Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2017

Or

 

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

For the transition period from                     to                     

Commission file number 1-11239

 

 

HCA Healthcare, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-3865930

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Park Plaza

Nashville, Tennessee

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

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

☐  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

Emerging growth company

 

    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

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

 

Class of Common Stock

  

Outstanding at July 31, 2017

Voting common stock, $.01 par value

   361,249,700 shares

 

 

 


Table of Contents

HCA HEALTHCARE, INC.

Form 10-Q

June 30, 2017

 

         Page of
Form 10-Q
 

Part I.

  Financial Information   

Item 1.

  Financial Statements (Unaudited):   
 

Condensed Consolidated Income Statements — for the quarters and six months ended June 30, 2017 and 2016

     2  
 

Condensed Consolidated Comprehensive Income Statements — for the quarters and six months ended June 30, 2017 and 2016

     3  
 

Condensed Consolidated Balance Sheets — June 30, 2017 and December 31, 2016

     4  
 

Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2017 and 2016

     5  
 

Notes to Condensed Consolidated Financial Statements

     6  

Item 2.

 

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

     26  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     44  

Item 4.

 

Controls and Procedures

     44  

Part II.

  Other Information   

Item 1.

 

Legal Proceedings

     44  

Item 1A.

 

Risk Factors

     44  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     45  

Item 6.

 

Exhibits

     46  

Signatures

     47  

 

1


Table of Contents

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Six Months  
     2017     2016     2017     2016  

Revenues before provision for doubtful accounts

   $ 11,806     $ 11,081     $ 23,189     $ 22,131  

Provision for doubtful accounts

     1,073       762       1,833       1,552  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

     10,733       10,319       21,356       20,579  

Salaries and benefits

     4,896       4,691       9,797       9,393  

Supplies

     1,795       1,718       3,592       3,432  

Other operating expenses

     1,965       1,868       3,895       3,721  

Equity in earnings of affiliates

     (13     (10     (23     (22

Depreciation and amortization

     521       489       1,042       968  

Interest expense

     411       427       830       843  

Gains on sales of facilities

     (2     (6     (3     (5

Legal claim costs

           10             22  
  

 

 

   

 

 

   

 

 

   

 

 

 
     9,573       9,187       19,130       18,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,160       1,132       2,226       2,227  

Provision for income taxes

     365       341       654       625  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     795       791       1,572       1,602  

Net income attributable to noncontrolling interests

     138       133       256       250  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Healthcare, Inc.

   $ 657     $ 658     $ 1,316     $ 1,352  
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic earnings per share

   $ 1.79     $ 1.70     $ 3.58     $ 3.45  

Diluted earnings per share

   $ 1.75     $ 1.65     $ 3.48     $ 3.34  

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

        

Basic

     365.847       386.406       368.056       391.401  

Diluted

     375.338       398.659       377.647       404.617  

 

 

See accompanying notes.

 

2


Table of Contents

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

Unaudited

(Dollars in millions)

 

     Quarter     Six Months  
     2017     2016     2017     2016  

Net income

   $ 795     $ 791     $ 1,572     $ 1,602  

Other comprehensive income (loss) before taxes:

        

Foreign currency translation

     45       (86     55       (129

Unrealized gains on available-for-sale securities

     2       3       5       5  

Defined benefit plans

                        

Pension costs included in salaries and benefits

     4       5       9       9  
  

 

 

   

 

 

   

 

 

   

 

 

 
     4       5       9       9  

Change in fair value of derivative financial instruments

     (11     (32     (8     (70

Interest costs included in interest expense

     6       28       13       56  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (5     (4     5       (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before taxes

     46       (82     74       (129

Income taxes (benefits) related to other comprehensive income items

     19       (32     29       (50
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     27       (50     45       (79
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     822       741       1,617       1,523  

Comprehensive income attributable to noncontrolling interests

     138       133       256       250  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to HCA Healthcare, Inc.

   $ 684     $ 608     $ 1,361     $ 1,273  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See accompanying notes.

