
The following is a description of the material terms of our
amended and restated certificate of incorporation and amended
and restated bylaws as each is anticipated to be in effect upon
the consummation of this offering. We also refer you to our
amended and restated certificate of incorporation and amended
and restated bylaws, copies of which are filed as exhibits to
the registration statement of which this prospectus forms a part.
Authorized
Capital
At the time of the consummation of this offering, our authorized
capital stock will consist of:
|
|
|
|
|
1,800,000,000 shares of common stock, par value $.01 per
share, of which 427,485,800 shares were issued and
outstanding as of February 11, 2011, and;
|
|
|
|
200,000,000 shares of preferred stock, of which no shares
are issued and outstanding.
|
As of February 11, 2011, there were 671 holders of
record of our common stock.
Immediately following the consummation of this offering, there
are expected to be 515,205,100 shares of common stock
issued and outstanding and no shares of preferred stock
outstanding.
Common
Stock
Voting Rights. Under the terms of the Amended
and Restated Certificate of Incorporation, each holder of the
common stock will be entitled to one vote for each share on all
matters submitted to a vote of the stockholders, including the
election of directors. Our stockholders will not have cumulative
voting rights. Because of this, the holders of a majority of the
shares of common stock entitled to vote and present in person or
by proxy at any annual meeting of stockholders will be able to
elect all of the directors standing for election, if they should
so choose.
Dividends. Subject to preferences that may be
applicable to any then outstanding preferred stock, holders of
common stock will be entitled to receive ratably those
dividends, if any, as may be declared from time to time by the
Board of Directors out of legally available assets or funds.
Liquidation. In the event of our liquidation,
dissolution, or winding up, holders of common stock will be
entitled to share ratably in the net assets legally available
for distribution to stockholders after the payment of all of our
debts and other liabilities and the satisfaction of any
liquidation preference granted to the holders of any outstanding
shares of preferred stock.
Rights and Preferences. Holders of common
stock will have no preemptive or conversion rights, and there
will be no redemption or sinking fund provisions applicable to
the common stock. The rights, preferences, and privileges of the
holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series
of preferred stock, which we may designate in the future.
Preferred
Stock
The Amended and Restated Certificate of Incorporation will
authorize our Board of Directors, without further action by the
stockholders, to issue up to 200,000,000 shares of
preferred stock, par value $.01 per share, in one or more
classes or series, to establish from time to time the number of
shares to be included in each such class or series, to fix the
rights, powers and preferences of the shares of each such class
or series and any qualifications, limitations, or restrictions
thereon.
Stock
Split
The Amended and Restated Certificate of Incorporation will
provide that, upon the filing and effectiveness of the Amended
and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware (the Effective Time),
a forward split (the Forward Split) of our issued
and outstanding common stock will occur whereby each outstanding
share of common stock of the Company (the Old
159
Common Stock), including treasury shares, will be
automatically split up, reclassified and converted into
4.505 shares of common stock (the New Common
Stock).
The Forward Split will occur without any further action on the
part of the Company or the holders of shares of Old Common Stock
or New Common Stock and whether or not certificates representing
such holders shares prior to the Forward Split are
surrendered for cancellation. No fractional interest in a share
of New Common Stock will be deliverable upon the Forward Split.
Stockholders who otherwise would have been entitled to receive
any fractional interests in the New Common Stock, in lieu of
receipt of such fractional interest, will be entitled to receive
from the Company an amount in cash equal to the fair value of
such fractional interest as of the Effective Time.
The Forward Split will be effected on a
stockholder-by-stockholder
(as opposed to
certificate-by-certificate)
basis. Certificates dated, or book-entry holdings, as of a date
prior to the Effective Time representing outstanding shares of
Old Common Stock shall, immediately after the Effective Time,
represent a number of shares equal to the same number of shares
of New Common Stock as is reflected on the face of such
certificates or book-entry records, multiplied by 4.505 and
rounded down to the nearest whole number. The Company may, but
shall not be obliged to issue new certificates evidencing the
shares of New Common Stock outstanding as a result of the
Forward Split unless and until the certificates evidencing the
shares held by a holder prior to the Forward Split are either
delivered to the Company or its transfer agent, or the holder
notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection with such
certificates.
Board of
Directors
The Amended and Restated Certificate of Incorporation will
provide for a Board of Directors of not less than three members,
the exact number to be determined from time to time by
resolution adopted by the affirmative vote of a majority of the
total number of directors then in office. The Amended and
Restated Certificate of Incorporation will provide that
directors will be elected to hold office for a term expiring at
the next annual meeting of stockholders and until a successor is
duly elected and qualified or until his or her earlier death,
resignation, disqualification or removal. Newly created
directorships and vacancies may be filled, so long as there is
at least one remaining director, only by the Board of Directors.
Amendment
to Bylaws
The Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws will provide that the Board of
Directors is expressly authorized to make, alter, amend, change,
add to or repeal the Bylaws of the Company by the affirmative
vote of a majority of the total number of directors then in
office. Prior to the Trigger Date (as defined below), any
amendment, alteration, change, addition or repeal of the Bylaws
of the Company by the stockholders of the Company will require
the affirmative vote of the holders of a majority of the
outstanding shares of the Company entitled to vote on such
amendment, alteration, change, addition or repeal. On or
following the Trigger Date, any amendment, alteration, change,
addition or repeal of the Bylaws of the Company by the
stockholders of the Company shall require the affirmative vote
of the holders of at least seventy-five percent (75%) of the
outstanding shares of the Company, voting together as a class,
entitled to vote on such amendment, alteration, change, addition
or repeal.
For purposes of the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws,
(i) Trigger Date is defined as the first date
on which Hercules Holding (or its successor) ceases, or in the
event of a liquidation, or other distribution of shares of
common stock by, of Hercules Holding, the Equity Sponsors (as
defined below) and their affiliates, collectively, cease, to
beneficially own (directly or indirectly) shares representing a
majority of the then issued and outstanding common stock of the
Company (it being understood that the retention of either direct
or indirect beneficial ownership of a majority of the then
issued and outstanding shares of common stock by Hercules
Holding (or its successor) or the Equity Sponsors and their
affiliates, as applicable, shall mean that the Trigger Date has
not occurred) and (ii) the Equity Sponsors
shall mean each of Bain Capital, KKR, BAML Capital Partners,
Citigroup, Bank of America
160
Corporation, and Dr. Thomas F. Frist Jr. and their
respective affiliates, subsidiaries, successors and assignees
(other than the Company and its subsidiaries).
Special
Meetings of Stockholders
The Amended and Restated Certificate of Incorporation will
provide that special meetings of stockholders of the Company may
be called only by either the Board of Directors, pursuant to a
resolution adopted by the affirmative vote of the majority of
the total number of directors then in office, or by the Chairman
of the Board or the Chief Executive Officer of the Company;
provided that, prior to the Trigger Date, special meetings of
stockholders of the Company may also be called by the secretary
of the Company at the request of the holders of a majority of
the outstanding shares of common stock.
Action on
Written Consent
Pursuant to the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, prior to the
Trigger Date, stockholders will be able to take action by
written consent; however, following the Trigger Date, any action
required or permitted to be taken at an annual or special
meeting of stockholders of the Company may be taken only upon
the vote of the stockholders at an annual or special meeting
duly called and may not be taken by written consent of the
stockholders.
Corporate
Opportunities
The Amended and Restated Certificate of Incorporation will
provide that we renounce any interest or expectancy of the
Company in the business opportunities of the Investors and of
their officers, directors, agents, shareholders, members,
partners, affiliates and subsidiaries and each such party shall
not have any obligation to offer us those opportunities unless
presented to a director or officer of the Company in his or her
capacity as a director or officer of the Company.
Amendment
to Amended and Restated Certificate of Incorporation
The Amended and Restated Certificate of Incorporation will
provide that on or following the Trigger Date, the affirmative
vote of the holders of at least seventy-five percent (75%) of
the voting power of all outstanding shares of the Company
entitled to vote generally in the election of directors, voting
together in a single class, will be required to adopt any
provision inconsistent with, to amend or repeal any provision
of, or to adopt a bylaw inconsistent with certain specified
provisions of the Amended and Restated Certificate of
Incorporation.
Advance
Notice Requirements for Stockholder Proposals and Director
Nominations
Our Amended and Restated Bylaws will provide that stockholders
seeking to nominate candidates for election as directors or to
bring business before an annual or special meeting of
stockholders must provide timely notice of their proposal in
writing to the secretary of the Company. Generally, to be
timely, a stockholders notice must be delivered to, mailed
or received at our principal executive offices, addressed to the
secretary of the Company, and within the following time periods:
|
|
|
|
|
in the case of an annual meeting, no earlier than 120 days
and no later than 90 days prior to the first anniversary of
the date of the preceding years annual meeting; provided,
however, that if (A) the annual meeting is advanced by more
than 30 days, or delayed by more than 60 days, from
the first anniversary of the preceding years annual
meeting, or (B) no annual meeting was held during the
preceding year, to be timely the stockholder notice must be
received no earlier than 120 days before such annual
meeting and no later than the later of 90 days before such
annual meeting or the tenth day after the day on which public
disclosure of the date of such meeting is first made; and
|
|
|
|
in the case of a nomination of a person or persons for election
to the Board of Directors at a special meeting of the
stockholders called for the purpose of electing directors, no
earlier than 120 days before
|
161
|
|
|
|
|
such special meeting and no later than the later of 90 days
before such annual or special meeting or the tenth day after the
day on which public disclosure of the date of such meeting is
first made.
|
In no event shall an adjournment, postponement or deferral, or
public disclosure of an adjournment, postponement or deferral,
of a meeting of the stockholders commence a new time period (or
extend any time period) for the giving of the stockholder notice.
Authorized
but Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the New York Stock Exchange, which would apply as long as our
common stock is listed on the New York Stock Exchange, require
stockholder approval of certain issuances equal to or exceeding
20% of the then outstanding voting power or then outstanding
number of shares of common stock. These additional shares may be
used for a variety of corporate purposes, including future
public offerings, to raise additional capital or to facilitate
acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable our Board of
Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or
discourage an attempt to obtain control of our company by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly
deprive the stockholder of opportunities to sell their shares of
common stock at prices higher than prevailing market prices.
Limitation
on Directors Liability and Indemnification
Section 145(a) of the General Corporation Law of the State
of Delaware (the DGCL) grants each corporation
organized thereunder the power to indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons
conduct was unlawful.
Section 145(b) of the DGCL grants each corporation
organized thereunder the power to indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses
(including attorneys fees) actually and reasonably
incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made pursuant to
Section 145(b) of the DGCL in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL enables a corporation in its
certificate of incorporation, or an amendment thereto, to
eliminate or limit the personal liability of a director to the
corporation or its stockholders of monetary damages for
violations of the directors fiduciary duty of care as a
director, except (i) for any breach of the directors
duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good
162
faith or that involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment
of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an
improper personal benefit.
Our Amended and Restated Certificate of Incorporation
indemnifies the directors and officers to the full extent of the
DGCL and also allow the Board of Directors to indemnify all
other employees. Such right of indemnification is not exclusive
of any right to which such officer or director may be entitled
as a matter of law and shall extend and apply to the estates of
deceased officers and directors.
We maintain a directors and officers insurance
policy. The policy insures directors and officers against
unindemnified losses arising from certain wrongful acts in their
capacities as directors and officers and reimburses us for those
losses for which we have lawfully indemnified the directors and
officers. The policy contains various exclusions that are normal
and customary for policies of this type.
On November 1, 2009, we entered into an indemnification
priority and information sharing agreement with the Sponsors and
certain of their affiliated funds to clarify the priority of
advancement and indemnification obligations among us and any of
our directors appointed by the Sponsors and other related
matters.
The foregoing summaries are subject to the complete text of our
Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws and the DGCL and are qualified in their
entirety by reference thereto.
We believe that our Amended and Restated Certificate of
Incorporation, Amended and Restated Bylaws and insurance are
necessary to attract and retain qualified persons as directors
and officers.
The limitation of liability and indemnification provisions in
our Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their
fiduciary duty. They may also reduce the likelihood of
derivative litigation against directors and officers, even
though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholders investment may
be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers as
required or allowed by these indemnification provisions.
At present, we are not aware of any pending litigation or
proceeding involving any of our directors or officers in which
indemnification is required or permitted and we are not aware of
any threatened litigation or proceeding that may result in a
claim for indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions or
any other provisions described in this prospectus, we have been
informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Delaware
Anti-Takeover Statutes
Certain Delaware law provisions may make it more difficult for
someone to acquire us through a tender offer, proxy contest or
otherwise.
Section 203 of the DGCL, provides that, subject to certain
stated exceptions, an interested stockholder is any
person (other than the corporation and any direct or indirect
majority-owned subsidiary) who owns 15% or more of the
outstanding voting stock of the corporation or is an affiliate
or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date of
determination, and the affiliates and associates of such person.
A corporation may not engage in a business combination with any
interested stockholder for a period of three years following the
time that such stockholder became an interested stockholder
unless:
|
|
|
|
|
prior to such time the board of directors of the corporation
approved either the business combination or transaction which
resulted in the stockholder becoming an interested stockholder;
|
163
|
|
|
|
|
upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding shares owned by persons who are directors and also
officers and employee stock plans in which participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
|
|
|
|
at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder.
|
The effect of these provisions may make a change in control of
our business more difficult by delaying, deferring or preventing
a tender offer or other takeover attempt that a stockholder
might consider in its best interest. This includes attempts that
might result in the payment of a premium to stockholders over
the market price for their shares. These provisions also may
promote the continuity of our management by making it more
difficult for a person to remove or change the incumbent members
of the board of directors.
Transfer
Agent and Registrar
Wells Fargo Shareowner Services is the transfer agent and
registrar for our common stock.
Listing
Our common stock has been approved for listing on the New York
Stock Exchange under the symbol HCA.
164
SHARES
ELIGIBLE FOR FUTURE SALE
After our Recapitalization and prior to this offering, there has
not been a public market for our common stock, and we cannot
predict what effect, if any, market sales of shares of common
stock or the availability of shares of common stock for sale
will have on the market price of our common stock prevailing
from time to time. Nevertheless, sales of substantial amounts of
common stock, including shares issued upon the exercise of
outstanding options, in the public market, or the perception
that such sales could occur, could materially and adversely
affect the market price of our common stock and could impair our
future ability to raise capital through the sale of our equity
or equity-related securities at a time and price that we deem
appropriate.
Upon the consummation of this offering, we will have outstanding
an aggregate of approximately 515,205,100 shares of common
stock. In addition, options to purchase an aggregate of
approximately 50,525,942 shares of our common stock will be
outstanding as of the consummation of this offering. Of these
options, 23,834,766 will have vested at or prior to the
consummation of this offering and approximately 26,691,176 could
vest over the next three to six years. Of the outstanding
shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities
Act, except that any shares held by our affiliates, as that term
is defined under Rule 144 of the Securities Act, may be
sold only in compliance with the limitations described below.
The remaining outstanding shares of common stock will be deemed
restricted securities, as defined under Rule 144.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rule 144 under the Securities Act, which we summarize
below.
Subject to the transfer restrictions described below, the
restricted shares and the shares held by our affiliates will be
available for sale in the public market as follows:
|
|
|
|
|
8,155,275 shares will be eligible for sale at various times
after the date of this prospectus pursuant to
Rule 144; and
|
|
|
|
383,049,792 shares subject to the
lock-up
agreements will be eligible for sale at various times beginning
180 days after the date of this prospectus pursuant to
Rule 144.
|
All of our management stockholders are subject to a management
stockholders agreement that restricts, subject to certain
exceptions, including pursuant to an effective registration
statement, transfers of stock for a period of five years
beginning November 17, 2006, and limits the amount of stock
that can be transferred by a management stockholder for an
additional three years after that five year period ends. See
Certain Relationships and Related Party
Transactions Management Stockholders
Agreement. In connection with this offering, we have
agreed to waive such transfer restrictions for all employees
subject to the Management Stockholders Agreement that were
not permitted to participate in this offering with respect to
the number of shares of our common stock equal to the number of
shares of common stock such employees could have required us to
register in this offering had we elected to grant them
piggyback rights.
The Amended and Restated Limited Liability Company Agreement of
Hercules Holding contains restrictions on the transfer of
interests by the Investors in us. See Certain
Relationships and Related Party Transactions Amended
and Restated Limited Liability Company Agreement of Hercules
Holding II, LLC.
Rule 144
In general, under Rule 144 as in effect on the date of this
prospectus, a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has
beneficially owned shares of our common stock for at least six
months, would be entitled to sell an unlimited number of shares
of our common stock provided current public information about us
is available and, after owning such shares for at least one
year, would be entitled to sell an unlimited number of shares of
our common stock without restriction. Our affiliates who have
beneficially owned shares of our common stock for at least six
months are entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
|
|
|
|
|
1% of the number of shares of our common stock then outstanding,
which was equal to approximately 4,274,588 shares as of
December 31, 2010; or
|
165
|
|
|
|
|
the average weekly trading volume of our common stock on the New
York Stock Exchange during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
|
Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Lock-Up
Agreements
In connection with this offering, we, our executive officers and
directors, the selling stockholders and the Investors have
agreed with the underwriters, subject to certain exceptions, not
to sell, dispose of or hedge any of our common stock or
securities convertible into or exchangeable for shares of common
stock, during the period ending 180 days after the date of
this prospectus, except with the prior written consent of two of
the representatives of the underwriters. Pursuant to this
agreement, we may issue our common stock in connection with the
acquisition of, or joint venture with, another entity so long as
the aggregate number of shares issued, considered individually
and together with all acquisitions or joint ventures announced
during the 180-day restricted period, shall not exceed 5% of our
common stock issued and outstanding as of the date of such
acquisition and/or joint venture agreement. This agreement does
not apply to any existing employee benefit plans.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if:
|
|
|
|
|
during the last 17 days of the 180-day restricted period we
issue an earnings release or material news or a material event
relating to us occurs; or
|
|
|
|
prior to the expiration of the 180-day restricted period, we
announce that we will release earnings results or become aware
that material news or a material event will occur during the
16-day
period beginning on the last day of the 180-day period,
|
in which case the restrictions described in this paragraph will
continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event. See
Underwriting.