 

3


Table of Contents

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

     June 30,
2017
    December 31,
2016
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 705     $ 646  

Accounts receivable, less allowance for doubtful accounts of $5,050 and $4,988

     5,782       5,826  

Inventories

     1,544       1,503  

Other

     1,306       1,111  
  

 

 

   

 

 

 
     9,337       9,086  

Property and equipment, at cost

     38,306       37,055  

Accumulated depreciation

     (21,538     (20,703
  

 

 

   

 

 

 
     16,768       16,352  

Investments of insurance subsidiaries

     352       336  

Investments in and advances to affiliates

     197       206  

Goodwill and other intangible assets

     6,771       6,704  

Other

     1,141       1,074  
  

 

 

   

 

 

 
   $ 34,566     $ 33,758  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

    

Accounts payable

   $ 2,245     $ 2,318  

Accrued salaries

     1,209       1,265  

Other accrued expenses

     2,104       2,035  

Long-term debt due within one year

     213       216  
  

 

 

   

 

 

 
     5,771       5,834  

Long-term debt, less net debt issuance costs of $179 and $170

     31,448       31,160  

Professional liability risks

     1,144       1,148  

Income taxes and other liabilities

     1,282       1,249  

Stockholders’ deficit:

    

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 362,895,000 shares in 2017 and 370,535,900 shares in 2016

     4       4  

Accumulated other comprehensive loss

     (293     (338

Retained deficit

     (6,503     (6,968
  

 

 

   

 

 

 

Stockholders’ deficit attributable to HCA Healthcare, Inc.

     (6,792     (7,302

Noncontrolling interests

     1,713       1,669  
  

 

 

   

 

 

 
     (5,079     (5,633
  

 

 

   

 

 

 
   $ 34,566     $ 33,758  
  

 

 

   

 

 

 

 

See accompanying notes.

 

4


Table of Contents

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016

Unaudited

(Dollars in millions)

 

     2017     2016  

Cash flows from operating activities:

    

Net income

   $ 1,572     $ 1,602  

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

    

Increase (decrease) in cash from operating assets and liabilities:

    

Accounts receivable

     (1,752     (1,364

Provision for doubtful accounts

     1,833       1,552  
  

 

 

   

 

 

 

Accounts receivable, net

     81       188  

Inventories and other assets

     (178     (176

Accounts payable and accrued expenses

     (298     (102

Depreciation and amortization

     1,042       968  

Income taxes

     267       67  

Gains on sales of facilities

     (3     (5

Legal claim costs

           22  

Amortization of debt issuance costs

     16       18  

Share-based compensation

     140       129  

Other

     45       37  
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,684       2,748  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (1,304     (1,172

Acquisition of hospitals and health care entities

     (295     (430

Disposal of hospitals and health care entities

     14       14  

Change in investments

     (11     18  

Other

     5       15  
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,591     (1,555
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of long-term debt

     1,502       3,000  

Net change in revolving bank credit facilities

     (1,160      

Repayment of long-term debt

     (95     (2,065

Distributions to noncontrolling interests

     (248     (205

Payment of debt issuance costs

     (25     (24

Repurchases of common stock

     (966     (1,858

Other

     (42     (91
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,034     (1,243
  

 

 

   

 

 

 

Change in cash and cash equivalents

     59       (50

Cash and cash equivalents at beginning of period

     646       741  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 705     $ 691  
  

 

 

   

 

 

 

Interest payments

   $ 834     $ 767  

Income tax payments, net

   $ 387     $ 558  

See accompanying notes.

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Healthcare, Inc. (formerly known as 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 Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2017, these affiliates owned and operated 172 hospitals, 119 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Healthcare, 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 Healthcare, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

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

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $92 million and $93 million for the quarters ended June 30, 2017 and 2016, respectively, and $182 million and $178 million for the six months ended June 30, 2017 and 2016, respectively. Operating results for the quarter and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2016.

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

Revenues

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans and commercial insurance companies (including plans offered through the health insurance exchanges), and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured 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 uninsured accounts to record net self-pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers, the uninsured and other for the quarters and six months ended June 30, 2017 and 2016 are summarized in the following table (dollars in millions):

 

     Quarter  
     2017      Ratio     2016      Ratio  

Medicare

   $ 2,321        21.6   $ 2,217        21.5

Managed Medicare

     1,187        11.1       1,078        10.4  

Medicaid

     453        4.2       416        4.0  

Managed Medicaid

     575        5.4       608        5.9  

Managed care and other insurers

     6,106        56.9       5,759        55.8  

International (managed care and other insurers)

     269        2.5       324        3.1  
  

 

 

    

 

 

   

 

 

    

 

 

 
     10,911        101.7       10,402        100.7  

Uninsured

     519        4.8       225        2.2  

Other

     376        3.5       454        4.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues before provision for doubtful accounts

     11,806        110.0       11,081        107.3  

Provision for doubtful accounts

     (1,073      (10.0     (762      (7.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 10,733        100.0   $ 10,319        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     Six Months  
     2017      Ratio     2016      Ratio  

Medicare

   $ 4,726        22.1   $ 4,483        21.8

Managed Medicare

     2,390        11.2       2,182        10.6  

Medicaid

     826        3.9       843        4.1  

Managed Medicaid

     1,216        5.7       1,205        5.9  

Managed care and other insurers

     12,032        56.3       11,461        55.7  

International (managed care and other insurers)

     538        2.5       641        3.1  
  

 

 

    

 

 

   

 

 

    

 

 

 
     21,728        101.7       20,815        101.2  

Uninsured

     744        3.5       414        2.0  

Other

     717        3.4       902        4.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues before provision for doubtful accounts

     23,189        108.6       22,131        107.6  

Provision for doubtful accounts

     (1,833      (8.6     (1,552      (7.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 21,356        100.0   $ 20,579        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

7


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing revenue recognition guidance, will require significant management judgments and change the way many companies recognize revenue in their financial statements. In July 2015, the FASB decided to defer the effective date of the new revenue standard by one year to annual and interim periods beginning after December 15, 2017 for public entities and permit entities to adopt one year earlier if they choose. The FASB decided, based on its outreach to various stakeholders and continuing amendments to the new revenue standard, that a deferral was necessary to provide adequate time to effectively implement the new standard. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures. We believe the most significant impact will be to the presentation of our income statement where the provision for doubtful accounts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application, and we do not currently believe the adoption will have a significant impact on our recognition of net revenues or related disclosures for any period.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public business entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. ASU 2016-02’s transition provisions will be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU 2016-02 to determine how our financial statements will be affected, and we believe the primary effect of adopting the new standard will be to record right-of-use assets and obligations for our leases currently classified as operating leases.

Reclassifications

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

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2017, we paid $189 million to acquire three hospital facilities (two of the hospital facilities have effective acquisition dates of July 1, 2017) and $106 million to acquire other nonhospital health care entities. During the six months ended June 30, 2016, we paid $343 million to acquire three hospital facilities and $87 million to acquire other nonhospital health care entities.

During the six months ended June 30, 2017, we received proceeds of $14 million and recognized a net pretax gain of $3 million related to sales of real estate and other investments. During the six months ended June 30, 2016, we received proceeds of $14 million and recognized a net pretax gain of $5 million related to sales of real estate and other investments.

 

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Table of Contents

HCA HEALTHCARE, INC. (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 3 — INCOME TAXES

Our liability for unrecognized tax benefits was $420 million, including accrued interest of $46 million, as of June 30, 2017 ($418 million and $45 million, respectively, as of December 31, 2016). Unrecognized tax benefits of $141 million ($137 million as of December 31, 2016) would affect the effective rate, if recognized.

Our provision for income taxes for the quarters ended June 30, 2017 and 2016, included tax benefits of $9 million and $44 million, respectively, and for the six months ended June 30, 2017 and 2016, included tax benefits of $76 million and $118 million, respectively, related to the settlement of employee equity awards. Our provision for income taxes for the quarter and six months ended June 30, 2017 also included $10 million and $12 million, respectively, of reductions in interest expense (net of tax) related to taxing authority examinations.

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

NOTE 4 — EARNINGS PER SHARE

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding equity awards and potential shares, computed using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and six months ended June 30, 2017 and 2016 (dollars and shares in millions, except per share amounts):

 

     Quarter      Six Months  
     2017      2016      2017      2016  

Net income attributable to HCA Healthcare, Inc.

   $ 657      $ 658      $ 1,316      $ 1,352  

Weighted average common shares outstanding

     365.847        386.406        368.056        391.401  

Effect of dilutive incremental shares

     9.491        12.253        9.591        13.216  
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used for diluted earnings per share

     375.338        398.659        377.647        404.617  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic earnings per share

   $ 1.79      $ 1.70      $ 3.58      $ 3.45  

Diluted earnings per share

   $ 1.75      $ 1.65      $ 3.48      $ 3.34  

 

9


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at June 30, 2017 and December 31, 2016 follows (dollars in millions):

 

     June 30, 2017  
     Amortized
Cost
     Unrealized
Amounts
     Fair
Value
 
        Gains      Losses     

Debt securities:

           