Registration
on
Form S-8
We have filed a registration statement on
Form S-8
under the Securities Act to register shares of common stock
issuable under our 2006 Plan. As a result, shares issued
pursuant to such stock incentive plan, including upon exercise
of stock options, will be eligible for resale in the public
market without restriction, subject to the Rule 144
limitations applicable to affiliates and the restrictions
described under Certain Relationships and Related Party
Transactions Management Stockholders
Agreement.
As of December 31, 2010, 47,419,234 shares (and,
following the offering, an additional 40,000,000, for a total of
87,419,234 shares) of common stock were reserved pursuant to our
stock incentive plans for future issuance in connection with the
exercise of outstanding options awarded under this plan. Options
with respect to 19,230,877 of these shares were vested as of
December 31, 2010 and additional options to purchase
26,691,176 shares of common stock could vest subsequent to
December 31, 2010.
Registration
Rights
Pursuant to a registration rights agreement, we have granted the
Investors the right to cause us, in certain instances, at our
expense, to file registration statements under the Securities
Act covering resales of our common stock held by them. These
shares will represent approximately 72.9% of our outstanding
common stock after this offering (69.3% if the overallotment
option is exercised in full). These shares also may be sold
under Rule 144 under the Securities Act, depending on their
holding period and subject to restrictions in the case of shares
held by persons deemed to be our affiliates. Following the
initial public offering of our common stock, the Senior
Management Stockholders will have limited piggyback
registration rights with respect to their shares of common stock.
For a description of rights some holders of common stock have to
require us to register the shares of common stock they own, see
Certain Relationships and Related Party Transactions.
166
MATERIAL
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
TO NON-U.S.
HOLDERS
The following is a summary of the material United States federal
income and estate tax consequences of the purchase, ownership
and disposition of our common stock as of the date hereof.
Except where noted, this summary deals only with common stock
purchased in this offering that is held as a capital asset by a
non-U.S. holder.
Except as modified for estate tax purposes, a
non-U.S. holder
means a beneficial owner of our common stock that is not, for
United States federal income tax purposes, any of the following:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
|
|
|
|
a partnership (including any entity or arrangement treated as a
partnership for United States federal income tax purposes);
|
|
|
|
an estate the income of which is subject to United States
federal income taxation regardless of its source; or
|
|
|
|
a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
|
This summary is based upon provisions of the Internal Revenue
Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax
consequences different from those summarized below. This summary
does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state, local or
other tax considerations that may be relevant to
non-U.S. holders
in light of their particular circumstances. In addition, it does
not represent a detailed description of the United States
federal income or estate tax consequences applicable to you if
you are subject to special treatment under the United States
federal income or estate tax laws (including if you are a
financial institution, United States expatriate,
controlled foreign corporation, passive
foreign investment company, person subject to the
alternative minimum tax, dealer in securities, broker, person
who has acquired our common stock as part of a straddle, hedge,
conversion transaction or other integrated investment, or a
partnership or other pass-through entity for United States
federal income tax purposes (or an investor in such a
pass-through entity)). We cannot assure you that a change in law
will not alter significantly the tax considerations that we
describe in this summary.
We have not and will not seek any rulings from the IRS regarding
the matters discussed below. There can be no assurance that the
IRS will not take positions concerning the tax consequences of
the purchase, ownership or disposition of shares of our common
stock that are different from those discussed below.
If any entity or arrangement treated as a partnership for United
States federal income tax purposes holds our common stock, the
tax treatment of a partner will generally depend upon the status
of the partner and the activities of the partnership and upon
certain determinations made at the partner level. If you are a
partner of a partnership holding our common stock, you should
consult your tax advisors.
If you are considering the purchase of our common stock, you
should consult your own tax advisors concerning the particular
United States federal income and estate tax consequences to you
of the purchase, ownership and disposition of our common stock,
as well as the consequences to you arising under the laws of any
other applicable taxing jurisdiction, in light of your
particular circumstances.
167
This discussion assumes that a non-U.S. holder will structure
its ownership of our common stock so as to not be subject to the
newly enacted withholding tax discussed below under
Additional Withholding Requirements.
Dividends
We do not intend to pay any cash dividends on our common stock
in the foreseeable future. See Dividend Policy.
However, if we do make distributions on our common stock, those
payments will constitute dividends for United States federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under United
States federal income tax principles. To the extent those
distributions exceed both our current and our accumulated
earnings and profits, they will constitute a return of capital
and will first reduce your basis in our common stock (determined
on a share by share basis), but not below zero, and then will be
treated as gain from the sale of stock.
In the event that we pay dividends on our common stock, the
dividends paid to a
non-U.S. holder
generally will be subject to withholding of United States
federal income tax at a 30% rate, or such lower rate as may be
specified by an applicable income tax treaty, of the gross
amount of the dividends paid. However, dividends that are
effectively connected with the conduct of a trade or business by
the
non-U.S. holder
within the United States generally are not subject to the
withholding tax, provided certain certification and disclosure
requirements are satisfied. Instead, such dividends are
generally subject to United States federal income tax on a net
income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code (unless an
applicable income tax treaty provides otherwise). A foreign
corporation may be subject to an additional branch profits
tax at a 30% rate (or such lower rate as may be specified
by an applicable income tax treaty) on its effectively connected
earnings and profits attributable to such dividends.
A
non-U.S. holder
of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends generally will be required
(a) to complete IRS
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits or (b) if our
common stock is held through certain foreign intermediaries, to
satisfy the relevant certification requirements of applicable
United States Treasury regulations. Special certification and
other requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by timely filing an
appropriate claim for refund with the IRS.
Gain on
Disposition of Common Stock
Any gain realized by a
non-U.S. holder
on the disposition of our common stock generally will not be
subject to United States federal income tax unless:
|
|
|
|
|
the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States;
|
|
|
|
the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
|
|
|
|
we are or have been a United States real property holding
corporation for United States federal income tax purposes
at any time during the shorter of the five-year period ending on
the date of the disposition or the period that the
non-U.S. holder
held our common stock.
|
In the case of a
non-U.S. holder
described in the first bullet point immediately above, the gain
will be subject to United States federal income tax a net income
basis generally in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code (unless an
applicable income tax treaty provides otherwise), and a
non-U.S. holder
that is a foreign corporation may be subject to a branch profits
tax equal to 30% of its effectively connected earnings and
profits attributable to such gain (or at such lower rate as may
be specified by an applicable income tax treaty). In the case of
an individual
non-U.S. holder
described in the second bullet point
168
immediately above, except as otherwise provided by an applicable
income tax treaty, the gain, which may be offset by United
States source capital losses, will be subject to a flat 30% tax
even though the individual is not considered a resident of the
United States under the Code.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes. If, however, we are
or become a United States real property holding
corporation, so long as our common stock is regularly
traded on an established securities market, only a
non-U.S.
holder who actually or constructively holds or held (at any time
during the shorter of the five year period ending on the date of
disposition or the
non-U.S.
holders holding period) more than 5% of our common stock
will be subject to United States federal income tax on the
disposition of our common stock. You should consult your own
advisor about the consequences that could result if we are, or
become, a United States real property holding
corporation.
Information
Reporting and Backup Withholding
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty
or agreement.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payer does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payer does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is timely furnished to the IRS.
Additional
Withholding Requirements
Under recently enacted legislation, the relevant withholding
agent may be required to withhold 30% of any dividends and the
proceeds of a sale of our common stock paid after
December 31, 2012 to (i) a foreign financial
institution (whether holding stock for its own account or on
behalf of its account holders/investors) unless such foreign
financial institution agrees to verify, report and disclose its
U.S. account holders and meets certain other specified
requirements or (ii) a non-financial foreign entity that is
the beneficial owner of the payment (or who holds stock on
behalf of another non-financial foreign entity that is the
beneficial owner) unless the beneficial owner certifies that it
does not have any substantial United States owners or
provides the name, address and taxpayer identification number of
each substantial United States owner and meets certain other
specified requirements. Non-U.S. holders should consult their
own tax advisors regarding the effect of this newly enacted
legislation.
Federal
Estate Tax
Our common stock that is owned (or treated as owned) by an
individual who is not a citizen or resident of the United States
(as specially defined for United States federal estate tax
purposes) at the time of death will be included in such
individuals gross estate for United States federal estate
tax purposes, unless an applicable estate or other tax treaty
provides otherwise, and, therefore, may be subject to United
States federal estate tax.
169
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Citigroup Global Markets Inc. and J.P. Morgan Securities
LLC are acting as representatives of each of the underwriters
named below. Subject to the terms and conditions set forth in a
purchase agreement among us, the selling stockholders and the
underwriters, we and the selling stockholders have agreed to
sell to the underwriters, and each of the underwriters has
agreed, severally and not jointly, to purchase from us and the
selling stockholders, the number of shares of common stock set
forth opposite its name below.
|
|
|
|
|
|
|
Number
|
|
Underwriter
|
|
of Shares
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
17,418,545
|
|
Citigroup Global Markets Inc.
|
|
|
17,418,545
|
|
J.P. Morgan Securities LLC
|
|
|
17,418,545
|
|
Barclays Capital Inc.
|
|
|
9,889,662
|
|
Credit Suisse Securities (USA) LLC
|
|
|
8,655,427
|
|
Deutsche Bank Securities Inc.
|
|
|
8,655,427
|
|
Goldman, Sachs & Co.
|
|
|
8,655,427
|
|
Morgan Stanley & Co. Incorporated
|
|
|
8,655,427
|
|
Wells Fargo Securities, LLC
|
|
|
8,655,427
|
|
Credit Agricole Securities (USA) Inc.
|
|
|
1,923,288
|
|
Mizuho Securities USA Inc.
|
|
|
1,923,288
|
|
RBC Capital Markets, LLC
|
|
|
1,923,288
|
|
RBS Securities Inc.
|
|
|
1,923,288
|
|
SMBC Nikko Capital Markets Limited
|
|
|
1,923,288
|
|
SunTrust Robinson Humphrey, Inc.
|
|
|
1,923,288
|
|
Avondale Partners, LLC
|
|
|
639,834
|
|
Robert W. Baird & Co. Incorporated
|
|
|
639,834
|
|
Cowen and Company, LLC
|
|
|
639,834
|
|
CRT Capital Group LLC
|
|
|
639,834
|
|
Lazard Capital Markets LLC
|
|
|
639,834
|
|
Leerink Swann LLC
|
|
|
639,834
|
|
Morgan Keegan & Company, Inc.
|
|
|
639,834
|
|
Oppenheimer & Co. Inc.
|
|
|
639,834
|
|
Raymond James & Associates, Inc.
|
|
|
639,834
|
|
Susquehanna Financial Group, LLLP
|
|
|
639,834
|
|
Samuel A. Ramirez & Company, Inc.
|
|
|
394,375
|
|
The Williams Capital Group, L.P.
|
|
|
394,375
|
|
Muriel Siebert & Co., Inc.
|
|
|
394,375
|
|
Loop Capital Markets L.L.C.
|
|
|
394,375
|
|
Gleacher & Company Securities, Inc.
|
|
|
394,375
|
|
CastleOak Securities, L.P.
|
|
|
394,375
|
|
Sanford C. Bernstein & Co., LLC
|
|
|
394,375
|
|
Caris & Company Inc.
|
|
|
78,875
|
|
|
|
|
|
|
Total
|
|
|
126,200,000
|
|
|
|
|
|
|
Subject to the terms and conditions set forth in the purchase
agreement, the underwriters have agreed, severally and not
jointly, to purchase all of the shares sold under the purchase
agreement if any of these shares
170
|
|
|
|
|
are purchased. If an underwriter defaults, the purchase
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
|
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of
those liabilities.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
purchase agreement, such as the receipt by the underwriters of
officers certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
Commissions
and Discounts
The representatives have advised us and the selling stockholders
that the underwriters propose initially to offer the shares to
the public at the public offering price set forth on the cover
page of this prospectus and to dealers at that price less a
concession not in excess of $0.6300 per share. After the initial
offering, the public offering price, concession or any other
term of the offering may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us and the
selling stockholders. The information assumes either no exercise
or full exercise by the underwriters of their overallotment
option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Without Option
|
|
|
With Option
|
|
|
Public offering price
|
|
$
|
30.00
|
|
|
$
|
3,786,000,000
|
|
|
$
|
4,353,900,000
|
|
Underwriting discount
|
|
$
|
1.0875
|
|
|
$
|
137,242,500
|
|
|
$
|
157,828,875
|
|
Proceeds, before expenses, to HCA Holdings, Inc.
|
|
$
|
28.9125
|
|
|
$
|
2,536,184,261
|
|
|
$
|
2,536,184,261
|
|
Proceeds, before expenses, to the selling stockholders
|
|
$
|
28.9125
|
|
|
$
|
1,112,573,239
|
|
|
$
|
1,659,886,864
|
|
The expenses of the offering, not including the underwriting
discount, are estimated at $7.0 million and are payable by
us and the selling stockholders.
Overallotment
Option
The selling stockholders have granted an option to the
underwriters to purchase up to 18,930,000 additional shares
at the public offering price, less the underwriting discount.
The underwriters may exercise this option for 30 days from
the date of this prospectus solely to cover any overallotments.
If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase
agreement, to purchase a number of additional shares
proportionate to that underwriters initial amount
reflected in the above table.
Reserved
Shares
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 5% of the shares offered by
this prospectus for sale to some of our directors, officers,
employees and certain other persons who are otherwise associated
with us through a directed share program. If these persons
purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares
that are not so purchased will be offered by the underwriters to
the general public on the same terms as the other shares offered
by this prospectus.
No Sales
of Similar Securities
We and the selling stockholders, our executive officers and
directors and the Investors have agreed not to sell or transfer
any common stock or securities convertible into, exchangeable
for, exercisable for, or repayable with common stock, for
180 days after the date of this prospectus without first
obtaining the written consent
171
of two of the representatives. Specifically, we and these other
persons have agreed, with certain limited exceptions, not to
directly or indirectly
|
|
|
|
|
offer, pledge, sell or contract to sell any common stock,
|
|
|
|
sell any option or contract to purchase any common stock,
|
|
|
|
purchase any option or contract to sell any common stock,
|
|
|
|
grant any option, right or warrant for the sale of any common
stock,
|
|
|
|
lend or otherwise dispose of or transfer any common stock,
|
|
|
|
request or demand that we file a registration statement related
to the common stock, or
|
|
|
|
enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any common
stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
|
This lock-up
provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired
later by the person executing the agreement or for which the
person executing the agreement later acquires the power of
disposition. In the event that either (x) during the last
17 days of the
lock-up
period referred to above, we issue an earnings release or
material news or a material event relating to us occurs or
(y) prior to the expiration of the
lock-up
period, we announce that we will release earnings results or
become aware that material news or a material event will occur
during the
16-day
period beginning on the last day of the
lock-up
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
New York
Stock Exchange Listing
Our common stock has been approved for listing on the New York
Stock Exchange under the symbol HCA. In order to
meet the requirements for listing on that exchange, the
underwriters have undertaken to sell a minimum number of shares
to a minimum number of beneficial owners as required by that
exchange.
After our Recapitalization and prior to the offering, there has
been no public market for our common stock. The initial public
offering price will be determined through negotiations among us,
the selling stockholders and the representatives. In addition to
prevailing market conditions, the factors to be considered in
determining the initial public offering price are
|
|
|
|
|
the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
|
|
|
|
our financial information,
|
|
|
|
the history of, and the prospects for, the Company and the
industry in which we compete,
|
|
|
|
an assessment of our management, its past and present
operations, and the prospects for, and timing of, our future
revenues,
|
|
|
|
the present state of our development, and
|
|
|
|
the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
|
An active trading market for the shares may not develop. It is
also possible that after the offering the shares will not trade
in the public market at or above the initial public offering
price.
The underwriters do not expect to sell more than 5% of the
shares in the aggregate to accounts over which they exercise
discretionary authority. The underwriters have informed us that
they do not intend to confirm sales to discretionary accounts
without prior written approval of the customer.
172
Price
Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may
limit underwriters and selling group members from bidding for
and purchasing our common stock. However, Citigroup Global
Markets Inc., on behalf of the underwriters, may engage in
transactions that stabilize the price of the common stock, such
as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase
and sell our common stock in the open market. These transactions
may include short sales, purchases on the open market to cover
positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an
amount not greater than the underwriters overallotment
option described above. The underwriters may close out any
covered short position by either exercising their overallotment
option or purchasing shares in the open market. In determining
the source of shares to close out the covered short position,
the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
overallotment option. Naked short sales are sales in
excess of the overallotment option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of our common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of various
bids for or purchases of shares of common stock made by the
underwriters in the open market prior to the completion of the
offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales may have the effect
of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of our
common stock. As a result, the price of our common stock may be
higher than the price that might otherwise exist in the open
market. The underwriters may conduct these transactions on the
New York Stock Exchange, in the over-the-counter market or
otherwise.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Electronic
Offer, Sale and Distribution of Shares
In connection with the offering, certain of the underwriters or
securities dealers may distribute prospectuses by electronic
means, such as
e-mail. In
addition, the representatives may facilitate Internet
distribution for this offering to certain of its Internet
subscription customers. The representatives may allocate a
limited number of shares for sale to its online brokerage
customers. An electronic prospectus is available on Internet web
sites maintained by the representatives. Other than the
prospectus in electronic format, the information on the web
sites of the representatives is not part of this prospectus.
Conflicts
of Interest
Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or its
affiliates indirectly owns in excess of 10% of our issued and
outstanding common stock, and is therefore deemed to be our
affiliate and have a conflict of
interest within the meaning of Rule 5121 of the
Financial Industry Regulatory Authority, Inc.
(FINRA Rule 5121). Additionally, because
we expect that more than 5% of the net proceeds of this offering
may be received by certain underwriters in this offering or
their affiliates that are lenders under the senior secured
credit facilities, this offering is being conducted in
accordance with FINRA Rule 5121 regarding the
underwriting of securities. In addition, affiliates of certain
of the other underwriters may also own (directly or as a
designee of a selling stockholder) a portion of our issued and
outstanding common stock that may be sold
173
on a pro rata basis in this offering. FINRA Rule 5121
requires that a qualified independent underwriter
(QIU) participate in the preparation of the
registration statement of which this prospectus is a part and
perform its usual standard of due diligence with respect
thereto. Barclays Capital Inc. has agreed to serve as the QIU.