States and municipalities

   $ 364        $14        $—      $ 378  

Money market funds

     20                      20  
  

 

 

    

 

 

    

 

 

    

 

 

 
     384        14               398  

Equity securities

     1        2               3  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 385        $16        $—        401  
  

 

 

    

 

 

    

 

 

    

Amounts classified as current assets

              (49
           

 

 

 

Investment carrying value

            $ 352  
           

 

 

 

 

     December 31, 2016  
     Amortized
Cost
     Unrealized
Amounts
     Fair
Value
 
        Gains      Losses     

Debt securities:

           

States and municipalities

   $ 345        $9        $(1)      $ 353  

Money market funds

     28                      28  
  

 

 

    

 

 

    

 

 

    

 

 

 
     373        9        (1)        381  

Equity securities

     1        3               4  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 374        $12        $(1)        385  
  

 

 

    

 

 

    

 

 

    

Amounts classified as current assets

              (49
           

 

 

 

Investment carrying value

            $ 336  
           

 

 

 

At June 30, 2017 and December 31, 2016, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).

Scheduled maturities of investments in debt securities at June 30, 2017 were as follows (dollars in millions):

 

     Amortized
Cost
     Fair
Value
 

Due in one year or less

   $ 96      $ 96  

Due after one year through five years

     71        74  

Due after five years through ten years

     174        184  

Due after ten years

     43        44  
  

 

 

    

 

 

 
   $ 384      $ 398  
  

 

 

    

 

 

 

The average expected maturity of the investments in debt securities at June 30, 2017 was 3.9 years, compared to the average scheduled maturity of 5.5 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.

 

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HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

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

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at June 30, 2017 (dollars in millions):

 

     Notional
Amount
     Maturity Date      Fair
Value
 

Pay-fixed interest rate swaps

   $ 1,000        December 2017      $ (5

Pay-fixed interest rate swaps

     2,000        December 2021        29  

During the next 12 months, we estimate $8 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the six months ended June 30, 2017 (dollars in millions):

 

Derivatives in Cash Flow Hedging Relationships

   Amount of Loss
Recognized in OCI on
Derivatives, Net of  Tax
     Location of Loss
Reclassified from
Accumulated OCI
into Operations
     Amount of Loss
Reclassified from
Accumulated OCI
into Operations
 

Interest rate swaps

   $ 5        Interest expense      $ 13  

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”) emphasizes fair value is a market-based measurement, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

 

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HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

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

Cash Traded Investments

Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. The valuation of these securities involves the consideration of market factors and management’s judgment.

Derivative Financial Instruments

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

Although we determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions, and at June 30, 2017 and December 31, 2016, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

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HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

     June 30, 2017  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
 

Assets:

        

Investments of insurance subsidiaries:

        

Debt securities:

        

States and municipalities

   $ 378     $     $ 378     $  

Money market funds

     20       20              
  

 

 

   

 

 

   

 

 

   

 

 

 
     398       20       378        

Equity securities

     3       3              
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiaries

     401       23       378        

Less amounts classified as current assets

     (49     (20     (29      
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 352     $ 3     $ 349     $  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest rate swaps (Other)

   $ 29     $     $ 29     $  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 5     $     $ 5     $  
     December 31, 2016  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
 

Assets:

        

Investments of insurance subsidiaries:

        

Debt securities:

        

States and municipalities

   $ 353     $     $ 347     $ 6  

Money market funds

     28       28              
  

 

 

   

 

 

   

 

 

   

 

 

 
     381       28       347       6  

Equity securities

     4       4              
  

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiaries

     385       32       347       6  

Less amounts classified as current assets

     (49     (28     (21      
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 336     $ 4     $ 326     $ 6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest rate swaps (Other)

   $ 31     $     $ 31     $  

Liabilities:

        

Interest rate swaps (Income taxes and other liabilities)

   $ 12     $     $ 12     $  —  

 

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HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

The $6 million reduction in the Level 3 investments of our insurance subsidiaries resulted from settlements. The estimated fair value of our long-term debt was $33.802 billion and $32.833 billion at June 30, 2017 and December 31, 2016, respectively, compared to carrying amounts, excluding net debt issuance costs, aggregating $31.840 billion and $31.546 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at June 30, 2017 and December 31, 2016, including related interest rates at June 30, 2017, follows (dollars in millions):

 

     June 30,
2017
    December 31,
2016
 

Senior secured asset-based revolving credit facility (effective interest rate of 2.7%)

   $ 1,760     $ 2,920  

Senior secured revolving credit facility

            

Senior secured term loan facilities (effective interest rate of 3.6%)

     3,939       3,981  

Senior secured notes (effective interest rate of 5.4%)

     15,300       13,800  

Other senior secured debt (effective interest rate of 5.8%)

     589       593  
  

 

 

   

 

 

 

Senior secured debt

     21,588       21,294  

Senior unsecured notes (effective interest rate of 6.5%)

     10,252       10,252  

Net debt issuance costs

     (179     (170
  

 

 

   

 

 

 

Total debt (average life of 7.3 years, rates averaging 5.4%)

     31,661       31,376  

Less amounts due within one year

     213       216  
  

 

 

   

 

 

 
   $ 31,448     $ 31,160  
  

 

 

   

 

 

 

2017 Activity

During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We will use the net proceeds for general corporate purposes, which may include funding all or a portion of the purchase price of certain previously announced hospital acquisitions, and the redemption, during the third quarter of 2017, of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018.

During June 2017, we amended our senior secured revolving credit facilities by (i) increasing the commitments under the senior secured asset-based revolving credit facility to $3.750 billion, (ii) extending the maturity date of the revolving credit commitments to June 28, 2022, (iii) amending the incremental facility provisions to permit the incurrence of additional incremental credit facilities in an aggregate principal amount of $1.5 billion and (iv) providing that the commitment fee for unutilized commitments under the senior secured asset-based revolving credit facility shall be 0.250% per annum.

2016 Activity

During August 2016, we issued $1.200 billion aggregate principal amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior

 

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HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8 — LONG-TERM DEBT (continued)

2016 Activity (continued)

 

secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024.

During March 2016, we issued $1.500 billion aggregate principal amount of 5.250% senior secured notes due 2026. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.500 billion senior secured term loan facility maturing in March 2023.

NOTE 9 — CONTINGENCIES

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.

Health care companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act, 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 results of operations, financial position or liquidity.

NOTE 10 — CAPITAL STRUCTURE

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

 

    Equity (Deficit) Attributable to HCA Healthcare, Inc.     Equity
Attributable to
Noncontrolling
Interests
    Total  
    Common Stock     Capital in
Excess of
Par
Value
    Accumulated
Other
Comprehensive
Loss
    Retained
Deficit
     
    Shares     Par Value            

Balances at December 31, 2016

    370.536     $ 4     $     $ (338   $ (6,968   $ 1,669     $ (5,633

Comprehensive income

                      45       1,316       256       1,617  

Repurchase of common stock

    (11.525           (115           (851           (966

Distributions

                                  (248     (248

Share-based benefit plans

    3.884             117                         117  

Other

                (2                 36       34  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2017

    362.895     $ 4     $     $ (293   $ (6,503   $ 1,713     $ (5,079
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10 — CAPITAL STRUCTURE (continued)

 

During the six months ended June 30, 2017, we repurchased 11.525 million shares of our common stock at an average price of $83.81 per share through market purchases pursuant to the $2.0 billion share repurchase program authorized during November 2016. At June 30, 2017, we had $887 million of repurchase authorization available under the November 2016 authorization.

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

 

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

Balances at December 31, 2016

   $ 7      $ (211   $ (146   $ 12     $ (338

Unrealized gains on available-for-sale securities, net of $2 of income taxes

     3                          3  

Foreign currency translation adjustments, net of $22 of income taxes

            33                   33  

Change in fair value of derivative instruments, net of $3 income tax benefits

                        (5     (5

Expense reclassified into operations from other comprehensive income, net of $3 and $5, respectively, income tax benefits

                  6       8       14  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2017

   $ 10      $ (178   $ (140   $ 15     $ (293
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. We operate in two geographically organized groups: the National and American Groups. The National Group includes 86 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia, and the American Group includes 80 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

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

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

adjusted segment EBITDA and depreciation and amortization for the quarters and six months ended June 30, 2017 and 2016 are summarized in the following table (dollars in millions):

 

     Quarter      Six Months  
     2017      2016      2017      2016  

Revenues:

           

National Group

   $ 5,160      $ 4,931      $ 10,308      $ 9,898  

American Group

     5,093        4,860        10,088        9,646  

Corporate and other

     480        528        960        1,035  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,733      $ 10,319      $ 21,356      $ 20,579  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity in earnings of affiliates:

           

National Group

   $ (4    $ (2    $ (9    $ (4

American Group

     (10      (8      (18      (17

Corporate and other

     1               4        (1
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (13    $ (10    $ (23    $ (22
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted segment EBITDA:

           

National Group

   $ 1,162      $ 1,131      $ 2,293      $ 2,269  

American Group

     1,040        1,004        2,047        1,986  

Corporate and other

     (112      (83      (245      (200
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,090      $ 2,052      $ 4,095      $ 4,055  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization:

           

National Group

   $ 217      $ 201      $ 431      $ 398  

American Group

     238        225        476        444  

Corporate and other

     66        63        135        126  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 521      $ 489      $ 1,042      $ 968  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted segment EBITDA

   $ 2,090      $ 2,052      $ 4,095      $ 4,055  

Depreciation and amortization

     521        489        1,042        968  

Interest expense

     411        427        830        843  

Gains on sales of facilities

     (2      (6      (3      (5

Legal claim costs

            10               22  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 1,160      $ 1,132      $ 2,226      $ 2,227  
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

During December 2012, HCA Healthcare, Inc. issued $1.000 billion aggregate principal amount of 6.250% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the obligor under a significant portion of our other indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes (other than the senior unsecured notes issued by HCA Healthcare, Inc.). The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed by HCA Healthcare, Inc. The senior secured credit facilities and senior secured notes are fully and

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility).

Our summarized condensed consolidating comprehensive income statements for the quarters and six months ended June 30, 2017 and 2016, condensed consolidating balance sheets at June 30, 2017 and December 31, 2016 and condensed consolidating statements of cash flows for the six months ended June 30, 2017 and 2016, segregating HCA Healthcare, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow:

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED JUNE 30, 2017

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

  $     $     $ 6,049     $ 5,757     $     $ 11,806  

Provision for doubtful accounts

                593       480             1,073  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                5,456       5,277             10,733  

Salaries and benefits

                2,437       2,459             4,896  

Supplies

                931       864             1,795  

Other operating expenses

    4             951       1,010             1,965  

Equity in earnings of affiliates

    (658           (1     (12     658       (13

Depreciation and amortization

                248       273             521  

Interest expense

    16       755       (291     (69           411  

Gains on sales of facilities

                (1     (1           (2

Management fees

                (212     212              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (638     755       4,062       4,736       658       9,573  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    638       (755     1,394       541       (658     1,160  

Provision (benefit) for income taxes

    (19     (279     505       158             365  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    657       (476     889       383       (658     795  

Net income attributable to noncontrolling interests

                27       111             138  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 657     $ (476   $ 862     $ 272     $ (658   $ 657  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 684     $ (480   $ 865     $ 300     $ (685   $ 684  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED JUNE 30, 2016

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

   $     $     $ 5,693     $ 5,388     $     $ 11,081  

Provision for doubtful accounts

                 498       264             762  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                 5,195       5,124             10,319  

Salaries and benefits

                 2,347       2,344             4,691  

Supplies

                 886       832             1,718  

Other operating expenses

     2             893       973             1,868  

Equity in earnings of affiliates

     (641           (1     (9     641       (10

Depreciation and amortization

                 238       251             489  

Interest expense

     16       670       (204     (55           427  

Gains on sales of facilities

                 (2     (4           (6

Legal claim costs

           10                         10  

Management fees

                 (235     235              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (623     680       3,922       4,567       641       9,187  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     623       (680     1,273       557       (641     1,132  

Provision (benefit) for income taxes

     (35     (251     462       165             341  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     658       (429     811       392       (641     791  

Net income attributable to noncontrolling interests

                 21       112             133  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 658     $ (429   $ 790     $ 280     $ (641   $ 658  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 608     $ (431   $ 794     $ 228     $ (591   $ 608  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

   $     $     $ 11,902     $ 11,287     $     $ 23,189  

Provision for doubtful accounts

                 1,012       821             1,833  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                 10,890       10,466             21,356  

Salaries and benefits

                 4,903       4,894             9,797  

Supplies

                 1,882       1,710             3,592  

Other operating expenses

     5             1,878       2,012             3,895  

Equity in earnings of affiliates

     (1,266           (2     (21     1,266       (23

Depreciation and amortization

                 499       543             1,042  

Interest expense

     32       1,488       (560     (130           830  

Gains on sales of facilities

                 (1     (2           (3

Management fees

                 (422     422              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,229     1,488       8,177       9,428       1,266       19,130  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,229       (1,488     2,713       1,038       (1,266     2,226  