In addition, in accordance with FINRA Rule 5121, if
Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or
any of its affiliates receives more than 5% of the net proceeds
from this offering, it will not confirm sales to discretionary
accounts without the prior written consent of its customers. We
have agreed to indemnify against liabilities incurred in
connection with acting as QIU, including liabilities under the
Securities Act.
Affiliates of one or more of the underwriters are lenders
and/or
agents under the senior secured credit facilities and as such
are entitled to be repaid with the proceeds that are used to
repay the senior secured credit facilities and will receive
their pro rata portion of such repayment. In addition, Merrill
Lynch, Pierce, Fenner & Smith Incorporated
and/or its
affiliate Bank of America, N.A., the administrative agent under
our senior secured credit facilities, as well as affiliates of
certain of the other underwriters that are lenders
and/or
agents under our senior secured credit facilities, received fees
in connection with the amendments to the senior secured credit
facilities. See Certain Relationships and Related Party
Transactions Other Relationships. Affiliates
of Merrill Lynch, Pierce, Fenner & Smith Incorporated
indirectly own approximately 25.8% of our shares and are
entitled to seats on our Board of Directors. Certain of our
directors are directors of other companies that are affiliates
of certain of the underwriters.
Affiliates of or funds sponsored by Bain Capital Partners, LLC,
KKR, BAMLCP and certain members of the Frist family provide
management and advisory services to us and our affiliates
pursuant to a management agreement we executed in connection
with our Recapitalization. Upon the consummation of this
offering, pursuant to our management agreement, we will pay a
fee of approximately $208 million to Bain Capital Partners,
LLC, KKR, BAMLCP and certain members of the Frist family party
to the management agreement in connection with this offering and
termination of the agreement.
Affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, whose parent company, Bank of America Corporation,
is also the parent company of one of our Investors, BAML Capital
Partners, the successor organization to Merrill Lynch Global
Private Equity, are permitted to elect three members to our
board of directors pursuant to the LLC Agreement. Christopher J.
Birosak, James D. Forbes and Nathan C. Thorne currently serve on
our board of directors. Mr. Birosak is a managing director
of BAML Capital Partners, Mr. Forbes is the head of Bank of
Americas Global Principal Investments Division, and
Mr. Thorne is a consultant for Merrill Lynch Global Private
Equity, Inc., a wholly-owned subsidiary of Bank of America
Corporation. Merrill Lynch, Pierce, Fenner & Smith
Incorporated is also the broker for our directed share program
and the plan administrator for our equity incentive plans.
Dr. Thomas F. Frist Jr. is a member of the Advisory Board
of Avondale Partners, LLC, a position for which he receives no
financial compensation or remuneration.
Wells Fargo Shareowner Services acts as the transfer agent and
registrar for our common stock and is an affiliate of Wells
Fargo Securities, LLC, one of the underwriters of this offering.
Other
Relationships
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory, investment banking,
commercial banking and other services for us for which they
received or will receive customary fees and expenses. In
addition, certain of the underwriters or their affiliates have
in the past sold or leased, and may in the future sell or lease,
equipment to us in the ordinary course of business. Furthermore,
certain of the underwriters and their respective affiliates may,
from time to time, enter into arms-length transactions with us
in the ordinary course of their business.
174
In the ordinary course of their various business activities, the
underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers, and such investment and
securities activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
SMBC Nikko Capital Markets Limited is not a U.S. registered
broker-dealer and, therefore, intends to participate in the
offering outside of the United States and, to the extent that
the offering is within the United States, as facilitated by
an affiliated U.S. registered broker-dealer, SMBC Nikko
Securities America, Inc. (SMBC Nikko-SI), as
permitted under applicable law. To that end, SMBC Nikko Capital
Markets Limited and SMBC Nikko-SI have entered into an agreement
pursuant to which SMBC Nikko-SI provides certain advisory and/or
other services with respect to this offering. In return for the
provision of such services by SMBC Nikko-SI, SMBC Nikko Capital
Markets Limited will pay to SMBC Nikko-SI a mutually agreed fee.
Lazard Frères & Co. LLC referred this transaction to
Lazard Capital Markets LLC and will receive a referral fee from
Lazard Capital Markets LLC in connection therewith.
Notice to
Prospective Investors in the EEA
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
shares which are the subject of the offering contemplated by
this prospectus may not be made in that Relevant Member State,
except that an offer to the public in that Relevant Member State
of any shares may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) by the underwriters to fewer than 100 natural or legal
persons (other than qualified investors as defined
in the Prospectus Directive) subject to obtaining the prior
consent of the representatives for any such offer; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive;
provided that no such offer of shares shall result in a
requirement for the publication by us or any representative of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
Any person making or intending to make any offer of shares
within the EEA should only do so in circumstances in which no
obligation arises for us or any of the underwriters to produce a
prospectus for such offer. Neither we nor the underwriters have
authorized, nor do they authorize, the making of any offer of
shares through any financial intermediary, other than offers
made by the underwriters which constitute the final offering of
shares contemplated in this prospectus.
For the purposes of this provision, and your representation
below, the expression an offer to the public in
relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares to be
offered so as to enable an investor to decide to purchase any
shares, as the same may be varied in that Relevant Member State
by any measure implementing the Prospectus Directive in that
Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
175
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any shares under,
the offer of shares contemplated by this prospectus will be
deemed to have represented, warranted and agreed to and with us
and each underwriter that:
(A) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive; and
(B) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the shares acquired by it in the
offering have not been acquired on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in any
Relevant Member State other than qualified investors
(as defined in the Prospectus Directive), or in circumstances in
which the prior consent of the representatives has been given to
the offer or resale; or (ii) where shares have been
acquired by it on behalf of persons in any Relevant Member State
other than qualified investors, the offer of those shares to it
is not treated under the Prospectus Directive as having been
made to such persons.
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19
(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the
Order)
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
shares which are the subject of the offering contemplated by
this prospectus, do not constitute an issue prospectus pursuant
to Article 652a
and/or 1156
of the Swiss Code of Obligations. The shares will not be listed
on the SIX Swiss Exchange and, therefore, the documents relating
to the shares, including, but not limited to, this document, do
not claim to comply with the disclosure standards of the listing
rules of SIX Swiss Exchange and corresponding prospectus schemes
annexed to the listing rules of the SIX Swiss Exchange. The
shares are being offered in Switzerland by way of a private
placement, i.e., to a small number of selected investors
only, without any public offer and only to investors who do not
purchase the shares with the intention to distribute them to the
public. The investors will be individually approached by the
issuer from time to time. This document, as well as any other
material relating to the shares, is personal and confidential
and do not constitute an offer to any other person. This
document may only be used by those investors to whom it has been
handed out in connection with the offering described herein and
may neither directly nor indirectly be distributed or made
available to other persons without express consent of the
issuer. It may not be used in connection with any other offer
and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus may be
illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
176
Notice to
Prospective Investors in Hong Kong
This prospectus has not been approved by or registered with the
Securities and Futures Commission of Hong Kong or the Registrar
of Companies of Hong Kong. The shares will not be offered or
sold in Hong Kong other than (a) to professional
investors as defined in the Securities and Futures
Ordinance (Cap. 571) of Hong Kong and any rules made under
that Ordinance; or (b) in other circumstances which do not
result in the document being a prospectus as defined
in the Companies Ordinance (Cap. 32) of Hong Kong or which
do not constitute an offer to the public within the meaning of
that Ordinance. No advertisement, invitation or document
relating to the shares which is directed at, or the contents of
which are likely to be accessed or read by, the public of Hong
Kong (except if permitted to do so under the securities laws of
Hong Kong) has been issued or will be issued in Hong Kong or
elsewhere other than with respect to shares which are or are
intended to be disposed of only to persons outside Hong Kong or
only to professional investors as defined in the
Securities and Futures Ordinance and any rules made under that
Ordinance.
Notice to
Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act (Chapter 289) (the SFA), (ii) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA. Where the shares are subscribed or
purchased under Section 275 by a relevant person which is:
(a) a corporation (which is not an accredited investor) the
sole business of which is to hold investments and the entire
share capital of which is owned by one or more individuals, each
of whom is an accredited investor; or (b) a trust (where
the trustee is not an accredited investor) whose sole purpose is
to hold investments and each beneficiary is an accredited
investor, then shares, debentures and units of shares and
debentures of that corporation or the beneficiaries rights
and interest in that trust shall not be transferable for
6 months after that corporation or that trust has acquired
the shares under Section 275 except: (i) to an
institutional investor under Section 274 of the SFA or to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA; (ii) where no consideration is
given for the transfer; or (iii) by operation of law.
Notice to
Prospective Investors in Japan
The shares have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (Law No. 25
of 1948, as amended) and, accordingly, will not be offered or
sold, directly or indirectly, in Japan, or for the benefit of
any Japanese Person or to others for re-offering or resale,
directly or indirectly, in Japan or to any Japanese Person,
except in compliance with all applicable laws, regulations and
ministerial guidelines promulgated by relevant Japanese
governmental or regulatory authorities in effect at the relevant
time. For the purposes of this paragraph, Japanese
Person shall mean any person resident in Japan, including
any corporation or other entity organized under the laws of
Japan.
177
LEGAL
MATTERS
Certain legal matters in connection with the offering will be
passed upon for us and certain selling stockholders by Simpson
Thacher & Bartlett LLP, New York, New York and Bass,
Berry & Sims PLC, Nashville, Tennessee, and certain
health care regulatory matters will be passed upon for us by
Bass, Berry & Sims PLC, Nashville, Tennessee. Certain
legal matters in connection with the offering will be passed
upon for the underwriters by Cahill Gordon & Reindel
llp, New York, New
York and certain health care regulatory matters will be passed
on for the underwriters by Winston & Strawn LLP,
Washington, D.C. An investment vehicle comprised of several
partners of Simpson Thacher & Bartlett LLP, members of
their families, related persons and others own interests
representing less than 1% of the capital commitments of the KKR
Millennium Fund, L.P. and KKR 2006 Fund L.P.
EXPERTS
The consolidated financial statements of HCA Holdings, Inc. as
of December 31, 2010 and 2009, and for each of the three
years in the period ended December 31, 2010, appearing in
this prospectus and registration statement, and the
effectiveness of HCA Holdings, Inc.s internal control over
financial reporting as of December 31, 2010, have been
audited by Ernst & Young LLP, independent registered
public accounting firm, as set forth in its reports thereon
included elsewhere herein. Such consolidated financial
statements and HCA Holdings, Inc. managements assessment
of the effectiveness of internal control over financial
reporting as of December 31, 2010 are included in reliance
upon such reports given on the authority of such firm as experts
in accounting and auditing.
178
WHERE YOU
CAN FIND MORE INFORMATION
We file certain reports with the Securities and Exchange
Commission (the SEC), including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
The public may read and copy any materials we file with the SEC
at the SECs Public Reference Room at
100 F Street, N.E., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
We are an electronic filer, and the SEC maintains an Internet
site at
http://www.sec.gov
that contains the reports, proxy and information statements and
other information we file electronically with the SEC. Our
website address is www.hcahealthcare.com. Please note that our
website address is provided as an inactive textual reference
only. We make available free of charge, through our website, our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after such material is electronically
filed with or furnished to the SEC. The information provided on
our website is not part of this prospectus, and is therefore not
incorporated by reference unless such information is
specifically referenced elsewhere in this prospectus.
Our Code of Conduct is available free of charge upon request to
our Corporate Secretary, HCA Holdings, Inc., One Park Plaza,
Nashville, Tennessee 37203.
179
HCA
HOLDINGS, INC.
|
|
|
|
|
|
|
Page
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-47
|
|
F-1
Our management is responsible for establishing and maintaining
effective internal control over financial reporting, as such
term is defined in Exchange Act
Rule 13a-15(f).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective, can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2010.
Ernst & Young, LLP, the independent registered public
accounting firm that audited our consolidated financial
statements, has issued a report on our internal control over
financial reporting, which is included herein.
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Holdings, Inc.
We have audited HCA Holdings, Inc.s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). HCA Holdings,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, HCA Holdings, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HCA Holdings, Inc. as of
December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders deficit, and cash flows
for each of the three years in the period ended
December 31, 2010 and our report dated February 17,
2011 expressed an unqualified opinion thereon.
Nashville, Tennessee
February 17, 2011
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
HCA Holdings, Inc. as of December 31, 2010 and 2009, and
the related consolidated statements of income,
stockholders deficit, and cash flows for each of the three
years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above,
present fairly, in all material respects, the consolidated
financial position of HCA Holdings, Inc. at December 31,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HCA
Holdings, Inc.s internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 17, 2011 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 17, 2011, except as to Note 18, as to which
the date is March 9, 2011
F-4
HCA
HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009
AND 2008
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
11,958
|
|
|
|
11,440
|
|
Supplies
|
|
|
4,961
|
|
|
|
4,868
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
4,724
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(246
|
)
|
|
|
(223
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
2,002
|
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
1,375
|
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.83
|
|
|
$
|
2.48
|
|
|
$
|
1.59
|
|
Diluted earnings per share
|
|
$
|
2.76
|
|
|
$
|
2.44
|
|
|
$
|
1.56
|
|
Shares used in earnings per share calculations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
426,424
|
|
|
|
425,567
|
|
|
|
423,699
|
|
Diluted
|
|
|
437,347
|
|
|
|
432,227
|
|
|
|
430,982
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
HCA
HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
411
|
|
|
$
|
312
|
|
Accounts receivable, less allowance for doubtful accounts of
$3,939 and $4,860
|
|
|
3,832
|
|
|
|
3,692
|
|
Inventories
|
|
|
897
|
|
|
|
802
|
|
Deferred income taxes
|
|
|
931
|
|
|
|
1,192
|
|
Other
|
|
|
848
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,919
|
|
|
|
6,577
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,215
|
|
|
|
1,202
|
|
Buildings
|
|
|
9,438
|
|
|
|
9,108
|
|
Equipment
|
|
|
14,310
|
|
|
|
13,575
|
|
Construction in progress
|
|
|
678
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,641
|
|
|
|
24,669
|
|
Accumulated depreciation
|
|
|
(14,289
|
)
|
|
|
(13,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,352
|
|
|
|
11,427
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
642
|
|
|
|
1,166
|
|
Investments in and advances to affiliates
|
|
|
869
|
|
|
|
853
|
|
Goodwill
|
|
|
2,693
|
|
|
|
2,577
|
|
Deferred loan costs
|
|
|
374
|
|
|
|
418
|
|
Other
|
|
|
1,003
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,537
|
|
|
$
|
1,460
|
|
Accrued salaries
|
|
|
895
|
|
|
|
849
|
|
Other accrued expenses
|
|
|
1,245
|
|
|
|
1,158
|
|
Long-term debt due within one year
|
|
|
592
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269
|
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
27,633
|
|
|
|
24,824
|
|
Professional liability risks
|
|
|
995
|
|
|
|
1,057
|
|
Income taxes and other liabilities
|
|
|
1,608
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock $0.01 par; authorized
1,800,000,000 shares 2010 and 2009; outstanding
427,458,800 shares 2010 and
426,341,400 shares 2009
|
|
|
4
|
|
|
|
4
|
|
Capital in excess of par value
|
|
|
386
|
|
|
|
223
|
|
Accumulated other comprehensive loss
|
|
|
(428
|
)
|
|
|
(450
|
)
|
Retained deficit
|
|
|
(11,888
|
)
|
|
|
(8,763
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders deficit attributable to HCA Holdings,
Inc.
|
|
|
(11,926
|
)
|
|
|
(8,986
|
)
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,794
|
)
|
|
|
(7,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
HCA
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit) Attributable to HCA Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
Attributable to
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
|
|
|
|
(000)
|
|
|
Value
|
|
|
Par Value
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
|
Balances, December 31, 2007
|
|
|
424,291
|
|
|
$
|
4
|
|
|
$
|
109
|
|
|
$
|
(172
|
)
|
|
$
|
(10,479
|
)
|
|
$
|
938
|
|
|
$
|
(9,600
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
229
|
|
|
|
902
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432
|
)
|
|
|
673
|
|
|
|
229
|
|
|
|
470
|
|
Share-based benefit plans
|
|
|
834
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(178
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
425,125
|
|
|
|
4
|
|
|
|
162
|
|
|
|
(604
|
)
|
|
|
(9,817
|
)
|
|
|
995
|
|
|
|
(9,260
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,375
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,529
|
|
Share-based benefit plans
|
|
|
1,216
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
(330
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
426,341
|
|
|
|
4
|
|
|
|
223
|
|
|
|
(450
|
)
|
|
|
(8,763
|
)
|
|
|
1,008
|
|
|
|
(7,978
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,207
|
|
|
|
366
|
|
|
|
1,573
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
1,207
|
|
|
|
366
|
|
|
|
1,595
|
|
Share-based benefit plans
|
|
|
1,118
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,332
|
)
|
|
|
(342
|
)
|
|
|
(4,674
|
)
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
57
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
427,459
|
|
|
$
|
4
|
|
|
$
|
386
|
|
|
$
|
(428
|
)
|
|
$
|
(11,888
|
)
|
|
$
|
1,132
|
|
|
$
|
(10,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
HCA
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,573
|
|
|
$
|
1,375
|
|
|
$
|
902
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash from operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,789
|
)
|
|
|
(3,180
|
)
|
|
|
(3,328
|
)
|
Inventories and other assets
|
|
|
(287
|
)
|
|
|
(191
|
)
|
|
|
159
|
|
Accounts payable and accrued expenses
|
|
|
229
|
|
|
|
280
|
|
|
|
(198
|
)
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Income taxes
|
|
|
27
|
|
|
|
(520
|
)
|
|
|
(448
|
)
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
Amortization of deferred loan costs
|
|
|
81
|
|
|
|
80
|
|
|
|
79
|
|
Share-based compensation
|
|
|
32
|
|
|
|
40
|
|
|
|
32
|
|
Pay-in-kind
interest
|
|
|
|
|
|
|
58
|
|
|
|
|
|
Other
|
|
|
31
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,085
|
|
|
|
2,747
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,325
|
)
|
|
|
(1,317
|
)
|
|
|
(1,600
|
)
|
Acquisition of hospitals and health care entities
|
|
|
(233
|
)
|
|
|
(61
|
)
|
|
|
(85
|
)
|
Disposal of hospitals and health care entities
|
|
|
37
|
|
|
|
41
|
|
|
|
193
|
|
Change in investments
|
|
|
472
|
|
|
|
303
|
|
|
|
21
|
|
Other
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,039
|
)
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
2,912
|
|
|
|
2,979
|
|
|
|
|
|
Net change in revolving bank credit facilities
|
|
|
1,889
|
|
|
|
(1,335
|
)
|
|
|
700
|
|
Repayment of long-term debt
|
|
|
(2,268
|
)
|
|
|
(3,103
|
)
|
|
|
(960
|
)
|
Distributions to noncontrolling interests
|
|
|
(342
|
)
|
|
|
(330
|
)
|
|
|
(178
|
)
|
Contributions from noncontrolling interests
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Payment of debt issuance costs
|
|
|
(50
|
)
|
|
|
(70
|
)
|
|
|
|
|
Distributions to stockholders
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
Income tax benefits
|
|
|
114
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,947
|
)
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
99
|
|
|
|
(153
|
)
|
|
|
72
|
|
Cash and cash equivalents at beginning of period
|
|
|
312
|
|
|
|
465
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
411
|
|
|
$
|
312
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
1,994
|
|
|
$
|
1,751
|
|
|
$
|
1,979
|
|
Income tax payments, net of refunds
|
|
$
|
517
|
|
|
$
|
1,147
|
|
|
$
|
716
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
HCA
HOLDINGS, INC.
|
|
NOTE 1
|
ACCOUNTING
POLICIES
|
Reporting
Entity and Corporate Reorganization
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, or funds sponsored by, Bain Capital Partners,
LLC, Kohlberg Kravis Roberts & Co., BAML Capital
Partners (formerly Merrill Lynch Global Private Equity) (each a
Sponsor), affiliates of Citigroup Inc. and Bank of
America Corporation (the Sponsor Assignees) and
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 and certain other investors. The Merger,
the financing transactions related to the Merger and other
related transactions are collectively referred to herein 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,
HCA Inc.s common stock was registered 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 (the Exchange Act). Our common stock is not
traded on a national securities exchange.
On November 22, 2010, HCA Inc. reorganized by creating a
new holding company structure (the Corporate
Reorganization). HCA Holdings, Inc. became the new parent
company, and HCA Inc. is now HCA Holdings, Inc.s
wholly-owned direct subsidiary. As part of the Corporate
Reorganization, HCA Inc.s outstanding shares of common
stock were automatically converted, on a share for share basis,
into identical shares of HCA Holdings, Inc.s common stock.
HCA Holdings, Inc.s amended and restated certificate of
incorporation, amended and restated bylaws, executive officers
and board of directors are the same as HCA Inc.s in effect
immediately prior to the Corporate Reorganization, and the
rights, privileges and interests of HCA Inc.s stockholders
remain the same with respect to HCA Holdings, Inc., as the new
holding company. Additionally, as a result of the Corporate
Reorganization, HCA Holdings, Inc. was deemed the successor
registrant to HCA Inc. under the Securities and Exchange Act of
1934, as amended, and shares of HCA Holdings, Inc.s common
stock are deemed registered under Section 12(g) of the
Exchange Act.
HCA Holdings, Inc. is a holding company whose affiliates own and
operate hospitals and related health care entities. The term
affiliates includes direct and indirect subsidiaries
of HCA Holdings, Inc. and partnerships and joint ventures in
which such subsidiaries are partners. At December 31, 2010,
these affiliates owned and operated 156 hospitals, 97
freestanding surgery centers and provided extensive outpatient
and ancillary services. Affiliates of HCA Holdings, Inc. are
also partners in joint ventures that own and operate eight
hospitals and nine freestanding surgery centers, which are
accounted for using the equity method. HCA Holdings, Inc.s
facilities are located in 20 states and England. The terms
Company, HCA, we,
our or us, as used herein and unless
otherwise stated or indicated by context, refer to HCA Inc. and
its affiliates prior to the Corporate Reorganization and to HCA
Holdings, Inc. and its affiliates after the Corporate
Reorganization. The term facilities or
hospitals refer to entities owned and operated by
affiliates of HCA and the term employees refers to
employees of affiliates of HCA.
Basis
of Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries
and entities controlled by HCA. We generally define
control as ownership of a majority of the voting
interest of an entity. The consolidated
F-9
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
financial statements include entities in which we absorb a
majority of the entitys expected losses, receive a
majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other financial
interests in the entity. Significant intercompany transactions
have been eliminated. Investments in entities we do not control,
but in which we have a substantial ownership interest and can
exercise significant influence, are accounted for using the
equity method.
We have completed various acquisitions and joint venture
transactions. The accounts of these entities have been included
in our consolidated financial statements for periods subsequent
to our acquisition of controlling interests. The majority of our
expenses are cost of revenue items. Costs that could
be classified as general and administrative include our
corporate office costs, which were $178 million,
$164 million and $174 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Revenues
Revenues consist primarily of net patient service revenues that
are recorded based upon established billing rates less
allowances for contractual adjustments. Revenues are recorded
during the period the health care services are provided, based
upon the estimated amounts due from the patients and third-party
payers. Third-party payers include federal and state agencies
(under the Medicare and Medicaid programs), managed care health
plans, commercial insurance companies and employers. Estimates
of contractual allowances under managed care health plans are
based upon the payment terms specified in the related
contractual agreements. Contractual payment terms in managed
care agreements are generally based upon predetermined rates per
diagnosis, per diem rates or discounted
fee-for-service
rates. Revenues related to uninsured patients and copayment and
deductible amounts for patients who have health care coverage
may have discounts applied (uninsured discounts and contractual
discounts). We also record a provision for doubtful accounts
(based primarily on historical collection experience) related to
these uninsured accounts to record the net self pay accounts
receivable at the estimated amounts we expect to collect. Our
revenues from our third party payers and the uninsured for the
years ended December 31, are summarized in the following
table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Ratio
|
|
|
2009
|
|
|
Ratio
|
|
|
2008
|
|
|
Ratio
|
|
|
Medicare
|
|
$
|
7,203
|
|
|
|
23.5
|
%
|
|
$
|
6,866
|
|
|
|
22.8
|
%
|
|
$
|
6,550
|
|
|
|
23.1
|
%
|
Managed Medicare
|
|
|
2,162
|
|
|
|
7.0
|
|
|
|
2,006
|
|
|
|
6.7
|
|
|
|
1,696
|
|
|
|
6.0
|
|
Medicaid
|
|
|
1,962
|
|
|
|
6.4
|
|
|
|
1,691
|
|
|
|
5.6
|
|
|
|
1,408
|
|
|
|
5.0
|
|
Managed Medicaid
|
|
|
1,165
|
|
|
|
3.8
|
|
|
|
1,113
|
|
|
|
3.7
|
|
|
|
895
|
|
|
|
3.2
|
|
Managed care and other insurers
|
|
|
15,675
|
|
|
|
51.1
|
|
|
|
15,324
|
|
|
|
51.1
|
|
|
|
14,355
|
|
|
|
50.5
|
|
International (managed care and other insurers)
|
|
|
784
|
|
|
|
2.6
|
|
|
|
702
|
|
|
|
2.3
|
|
|
|
775
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,951
|
|
|
|
94.4
|
|
|
|
27,702
|
|
|
|
92.2
|
|
|
|
25,679
|
|
|
|
90.5
|
|
Uninsured
|
|
|
1,732
|
|
|
|
5.6
|
|
|
|
2,350
|
|
|
|
7.8
|
|
|
|
2,695
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
100.0
|
%
|
|
$
|
30,052
|
|
|
|
100.0
|
%
|
|
$
|
28,374
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. As a result,
there is at least a reasonable possibility recorded estimates
will change by a material amount. Estimated reimbursement
amounts are adjusted in subsequent periods as cost reports are
prepared and filed and as final settlements are determined (in
relation to certain government programs, primarily Medicare,
this is generally referred to as the cost report
filing and settlement process). The adjustments to estimated
Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $52 million, $40 million and
$32 million in 2010, 2009 and 2008, respectively. The
adjustments to
F-10
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
estimated reimbursement amounts, which resulted in net increases
to revenues, related primarily to cost reports filed during
previous years were $50 million, $60 million and
$35 million in 2010, 2009 and 2008, respectively.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, us to provide services to patients who are
financially unable to pay for the health care services they
receive. Because we do not pursue collection of amounts
determined to qualify as charity care, they are not reported in
revenues. Patients treated at hospitals for nonelective care,
who have income at or below 200% of the federal poverty level,
are eligible for charity care. The federal poverty level is
established by the federal government and is based on income and
family size. We provide discounts to uninsured patients who do
not qualify for Medicaid or charity care. These discounts are
similar to those provided to many local managed care plans. In
implementing the discount policy, we first attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care. If an uninsured patient does not
qualify for these programs, the uninsured discount is applied.
The revenue deductions related to uninsured accounts (charity
care and uninsured discounts) generally have the inverse impact
on the provision for doubtful accounts. To quantify the total
impact of and trends related to uninsured accounts, we believe
it is beneficial to view charity care, uninsured discounts and
the provision for doubtful accounts in combination, rather than
each separately. A summary of these amounts for the years ended
December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Ratio
|
|
|
2009
|
|
|
Ratio
|
|
|
2008
|
|
|
Ratio
|
|
|
Charity care
|
|
$
|
2,337
|
|
|
|
24
|
%
|
|
$
|
2,151
|
|
|
|
26
|
%
|
|
$
|
1,747
|
|
|
|
25
|
%
|
Uninsured discounts
|
|
|
4,641
|
|
|
|
48
|
|
|
|
2,935
|
|
|
|
35
|
|
|
|
1,853
|
|
|
|
26
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
28
|
|
|
|
3,276
|
|
|
|
39
|
|
|
|
3,409
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uncompensated care
|
|
$
|
9,626
|
|
|
|
100
|
%
|
|
$
|
8,362
|
|
|
|
100
|
%
|
|
$
|
7,009
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the estimated cost of total uncompensated care for
the years ended December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Gross patient charges
|
|
$
|
125,640
|
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
Patient care costs (salaries and benefits, supplies, other
operating expenses and depreciation and amortization)
|
|
|
23,870
|
|
|
|
22,975
|
|
|
|
22,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost-to-charges
ratio
|
|
|
19.0
|
%
|
|
|
19.9
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uncompensated care
|
|
$
|
9,626
|
|
|
$
|
8,362
|
|
|
$
|
7,009
|
|
Multiplied by the
cost-to-charges
ratio
|
|
|
19.0
|
%
|
|
|
19.9
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cost of total uncompensated care
|
|
$
|
1,829
|
|
|
$
|
1,664
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
The sum of charity care, uninsured discounts and the provision
for doubtful accounts, as a percentage of the sum of revenues,
uninsured discounts and charity care increased from 21.9% for
2008, to 23.8% for 2009 and to 25.6% for 2010.
The trend of the three components of uncompensated care indicate
that our decision to increase our uninsured discounts has
resulted in the provision for doubtful accounts declining from
49% of total uncompensated care for 2008 to 28% of total
uncompensated care for 2010, and uninsured discounts have
increased from 26% of total uncompensated care for 2008 to 48%
of total uncompensated care for 2010.
Cash
and Cash Equivalents
Cash and cash equivalents include highly liquid investments with
a maturity of three months or less when purchased. Our insurance
subsidiarys cash equivalent investments in excess of the
amounts required to pay estimated professional liability claims
during the next twelve months are not included in cash and cash
equivalents as these funds are not available for general
corporate purposes. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these
instruments.
Our cash management system provides for daily investment of
available balances and the funding of outstanding checks when
presented for payment. Outstanding, but unpresented, checks
totaling $384 million and $392 million at
December 31, 2010 and 2009, respectively, have been
included in accounts payable in the consolidated
balance sheets. Upon presentation for payment, these checks are
funded through available cash balances or our credit facility.
Accounts
Receivable
We receive payments for services rendered from federal and state
agencies (under the Medicare and Medicaid programs), managed
care health plans, commercial insurance companies, employers and
patients. We recognize that revenues and receivables from
government agencies are significant to our operations, but do
not believe there are significant credit risks associated with
these government agencies. We do not believe there are any other
significant concentrations of revenues from any particular payer
that would subject us to any significant credit risks in the
collection of our accounts receivable.
Additions to the allowance for doubtful accounts are made by
means of the provision for doubtful accounts. Accounts written
off as uncollectible are deducted from the allowance for
doubtful accounts and subsequent recoveries are added. The
amount of the provision for doubtful accounts is based upon
managements assessment of historical and expected net
collections, business and economic conditions, trends in
federal, state and private employer health care coverage and
other collection indicators. The provision for doubtful accounts
and the allowance for doubtful accounts relate to
uninsured amounts (including copayment and
deductible amounts from patients who have health care coverage)
due directly from patients. Accounts are written off when all
reasonable internal and external collection efforts have been
performed. We consider the return of an account from the
secondary external collection agency to be the culmination of
our reasonable collection efforts and the timing basis for
writing off the account balance. Writeoffs are based upon
specific identification and the writeoff process requires a
writeoff adjustment entry to the patient accounting system.
Management relies on the results of detailed reviews of
historical writeoffs and recoveries at facilities that represent
a majority of our revenues and accounts receivable (the
hindsight analysis) as a primary source of
information to utilize in estimating the collectibility of our
accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling twelve-months accounts receivable
collection and writeoff data. At December 31, 2010 and
2009, the allowance for doubtful accounts represented
approximately 93% and 94%, respectively, of the
$4.249 billion and $5.176 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
portion of our
F-12
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
accounts receivable. The estimated uninsured portion of Medicaid
pending and uninsured discount pending accounts is included in
our patient due accounts receivable balance. Days revenues in
accounts receivable were 46 days, 45 days and
49 days at December 31, 2010, 2009 and 2008,
respectively. Adverse changes in general economic conditions,
patient accounting service center operations, payer mix or
trends in federal or state governmental health care coverage
could affect our collection of accounts receivable, cash flows
and results of operations.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market.
Property
and Equipment and Amortizable Intangibles
Depreciation expense, computed using the straight-line method,
was $1.416 billion in 2010, $1.419 billion in 2009 and
$1.412 billion in 2008. Buildings and improvements are
depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary
generally from four to 10 years.
Debt issuance costs are amortized based upon the terms of the
respective debt obligations. The gross carrying amount of
deferred loan costs at December 31, 2010 and 2009 was
$712 million and $689 million, respectively, and
accumulated amortization was $338 million and
$271 million, respectively. Amortization of deferred loan
costs is included in interest expense and was $81 million,
$80 million and $79 million for 2010, 2009 and 2008,
respectively.
When events, circumstances or operating results indicate the
carrying values of certain long-lived assets and related
identifiable intangible assets (excluding goodwill) expected to
be held and used, might be impaired, we prepare projections of
the undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the
projections indicate the recorded amounts are not expected to be
recoverable, such amounts are reduced to estimated fair value.
Fair value may be estimated based upon internal evaluations that
include quantitative analyses of revenues and cash flows,
reviews of recent sales of similar facilities and independent
appraisals.
Long-lived assets to be disposed of are reported at the lower of
their carrying amounts or fair value less costs to sell or
close. The estimates of fair value are usually based upon recent
sales of similar assets and market responses based upon
discussions with and offers received from potential buyers.
Investments
of Insurance Subsidiary
At December 31, 2010 and 2009, the investments of our
wholly-owned insurance subsidiary were classified as
available-for-sale
as defined in Accounting Standards Codification
(ASC) No. 320, Investments Debt
and Equity Securities and are recorded at fair value. The
investment securities are held for the purpose of providing the
funding source to pay professional liability claims covered by
the insurance subsidiary. We perform a quarterly assessment of
individual investment securities to determine whether declines
in market value are temporary or
other-than-temporary.
Our investment securities evaluation process involves multiple
subjective judgments, often involves estimating the outcome of
future events, and requires a significant level of professional
judgment in determining whether an impairment has occurred. We
evaluate, among other things, the financial position and near
term prospects of the issuer, conditions in the issuers
industry, liquidity of the investment, changes in the amount or
timing of expected future cash flows from the investment, and
recent downgrades of the issuer by a rating agency, to determine
if, and when, a decline in the fair value of an investment below
amortized cost is considered
other-than-temporary.
The length of time and extent to which the fair value of the
investment is less than amortized cost and our ability and
intent to retain
F-13
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
the investment, to allow for any anticipated recovery of the
investments fair value, are important components of our
investment securities evaluation process.
Goodwill
Goodwill is not amortized, but is subject to annual impairment
tests. In addition to the annual impairment review, impairment
reviews are performed whenever circumstances indicate a possible
impairment may exist. Impairment testing for goodwill is done at
the reporting unit level. Reporting units are one level below
the business segment level, and our impairment testing is
performed at the operating division or market level. We compare
the fair value of the reporting unit assets to the carrying
amount, on at least an annual basis, to determine if there is
potential impairment. If the fair value of the reporting unit
assets is less than their carrying value, we compare the fair
value of the goodwill to its carrying value. If the fair value
of the goodwill is less than its carrying value, an impairment
loss is recognized. Fair value of goodwill is estimated based
upon internal evaluations of the related long-lived assets for
each reporting unit that include quantitative analyses of
revenues and cash flows and reviews of recent sales of similar
facilities. We recognized goodwill impairments of
$14 million, $19 million and $48 million during
2010, 2009 and 2008, respectively.
During 2010, goodwill increased by $125 million related to
acquisitions, declined by $14 million related to
impairments and increased by $5 million related to foreign
currency translation and other adjustments. During 2009,
goodwill increased by $5 million related to acquisitions,
decreased by $19 million related to impairments and
increased by $11 million related to foreign currency
translation and other adjustments.
Since January 1, 2000, we have recognized total goodwill
impairments of $102 million in the aggregate. None of the
goodwill impairments related to evaluations of goodwill at the
reporting unit level, as all recognized goodwill impairments
during this period related to goodwill allocated to asset
disposal groups.
Physician
Recruiting Agreements
In order to recruit physicians to meet the needs of our
hospitals and the communities they serve, we enter into minimum
revenue guarantee arrangements to assist the recruited
physicians during the period they are relocating and
establishing their practices. A guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the stand-ready obligation undertaken in issuing
the guarantee. We expense the total estimated guarantee
liability amount at the time the physician recruiting agreement
becomes effective as we are not able to justify recording a
contract-based asset based upon our analysis of the related
control, regulatory and legal considerations.
The physician recruiting liability amounts of $15 million
and $24 million at December 31, 2010 and 2009,
respectively, represent the amount of expense recognized in
excess of payments made through December 31, 2010 and 2009,
respectively. At December 31, 2010 the maximum amount we
could have to pay under all effective minimum revenue guarantees
was $48 million.
Professional
Liability Claims
Reserves for professional liability risks were
$1.262 billion and $1.322 billion at December 31,
2010 and 2009, respectively. The current portion of the
reserves, $268 million and $265 million at
December 31, 2010 and 2009, respectively, is included in
other accrued expenses in the consolidated balance
sheets. Provisions for losses related to professional liability
risks were $222 million, $211 million and
$175 million for 2010, 2009 and 2008, respectively, and are
included in other operating expenses in our
consolidated income statements. Provisions for losses related to
professional liability risks are based upon actuarially
determined estimates. Loss and loss expense reserves represent
the estimated ultimate net cost of all reported and unreported
losses incurred through the respective consolidated balance
sheet dates. The reserves for unpaid
F-14
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
losses and loss expenses are estimated using individual
case-basis valuations and actuarial analyses. Those estimates
are subject to the effects of trends in loss severity and
frequency. The estimates are continually reviewed and
adjustments are recorded as experience develops or new
information becomes known. Adjustments to the estimated reserve
amounts are included in current operating results. The reserves
for professional liability risks cover approximately 2,700 and
2,600 individual claims at December 31, 2010 and 2009,
respectively, and estimates for unreported potential claims. The
time period required to resolve these claims can vary depending
upon the jurisdiction and whether the claim is settled or
litigated. During 2010 and 2009, $243 million and
$272 million, respectively, of net payments were made for
professional and general liability claims. The estimation of the
timing of payments beyond a year can vary significantly.
Although considerable variability is inherent in professional
liability reserve estimates, we believe the reserves for losses
and loss expenses are adequate; however, there can be no
assurance the ultimate liability will not exceed our estimates.
A portion of our professional liability risks is insured through
a wholly-owned insurance subsidiary. Subject to a
$5 million per occurrence self-insured retention, our
facilities are insured by our wholly-owned insurance subsidiary
for losses up to $50 million per occurrence. The insurance
subsidiary has obtained reinsurance for professional liability
risks generally above a retention level of $15 million per
occurrence. We also maintain professional liability insurance
with unrelated commercial carriers for losses in excess of
amounts insured by our insurance subsidiary.
The obligations covered by reinsurance contracts are included in
the reserves for professional liability risks, as the insurance
subsidiary remains liable to the extent the reinsurers do not
meet their obligations under the reinsurance contracts. The
amounts receivable under the reinsurance contracts include
$11 million and $28 million at December 31, 2010
and 2009, respectively, recorded in other assets and
$3 million and $25 million at December 31, 2010
and 2009, respectively, recorded in other current
assets.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including interest rate and foreign currency exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income (loss), depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value hedge or a cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair
value hedges are recorded in earnings, along with the changes in
the fair value of the hedged items related to the hedged risk.
Gains and losses on derivatives designated as cash flow hedges,
to the extent they are effective, are recorded in other
comprehensive income (loss), and subsequently reclassified to
earnings to offset the impact of the forecasted transactions
when they occur. In the event the forecasted transaction to
which a cash flow hedge relates is no longer likely, the amount
in other comprehensive income (loss) is recognized in earnings
and generally the derivative is terminated. Changes in the fair
value of derivatives not qualifying as hedges, and for any
portion of a hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to interest expense over
the remaining term of the debt originally covered by the
terminated swap.
F-15
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Noncontrolling
Interests in Consolidated Entities
The consolidated financial statements include all assets,
liabilities, revenues and expenses of less than 100% owned
entities that we control. Accordingly, we have recorded
noncontrolling interests in the earnings and equity of such
entities.
Related
Party Transactions Management
Agreement
Affiliates of the Investors entered into a management agreement
with us pursuant to which such affiliates will provide us with
management services. Under the management agreement, the
affiliates of the Investors are entitled to receive an aggregate
annual management fee of $15 million, which amount
increases annually at a rate equal to the percentage increase in
Adjusted EBITDA (as defined in the Management Agreement) in the
applicable year compared to the preceding year, and
reimbursement of
out-of-pocket
expenses incurred in connection with the provision of services
pursuant to the agreement. The annual management fee was
$18 million for 2010 and $15 million for both 2009 and
2008. The management agreement has an initial term expiring on
December 31, 2016, provided that the term will be extended
annually for one additional year unless we or the Investors
provide notice to the other of their desire not to automatically
extend the term. In addition, the management agreement provides
that the affiliates of the Investors are entitled to receive a
fee equal to 1% of the gross transaction value in connection
with certain financing, acquisition, disposition, and change of
control transactions, as well as a termination fee based on the
net present value of future payment obligations under the
management agreement in the event of an initial public offering
or under certain other circumstances. The agreement also
contains customary exculpation and indemnification provisions in
favor of the Investors and their affiliates.
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION
|
Certain management holders of outstanding HCA stock options
retained certain of their stock options (the Rollover
Options) in lieu of receiving the Merger consideration.
The Rollover Options remain outstanding in accordance with the
terms of the governing stock incentive plans and grant
agreements pursuant to which the holder originally received the
stock option grants, except the exercise price and number of
shares subject to the rollover option agreement were adjusted so
that the aggregate intrinsic value for each applicable option
holder was maintained and the exercise price for substantially
all the options was adjusted to $2.83 per option. Pursuant to
the rollover option agreement, 49,408,100 prerecapitalization
HCA stock options were converted into 10,294,500 Rollover
Options, of which 4,603,500 are outstanding and exercisable at
December 31, 2010.
2006
Stock Incentive Plan
The 2006 Stock Incentive Plan for Key Employees of HCA Holdings
Inc. and its Affiliates (the 2006 Plan) is designed
to promote the long term financial interests and growth of the
Company and its subsidiaries by attracting and retaining
management and other personnel and key service providers and to
motivate management personnel by means of incentives to achieve
long range goals and further the alignment of interests of
participants with those of our stockholders through
opportunities for increased stock, or stock-based, ownership in
the Company. A portion of the options under the 2006 Plan vests
solely based upon continued employment over a specific period of
time, and a portion of the options vests based both upon
continued employment over a specific period of time and upon the
achievement of predetermined financial and Investor return
targets over time. We granted 964,000 and 8,044,600 options
under the 2006 Plan during 2010 and 2009, respectively. As of
December 31, 2010, 20,247,500 options granted under
the 2006 Plan have vested, of which 19,231,300 are outstanding
and exercisable, and there were 1,497,200 shares available
for future grants under the 2006 Plan.
F-16
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION (Continued)
|
Stock
Option Activity
The fair value of each stock option award is estimated on the
grant date, using option valuation models and the weighted
average assumptions indicated in the following table. Awards
under the 2006 Plan generally vest based on continued employment
and based upon achievement of certain financial and Investor
return targets. Each grant is valued as a single award with an
expected term equal to the average expected term of the
component vesting tranches. We use historical option exercise
behavior data and other factors to estimate the expected term of
the options. The expected term of the option is limited by the
contractual term, and employee post-vesting termination behavior
is incorporated in the historical option exercise behavior data.
Compensation cost is recognized on the straight-line attribution
method. The straight-line attribution method requires that total
compensation expense recognized must at least equal the vested
portion of the grant-date fair value. The expected volatility is
derived using historical stock price information of certain peer
group companies for a period of time equal to the expected
option term. The risk-free interest rate is the approximate
yield on United States Treasury Strips having a life equal to
the expected option life on the date of grant. The expected life
is an estimate of the number of years an option will be held
before it is exercised.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
2.07
|
%
|
|
|
1.45
|
%
|
|
|
2.50
|
%
|
Expected volatility
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
30
|
%
|
Expected life, in years
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding stock option activity during 2010, 2009
and 2008 is summarized below (share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Term
|
|
|
(dollars in millions)
|
|
|
Options outstanding, December 31, 2007
|
|
|
50,316
|
|
|
$
|
9.66
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,610
|
|
|
|
12.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,163
|
)
|
|
|
3.33
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,857
|
)
|
|
|
11.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008
|
|
|
47,906
|
|
|
|
9.99
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,045
|
|
|
|
19.70
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,278
|
)
|
|
|
3.81
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,756
|
)
|
|
|
11.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2009
|
|
|
51,917
|
|
|
|
11.72
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
964
|
|
|
|
15.73
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,726
|
)
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(629
|
)
|
|
|
7.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2010
|
|
|
50,526
|
|
|
|
8.58
|
|
|
|
6.3 years
|
|
|
$
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2010
|
|
|
23,835
|
|
|
$
|
11.35
|
|
|
|
6.0 years
|
|
|
$
|
281
|
|
During 2010, our Board of Directors declared three distributions
to the Companys stockholders and holders of stock options.
The distributions totaled $9.43 per share and vested stock
option. Pursuant to the terms of our stock option plans, the
holders of nonvested stock options received $9.43 per share
reductions
F-17
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION (Continued)
|
(subject to certain tax related limitations for certain stock
options that resulted in deferred distributions for a portion of
the declared distribution, which will be paid upon the vesting
of the applicable stock options) to the exercise price of the
share-based awards.
The weighted average fair values of stock options granted during
2010, 2009 and 2008 were $7.13, $3.54 and $3.11 per share,
respectively. The total intrinsic value of stock options
exercised in the year ended December 31, 2010 was
$32 million. As of December 31, 2010, the unrecognized
compensation cost related to nonvested awards was
$44 million.
|
|
NOTE 3
|
ACQUISITIONS
AND DISPOSITIONS
|
During 2010, we paid $163 million to acquire two hospitals
and $70 million to acquire other health care entities.
During 2009, we paid $61 million to acquire nonhospital
health care entities. During 2008, we paid $18 million to
acquire one hospital and $67 million to acquire other
health care entities. Purchase price amounts have been allocated
to the related assets acquired and liabilities assumed based
upon their respective fair values. The purchase price paid in
excess of the fair value of identifiable net assets of acquired
entities aggregated $125 million, $5 million and
$43 million in 2010, 2009 and 2008, respectively. The
consolidated financial statements include the accounts and
operations of the acquired entities subsequent to the respective
acquisition dates. The pro forma effects of the acquired
entities on our results of operations for periods prior to the
respective acquisition dates were not significant.
During 2010, we received proceeds of $37 million and
recognized a net pretax gain of $4 million ($2 million
after tax) from sales of nonhospital health care entities and
real estate investments. During 2009, we received proceeds of
$3 million and recognized a net pretax loss of
$8 million ($5 million after tax) on the sales of
three hospitals. We also received proceeds of $38 million
and recognized a net pretax loss of $7 million
($4 million after tax) from sales of other health care
entities and real estate investments. During 2008, we received
proceeds of $143 million and recognized a net pretax gain
of $81 million ($48 million after tax) from the sales
of two hospitals. We also received proceeds of $50 million
and recognized a net pretax gain of $16 million
($10 million after tax) from sales of other health care
entities and real estate investments.
|
|
NOTE 4
|
IMPAIRMENTS
OF LONG-LIVED ASSETS
|
During 2010, we recorded pretax charges of $123 million to
reduce the carrying value of identified assets to estimated fair
value. The $123 million asset impairment includes
$57 million related to a hospital facility in our Central
Group, $5 million related to other health care entity
investments in our Eastern Group, $17 million related to a
hospital facility in our Western Group and $44 million
related to Corporate and other, which includes $35 million
for the writeoff of capitalized engineering and design costs
related to certain building safety requirements (California
earthquake standards) that have been revised. During 2009, we
recorded pretax charges of $43 million to reduce the
carrying value of identified assets to estimated fair value. The
$43 million asset impairment includes $15 million
related to certain hospital facilities and other health care
entity investments in our Central Group, $14 million
related to other health care entity investments in our Eastern
Group and $14 million related to certain hospital
facilities in our Western Group. During 2008, we recorded pretax
charges of $64 million to reduce the carrying value of
identified assets to estimated fair value. The $64 million
asset impairment includes $55 million related to other
health care entity investments in our Eastern Group and
$9 million related to certain hospital facilities in our
Central Group.
The asset impairment charges did not have a significant impact
on our operations or cash flows and are not expected to
significantly impact cash flows for future periods. The
impairment charges affected our property and equipment asset
category by $109 million, $24 million and
$16 million in 2010, 2009 and 2008, respectively.
F-18
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income taxes consists of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
401
|
|
|
$
|
809
|
|
|
$
|
699
|
|
State
|
|
|
26
|
|
|
|
75
|
|
|
|
56
|
|
Foreign
|
|
|
33
|
|
|
|
21
|
|
|
|
25
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
161
|
|
|
|
(274
|
)
|
|
|
(505
|
)
|
State
|
|
|
17
|
|
|
|
(37
|
)
|
|
|
(29
|
)
|
Foreign
|
|
|
20
|
|
|
|
33
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
658
|
|
|
$
|
627
|
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes reflects $69 million,
$18 million and $20 million ($44 million,
$12 million and $12 million net of tax, respectively)
reductions in interest related to taxing authority examinations
for the years ended December 31, 2010, 2009 and 2008,
respectively.
A reconciliation of the federal statutory rate to the effective
income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
2.7
|
|
|
|
3.2
|
|
|
|
3.7
|
|
Change in liability for uncertain tax positions
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
(7.4
|
)
|
Nondeductible intangible assets
|
|
|
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Tax exempt interest income
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
(2.5
|
)
|
Income attributable to noncontrolling interests from
consolidated partnerships
|
|
|
(5.8
|
)
|
|
|
(6.0
|
)
|
|
|
(5.6
|
)
|
Other items, net
|
|
|
(2.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
29.5
|
%
|
|
|
31.3
|
%
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of a settlement reached with the Appeals Division of
the Internal Revenue Service (the IRS) and the
revision of a proposed IRS adjustment related to prior taxable
years, we reduced our provision for income taxes by
$69 million in 2008.
A summary of the items comprising the deferred tax assets and
liabilities at December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Depreciation and fixed asset basis differences
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
|
|
|
$
|
258
|
|
Allowances for professional liability and other risks
|
|
|
329
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
Accounts receivable
|
|
|
1,011
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
Compensation
|
|
|
202
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
Other
|
|
|
776
|
|
|
|
400
|
|
|
|
740
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,318
|
|
|
$
|
611
|
|
|
$
|
2,671
|
|
|
$
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 5
|
INCOME
TAXES (Continued)
|
At December 31, 2010, state net operating loss
carryforwards (expiring in years 2011 through
2030) available to offset future taxable income
approximated $65 million. Utilization of net operating loss
carryforwards in any one year may be limited and, in certain
cases, result in an adjustment to intangible assets. Net
deferred tax assets related to such carryforwards are not
significant.
At December 31, 2010, we were contesting, before the IRS
Appeals Division, certain claimed deficiencies and adjustments
proposed by the IRS Examination Division in connection with its
audit of HCA Inc.s 2005 and 2006 federal income tax
returns. The disputed items include the timing of recognition of
certain patient service revenues, the deductibility of certain
debt retirement costs and our method for calculating the tax
allowance for doubtful accounts. In addition, eight taxable
periods of HCA Inc. and its predecessors ended in 1997 through
2004, 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 December 31, 2010. The
IRS Examination Division began an audit of HCA Inc.s 2007,
2008 and 2009 federal income tax returns in December 2010.
The following table summarizes the activity related to our
unrecognized tax benefits (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1
|
|
$
|
485
|
|
|
$
|
482
|
|
Additions (reductions) based on tax positions related to the
current year
|
|
|
(18
|
)
|
|
|
44
|
|
Additions for tax positions of prior years
|
|
|
61
|
|
|
|
11
|
|
Reductions for tax positions of prior years
|
|
|
(78
|
)
|
|
|
(33
|
)
|
Settlements
|
|
|
(134
|
)
|
|
|
(8
|
)
|
Lapse of applicable statutes of limitations
|
|
|
(3
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
313
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
During 2010, we finalized settlements with the Appeals Division
of the IRS resolving the deductibility of our 2003 government
settlement payment, the timing of certain patient service
revenues for 2003 and 2004 and the method for calculating the
tax allowance for doubtful accounts for certain affiliated
partnerships for 2003 and 2004.
Our liability for unrecognized tax benefits was
$413 million, including accrued interest of
$115 million and excluding $15 million that was
recorded as reductions of the related deferred tax assets, as of
December 31, 2010 ($628 million, $156 million and
$13 million, respectively, as of December 31, 2009).
Unrecognized tax benefits of $190 million
($236 million as of December 31, 2009) would
affect the effective rate, if recognized. The liability for
unrecognized tax benefits does not reflect deferred tax assets
of $63 million ($77 million as of December 31,
2009) related to deductible interest and state income taxes
or a refundable deposit of $82 million ($104 million
as of December 31, 2009), which is recorded in noncurrent
assets.
Depending on the resolution of the IRS disputes, the completion
of examinations by federal, state or international taxing
authorities, or the expiration of statutes of limitation for
specific taxing jurisdictions, we believe it is reasonably
possible that our liability for unrecognized tax benefits may
significantly increase or decrease within the next
12 months. However, we are currently unable to estimate the
range of any possible change.
|
|
NOTE 6
|
EARNINGS PER SHARE
|
We compute basic earnings per share using the weighted average
number of common shares outstanding. We compute diluted earnings
per share using the weighted average number of common shares
outstanding plus
F-20
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
EARNINGS PER SHARE (Continued)
|
the dilutive effect of outstanding stock options, computed using
the treasury stock method. The following table sets forth the
computations of basic and diluted earnings per share for the
years ended December 31, 2010, 2009 and 2008 (dollars in
millions, except per share amounts, and shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
426,424
|
|
|
|
425,567
|
|
|
|
423,699
|
|
Effect of dilutive stock options
|
|
|
10,923
|
|
|
|
6,660
|
|
|
|
7,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used for diluted earnings per share
|
|
|
437,347
|
|
|
|
432,227
|
|
|
|
430,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.83
|
|
|
$
|
2.48
|
|
|
$
|
1.59
|
|
Diluted earnings per share
|
|
$
|
2.76
|
|
|
$
|
2.44
|
|
|
$
|
1.56
|
|
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY
|
A summary of the insurance subsidiarys investments at
December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
312
|
|
|
$
|
12
|
|
|
$
|
(1
|
)
|
|
$
|
323
|
|
Auction rate securities
|
|
|
251
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
26
|
|
Money market funds
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
734
|
|
Equity securities
|
|
|
8
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
732
|
|
|
$
|
14
|
|
|
$
|
(4
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
668
|
|
|
$
|
30
|
|
|
$
|
(3
|
)
|
|
$
|
695
|
|
Auction rate securities
|
|
|
401
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
396
|
|
Asset-backed securities
|
|
|
43
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
42
|
|
Money market funds
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288
|
|
|
|
30
|
|
|
|
(9
|
)
|
|
|
1,309
|
|
Equity securities
|
|
|
8
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,296
|
|
|
$
|
31
|
|
|
$
|
(11
|
)
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY (Continued)
|
At December 31, 2010 and 2009 the investments of our
insurance subsidiary were classified as
available-for-sale.
During 2010, investments in debt securities were reduced as a
result of the insurance subsidiary distributing
$500 million of excess capital to the Company. Changes in
temporary unrealized gains and losses are recorded as
adjustments to other comprehensive income (loss). At
December 31, 2010 and 2009, $92 million and
$100 million, respectively, of our investments were subject
to the restrictions included in insurance bond collateralization
and assumed reinsurance contracts.
Scheduled maturities of investments in debt securities at
December 31, 2010 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
148
|
|
|
$
|
148
|
|
Due after one year through five years
|
|
|
166
|
|
|
|
173
|
|
Due after five years through ten years
|
|
|
117
|
|
|
|
120
|
|
Due after ten years
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
458
|
|
Auction rate securities
|
|
|
251
|
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
724
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
The average expected maturity of the investments in debt
securities at December 31, 2010 was 2.9 years,
compared to the average scheduled maturity of 11.4 years.
Expected and scheduled maturities may differ because the issuers
of certain securities have the right to call, prepay or
otherwise redeem such obligations prior to their scheduled
maturity date. The average expected maturities for our auction
rate and asset-backed securities were derived from valuation
models of expected cash flows and involved managements
judgment. The average expected maturities for our auction rate
and asset-backed securities at December 31, 2010 were
4.1 years and 5.6 years, respectively, compared to
average scheduled maturities of 24.1 years and
25.6 years, respectively.
The cost of securities sold is based on the specific
identification method. Sales of securities for the years ended
December 31 are summarized below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
329
|
|
|
$
|
141
|
|
|
$
|
23
|
|
Gross realized gains
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Gross realized losses
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Gross realized gains
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Gross realized losses
|
|
|
|
|
|
|
|
|
|
|
2
|
|
F-22
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS
|
Interest
Rate Swap Agreements
We have entered into interest rate swap agreements to manage our
exposure to fluctuations in interest rates. These swap
agreements involve the exchange of fixed and variable rate
interest payments between two parties based on common notional
principal amounts and maturity dates. Pay-fixed interest rate
swaps effectively convert LIBOR indexed variable rate
obligations to fixed interest rate obligations. Pay-variable
interest rate swaps effectively convert fixed interest rate
obligations to LIBOR indexed variable rate obligations. The
interest payments under these agreements are settled on a net
basis. The net interest payments, based on the notional amounts
in these agreements, generally match the timing of the related
liabilities, for the interest rate swap agreements which have
been designated as cash flow hedges. The notional amounts of the
swap agreements represent amounts used to calculate the exchange
of cash flows and are not our assets or liabilities. Our credit
risk related to these agreements is considered low because the
swap agreements are with creditworthy financial institutions.
The following table sets forth our interest rate swap
agreements, which have been designated as cash flow hedges, at
December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Pay-fixed interest rate swaps
|
|
$
|
7,100
|
|
|
|
November 2011
|
|
|
$
|
(277
|
)
|
Pay-fixed interest rate swaps (starting November 2011)
|
|
|
3,000
|
|
|
|
December 2016
|
|
|
|
(114
|
)
|
Certain of our interest rate swaps are not designated as hedges,
and changes in fair value are recognized in results of
operations. The following table sets forth our interest rate
swap agreements, which were not designated as hedges, at
December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Pay-fixed interest rate swap
|
|
$
|
500
|
|
|
|
March 2011
|
|
|
$
|
(3
|
)
|
Pay-variable interest rate swap
|
|
|
500
|
|
|
|
March 2011
|
|
|
|
|
|
Pay-fixed interest rate swap
|
|
|
900
|
|
|
|
November 2011
|
|
|
|
(35
|
)
|
Pay-variable interest rate swap
|
|
|
900
|
|
|
|
November 2011
|
|
|
|
3
|
|
During the next 12 months, we estimate $330 million
will be reclassified from other comprehensive income
(OCI) to interest expense.
Cross
Currency Swaps
The Company and certain subsidiaries have incurred obligations
and entered into various intercompany transactions where such
obligations are denominated in currencies, other than the
functional currencies of the parties executing the trade. In
order to mitigate the currency exposure risks and better match
the cash flows of our obligations and intercompany transactions
with cash flows from operations, we enter into various cross
currency swaps. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions.
Certain of our cross currency swaps are 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 which was not designated as a hedge at
December 31, 2010 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Euro United States Dollar Currency Swap
|
|
|
351 Euro
|
|
|
|
December 2011
|
|
|
$
|
39
|
|
F-23
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS (Continued)
|
Derivatives Results
of Operations
The following tables present the effect of our interest rate and
cross currency swaps on our results of operations for the year
ended December 31, 2010 (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
|
|
$
|
170
|
|
|
|
Interest expense
|
|
|
$
|
384
|
|
Cross currency swaps
|
|
|
(9
|
)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
161
|
|
|
|
|
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
|
Amount of Loss
|
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
Operations on
|
|
|
Operations on
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Interest rate swaps
|
|
|
Other operating expenses
|
|
|
$
|
3
|
|
Cross currency swap
|
|
|
Other operating expenses
|
|
|
|
40
|
|
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 December 31, 2010, we have not been
required to post any collateral related to these agreements. If
we had breached these provisions at December 31, 2010, we
would have been required to settle our obligations under the
agreements at their aggregate, estimated termination value of
$404 million.
|
|
NOTE 9
|
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 fair value is a market-based measurement, not
an entity-specific measurement. Therefore, a fair value
measurement should be determined based on the assumptions market
participants would use in pricing the asset or liability. As a
basis for considering market participant assumptions in fair
value measurements, ASC 820 establishes a fair value
hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources
independent of the reporting entity (observable inputs
classified within Levels 1 and 2 of the hierarchy) and the
reporting 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 observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and
yield curves observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or
liability, which are typically based on an 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
F-24
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
value hierarchy within which the entire fair value measurement
falls is based on the lowest level input significant to the fair
value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement
in its entirety requires judgment, and considers factors
specific to the asset or liability.
Cash
Traded Investments
Our cash traded investments are generally classified within
Level 1 or Level 2 of the fair value hierarchy because
they are valued using quoted market prices, broker or dealer
quotations, or alternative pricing sources with reasonable
levels of price transparency. Certain types of cash traded
instruments are classified within Level 3 of the fair value
hierarchy because they trade infrequently and therefore have
little or no price transparency. 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
tax-exempt ARS, which are backed by student loans substantially
guaranteed by the federal government, of $250 million
($251 million par value) at December 31, 2010. 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 2010 and 2009, certain issuers and
their broker/dealers redeemed or repurchased $150 million
and $172 million, respectively, of our ARS 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 and similar effective
maturities.
Derivative
Financial Instruments
We have entered into interest rate and cross currency swap
agreements to manage our exposure to fluctuations in interest
rates and foreign currency risks. The valuation of these
instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including
interest rate curves, foreign exchange rates and implied
volatilities. To comply with the provisions of ASC 820, 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 determined the majority of the inputs used to value
our derivatives fall within Level 2 of the fair value
hierarchy, the credit valuation adjustments associated with our
derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by
us and our counterparties. We assessed the significance of the
impact of the credit valuation adjustments on the overall
valuation of our derivative positions and at December 31,
2010 and 2009, we determined the credit valuation adjustments
were not significant to the overall valuation of our derivatives.
F-25
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
The following table summarizes our assets and liabilities
measured at fair value on a recurring basis as of
December 31, 2010 and 2009, aggregated by the level in the
fair value hierarchy within which those measurements fall
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
323
|
|
|
$
|
|
|
|
$
|
323
|
|
|
$
|
|
|
Auction rate securities
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Money market funds
|
|
|
135
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734
|
|
|
|
135
|
|
|
|
349
|
|
|
|
250
|
|
Equity securities
|
|
|
8
|
|
|
|
2
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
742
|
|
|
|
137
|
|
|
|
354
|
|
|
|
251
|
|
Less amounts classified as current assets
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
642
|
|
|
$
|
37
|
|
|
$
|
354
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap (Other assets)
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
$
|
426
|
|
|
$
|
|
|
|
$
|
426
|
|
|
$
|
|
|
F-26
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
695
|
|
|
$
|
|
|
|
$
|
695
|
|
|
$
|
|
|
Auction rate securities
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
396
|
|
Asset-backed securities
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Money market funds
|
|
|
176
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309
|
|
|
|
176
|
|
|
|
737
|
|
|
|
396
|
|
Equity securities
|
|
|
7
|
|
|
|
2
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
1,316
|
|
|
|
178
|
|
|
|
741
|
|
|
|
397
|
|
Less amounts classified as current assets
|
|
|
(150
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,166
|
|
|
$
|
28
|
|
|
$
|
741
|
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap (Other assets)
|
|
$
|
79
|
|
|
$
|
|
|
|
$
|
79
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
$
|
528
|
|
|
$
|
|
|
|
$
|
528
|
|
|
$
|
|
|
Cross currency swaps (Income taxes and other liabilities)
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
The following table summarizes the activity related to the
auction rate and equity securities investments of our insurance
subsidiary which have fair value measurements based on
significant unobservable inputs (Level 3) during the
year ended December 31, 2010 (dollars in millions):
|
|
|
|
|
Asset balances at December 31, 2009
|
|
$
|
397
|
|
Unrealized gains included in other comprehensive income
|
|
|
4
|
|
Settlements
|
|
|
(150
|
)
|
|
|
|
|
|
Asset balances at December 31, 2010
|
|
$
|
251
|
|
|
|
|
|
|
The estimated fair value of our long-term debt was
$28.738 billion and $25.659 billion at
December 31, 2010 and 2009, respectively, compared to
carrying amounts aggregating $28.225 billion and
$25.670 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.
F-27
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of long-term debt at December 31, including
related interest rates at December 31, 2010, follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior secured asset-based revolving credit facility (effective
interest rate of 1.5%)
|
|
$
|
1,875
|
|
|
$
|
715
|
|
Senior secured revolving credit facility (effective interest
rate of 1.8%)
|
|
|
729
|
|
|
|
|
|
Senior secured term loan facilities (effective interest rate of
6.9%)
|
|
|
7,530
|
|
|
|
8,987
|
|
Senior secured first lien notes (effective interest rate of 8.4%)
|
|
|
4,075
|
|
|
|
2,682
|
|
Other senior secured debt (effective interest rate of 7.1%)
|
|
|
322
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
|
14,531
|
|
|
|
12,746
|
|
|
|
|
|
|
|
|
|
|
Senior secured cash-pay notes (effective interest rate of 9.7%)
|
|
|
4,501
|
|
|
|
4,500
|
|
Senior secured toggle notes (effective interest rate of 10.0%)
|
|
|
1,578
|
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
|
6,079
|
|
|
|
6,078
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes (effective interest rate of 7.1%)
|
|
|
7,615
|
|
|
|
6,846
|
|
|
|
|
|
|
|
|
|
|
Total debt (average life of 6.1 years, rates averaging 7.3%)
|
|
|
28,225
|
|
|
|
25,670
|
|
Less amounts due within one year
|
|
|
592
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,633
|
|
|
$
|
24,824
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Credit Facilities And Other First Lien
Debt
In connection with the Recapitalization, we entered into
(i) a $2.000 billion senior secured asset-based
revolving credit facility with a borrowing base of 85% of
eligible accounts receivable, subject to customary reserves and
eligibility criteria ($125 million available at
December 31, 2010) (the ABL credit facility)
and (ii) a senior secured credit agreement (the cash
flow credit facility and, together with the ABL credit
facility, the senior secured credit facilities),
consisting of a $2.000 billion revolving credit facility
($1.189 billion available at December 31, 2010 after
giving effect to certain outstanding letters of credit), a
$2.750 billion term loan A ($1.618 billion outstanding
at December 31, 2010), a $8.800 billion term loan B
consisting of a $6.800 billion senior secured term loan B-1
and a $2.000 billion senior secured term loan B-2
($3.525 billion outstanding under term loan B-1 at
December 31, 2010 and $2.000 billion outstanding under
term loan B-2 at December 31, 2010) and a
1.000 billion European term loan
(291 million, or $387 million, outstanding at
December 31, 2010) under which one of our European
subsidiaries is the borrower.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to, at our option, either (a) a
base rate determined by reference to the higher of (1) the
federal funds rate plus 0.50% or (2) the prime rate of Bank
of America or (b) a LIBOR rate for the currency of such
borrowing for the relevant interest period, plus, in each case,
an applicable margin. The applicable margin for borrowings under
the senior secured credit facilities may be reduced subject to
attaining certain leverage ratios.
The ABL credit facility and the $2.000 billion revolving
credit facility portion of the cash flow credit facility expire
November 2012. The term loan facilities require quarterly
installment payments. The final payment under term loan A is in
November 2012. The final payments under term loan B-1 and the
European term loan are in November 2013. During April 2010, we
entered into an amendment of our senior secured term loan B
facility extending the maturity of $2.000 billion of loans
outstanding thereunder from November 2013 to March 2017. On
November 8, 2010, an amended and restated joinder agreement
was entered into with respect to the cash flow credit facility
to establish a new replacement revolving credit series, which
will
F-28
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
LONG-TERM
DEBT (Continued)
|
mature on November 17, 2015. Under the amended and restated
joinder agreement, these replacement revolving credit
commitments will become effective, subject to certain
conditions, upon the earlier of (i) the initial public
offering of our common stock and (ii) May 17, 2012.
The senior secured credit facilities contain a number of
covenants that restrict, subject to certain exceptions, our (and
some or all of our subsidiaries) ability to incur
additional indebtedness, repay subordinated indebtedness, create
liens on assets, sell assets, make investments, loans or
advances, engage in certain transactions with affiliates, pay
dividends and distributions, and enter into sale and leaseback
transactions. In addition, we are required to satisfy and
maintain a maximum total leverage ratio covenant under the cash
flow credit facility and, in certain situations under the ABL
credit facility, a minimum interest coverage ratio covenant.
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.
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.
During March 2010, we issued $1.400 billion aggregate
principal amount of
71/4% senior
secured first lien notes due 2020 at a price of 99.095% of their
face value, resulting in $1.387 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds from these debt issuances to repay outstanding
indebtedness under our senior secured term loan facilities.
We use interest rate swap agreements to manage the variable rate
exposure of our debt portfolio. At December 31, 2010, we
had entered into effective interest rate swap agreements, in a
total notional amount of $7.100 billion, in order to hedge
a portion of our exposure to variable rate interest payments
associated with the senior secured credit facility. The effect
of the interest rate swaps is reflected in the effective
interest rates for the senior secured credit facilities.
Senior
Secured Notes And Other Second Lien Debt
During November 2006, we issued $4.200 billion of senior
secured notes (comprised of $1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016), and $1.500 billion of
95/8% cash/103/8%
in-kind senior secured toggle notes (which allow us, at our
option, to pay interest in-kind during the first five years) due
2016, which are subject to certain standard covenants. We made
the interest payment for the interest period ended in May 2009
by paying in-kind ($78 million) instead of paying interest
in cash.
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.
Senior
Unsecured Notes
During November 2010, we issued $1.525 billion aggregate
principal amount of
73/4% senior
unsecured notes due 2021 (the 2021 Notes) at a price
of 100% of their face value, resulting in $1.525 billion of
gross proceeds. After the payment of related fees and expenses,
we used the proceeds to make a distribution to our stockholders
and optionholders.
General
Debt Information
The senior secured credit facilities and senior secured notes
are fully and unconditionally guaranteed by substantially all
existing and future, direct and indirect, wholly-owned material
domestic subsidiaries that are Unrestricted
Subsidiaries under our Indenture (the 1993
Indenture) dated December 16, 1993 (except for
certain special purpose subsidiaries that only guarantee and
pledge their assets under our ABL credit facility).
F-29
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
LONG-TERM
DEBT (Continued)
|
In addition, borrowings under the European term loan are
guaranteed by all material, wholly-owned European subsidiaries.
All obligations under the ABL credit facility, and the
guarantees of those obligations, are secured, subject to
permitted liens and other exceptions, by a first-priority lien
on substantially all of the receivables of the borrowers and
each guarantor under such ABL credit facility (the
Receivables Collateral).
All obligations under the cash flow credit facility and the
guarantees of such obligations are secured, subject to permitted
liens and other exceptions, by:
|
|
|
|
|
a first-priority lien on the capital stock owned by HCA Inc., or
by any U.S. guarantor, in each of their respective
first-tier subsidiaries;
|
|
|
|
a first-priority lien on substantially all present and future
assets of HCA Inc. and of each U.S. guarantor other than
(i) Principal Properties (as defined in the
1993 Indenture), (ii) certain other real properties and
(iii) deposit accounts, other bank or securities accounts,
cash, leaseholds, motor-vehicles and certain other
exceptions; and
|
|
|
|
a second-priority lien on certain of the Receivables Collateral.
|
Our senior secured first lien notes and the related guarantees
are secured by first-priority liens, subject to permitted liens,
on our and our subsidiary guarantors assets, subject to
certain exceptions, that secure our cash flow credit facility on
a first-priority basis and are secured by second priority liens,
subject to permitted liens, on our and our subsidiary
guarantors assets that secure our ABL credit facility on a
first priority basis and our other cash flow credit facility on
a second-priority basis.
Our second lien debt and the related guarantees are secured by
second-priority liens, subject to permitted liens, on our and
our subsidiary guarantors assets, subject to certain
exceptions, that secure our cash flow credit facility on a
first-priority basis and are secured by third-priority liens,
subject to permitted liens, on our and our subsidiary
guarantors assets that secure our asset-based revolving
credit facility on a first priority basis and our other cash
flow credit facility on a second-priority basis.
Maturities of long-term debt in years 2012 through 2015 are
$4.195 billion, $4.952 billion, $1.681 billion
and $1.676 billion, respectively.
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could have a material,
adverse effect on our results of operations or financial
position.
Health care companies are subject to numerous investigations by
various governmental agencies. Under the federal false claims
act (FCA) private parties have the right to bring
qui tam, or whistleblower, suits against
companies that submit false claims for payments to, or
improperly retain overpayments from, the government. Some states
have adopted similar state whistleblower and false claims
provisions. Certain of our individual facilities have received
government inquiries from federal and state agencies and our
facilities may receive such inquiries in future periods.
Depending on whether the underlying conduct in these or future
inquiries or investigations could be considered systemic, their
resolution could have a material, adverse effect on our results
of operations or financial position.
We are subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
wrongful restriction of, or interference with, physicians
staff privileges. In certain of these
F-30
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
CONTINGENCIES
(Continued)
|
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.
The Civil Division of the Department of Justice
(DOJ) has contacted us in connection with its
nationwide review of whether, in certain cases, hospital charges
to the federal government relating to implantable
cardio-defibrillators (ICDs) met the Centers for
Medicare & Medicaid Services criteria. In connection
with this nationwide review, the DOJ has indicated it will be
reviewing certain ICD billing and medical records at 95 HCA
hospitals; the review covers the period from October 2003 to the
present. The review could potentially give rise to claims
against us under the federal FCA or other statutes, regulations
or laws. At this time, we cannot predict what effect, if any,
this review or any resulting claims could have on us.
The amended and restated certificate of incorporation authorizes
the Company to issue up to 1,800,000,000 shares of common
stock, and our amended and restated bylaws set the number of
directors constituting the board of directors of the Company at
not less than one nor more than 15.
Distributions
During 2010, our Board of Directors declared three distributions
to its stockholders and holders of stock options. The
distributions totaled $9.43 per share and vested stock option,
or $4.332 billion in the aggregate. The distributions were
funded using funds available under our senior secured credit
facilities, proceeds from the 2021 Notes offering and cash on
hand. Pursuant to the terms of our stock option plans, the
holders of nonvested stock options received $9.43 per share
reductions (subject to certain tax related limitations for
certain stock options that resulted in deferred distributions
for a portion of the declared distribution, which will be paid
upon the vesting of the applicable stock options) to the
exercise price of their share-based awards.
Registration
Statement Filings
On May 5, 2010, HCA Inc.s Board of Directors granted
approval for HCA Inc. to file with the Securities and Exchange
Commission (SEC) a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. The
Form S-1
was filed on May 7, 2010.
In connection with the Corporate Reorganization, on
December 15, 2010, HCA Holdings, Inc.s Board of
Directors granted approval for the Company to file with the SEC
a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. The
Form S-1
was filed on December 22, 2010, and HCA Inc. filed a
request to withdraw its registration statement on
Form S-1
at the same time.
Stockholder
Agreements and Equity Securities with Contingent
Redemption Rights
The stockholder agreements, among other things, contain
agreements among the parties with respect to restrictions on the
transfer of shares, including tag along rights and drag along
rights, registration rights (including customary indemnification
provisions) and other rights. Pursuant to the management
stockholder agreements, the applicable employees can elect to
have the Company redeem their common stock and vested stock
options in the events of death or permanent disability, prior to
the consummation of the initial public offering of common stock
by the Company. At December 31, 2010, there were 9,984,900
common shares and 23,834,800 vested stock options that were
subject to these contingent redemption terms.
F-31
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13
|
EMPLOYEE
BENEFIT PLANS
|
We maintain contributory, defined contribution benefit plans
that are available to employees who meet certain minimum
requirements. Certain of the plans require that we match
specified percentages of participant contributions up to certain
maximum levels (generally, 100% of the first 3% to 9%, depending
upon years of vesting service, of compensation deferred by
participants for periods subsequent to March 31, 2008, and
50% of the first 3% of compensation deferred by participants for
periods prior to April 1, 2008). The cost of these plans
totaled $307 million for 2010, $283 million for 2009
and $233 million for 2008. Our contributions are funded
periodically during each year.
We maintained a noncontributory, defined contribution retirement
plan which covered substantially all employees. Benefits were
determined as a percentage of a participants salary and
vest over specified periods of employee service. Benefits
expense was $46 million for 2008. There was no expense for
2010 and 2009 as the noncontributory plan and the related
participant account balances were merged into the contributory
HCA 401(k) Plan effective April 1, 2008.
We maintain the noncontributory, nonqualified Restoration Plan
to provide certain retirement benefits for eligible employees.
Eligibility for the Restoration Plan is based upon earning
eligible compensation in excess of the Social Security Wage Base
and attaining 1,000 or more hours of service during the plan
year. Company credits to participants account balances
(the Restoration Plan is not funded) depend upon
participants compensation, years of vesting service and
certain IRS limitations related to the HCA 401(k) plan. Benefits
expense under this plan was $19 million for 2010,
$26 million for 2009 and $2 million for 2008. Accrued
benefits liabilities under this plan totaled $84 million at
December 31, 2010 and $73 million at December 31,
2009.
We maintain a Supplemental Executive Retirement Plan
(SERP) for certain executives. The plan is designed
to ensure that upon retirement the participant receives the
value of a prescribed life annuity from the combination of the
SERP and our other benefit plans. Benefits expense under the
plan was $27 million for 2010, $24 million for 2009
and $20 million for 2008. Accrued benefits liabilities
under this plan totaled $197 million at December 31,
2010 and $152 million at December 31, 2009.
We maintain defined benefit pension plans which resulted from
certain hospital acquisitions in prior years. Benefits expense
under these plans was $30 million for 2010,
$39 million for 2009, and $24 million for 2008.
Accrued benefits liabilities under these plans totaled
$131 million at December 31, 2010 and
$115 million at December 31, 2009.
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
We operate in one line of business, which is operating hospitals
and related health care entities. During the years ended
December 31, 2010, 2009 and 2008, approximately 23.5%,
22.8% and 23.1%, respectively, of our revenues related to
patients participating in the
fee-for-service
Medicare program.
Our operations are structured into three geographically
organized groups: the Eastern Group includes 48 consolidating
hospitals located in the Eastern United States, the Central
Group includes 46 consolidating hospitals located in the Central
United States and the Western Group includes 56 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, impairments of long-lived assets, income taxes and
net income attributable to noncontrolling interests. We use
adjusted segment EBITDA as an analytical indicator for purposes
of allocating resources to geographic areas and assessing
performance. Adjusted segment EBITDA is commonly used as an
analytical indicator within the health care industry, and also
serves as a measure of leverage
F-32
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
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.
F-33
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
The geographic distributions of our revenues, equity in earnings
of affiliates, adjusted segment EBITDA, depreciation and
amortization, assets and goodwill are summarized in the
following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
9,006
|
|
|
$
|
8,807
|
|
|
$
|
8,570
|
|
Central Group
|
|
|
7,222
|
|
|
|
7,225
|
|
|
|
6,740
|
|
Western Group
|
|
|
13,467
|
|
|
|
13,140
|
|
|
|
12,118
|
|
Corporate and other
|
|
|
988
|
|
|
|
880
|
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
Central Group
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Western Group
|
|
|
(278
|
)
|
|
|
(241
|
)
|
|
|
(219
|
)
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(282
|
)
|
|
$
|
(246
|
)
|
|
$
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
1,580
|
|
|
$
|
1,469
|
|
|
$
|
1,288
|
|
Central Group
|
|
|
1,272
|
|
|
|
1,325
|
|
|
|
1,061
|
|
Western Group
|
|
|
3,107
|
|
|
|
2,867
|
|
|
|
2,270
|
|
Corporate and other
|
|
|
(91
|
)
|
|
|
(189
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,868
|
|
|
$
|
5,472
|
|
|
$
|
4,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
354
|
|
|
$
|
364
|
|
|
$
|
358
|
|
Central Group
|
|
|
352
|
|
|
|
352
|
|
|
|
359
|
|
Western Group
|
|
|
581
|
|
|
|
578
|
|
|
|
552
|
|
Corporate and other
|
|
|
134
|
|
|
|
131
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,421
|
|
|
$
|
1,425
|
|
|
$
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA
|
|
$
|
5,868
|
|
|
$
|
5,472
|
|
|
$
|
4,574
|
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
2,231
|
|
|
$
|
2,002
|
|
|
$
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
4,922
|
|
|
$
|
5,018
|
|
Central Group
|
|
|
5,271
|
|
|
|
5,173
|
|
Western Group
|
|
|
9,169
|
|
|
|
8,847
|
|
Corporate and other
|
|
|
4,490
|
|
|
|
5,093
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
|
Central
|
|
|
Western
|
|
|
Corporate
|
|
|
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
and Other
|
|
|
Total
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
596
|
|
|
$
|
1,018
|
|
|
$
|
742
|
|
|
$
|
221
|
|
|
$
|
2,577
|
|
Acquisitions
|
|
|
14
|
|
|
|
|
|
|
|
65
|
|
|
|
46
|
|
|
|
125
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Foreign currency translation and other
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
8
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
608
|
|
|
$
|
1,019
|
|
|
$
|
815
|
|
|
$
|
251
|
|
|
$
|
2,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
NOTE 15
|
OTHER
COMPREHENSIVE LOSS
|
The components of accumulated other comprehensive loss are as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
|
|
|
in Fair
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Currency
|
|
|
Defined
|
|
|
Value of
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Translation
|
|
|
Benefit
|
|
|
Derivative
|
|
|
|
|
|
|
Securities
|
|
|
Adjustments
|
|
|
Plans
|
|
|
Instruments
|
|
|
Total
|
|
|
Balances at December 31, 2007
|
|
$
|
14
|
|
|
$
|
34
|
|
|
$
|
(44
|
)
|
|
$
|
(176
|
)
|
|
$
|
(172
|
)
|
Unrealized losses on
available-for-sale
securities, net of $25 income tax benefit
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments, net of $33 income tax
benefit
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans, net of $40 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
(68
|
)
|
Change in fair value of derivative instruments, net of $194
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Expense reclassified into operations from other comprehensive
income, net of $4 and $42, respectively, income tax benefits
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
70
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
(106
|
)
|
|
|
(440
|
)
|
|
|
(604
|
)
|
Unrealized gains on
available-for-sale
securities, net of $25 of income taxes
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustments, net of $14 of income
taxes
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Defined benefit plans, net of $8 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Change in fair value of derivative instruments, net of $76
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133
|
)
|
|
|
(133
|
)
|
Expense reclassified into operations from other comprehensive
income, net of $6 and $127, respectively, income tax benefits
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
218
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
14
|
|
|
|
(3
|
)
|
|
|
(106
|
)
|
|
|
(355
|
)
|
|
|
(450
|
)
|
Unrealized gains on
available-for-sale
securities, net of $1 of income taxes
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation adjustments, net of $9 of income
tax benefit
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Defined benefit plans, net of $28 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
(48
|
)
|
Change in fair value of derivative instruments, net of $94
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161
|
)
|
|
|
(161
|
)
|
(Income) expense reclassified into operations from other
comprehensive income, net of $(4), $7 and $140, respectively,
income (taxes) benefits
|
|
|
(9
|
)
|
|
|
|
|
|
|
11
|
|
|
|
244
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
$
|
6
|
|
|
$
|
(19
|
)
|
|
$
|
(143
|
)
|
|
$
|
(272
|
)
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16
|
ACCRUED
EXPENSES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
A summary of other accrued expenses at December 31 follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Professional liability risks
|
|
$
|
268
|
|
|
$
|
265
|
|
Interest
|
|
|
309
|
|
|
|
283
|
|
Taxes other than income
|
|
|
197
|
|
|
|
190
|
|
Other
|
|
|
471
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,245
|
|
|
$
|
1,158
|
|
|
|
|
|
|
|
|
|
|
A summary of activity for the allowance of doubtful accounts
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
Accounts
|
|
|
|
|
Balance at
|
|
for
|
|
Written off,
|
|
Balance
|
|
|
Beginning
|
|
Doubtful
|
|
Net of
|
|
at End
|
|
|
of Year
|
|
Accounts
|
|
Recoveries
|
|
of Year
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
$
|
3,711
|
|
|
$
|
3,409
|
|
|
$
|
(2,379
|
)
|
|
$
|
4,741
|
|
Year ended December 31, 2009
|
|
|
4,741
|
|
|
|
3,276
|
|
|
|
(3,157
|
)
|
|
|
4,860
|
|
Year ended December 31, 2010
|
|
|
4,860
|
|
|
|
2,648
|
|
|
|
(3,569
|
)
|
|
|
3,939
|
|
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION
|
On November 22, 2010, HCA Inc. reorganized by creating a
new holding company structure. HCA Holdings, Inc. became the new
parent company, and HCA Inc. is now HCA Holdings, Inc.s
wholly-owned direct subsidiary. On November 23, 2010, HCA
Holdings, Inc. issued the 2021 Notes. These notes are senior
unsecured obligations and are not guaranteed by any of our
subsidiaries.
The senior secured credit facilities and senior secured notes
described in Note 10 are fully and unconditionally
guaranteed by substantially all existing and future, direct and
indirect, wholly-owned material domestic subsidiaries that are
Unrestricted Subsidiaries under our Indenture dated
December 16, 1993 (except for certain special purpose
subsidiaries that only guarantee and pledge their assets under
our ABL credit facility).
Our condensed consolidating balance sheets at December 31,
2010 and 2009 and condensed consolidating statements of income
and cash flows for each of the three years in the period ended
December 31, 2010, segregating HCA Holdings, Inc. issuer,
HCA Inc. issuer, the subsidiary guarantors, the subsidiary
non-guarantors and eliminations, follow.
F-37
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,647
|
|
|
$
|
13,036
|
|
|
$
|
|
|
|
$
|
30,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
7,315
|
|
|
|
5,169
|
|
|
|
|
|
|
|
12,484
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
2,825
|
|
|
|
2,136
|
|
|
|
|
|
|
|
4,961
|
|
Other operating expenses
|
|
|
|
|
|
|
5
|
|
|
|
2,634
|
|
|
|
2,365
|
|
|
|
|
|
|
|
5,004
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
1,016
|
|
|
|
|
|
|
|
2,648
|
|
Equity in earnings of affiliates
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
(107
|
)
|
|
|
(175
|
)
|
|
|
1,215
|
|
|
|
(282
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
639
|
|
|
|
|
|
|
|
1,421
|
|
Interest expense
|
|
|
12
|
|
|
|
2,700
|
|
|
|
(761
|
)
|
|
|
146
|
|
|
|
|
|
|
|
2,097
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
65
|
|
|
|
|
|
|
|
123
|
|
Management fees
|
|
|
|
|
|
|
|
|
|
|
(454
|
)
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,203
|
)
|
|
|
2,705
|
|
|
|
13,924
|
|
|
|
11,811
|
|
|
|
1,215
|
|
|
|
28,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,203
|
|
|
|
(2,705
|
)
|
|
|
3,723
|
|
|
|
1,225
|
|
|
|
(1,215
|
)
|
|
|
2,231
|
|
Provision for income taxes
|
|
|
(4
|
)
|
|
|
(955
|
)
|
|
|
1,299
|
|
|
|
318
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,207
|
|
|
|
(1,750
|
)
|
|
|
2,424
|
|
|
|
907
|
|
|
|
(1,215
|
)
|
|
|
1,573
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
322
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
(1,750
|
)
|
|
$
|
2,380
|
|
|
$
|
585
|
|
|
$
|
(1,215
|
)
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
17,584
|
|
|
$
|
12,468
|
|
|
$
|
|
|
|
$
|
30,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
7,149
|
|
|
|
4,809
|
|
|
|
|
|
|
|
11,958
|
|
Supplies
|
|
|
|
|
|
|
2,846
|
|
|
|
2,022
|
|
|
|
|
|
|
|
4,868
|
|
Other operating expenses
|
|
|
14
|
|
|
|
2,497
|
|
|
|
2,213
|
|
|
|
|
|
|
|
4,724
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,043
|
|
|
|
1,233
|
|
|
|
|
|
|
|
3,276
|
|
Equity in earnings of affiliates
|
|
|
(2,540
|
)
|
|
|
(95
|
)
|
|
|
(151
|
)
|
|
|
2,540
|
|
|
|
(246
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
787
|
|
|
|
638
|
|
|
|
|
|
|
|
1,425
|
|
Interest expense
|
|
|
2,356
|
|
|
|
(500
|
)
|
|
|
131
|
|
|
|
|
|
|
|
1,987
|
|
Losses (gains) on sales of facilities
|
|
|
|
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
15
|
|
Impairments of long-lived assets
|
|
|
|
|
|
|
34
|
|
|
|
9
|
|
|
|
|
|
|
|
43
|
|
Management fees
|
|
|
|
|
|
|
(443
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170
|
)
|
|
|
14,335
|
|
|
|
11,345
|
|
|
|
2,540
|
|
|
|
28,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
170
|
|
|
|
3,249
|
|
|
|
1,123
|
|
|
|
(2,540
|
)
|
|
|
2,002
|
|
Provision for income taxes
|
|
|
(884
|
)
|
|
|
1,189
|
|
|
|
322
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,054
|
|
|
|
2,060
|
|
|
|
801
|
|
|
|
(2,540
|
)
|
|
|
1,375
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
61
|
|
|
|
260
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,054
|
|
|
$
|
1,999
|
|
|
$
|
541
|
|
|
$
|
(2,540
|
)
|
|
$
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
16,507
|
|
|
$
|
11,867
|
|
|
$
|
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
6,846
|
|
|
|
4,594
|
|
|
|
|
|
|
|
11,440
|
|
Supplies
|
|
|
|
|
|
|
2,671
|
|
|
|
1,949
|
|
|
|
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
(6
|
)
|
|
|
2,445
|
|
|
|
2,115
|
|
|
|
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,073
|
|
|
|
1,336
|
|
|
|
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(2,100
|
)
|
|
|
(82
|
)
|
|
|
(141
|
)
|
|
|
2,100
|
|
|
|
(223
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
776
|
|
|
|
640
|
|
|
|
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,190
|
|
|
|
(328
|
)
|
|
|
159
|
|
|
|
|
|
|
|
2,021
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Management fees
|
|
|
|
|
|
|
(426
|
)
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
13,970
|
|
|
|
11,050
|
|
|
|
2,100
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(84
|
)
|
|
|
2,537
|
|
|
|
817
|
|
|
|
(2,100
|
)
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
(757
|
)
|
|
|
803
|
|
|
|
222
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
673
|
|
|
|
1,734
|
|
|
|
595
|
|
|
|
(2,100
|
)
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
53
|
|
|
|
176
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
673
|
|
|
$
|
1,681
|
|
|
$
|
419
|
|
|
$
|
(2,100
|
)
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
249
|
|
|
$
|
|
|
|
$
|
411
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
2,214
|
|
|
|
1,618
|
|
|
|
|
|
|
|
3,832
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
547
|
|
|
|
350
|
|
|
|
|
|
|
|
897
|
|
Deferred income taxes
|
|
|
931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
931
|
|
Other
|
|
|
202
|
|
|
|
|
|
|
|
223
|
|
|
|
423
|
|
|
|
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,139
|
|
|
|
|
|
|
|
3,140
|
|
|
|
2,640
|
|
|
|
|
|
|
|
6,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
6,817
|
|
|
|
4,535
|
|
|
|
|
|
|
|
11,352
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
642
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
621
|
|
|
|
|
|
|
|
869
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,635
|
|
|
|
1,058
|
|
|
|
|
|
|
|
2,693
|
|
Deferred loan costs
|
|
|
23
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
Investments in and advances to subsidiaries
|
|
|
14,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,282
|
)
|
|
|
|
|
Other
|
|
|
776
|
|
|
|
39
|
|
|
|
21
|
|
|
|
167
|
|
|
|
|
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,220
|
|
|
$
|
390
|
|
|
$
|
11,861
|
|
|
$
|
9,663
|
|
|
$
|
(14,282
|
)
|
|
$
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
919
|
|
|
$
|
618
|
|
|
$
|
|
|
|
$
|
1,537
|
|
Accrued salaries
|
|
|
|
|
|
|
|
|
|
|
556
|
|
|
|
339
|
|
|
|
|
|
|
|
895
|
|
Other accrued expenses
|
|
|
12
|
|
|
|
296
|
|
|
|
328
|
|
|
|
609
|
|
|
|
|
|
|
|
1,245
|
|
Long-term debt due within one year
|
|
|
|
|
|
|
554
|
|
|
|
12
|
|
|
|
26
|
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
850
|
|
|
|
1,815
|
|
|
|
1,592
|
|
|
|
|
|
|
|
4,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,525
|
|
|
|
25,758
|
|
|
|
95
|
|
|
|
255
|
|
|
|
|
|
|
|
27,633
|
|
Intercompany balances
|
|
|
25,985
|
|
|
|
(16,130
|
)
|
|
|
(12,833
|
)
|
|
|
2,978
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
|
|
|
|
|
995
|
|
Income taxes and other liabilities
|
|
|
483
|
|
|
|
425
|
|
|
|
505
|
|
|
|
195
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,005
|
|
|
|
10,903
|
|
|
|
(10,418
|
)
|
|
|
6,015
|
|
|
|
|
|
|
|
34,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity attributable to HCA
Holdings, Inc.
|
|
|
(11,926
|
)
|
|
|
(10,513
|
)
|
|
|
22,167
|
|
|
|
2,628
|
|
|
|
(14,282
|
)
|
|
|
(11,926
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
1,020
|
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,926
|
)
|
|
|
(10,513
|
)
|
|
|
22,279
|
|
|
|
3,648
|
|
|
|
(14,282
|
)
|
|
|
(10,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,220
|
|
|
$
|
390
|
|
|
$
|
11,861
|
|
|
$
|
9,663
|
|
|
$
|
(14,282
|
)
|
|
$
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
217
|
|
|
$
|
|
|
|
$
|
312
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2,135
|
|
|
|
1,557
|
|
|
|
|
|
|
|
3,692
|
|
Inventories
|
|
|
|
|
|
|
489
|
|
|
|
313
|
|
|
|
|
|
|
|
802
|
|
Deferred income taxes
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,192
|
|
Other
|
|
|
81
|
|
|
|
148
|
|
|
|
350
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,273
|
|
|
|
2,867
|
|
|
|
2,437
|
|
|
|
|
|
|
|
6,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
7,034
|
|
|
|
4,393
|
|
|
|
|
|
|
|
11,427
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
1,166
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
244
|
|
|
|
609
|
|
|
|
|
|
|
|
853
|
|
Goodwill
|
|
|
|
|
|
|
1,641
|
|
|
|
936
|
|
|
|
|
|
|
|
2,577
|
|
Deferred loan costs
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
Investments in and advances to subsidiaries
|
|
|
21,830
|
|
|
|
|
|
|
|
|
|
|
|
(21,830
|
)
|
|
|
|
|
Other
|
|
|
963
|
|
|
|
19
|
|
|
|
131
|
|
|
|
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,484
|
|
|
$
|
11,805
|
|
|
$
|
9,672
|
|
|
$
|
(21,830
|
)
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
908
|
|
|
$
|
552
|
|
|
$
|
|
|
|
$
|
1,460
|
|
Accrued salaries
|
|
|
|
|
|
|
542
|
|
|
|
307
|
|
|
|
|
|
|
|
849
|
|
Other accrued expenses
|
|
|
282
|
|
|
|
293
|
|
|
|
583
|
|
|
|
|
|
|
|
1,158
|
|
Long-term debt due within one year
|
|
|
802
|
|
|
|
9
|
|
|
|
35
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,084
|
|
|
|
1,752
|
|
|
|
1,477
|
|
|
|
|
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
24,427
|
|
|
|
103
|
|
|
|
294
|
|
|
|
|
|
|
|
24,824
|
|
Intercompany balances
|
|
|
6,636
|
|
|
|
(10,387
|
)
|
|
|
3,751
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
|
|
|
|
|
|
1,057
|
|
Income taxes and other liabilities
|
|
|
1,176
|
|
|
|
421
|
|
|
|
171
|
|
|
|
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,323
|
|
|
|
(8,111
|
)
|
|
|
6,750
|
|
|
|
|
|
|
|
31,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity attributable to HCA
Holdings, Inc.
|
|
|
(8,986
|
)
|
|
|
19,787
|
|
|
|
2,043
|
|
|
|
(21,830
|
)
|
|
|
(8,986
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
129
|
|
|
|
879
|
|
|
|
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,986
|
)
|
|
|
19,916
|
|
|
|
2,922
|
|
|
|
(21,830
|
)
|
|
|
(7,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,484
|
|
|
$
|
11,805
|
|
|
$
|
9,672
|
|
|
$
|
(21,830
|
)
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,207
|
|
|
$
|
(1,750
|
)
|
|
$
|
2,424
|
|
|
$
|
907
|
|
|
$
|
(1,215
|
)
|
|
$
|
1,573
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
12
|
|
|
|
13
|
|
|
|
(1,759
|
)
|
|
|
(1,113
|
)
|
|
|
|
|
|
|
(2,847
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
1,016
|
|
|
|
|
|
|
|
2,648
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
639
|
|
|
|
|
|
|
|
1,421
|
|
Income taxes
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
65
|
|
|
|
|
|
|
|
123
|
|
Amortization of deferred loan costs
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
Share-based compensation
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Equity in earnings of affiliates
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
63
|
|
|
|
(1,625
|
)
|
|
|
3,137
|
|
|
|
1,510
|
|
|
|
|
|
|
|
3,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(602
|
)
|
|
|
(723
|
)
|
|
|
|
|
|
|
(1,325
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
(233
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
8
|
|
|
|
|
|
|
|
37
|
|
Change in investments
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
471
|
|
|
|
|
|
|
|
472
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
13
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(596
|
)
|
|
|
(443
|
)
|
|
|
|
|
|
|
(1,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
1,525
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,912
|
|
Net change in revolving bank credit facilities
|
|
|
|
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(2,164
|
)
|
|
|
(32
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
(2,268
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(281
|
)
|
|
|
|
|
|
|
(342
|
)
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
Payment of debt issuance costs
|
|
|
(23
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Distributions to stockholders
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,257
|
)
|
Income tax benefits
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Changes in intercompany balances with affiliates, net
|
|
|
2,590
|
|
|
|
556
|
|
|
|
(2,387
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(57
|
)
|
|
|
1,625
|
|
|
|
(2,480
|
)
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
(1,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
6
|
|
|
|
|
|
|
|
61
|
|
|
|
32
|
|
|
|
|
|
|
|
99
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
217
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
249
|
|
|
$
|
|
|
|
$
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,054
|
|
|
$
|
2,060
|
|
|
$
|
801
|
|
|
$
|
(2,540
|
)
|
|
$
|
1,375
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
90
|
|
|
|
(1,882
|
)
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(3,091
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,043
|
|
|
|
1,233
|
|
|
|
|
|
|
|
3,276
|
|
Depreciation and amortization
|
|
|
|
|
|
|
787
|
|
|
|
638
|
|
|
|
|
|
|
|
1,425
|
|
Income taxes
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
Losses (gains) on sales of facilities
|
|
|
|
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
15
|
|
Impairments of long-lived assets
|
|
|
|
|
|
|
34
|
|
|
|
9
|
|
|
|
|
|
|
|
43
|
|
Amortization of deferred loan costs
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Share-based compensation
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Pay-in-kind
interest
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Equity in earnings of affiliates
|
|
|
(2,540
|
)
|
|
|
|
|
|
|
|
|
|
|
2,540
|
|
|
|
|
|
Other
|
|
|
50
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,688
|
)
|
|
|
3,057
|
|
|
|
1,378
|
|
|
|
|
|
|
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(720
|
)
|
|
|
(597
|
)
|
|
|
|
|
|
|
(1,317
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(38
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
(61
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
21
|
|
|
|
20
|
|
|
|
|
|
|
|
41
|
|
Change in investments
|
|
|
|
|
|
|
(7
|
)
|
|
|
310
|
|
|
|
|
|
|
|
303
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(744
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979
|
|
Net change in revolving bank credit facilities
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,335
|
)
|
Repayment of long-term debt
|
|
|
(2,972
|
)
|
|
|
(7
|
)
|
|
|
(124
|
)
|
|
|
|
|
|
|
(3,103
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(70
|
)
|
|
|
(260
|
)
|
|
|
|
|
|
|
(330
|
)
|
Payment of debt issuance costs
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
3,107
|
|
|
|
(2,275
|
)
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(21
|
)
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,688
|
|
|
|
(2,352
|
)
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(39
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
(153
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
134
|
|
|
|
331
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
217
|
|
|
$
|
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
673
|
|
|
$
|
1,734
|
|
|
$
|
595
|
|
|
$
|
(2,100
|
)
|
|
$
|
902
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
(11
|
)
|
|
|
(2,085
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
(3,367
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,073
|
|
|
|
1,336
|
|
|
|
|
|
|
|
3,409
|
|
Depreciation and amortization
|
|
|
|
|
|
|
776
|
|
|
|
640
|
|
|
|
|
|
|
|
1,416
|
|
Income taxes
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(448
|
)
|
Gains on sales of facilities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Amortization of deferred loan costs
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Share-based compensation
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Equity in earnings of affiliates
|
|
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(19
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,775
|
)
|
|
|
2,474
|
|
|
|
1,291
|
|
|
|
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(927
|
)
|
|
|
(673
|
)
|
|
|
|
|
|
|
(1,600
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(34
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
(85
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
27
|
|
|
|
166
|
|
|
|
|
|
|
|
193
|
|
Change in investments
|
|
|
|
|
|
|
(26
|
)
|
|
|
47
|
|
|
|
|
|
|
|
21
|
|
Other
|
|
|
|
|
|
|
(4
|
)
|
|
|
8
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(964
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in revolving bank credit facilities
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
Repayment of long-term debt
|
|
|
(851
|
)
|
|
|
(4
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
(960
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(32
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
(178
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
1,935
|
|
|
|
(1,505
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(9
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,775
|
|
|
|
(1,541
|
)
|
|
|
(685
|
)
|
|
|
|
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(31
|
)
|
|
|
103
|
|
|
|
|
|
|
|
72
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
165
|
|
|
|
228
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
331
|
|
|
$
|
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
Healthtrust, Inc. The Hospital Company
(Healthtrust) is the first-tier subsidiary of HCA
Inc. The common stock of Healthtrust has been pledged as
collateral for the senior secured credit facilities and senior
secured notes described in Note 9.
Rule 3-16
of
Regulation S-X
under the Securities Act requires the filing of separate
financial statements for any affiliate of the registrant whose
securities constitute a substantial portion of the collateral
for any class of securities registered or being registered. We
believe the separate financial statements requirement applies to
Healthtrust due to the pledge of its common stock as collateral
for the senior secured notes. Due to the corporate structure
relationship of HCA and Healthtrust, HCAs operating
subsidiaries are also the operating subsidiaries of Healthtrust.
The corporate structure relationship, combined with the
application of push-down accounting in Healthtrusts
consolidated financial statements related to HCAs debt and
financial instruments, results in the consolidated financial
statements of Healthtrust being substantially identical to the
consolidated financial statements of HCA. The consolidated
financial statements of HCA and Healthtrust present the
identical amounts for revenues, expenses, net income, assets,
liabilities, total stockholders deficit, net cash provided
by operating activities, net cash used in investing activities
and net cash used in financing activities. Certain individual
line items in the HCA consolidated statements of
stockholders deficit and cash flows are combined into one
line item in the Healthtrust consolidated statements of
stockholders deficit and cash flows.
Reconciliations of the HCA Holdings, Inc. Consolidated
Statements of Stockholders Deficit and Consolidated
Statements of Cash Flows presentations to the Healthtrust,
Inc. The Hospital Company Consolidated Statements of
Stockholders Deficit and Consolidated Statements of Cash
Flows presentations for the years ended December 31, 2010,
2009 and 2008 are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Presentation in HCA Holdings, Inc. Consolidated Statements of
Stockholders Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based benefit plans
|
|
$
|
43
|
|
|
$
|
47
|
|
|
$
|
40
|
|
Other
|
|
|
120
|
|
|
|
14
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in Healthtrust, Inc. The Hospital
Company Consolidated Statements of Stockholders Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from HCA Holdings, Inc., net of contributions to
HCA Holdings, Inc.
|
|
$
|
163
|
|
|
$
|
61
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in HCA Holdings, Inc. Consolidated Statements of
Cash Flows (cash flows from financing activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in Healthtrust Inc. The Hospital
Company Consolidated Statements of Cash Flows (cash flows from
financing activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash distributions to HCA Holdings, Inc.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the consolidated financial statements of Healthtrust
being substantially identical to the consolidated financial
statements of HCA, except for the items presented in the tables
above, the separate consolidated financial statements of
Healthtrust are not presented.
|
|
NOTE 18
|
SUBSEQUENT
EVENT
|
February
16, 2011 Increase in Authorized Shares and Stock
Split
On February 16, 2011, our Board of Directors approved an
increase in the number of authorized shares to
1,800,000,000 shares of common stock and a 4.505-to-one
split of the Companys issued and outstanding common stock.
The increase in the authorized shares and the stock split became
effective on March 9, 2011. All common share and per common
share amounts in these consolidated financial statements and
notes to consolidated financial statements have been restated to
reflect the 4.505-to-one split.
F-46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Revenues
|
|
$
|
7,544
|
|
|
$
|
7,756
|
|
|
$
|
7,647
|
|
|
$
|
7,736
|
|
Net income
|
|
$
|
476
|
(a)
|
|
$
|
378
|
(b)
|
|
$
|
325
|
(c)
|
|
$
|
394
|
(d)
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
388
|
(a)
|
|
$
|
293
|
(b)
|
|
$
|
243
|
(c)
|
|
$
|
283
|
(d)
|
Basic earnings per share
|
|
$
|
0.91
|
|
|
$
|
0.69
|
|
|
$
|
0.57
|
|
|
$
|
0.66
|
|
Diluted earnings per share
|
|
$
|
0.89
|
|
|
$
|
0.67
|
|
|
$
|
0.55
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Revenues
|
|
$
|
7,431
|
|
|
$
|
7,483
|
|
|
$
|
7,533
|
|
|
$
|
7,605
|
|
Net income
|
|
$
|
432
|
(e)
|
|
$
|
365
|
(f)
|
|
$
|
274
|
(g)
|
|
$
|
304
|
(h)
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
360
|
(e)
|
|
$
|
282
|
(f)
|
|
$
|
196
|
(g)
|
|
$
|
216
|
(h)
|
Basic earnings per share
|
|
$
|
0.84
|
|
|
$
|
0.67
|
|
|
$
|
0.46
|
|
|
$
|
0.51
|
|
Diluted earnings per share
|
|
$
|
0.83
|
|
|
$
|
0.66
|
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
|
|
(a) |
|
First quarter results include $12 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(b) |
|
Second quarter results include $57 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(c) |
|
Third quarter results include $1 million of losses on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $6 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(d) |
|
Fourth quarter results include $3 million of gains on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $2 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(e) |
|
First quarter results include $3 million of losses on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $6 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(f) |
|
Second quarter results include $2 million of losses on
sales of facilities (See NOTE 3 of the notes to
consolidated financial statements) and $2 million of costs
related to the impairments of long-lived assets (See NOTE 4
of the notes to consolidated financial statements). |
|
(g) |
|
Third quarter results include $2 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(h) |
|
Fourth quarter results include $4 million of losses on
sales of facilities (See NOTE 3 of the notes to
consolidated financial statements) and $24 million of costs
related to the impairments of long-lived assets (See NOTE 4
of the notes to consolidated financial statements). |
F-47
Through and including April 4, 2011 (the 25th day after the
date of this prospectus), all dealers effecting transactions in
these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to
the dealers obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
126,200,000 Shares
Common Stock
PROSPECTUS
BofA Merrill Lynch
Citi
J.P. Morgan
Barclays Capital
Credit Suisse
Deutsche Bank
Securities
Goldman, Sachs &
Co.
Morgan Stanley
Wells Fargo
Securities
Credit Agricole CIB
Mizuho Securities USA
Inc.
RBC Capital Markets
RBS
SMBC Nikko
SunTrust Robinson
Humphrey
Avondale Partners
Baird
Cowen and Company
CRT Capital Group LLC
Lazard Capital
Markets
Leerink Swann
Morgan Keegan
Oppenheimer &
Co.
Raymond James
Susquehanna Financial Group,
LLLP