Provision (benefit) for income taxes

     (87     (549     983       307             654  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,316       (939     1,730       731       (1,266     1,572  

Net income attributable to noncontrolling interests

                 50       206             256  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,316     $ (939   $ 1,680     $ 525     $ (1,266   $ 1,316  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,361     $ (936   $ 1,686     $ 561     $ (1,311   $ 1,361  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(Dollars in millions)

 

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

Revenues before provision for doubtful accounts

   $     $     $ 11,366     $ 10,765     $     $ 22,131  

Provision for doubtful accounts

                 992       560             1,552  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                 10,374       10,205             20,579  

Salaries and benefits

                 4,701       4,692             9,393  

Supplies

                 1,784       1,648             3,432  

Other operating expenses

     4             1,750       1,967             3,721  

Equity in earnings of affiliates

     (1,270           (3     (19     1,270       (22

Depreciation and amortization

                 465       503             968  

Interest expense

     32       1,320       (411     (98           843  

Gains on sales of facilities

                       (5           (5

Legal claim costs

           22                         22  

Management fees

                 (395     395              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,234     1,342       7,891       9,083       1,270       18,352  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,234       (1,342     2,483       1,122       (1,270     2,227  

Provision (benefit) for income taxes

     (118     (495     900       338             625  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,352       (847     1,583       784       (1,270     1,602  

Net income attributable to noncontrolling interests

                 43       207             250  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,352     $ (847   $ 1,540     $ 577     $ (1,270   $ 1,352  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,273     $ (856   $ 1,546     $ 501     $ (1,191   $ 1,273  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 30, 2017

(Dollars in millions)

 

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

Current assets:

           

Cash and cash equivalents

  $     $     $ 155     $ 550     $     $ 705  

Accounts receivable, net

                2,991       2,791             5,782  

Inventories

                923       621             1,544  

Other

                522       784             1,306  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                4,591       4,746             9,337  

Property and equipment, net

                8,560       8,208             16,768  

Investments of insurance subsidiaries

                      352             352  

Investments in and advances to affiliates

    28,356             15       182       (28,356     197  

Goodwill and other intangible assets

                1,727       5,044             6,771  

Other

    805       29       33       274             1,141  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 29,161     $ 29     $ 14,926     $ 18,806     $ (28,356   $ 34,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

           

Current liabilities:

           

Accounts payable

  $     $     $ 1,342     $ 903     $     $ 2,245  

Accrued salaries

                679       530             1,209  

Other accrued expenses

    281       383       457       983             2,104  

Long-term debt due within one year

          97       57       59             213  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    281       480       2,535       2,475             5,771  

Long-term debt, net

    994       29,981       188       285             31,448  

Intercompany balances

    34,258       (9,404     (27,765     2,911              

Professional liability risks

                      1,144             1,144  

Income taxes and other liabilities

    420       5       403       454             1,282  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    35,953       21,062       (24,639)       7,269             39,645  

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

    (6,792     (21,033     39,438       9,951       (28,356     (6,792

Noncontrolling interests

                127       1,586             1,713  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (6,792     (21,033     39,565       11,537       (28,356     (5,079
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 29,161     $ 29     $ 14,926     $ 18,806     $ (28,356   $ 34,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2016

(Dollars in millions)

 

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

Current assets:

           

Cash and cash equivalents

  $     $     $ 110     $ 536     $     $ 646  

Accounts receivable, net

                3,028       2,798             5,826  

Inventories

                890       613             1,503  

Other

                445       666             1,111  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                4,473       4,613             9,086  

Property and equipment, net

                8,463       7,889             16,352  

Investments of insurance subsidiaries

                      336             336  

Investments in and advances to affiliates

    27,045             16       190       (27,045     206  

Goodwill and other intangible assets

                1,728       4,976             6,704  

Other

    877             34       163             1,074  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 27,922     $     $ 14,714     $ 18,167     $ (27,045   $ 33,758  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

           

Current liabilities:

           

Accounts payable

  $     $     $ 1,439     $ 879     $     $ 2,318  

Accrued salaries

                704       561             1,265  

Other accrued expenses

    29       572       464       970             2,035  

Long-term debt due within one year

          97       60       59             216  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    29       669       2,667       2,469             5,834  

Long-term debt, net

    993       29,693       199       275             31,160  

Intercompany balances

    33,784       (10,277     (26,447     2,940              

Professional liability risks

                      1,148             1,148  

Income taxes and other liabilities

    418       12       387       432             1,249  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    35,224       20,097       (23,194     7,264             39,391  

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

    (7,302     (20,097     37,752       9,390       (27,045     (7,302

Noncontrolling interests

                156       1,513             1,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (7,302     (20,097     37,908       10,903       (27,045     (5,633
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 27,922     $     $ 14,714     $ 18,167     $ (27,045   $ 33,758  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Dollars in millions)

 

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

Cash flows from operating activities:

           

Net income (loss)

  $ 1,316     $ (939   $ 1,730     $ 731     $ (1,266   $ 1,572  

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

           

Changes in operating assets and liabilities

    1       (189     (1,189     (851           (2,228

Provision for doubtful accounts

                1,012       821             1,833  

Depreciation and amortization

                499       543             1,042  

Income taxes

    267                               267  

Gains on sales of facilities

                (1     (2           (3

Amortization of debt issuance costs

          16                         16  

Share-based compensation

                140                   140  

Equity in earnings of affiliates

    (1,266                       1,266        

Other

    39                   6             45  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    357       (1,112     2,191       1,248             2,684  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                (578     (726           (1,304

Acquisition of hospitals and health care entities

                (5     (290           (295

Disposition of hospitals and health care entities

                10       4             14  

Change in investments

                      (11           (11

Other

                2       3             5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                (571     (1,020           (1,591
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

          1,500             2             1,502  

Net change in revolving credit facilities

          (1,160                       (1,160

Repayment of long-term debt

          (42     (33     (20           (95

Distributions to noncontrolling interests

                (79     (169           (248

Payment of debt issuance costs

          (25                       (25

Repurchases of common stock

    (966                             (966

Changes in intercompany balances with affiliates, net

    671       839       (1,463     (47            

Other

    (62                 20             (42
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (357     1,112       (1,575     (214           (1,034
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

                45       14             59  

Cash and cash equivalents at beginning of period

                110       536             646  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $     $     $ 155     $ 550     $     $ 705  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(Dollars in millions)

 

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

Cash flows from operating activities:

           

Net income (loss)

  $ 1,352     $ (847   $ 1,583     $ 784     $ (1,270   $ 1,602  

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

           

Changes in operating assets and liabilities

    (23     66       (1,140     (545           (1,642

Provision for doubtful accounts

                992       560             1,552  

Depreciation and amortization

                465       503             968  

Income taxes

    67                               67  

Gains on sales of facilities

                      (5           (5

Legal claim costs

          22                         22  

Amortization of debt issuance costs

          18                         18  

Share-based compensation

                129                   129  

Equity in earnings of affiliates

    (1,270                       1,270        

Other

    37             (2     2             37  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    163       (741     2,027       1,299             2,748  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                (482     (690           (1,172

Acquisition of hospitals and health care entities

                (148     (282           (430

Disposition of hospitals and health care entities

                9       5             14  

Change in investments

                3       15             18  

Other

                (1     16             15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                (619     (936           (1,555
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

          3,000                         3,000  

Repayment of long-term debt

          (2,005     (38     (22           (2,065

Distributions to noncontrolling interests

                (29     (176           (205

Payment of debt issuance costs

          (24                       (24

Repurchases of common stock

    (1,858                             (1,858

Changes in intercompany balances with affiliates, net

    1,799       (230     (1,414     (155            

Other

    (104                 13             (91
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (163     741       (1,481     (340           (1,243
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

                (73     23             (50

Cash and cash equivalents at beginning of period

                155       586             741  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $     $     $ 82     $ 609     $     $ 691  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This quarterly report on Form 10-Q includes certain disclosures which contain “forward-looking statements.” Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures and expected net claim payments and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), including the effects of any repeal of, or changes to, the Health Reform Law, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, (3) the effects related to the continued implementation of the sequestration spending reductions required under the Budget Control Act of 2011, and related legislation extending these reductions, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (4) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (5) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (6) possible changes in Medicare, Medicaid and other state programs, including Medicaid upper payment limit programs or Waiver Programs, that may impact reimbursements to health care providers and insurers, (7) the highly competitive nature of the health care business, (8) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under managed care agreements, the ability to enter into and renew managed care provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (9) the efforts of insurers, health care providers and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilit