Form 10-Q

 

 

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 September 30, 2018

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 every Interactive Data File required to be submitted 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 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

 

  

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 October 31, 2018

Voting common stock, $.01 par value

   344,160,500 shares

 

 

 


HCA HEALTHCARE, INC.

Form 10-Q

September 30, 2018

 

         Page of
Form 10-Q
 

Part I.

  Financial Information   

Item 1.

  Financial Statements (Unaudited):   
 

Condensed Consolidated Income Statements — for the quarters and nine months ended September 30, 2018 and 2017

     2  
 

Condensed Consolidated Comprehensive Income Statements — for the quarters and nine
months ended September 30, 2018 and 2017

     3  
 

Condensed Consolidated Balance Sheets — September 30, 2018 and December 31, 2017

     4  
 

Condensed Consolidated Statements of Stockholders’ Deficit — for the quarters and nine months ended September 30, 2018 and 2017

     5  
 

Condensed Consolidated Statements of Cash Flows — for the nine months ended September 30, 2018 and 2017

     6  
 

Notes to Condensed Consolidated Financial Statements

     7  

Item 2.

 

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

     29  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     46  

Item 4.

 

Controls and Procedures

     46  

Part II.

  Other Information   

Item 1.

 

Legal Proceedings

     46  

Item 1A.

 

Risk Factors

     46  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     47  

Item 6.

 

Exhibits

     48  

Signatures

     49  

 

1


HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Revenues

   $ 11,451     $ 10,696     $ 34,403     $ 32,052  

Salaries and benefits

     5,377       5,081       15,940       14,878  

Supplies

     1,890       1,777       5,722       5,369  

Other operating expenses

     2,097       2,075       6,325       5,970  

Equity in earnings of affiliates

     (9     (13     (25     (36

Depreciation and amortization

     582       539       1,697       1,581  

Interest expense

     442       427       1,309       1,257  

Gains on sales of facilities

     (6     (7     (420     (10

Losses on retirement of debt

     9       39       9       39  
  

 

 

   

 

 

   

 

 

   

 

 

 
     10,382       9,918       30,557       29,048  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,069       778       3,846       3,004  

Provision for income taxes

     173       248       702       902  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     896       530       3,144       2,102  

Net income attributable to noncontrolling interests

     137       104       421       360  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Healthcare, Inc.

   $ 759     $ 426     $ 2,723     $ 1,742  
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic earnings

   $ 2.20     $ 1.18     $ 7.82     $ 4.77  

Diluted earnings

   $ 2.15     $ 1.15     $ 7.65     $ 4.64  

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

        

Basic

     345.823       360.170       348.411       365.398  

Diluted

     353.639       369.834       356.124       375.013  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

2


HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

Unaudited

(Dollars in millions)

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Net income

   $ 896     $ 530     $ 3,144     $ 2,102  

Other comprehensive income (loss) before taxes:

        

Foreign currency translation

     (13     32       (35     87  

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

     (2           (8     5  

Defined benefit plans

                        

Pension costs included in salaries and benefits

     5       5       15       14  
  

 

 

   

 

 

   

 

 

   

 

 

 
     5       5       15       14  

Change in fair value of derivative financial instruments

     10       (1     60       (9

Interest (benefits) costs included in interest expense

     (3     4       (5     17  
  

 

 

   

 

 

   

 

 

   

 

 

 
     7       3       55       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income before taxes

     (3     40       27       114  

Income taxes related to other comprehensive income items

     2       15       15       44  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (5     25       12       70  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     891       555       3,156       2,172  

Comprehensive income attributable to noncontrolling interests

     137       104       421       360  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to HCA Healthcare, Inc.

   $ 754     $ 451     $ 2,735     $ 1,812  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3


HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

     September 30,
2018
    December 31,
2017
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 578     $ 732  

Accounts receivable

     6,532       6,501  

Inventories

     1,634       1,573  

Other

     1,266       1,171  
  

 

 

   

 

 

 
     10,010       9,977  

Property and equipment, at cost

     41,978       40,084  

Accumulated depreciation

     (22,937     (22,189
  

 

 

   

 

 

 
     19,041       17,895  

Investments of insurance subsidiaries

     367       418  

Investments in and advances to affiliates

     238       199  

Goodwill and other intangible assets

     7,759       7,394  

Other

     629       710  
  

 

 

   

 

 

 
   $ 38,044     $ 36,593  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

    

Accounts payable

   $ 2,414     $ 2,606  

Accrued salaries

     1,456       1,369  

Other accrued expenses

     2,170       1,983  

Long-term debt due within one year

     191       200  
  

 

 

   

 

 

 
     6,231       6,158  

Long-term debt, less net debt issuance costs of $163 and $164

     32,916       32,858  

Professional liability risks

     1,239       1,198  

Income taxes and other liabilities

     1,388       1,374  

Stockholders’ deficit:

    

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 345,085,800 shares in 2018 and 350,091,600 shares in 2017

     3       4  

Accumulated other comprehensive loss

     (266     (278

Retained deficit

     (5,342     (6,532
  

 

 

   

 

 

 

Stockholders’ deficit attributable to HCA Healthcare, Inc.

     (5,605     (6,806

Noncontrolling interests

     1,875       1,811  
  

 

 

   

 

 

 
     (3,730     (4,995
  

 

 

   

 

 

 
   $ 38,044     $ 36,593  
  

 

 

   

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4


HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

Unaudited

(Dollars 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
(in millions)
    Par
Value
 

Balances, December 31, 2016

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

Comprehensive income

          18       659       118       795  

Repurchase of common stock

    (5.121       (32       (392       (424

Share-based benefit plans

    3.280         35             35  

Distributions

              (145     (145

Other

        (3         18       15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, March 31, 2017

    368.695       4             (320     (6,701     1,660       (5,357

Comprehensive income

          27       657       138       822  

Repurchase of common stock

    (6.404       (83       (459       (542

Share-based benefit plans

    0.604         82             82  

Distributions

              (103     (103

Other

        1           18       19  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, June 30, 2017

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

Comprehensive income

          25       426       104       555  

Repurchase of common stock

    (6.322       (70       (439       (509

Share-based benefit plans

    0.407         71             71  

Distributions

              (115     (115

Other

        (1         12       11  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, September 30, 2017

    356.980       4             (268     (6,516     1,714       (5,066

Comprehensive income

          (10     474       167       631  

Repurchase of common stock

    (7.245       (86       (490       (576

Share-based benefit plans

    0.357         93             93  

Distributions

              (85     (85

Other

        (7         15       8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, December 31, 2017

    350.092       4             (278     (6,532     1,811       (4,995

Comprehensive income

          81       1,144       138       1,363  

Repurchase of common stock

    (4.370           (423       (423

Share-based benefit plans

    5.265             (114       (114

Cash dividends declared ($0.35 per share)

            (126       (126

Distributions

              (92     (92

Other

              (47     (47
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, March 31, 2018

    350.987       4             (197     (6,051     1,810       (4,434

Comprehensive income

          (64     820       146       902  

Repurchase of common stock

    (4.670     (1     (93       (376       (470

Share-based benefit plans

    0.443         96             96  

Cash dividends declared ($0.35 per share)

            (124       (124

Distributions

              (93     (93

Other

        (3         1       (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, June 30, 2018

    346.760       3             (261     (5,731     1,864       (4,125

Comprehensive income

          (5     759       137       891  

Repurchase of common stock

    (2.518       (55       (247       (302

Share-based benefit plans

    0.844         54             54  

Cash dividends declared ($0.35 per share)

            (123       (123

Distributions

              (130     (130

Other

        1           4       5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances, September 30, 2018

    345.086     $ 3     $     $ (266   $ (5,342   $ 1,875     $ (3,730
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5


HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

Unaudited

(Dollars in millions)

 

     2018     2017  

Cash flows from operating activities:

    

Net income

   $ 3,144     $ 2,102  

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

    

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

    

Accounts receivable

     (161     (70

Inventories and other assets

     (136     (50

Accounts payable and accrued expenses

     150       (169

Depreciation and amortization

     1,697       1,581  

Income taxes

           (9

Gains on sales of facilities

     (420     (10

Losses on retirement of debt

     9       39  

Amortization of debt issuance costs

     23       23  

Share-based compensation

     204       195  

Other

     76       60  
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,586       3,692  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (2,420     (2,033

Acquisition of hospitals and health care entities

     (1,056     (1,142

Disposal of hospitals and health care entities

     802       24  

Change in investments

     65       (15

Other

     (6     (6
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,615     (3,172
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of long-term debt

     2,000       1,502  

Net change in revolving bank credit facilities

     (330     650  

Repayment of long-term debt

     (1,652     (700

Distributions to noncontrolling interests

     (315     (363

Payment of debt issuance costs

     (24     (25

Payment of cash dividends

     (366      

Repurchases of common stock

     (1,195     (1,475

Other

     (232     (37
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,114     (448
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (11      
  

 

 

   

 

 

 

Change in cash and cash equivalents

     (154     72  

Cash and cash equivalents at beginning of period

     732       646  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 578     $ 718  
  

 

 

   

 

 

 

Interest payments

   $ 1,422     $ 1,383  

Income tax payments, net

   $ 702     $ 911  

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Healthcare, 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 September 30, 2018, these affiliates owned and operated 179 hospitals, 122 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 $90 million and $83 million for the quarters ended September 30, 2018 and 2017, respectively, and $254 million and $247 million for the nine months ended September 30, 2018 and 2017, respectively. Operating results for the quarter and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017.

Revenues

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. We adopted the new standard effective January 1, 2018, using the full retrospective method. The adoption of the new standard did not have an impact on our recognition of net revenues for any periods prior to adoption. The most significant impact of adopting the new standard is to the presentation of our consolidated income statements, where we no longer present the “Provision for doubtful accounts” as a separate line item and our “Revenues” are presented net of estimated implicit price concession revenue deductions. We also have eliminated the related presentation of “allowances for doubtful accounts” on our consolidated balance sheets as a result of the adoption of the new standard.

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial

 

7


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revenues (continued)

 

insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. 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.

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance 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 estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and others (including uninsured patients) for the quarters and nine months ended September 30, 2018 and 2017 are summarized in the following table (dollars in millions):

 

     Quarter  
     2018      Ratio     2017      Ratio  

Medicare

   $ 2,404        21.0   $ 2,298        21.5

Managed Medicare

     1,344        11.7       1,122        10.5  

Medicaid

     338        3.0       286        2.7  

Managed Medicaid

     622        5.4       537        5.0  

Managed care and insurers

     6,026        52.6       5,605        52.4  

International (managed care and insurers)

     273        2.4       276        2.6  

Other

     444        3.9       572        5.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 11,451        100.0   $ 10,696        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

     Nine Months  
     2018      Ratio     2017      Ratio  

Medicare

   $ 7,353        21.4   $ 6,931        21.6

Managed Medicare

     4,088        11.9       3,463        10.8  

Medicaid

     976        2.8       956        3.0  

Managed Medicaid

     1,769        5.1       1,653        5.2  

Managed care and insurers

     18,081        52.6       16,957        52.9  

International (managed care and insurers)

     873        2.5       814        2.5  

Other

     1,263        3.7       1,278        4.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 34,403        100.0   $ 32,052        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

8


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revenues (continued)

 

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 Emergency Medical Treatment and 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 hospital’s 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 individual’s ability to pay for treatment. Federal and state laws and regulations 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. Prior to November 2017, patients treated at hospitals for non-elective care, who have income at or below 200% of the federal poverty level, were eligible for charity care. During November 2017, we expanded our charity policy to include patients who have income above 200%, but at or below 400%, of the federal poverty level and we will limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. In implementing the uninsured discount policy, we may first attempt to provide assistance to uninsured patients to help determine whether they may qualify 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 collection of outstanding receivables for Medicare, Medicaid, 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. Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are 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.

The estimates for implicit price concessions are based upon management’s 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 collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability 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 implicit price concession amounts at each of our hospital facilities provide reasonable estimates of our revenues and valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted in material adjustments to the valuations of our accounts receivable or period-to-period comparisons of our results of operations. At September 30, 2018 and December 31, 2017, estimated implicit price concessions of $5.781 billion and $5.488 billion, respectively, had been recorded as

 

9


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revenues (continued)

 

reductions to our accounts receivable balances to enable us to record our revenues and accounts receivable at the estimated amounts we expect to collect.

To quantify the total impact of the trends related to uninsured accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and nine months ended September 30, 2018 and 2017 follows (dollars in millions):

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)

   $ 9,946     $ 9,472     $ 29,684     $ 27,798  

Cost-to-charges ratio (patient care costs as percentage of gross patient charges)

     12.7     13.4     12.6     13.1

Total uncompensated care

   $ 6,786     $ 6,089     $ 19,524     $ 17,137  

Multiply by the cost-to-charges ratio

     12.7     13.4     12.6     13.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Estimated cost of total uncompensated care

   $ 862     $ 816     $ 2,460     $ 2,245  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 37.2% and 36.3% for the quarters ended September 30, 2018 and 2017, respectively, and 36.2% and 34.8% for the nine months ended September 30, 2018 and 2017, respectively. The total uncompensated care amounts include charity care of $2.314 billion and $1.235 billion, and the related estimated costs of charity care were $295 million and $167 million for the quarters ended September 30, 2018 and 2017, respectively, and charity care of $6.170 billion and $3.494 billion, and the related estimated costs of charity care were $777 million and $458 million for the nine months ended September 30, 2018 and 2017, respectively.

Recent Pronouncements

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. We are continuing to evaluate the provisions of ASU 2016-02 (and related developments) 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.

During October 2018, the SEC adopted a final rule affecting interim financial statements which requires a reconciliation of changes in stockholders’ equity in the notes to the financial statements or as a separate statement. We have included a single statement presentation of our condensed consolidated statements of stockholders’ deficit for the quarters and nine months ended September 30, 2018 and 2017.

Reclassifications

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

 

10


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2018, we paid $788 million to acquire two hospital facilities and $268 million to acquire other nonhospital health care entities. During the nine months ended September 30, 2017, we paid $1.000 billion to acquire seven hospital facilities and $142 million to acquire other nonhospital 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 these acquired entities aggregated $433 million and $655 million for the nine months ended September 30, 2018 and 2017, 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 these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.

During the nine months ended September 30, 2018, we received proceeds of $758 million and recognized a net pretax gain of $372 million related to the sale of the two hospital facilities in our Oklahoma market. During the nine months ended September 30, 2018, we also received proceeds of $44 million and recognized a net pretax gain of $48 million related to sales of real estate and other investments. During the nine months ended September 30, 2017, we received proceeds of $24 million and recognized a net pretax gain of $10 million related to sales of real estate and other investments.

NOTE 3 — INCOME TAXES

Our provision for income taxes for the quarters ended September 30, 2018 and 2017, was $173 million and $248 million, respectively, and the effective tax rates were 18.6% and 36.7%, respectively. Our provision for income taxes for the nine months ended September 30, 2018 and 2017, was $702 million and $902 million, respectively, and the effective tax rates were 20.5% and 34.1%, respectively. The reductions in the effective tax rates for 2018 periods were primarily related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act (the “Tax Act”). Our provision for income taxes for the quarter and nine months ended September 30, 2018 included tax benefits, of $132 million and $377 million, respectively, related to the reduction in our effective tax rate associated with the impact of the Tax Act. Our provision for income taxes also included tax benefits related to the settlement of employee equity awards of $23 million and $4 million for the quarters ended September 30, 2018 and 2017, respectively, and $119 million and $80 million for the nine months ended September 30, 2018 and 2017, respectively. We also recorded a reduction to the provision for income taxes of $28 million during the quarter ended September 30, 2018 for tax credits related to certain 2017 hurricane-related expenses.

The Tax Act was enacted on December 22, 2017, and it significantly revised U.S. corporate income taxes, including lowering the federal statutory corporate tax rate from 35% to 21% beginning in 2018. Due to the complexity and uncertainty regarding numerous provisions of the Tax Act, we have not completed our accounting for its effects. However, we have made reasonable estimates and recorded provisional amounts in our financial statements as of September 30, 2018. As we complete our analysis of the Tax Act, we may make adjustments to the provisional amounts and record additional amounts for those federal, state, and foreign tax assets and liabilities for which we were unable to make reasonable estimates as of September 30, 2018. Any adjustments or additional amounts recorded may materially impact our provision for income taxes and effective tax rate in the periods in which they are made.

Our liability for unrecognized tax benefits was $440 million, including accrued interest of $45 million, as of September 30, 2018 ($439 million and $44 million, respectively, as of December 31, 2017). Unrecognized tax benefits of $145 million ($145 million as of December 31, 2017) would affect the effective rate, if recognized.

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

 

11


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3 — INCOME TAXES (continued)

 

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 nine months ended September 30, 2018 and 2017 (dollars and shares in millions, except per share amounts):

 

     Quarter      Nine Months  
     2018      2017      2018      2017  

Net income attributable to HCA Healthcare, Inc.

   $ 759      $ 426      $ 2,723      $ 1,742  

Weighted average common shares outstanding

     345.823        360.170        348.411        365.398  

Effect of dilutive incremental shares

     7.816        9.664        7.713        9.615  
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used for diluted earnings per share

     353.639        369.834        356.124        375.013  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic earnings

   $ 2.20      $ 1.18      $ 7.82      $ 4.77  

Diluted earnings

   $ 2.15      $ 1.15      $ 7.65      $ 4.64  

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2018 and December 31, 2017 follows (dollars in millions):

 

     September 30, 2018  
     Amortized
Cost
     Unrealized
Amounts
     Fair
Value
 
     Gains      Losses  

Debt securities

   $ 343      $ 4      $ (2    $ 345  

Money market funds and other

     68                      68  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 411      $ 4      $ (2      413  
  

 

 

    

 

 

    

 

 

    

Amounts classified as current assets

              (46
           

 

 

 

Investment carrying value

            $ 367  
           

 

 

 

 

12


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

 

     December 31, 2017  
     Amortized
Cost
     Unrealized
Amounts
     Fair
Value
 
     Gains      Losses  

Debt securities

   $ 361      $ 10      $      $ 371  

Money market funds and other

     101                      101  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 462      $ 10      $        472  
  

 

 

    

 

 

    

 

 

    

Amounts classified as current assets

              (54
           

 

 

 

Investment carrying value

            $ 418  
           

 

 

 

At September 30, 2018 and December 31, 2017, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).

Scheduled maturities of investments in debt securities at September 30, 2018 were as follows (dollars in millions):

 

     Amortized
Cost
     Fair
Value
 

Due in one year or less

   $ 9      $ 9  

Due after one year through five years

     57        58  

Due after five years through ten years

     210        212  

Due after ten years

     67        66  
  

 

 

    

 

 

 
   $ 343      $ 345  
  

 

 

    

 

 

 

The average expected maturity of the investments in debt securities at September 30, 2018 was 5.7 years, compared to the average scheduled maturity of 10.1 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between two parties based on common notional principal amounts and maturity dates. Pay-fixed interest rate swaps effectively convert 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.

 

13


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

Interest Rate Swap Agreements (continued)

 

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at September 30, 2018 (dollars in millions):

 

     Notional
Amount
     Maturity Date      Fair
Value
 

Pay-fixed interest rate swaps

   $ 2,000        December 2021      $ 88  

Pay-fixed interest rate swaps

     500        December 2022        17  

During the next 12 months, we estimate $26 million will be reclassified from other comprehensive income (“OCI”) and will reduce interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the nine months ended September 30, 2018 (dollars in millions):

 

Derivatives in Cash Flow Hedging Relationships

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

Interest rate swaps

   $ 46        Interest expense      $ 5  

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).

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.

 

14


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

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 September 30, 2018 and December 31, 2017, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

The following tables summarize our assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

     September 30, 2018  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Assets:

         

Investments of insurance subsidiaries:

         

Debt securities

   $ 345     $     $ 345      $  

Money market funds and other

     68       68               
  

 

 

   

 

 

   

 

 

    

 

 

 

Investments of insurance subsidiaries

     413       68       345         

Less amounts classified as current assets

     (46     (46             
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 367       22     $ 345      $  
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest rate swaps (Other)

   $ 105     $     $ 105      $  

 

15


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

 

 

     December 31, 2017  
           Fair Value Measurements Using  
     Fair Value     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Assets:

         

Investments of insurance subsidiaries:

         

Debt securities

   $ 371     $     $ 371      $  

Money market funds and other

     101       101               
  

 

 

   

 

 

   

 

 

    

 

 

 

Investments of insurance subsidiaries

     472       101       371         

Less amounts classified as current assets

     (54     (54             
  

 

 

   

 

 

   

 

 

    

 

 

 
   $ 418     $ 47     $ 371      $  
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest rate swaps (Other)

   $ 50     $     $ 50      $  

The estimated fair value of our long-term debt was $34.125 billion and $34.689 billion at September 30, 2018 and December 31, 2017, respectively, compared to carrying amounts, excluding net debt issuance costs, aggregating $33.270 billion and $33.222 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2018 and December 31, 2017, including related interest rates at September 30, 2018, follows (dollars in millions):

 

     September 30,
2018
    December 31,
2017
 

Senior secured asset-based revolving credit facility (effective interest rate of 3.7%)

   $ 3,350     $ 3,680  

Senior secured revolving credit facility

            

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

     3,825       3,891  

Senior secured notes (effective interest rate of 5.6%)

     13,800       15,300  

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

     543       599  
  

 

 

   

 

 

 

Senior secured debt

     21,518       23,470  

Senior unsecured notes (effective interest rate of 6.3%)

     11,752       9,752  

Net debt issuance costs

     (163     (164
  

 

 

   

 

 

 

Total debt (average life of 6.6 years, rates averaging 5.4%)

     33,107       33,058  

Less amounts due within one year

     191       200  
  

 

 

   

 

 

 
   $ 32,916     $ 32,858  
  

 

 

   

 

 

 

 

16


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8 — LONG-TERM DEBT (continued)

 

During August 2018, we issued $2.000 billion aggregate principal amount of senior notes comprised of $1.000 billion aggregate principal amount of 5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625% notes due 2028. We used the net proceeds for general corporate purposes, including funding the purchase of a hospital, and the redemption of all $1.500 billion aggregate principal amount of our existing 3.750% senior secured notes maturing in March 2019. The pretax loss on retirement of debt was $9 million.

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 — SHARE REPURCHASES TRANSACTIONS AND OTHER COMPREHENSIVE LOSS

During the nine months ended September 30, 2018, we repurchased 11.558 million shares of our common stock at an average price of $103.42 per share through market purchases pursuant to the $2.0 billion share repurchase program authorized during October 2017. At September 30, 2018, we had $607 million of repurchase authorization available under the October 2017 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, 2017

   $ 7     $ (149   $ (168   $ 32     $ (278

Unrealized losses on available-for-sale securities, net of $1 income tax benefit

     (7                       (7

Foreign currency translation adjustments

           (35                 (35

Change in fair value of derivative instruments, net of $14 of income taxes

                       46       46  

Expense (income) reclassified into operations from other comprehensive income, net of $3 income tax benefit and $1 of income taxes, respectively

                 12       (4     8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2018

   $     $ (184   $ (156   $ 74     $ (266
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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 88 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 85 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Tennessee and Texas. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

 

18


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, gains on sales of facilities, losses on retirement of debt, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and nine months ended September 30, 2018 and 2017 are summarized in the following table (dollars in millions):

 

     Quarter      Nine Months  
     2018      2017      2018      2017  

Revenues:

           

National Group

   $ 5,542      $ 5,036      $ 16,719      $ 15,344  

American Group

     5,396        5,180        16,113        15,268  

Corporate and other

     513        480        1,571        1,440  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 11,451      $ 10,696      $ 34,403      $ 32,052  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity in earnings of affiliates:

           

National Group

   $ (1    $ (8    $ (5    $ (17

American Group

     (10      (9      (29      (27

Corporate and other

     2        4        9        8  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (9    $ (13    $ (25    $ (36
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted segment EBITDA:

           

National Group

   $ 1,127      $ 975      $ 3,593      $ 3,268  

American Group

     1,072        930        3,250        2,977  

Corporate and other

     (103      (129      (402      (374
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,096      $ 1,776      $ 6,441      $ 5,871  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization:

           

National Group

   $ 245      $ 219      $ 702      $ 650  

American Group

     258        251        765        727  

Corporate and other

     79        69        230        204  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 582      $ 539      $ 1,697      $ 1,581  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted segment EBITDA

   $ 2,096      $ 1,776      $ 6,441      $ 5,871  

Depreciation and amortization

     582        539        1,697        1,581  

Interest expense

     442        427        1,309        1,257  

Gains on sales of facilities

     (6      (7      (420      (10

Losses on retirement of debt

     9        39        9        39  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 1,069      $ 778      $ 3,846      $ 3,004  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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

Our summarized condensed consolidating comprehensive income statements for the quarters and nine months ended September 30, 2018 and 2017, condensed consolidating balance sheets at September 30, 2018 and December 31, 2017 and condensed consolidating statements of cash flows for the nine months ended September 30, 2018 and 2017, 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 SEPTEMBER 30, 2018

(Dollars in millions)

 

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

Revenues

   $     $     $ 6,747     $ 4,704     $     $ 11,451  

Salaries and benefits

                 3,090       2,287             5,377  

Supplies

                 1,115       775             1,890  

Other operating expenses

     2             1,137       958             2,097  

Equity in earnings of affiliates

     (728           (2     (7     728       (9

Depreciation and amortization

                 340       242             582  

Interest expense (income)

     16       913       (423     (64           442  

Losses (gains) on sales of facilities

                 (6                 (6

Losses on retirement of debt

           9                         9  

Management fees

                 (158     158              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (710     922       5,093       4,349       728       10,382  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     710       (922     1,654       355       (728     1,069  

Provision (benefit) for income taxes

     (49     (214     379       57             173  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     759       (708     1,275       298       (728     896  

Net income attributable to noncontrolling interests

                 22       115             137  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 759     $ (708   $ 1,253     $ 183     $ (728   $ 759  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 754     $ (703   $ 1,258     $ 168     $ (723   $ 754  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

20


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 SEPTEMBER 30, 2017

(Dollars in millions)

 

     HCA
Healthcare, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors

(as adjusted)
    Subsidiary
Non-
Guarantors

(as adjusted)
    Eliminations     Condensed
Consolidated
 

Revenues

   $     $     $ 6,303     $ 4,393     $     $ 10,696  

Salaries and benefits

                 2,915       2,166             5,081  

Supplies

                 1,033       744             1,777  

Other operating expenses

                 1,093       982             2,075  

Equity in earnings of affiliates

     (436           (1     (12     436       (13

Depreciation and amortization

                 311       228             539  

Interest expense (income)

     16       792       (342     (39           427  

Gains on sales of facilities

                 (3     (4           (7

Losses on retirement of debt

           39                         39  

Management fees

                 (159     159              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (420     831       4,847       4,224       436       9,918  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     420       (831     1,456       169       (436     778  

Provision (benefit) for income taxes

     (6     (307     528       33             248  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     426       (524     928       136       (436     530  

Net income attributable to noncontrolling interests

                 24       80             104  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 426     $ (524   $ 904     $ 56     $ (436   $ 426  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 451     $ (522   $ 907     $ 76     $ (461   $ 451  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


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 NINE MONTHS ENDED SEPTEMBER 30, 2018

(Dollars in millions)

 

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

Revenues

   $     $     $ 20,297     $ 14,106     $     $ 34,403  

Salaries and benefits

                 9,184       6,756             15,940  

Supplies

                 3,383       2,339             5,722  

Other operating expenses

     7             3,387       2,931             6,325  

Equity in earnings of affiliates

     (2,670           (5     (20     2,670       (25

Depreciation and amortization

                 992       705             1,697  

Interest expense (income)

     48       2,617       (1,179     (177           1,309  

Gains on sales of facilities

                 (378     (42           (420

Losses on retirement of debt

           9                         9  

Management fees

                 (473     473              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (2,615     2,626       14,911       12,965       2,670       30,557  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     2,615       (2,626     5,386       1,141       (2,670     3,846  

Provision (benefit) for income taxes

     (108     (610     1,235       185             702  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,723       (2,016     4,151       956       (2,670     3,144  

Net income attributable to noncontrolling interests

                 72       349             421  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 2,723     $ (2,016   $ 4,079     $ 607     $ (2,670   $ 2,723  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 2,735     $ (1,974   $ 4,091     $ 565     $ (2,682   $ 2,735  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

22


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 NINE MONTHS ENDED SEPTEMBER 30, 2017

(Dollars in millions)

 

     HCA
Healthcare, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors

(as adjusted)
    Subsidiary
Non-
Guarantors

(as adjusted)
    Eliminations     Condensed
Consolidated
 

Revenues

   $     $     $ 19,008     $ 13,044     $     $ 32,052  

Salaries and benefits

                 8,689       6,189             14,878  

Supplies

                 3,163       2,206             5,369  

Other operating expenses

     5             3,207       2,758             5,970  

Equity in earnings of affiliates

     (1,702           (4     (32     1,702       (36

Depreciation and amortization

                 923       658             1,581  

Interest expense (income)

     48       2,280       (947     (124           1,257  

Gains on sales of facilities

                 (6     (4           (10

Losses on retirement of debt

           39                         39  

Management fees

                 (479     479              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,649     2,319       14,546       12,130       1,702       29,048  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,649       (2,319     4,462       914       (1,702     3,004  

Provision (benefit) for income taxes

     (93     (856     1,619       232             902  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,742       (1,463     2,843       682       (1,702     2,102  

Net income attributable to noncontrolling interests

                 74       286             360  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,742     $ (1,463   $ 2,769     $ 396     $ (1,702   $ 1,742  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 1,812     $ (1,458   $ 2,778     $ 452     $ (1,772   $ 1,812  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


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

SEPTEMBER 30, 2018

(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

  $     $     $ 105     $ 473     $     $ 578  

Accounts receivable

                3,854       2,678             6,532  

Inventories

                1,088       546             1,634  

Other

    47             667       552             1,266  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    47             5,714       4,249             10,010  

Property and equipment, net

                12,192       6,849             19,041  

Investments of insurance subsidiaries

                      367             367  

Investments in and advances to affiliates

    32,263             29       209       (32,263     238  

Goodwill and other intangible assets

                5,736       2,023             7,759  

Other

    389       106       29       105             629  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 32,699     $ 106     $ 23,700     $ 13,802     $ (32,263   $ 38,044  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

                                   

Current liabilities:

           

Accounts payable

  $     $     $ 1,627     $ 787     $     $ 2,414  

Accrued salaries

                914       542             1,456  

Other accrued expenses

    10       296       790       1,074             2,170  

Long-term debt due within one year

          97       61       33             191  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    10       393       3,392       2,436             6,231  

Long-term debt, net

    996       31,471       281       168             32,916  

Intercompany balances

    36,790       (7,734     (27,263     (1,793            

Professional liability risks

                      1,239             1,239  

Income taxes and other liabilities

    508             364       516             1,388  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    38,304       24,130       (23,226     2,566             41,774  

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

    (5,605     (24,024     46,846       9,441       (32,263     (5,605

Noncontrolling interests

                80       1,795             1,875  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (5,605     (24,024     46,926       11,236       (32,263     (3,730
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 32,699     $ 106     $ 23,700     $ 13,802     $ (32,263   $ 38,044  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


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, 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

  $ 1     $     $ 112     $ 619     $     $ 732  

Accounts receivable

                3,693       2,808             6,501  

Inventories

                1,030       543             1,573  

Other

                663       508             1,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1             5,498       4,478             9,977  

Property and equipment, net

                11,110       6,785             17,895  

Investments of insurance subsidiaries

                      418             418  

Investments in and advances to affiliates

    29,581             22       177       (29,581     199  

Goodwill and other intangible assets

                4,893       2,501             7,394  

Other

    510       50       47       103             710  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 30,092     $ 50     $ 21,570     $ 14,462     $ (29,581   $ 36,593  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY            

Current liabilities:

           

Accounts payable

  $     $     $ 1,793     $ 813     $     $ 2,606  

Accrued salaries

                862       507             1,369  

Other accrued expenses

    29       378       536       1,040             1,983  

Long-term debt due within one year

          97       64       39             200  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    29       475       3,255       2,399             6,158  

Long-term debt, net

    995       31,367       307       189             32,858  

Intercompany balances

    35,322       (9,742     (25,228     (352            

Professional liability risks

                      1,198             1,198  

Income taxes and other liabilities

    552             357       465             1,374  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    36,898       22,100       (21,309)       3,899             41,588  

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

    (6,806     (22,050     42,755       8,876       (29,581     (6,806

Noncontrolling interests

                124       1,687             1,811  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (6,806     (22,050     42,879       10,563       (29,581     (4,995
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 30,092     $ 50     $ 21,570     $ 14,462     $ (29,581   $ 36,593  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


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 NINE MONTHS ENDED SEPTEMBER 30, 2018

(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)

  $ 2,723     $ (2,016   $ 4,151     $ 956     $ (2,670   $ 3,144  

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

           

Changes in operating assets and liabilities

    (15     (83     (154     105             (147

Depreciation and amortization

                992       705             1,697  

Gains on sales of facilities

                (378     (42           (420

Losses on retirement of debt

          9                         9  

Amortization of debt issuance costs

          23                         23  

Share-based compensation

                204                   204  

Equity in earnings of affiliates

    (2,670                       2,670        

Other

    67                   9             76  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    105       (2,067     4,815       1,733             4,586  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                (1,425     (995           (2,420

Acquisition of hospitals and health care entities

                (894     (162           (1,056

Disposition of hospitals and health care entities

                770       32             802  

Change in investments

                19       46             65  

Other

                (18     12             (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                (1,548     (1,067           (2,615
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

          2,000                         2,000  

Net change in revolving credit facilities

          (330                       (330

Repayment of long-term debt

          (1,566     (44     (42           (1,652

Distributions to noncontrolling interests

                (63     (252           (315

Payment of debt issuance costs

          (24                       (24

Payment of cash dividends

    (366                             (366

Repurchases of common stock

    (1,195                             (1,195

Changes in intercompany balances with affiliates, net

    1,697       1,987       (3,167     (517            

Other

    (242                 10             (232
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (106     2,067       (3,274     (801           (2,114
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect on exchange rate changes on cash and cash equivalents

                      (11           (11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

    (1           (7     (146           (154

Cash and cash equivalents at beginning of period

    1             112       619             732  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $     $     $  105     $ 473     $     $ 578  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


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 NINE MONTHS ENDED SEPTEMBER 30, 2017

(Dollars in millions)

 

    HCA
Healthcare, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors

(as adjusted)
    Subsidiary
Non-
Guarantors

(as adjusted)
    Eliminations     Condensed
Consolidated
 

Cash flows from operating activities:

           

Net income (loss)

  $ 1,742     $ (1,463   $ 2,843     $ 682     $ (1,702   $ 2,102  

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

           

Changes in operating assets and liabilities

    (15     (293     (191     210             (289

Depreciation and amortization

                923       658             1,581  

Income taxes

    (9                             (9

Gains on sales of facilities

                (6     (4           (10

Losses on retirement of debt

          39                         39  

Amortization of debt issuance costs

          23                         23  

Share-based compensation

                195                   195  

Equity in earnings of affiliates

    (1,702                       1,702        

Other

    58             2                   60  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    74       (1,694     3,766       1,546             3,692  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                (1,161     (872           (2,033

Acquisition of hospitals and health care entities

                (9     (1,133           (1,142

Disposition of hospitals and health care entities

                12       12             24  

Change in investments

                1       (16           (15

Other

                (7     1             (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                (1,164     (2,008           (3,172
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

          1,500             2             1,502  

Net change in revolving credit facilities

          650                         650  

Repayment of long-term debt

          (604     (54     (42           (700

Distributions to noncontrolling interests

                (105     (258           (363

Payment of debt issuance costs

          (25                       (25

Repurchases of common stock

    (1,475                             (1,475

Changes in intercompany balances with affiliates, net

    1,468       173       (2,439     798              

Other

    (66           1       28             (37
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (73     1,694       (2,597     528             (448
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

    1             5       66             72  

Cash and cash equivalents at beginning of period

                114       532             646  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 1     $     $ 119     $ 598     $     $ 718  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

The above supplemental condensed consolidating financial information for the quarter and nine months ended September 30, 2017 has been adjusted to properly record the impact of certain subsidiaries that were non-guarantors becoming guarantors, primarily related to the Company acquiring previous noncontrolling interests of non-guarantor subsidiaries that then became guarantor subsidiaries. The impact of these adjustments was immaterial as they had no impact to our consolidated income statements, balance sheets or statements of cash flows, had no impact on any liquidity measures of the Company, nor did they impact any financial ratios based on our consolidated balance sheets or income statements. There was also no impact to our loan covenant reporting or compliance. The impact of the adjustments was limited to reclassifications between the Subsidiary Guarantors and Subsidiary Non-Guarantors columns of the condensed consolidating financial statements. The application of these adjustments to the consolidating information for the quarter and nine months ended September 30, 2017 is summarized as follows (dollars in millions):

 

     As
Previously
Reported
     Adjustment      As Adjusted  

Quarter ended September 30, 2017

        

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

        

HCA Healthcare, Inc. Issuer

   $ 426      $      $ 426  

HCA Inc. Issuer

     (524             (524

Subsidiary Guarantors

     787        117        904  

Subsidiary Non-Guarantors

     173        (117      56  

Eliminations

     (436             (436
  

 

 

    

 

 

    

 

 

 

Condensed Consolidated

   $ 426      $      $ 426  
  

 

 

    

 

 

    

 

 

 

 

     As
Previously
Reported
     Adjustment      As Adjusted  

Nine months ended September 30, 2017

        

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

        

HCA Healthcare, Inc. Issuer

   $ 1,742      $      $ 1,742  

HCA Inc. Issuer

     (1,463             (1,463

Subsidiary Guarantors

     2,467        302        2,769  

Subsidiary Non-Guarantors

     698        (302      396  

Eliminations

     (1,702             (1,702
  

 

 

    

 

 

    

 

 

 

Condensed Consolidated

   $ 1,742      $      $ 1,742  
  

 

 

    

 

 

    

 

 

 

 

     As
Previously
Reported
     Adjustment      As Adjusted  

Nine months ended September 30, 2017

        

Net cash provided (used in) operating activities:

        

HCA Healthcare, Inc. Issuer

   $ 74      $      $ 74  

HCA Inc. Issuer

     (1,694             (1,694

Subsidiary Guarantors

     3,342        424        3,766  

Subsidiary Non-Guarantors

     1,970        (424      1,546  

Eliminations

                    
  

 

 

    

 

 

    

 

 

 

Condensed Consolidated

   $ 3,692      $      $ 3,692  
  

 

 

    

 

 

    

 

 

 

 

28


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 or changes to its implementation, 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 supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (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 third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (9) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (13) changes in accounting practices, (14) changes in general economic conditions nationally and regionally in our markets, (15) the emergence and effects related to infectious diseases, (16) future divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (20) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) the impact of potential cybersecurity incidents or security breaches, (22) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology, (23) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (24) changes in interpretations, assumptions and expectations regarding the 2017 Tax Cuts and Jobs Act, including additional guidance that may be issued by federal and state taxing authorities or other standard-setting bodies, and (25) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2017 and our other filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

29


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Third Quarter 2018 Operations Summary

Revenues increased to $11.451 billion in the third quarter of 2018 from $10.696 billion in the third quarter of 2017. Net income attributable to HCA Healthcare, Inc. totaled $759 million, or $2.15 per diluted share, for the quarter ended September 30, 2018, compared to $426 million, or $1.15 per diluted share, for the quarter ended September 30, 2017. Third quarter 2018 results included net gains on sales of facilities of $6 million, or $0.01 per diluted share, and losses on retirement of debt of $9 million, or $0.02 per diluted share. Third quarter 2017 results included net gains on sales of facilities of $7 million, or $0.01 per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share. Third quarter 2018 results also included a reduction to the provision for income taxes of $132 million, or $0.37 per diluted share, related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act which, along with other revisions, lowered the federal statutory corporate tax rate from 35% to 21% beginning in 2018. Third quarter 2017 results include additional expenses and losses of revenues of approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma, and a negative impact to operating results related to the Texas Medicaid Waiver program of $50 million, or $0.08 per diluted share, related to final settlement amounts for the program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance recoveries. During the third quarter of 2018, we recorded a reduction to the provision for income taxes of $28 million, or $0.08 per diluted share, for tax credits related to certain 2017 hurricane-related expenses. Our provisions for income taxes for the third quarters of 2018 and 2017 also included tax benefits of $23 million, or $0.07 per diluted share, and $4 million, or $0.01 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 353.639 million shares for the quarter ended September 30, 2018 and 369.834 million shares for the quarter ended September 30, 2017. During 2017 and the first nine months of 2018, we repurchased 25.092 million shares and 11.558 million shares of our common stock, respectively.

Revenues increased 7.1% on a consolidated basis and increased 7.4% on a same facility basis for the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017. The increase in consolidated revenues can be primarily attributed to the combined impact of a 2.5% increase in revenue per equivalent admission and a 4.4% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 3.9% increase in same facility revenue per equivalent admission and a 3.4% increase in same facility equivalent admissions.

During the quarter ended September 30, 2018, consolidated admissions and same facility admissions increased 3.2% and 3.1%, respectively, compared to the quarter ended September 30, 2017. Surgeries increased 3.5% on a consolidated basis and 3.2% on a same facility basis during the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017. Emergency department visits increased 0.4% on a consolidated basis and declined 0.4% on a same facility basis during the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017. Same facility uninsured admissions increased 8.8% for the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017.

Cash flows from operating activities increased $713 million from $1.008 billion for the third quarter of 2017 to $1.721 billion for the third quarter of 2018. The increase in cash provided by operating activities was primarily related to the combined impact of an increase in net income of $366 million, positive changes of $149 million related to working capital items and a benefit from income tax payments of $158 million.

Results of Operations

Revenue/Volume Trends

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health

 

30


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

 

care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. 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.

Revenues increased 7.1% from $10.696 billion in the third quarter of 2017 to $11.451 billion in the third quarter of 2018. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance 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 estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and others (including uninsured patients) for the quarters and nine months ended September 30, 2018 and 2017 are summarized in the following table (dollars in millions):

 

     Quarter  
     2018      Ratio     2017      Ratio  

Medicare

   $ 2,404        21.0   $ 2,298        21.5

Managed Medicare

     1,344        11.7       1,122        10.5  

Medicaid

     338        3.0       286        2.7  

Managed Medicaid

     622        5.4       537        5.0  

Managed care and insurers

     6,026        52.6       5,605        52.4  

International (managed care and insurers)

     273        2.4       276        2.6  

Other

     444        3.9       572        5.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 11,451        100.0   $ 10,696        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

31


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

 

     Nine Months  
     2018      Ratio     2017      Ratio  

Medicare

   $ 7,353        21.4   $ 6,931        21.6

Managed Medicare

     4,088        11.9       3,463        10.8  

Medicaid

     976        2.8       956        3.0  

Managed Medicaid

     1,769        5.1       1,653        5.2  

Managed care and insurers

     18,081        52.6       16,957        52.9  

International (managed care and insurers)

     873        2.5       814        2.5  

Other

     1,263        3.7       1,278        4.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 34,403        100.0   $ 32,052        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated and same facility revenue per equivalent admission increased 2.5% and 3.9%, respectively, in the third quarter of 2018, compared to the third quarter of 2017. Consolidated and same facility equivalent admissions increased 4.4% and 3.4%, respectively, in the third quarter of 2018, compared to the third quarter of 2017. Consolidated and same facility outpatient surgeries increased 4.9% and 4.2%, respectively, in the third quarter of 2018, compared to the third quarter of 2017. Consolidated and same facility inpatient surgeries increased 1.1% and 1.6%, respectively, in the third quarter of 2018, compared to the third quarter of 2017. Consolidated and same facility emergency department visits increased 0.4% and declined 0.4%, respectively, in the third quarter of 2018, compared to the third quarter of 2017.

To quantify the total impact of the trends related to uninsured accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and nine months ended September 30, 2018 and 2017 follows (dollars in millions):

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)

   $ 9,946     $ 9,472     $ 29,684     $ 27,798  

Cost-to-charges ratio (patient care costs as percentage of gross patient charges)

     12.7     13.4     12.6     13.1

Total uncompensated care

   $ 6,786     $ 6,089     $ 19,524     $ 17,137  

Multiply by the cost-to-charges ratio

     12.7     13.4     12.6     13.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Estimated cost of total uncompensated care

   $ 862     $ 816     $ 2,460     $ 2,245  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 37.2% and 36.3% for the quarters ended September 30, 2018 and 2017, respectively, and 36.2% and 34.8% for the nine months ended September 30, 2018 and 2017, respectively.

Same facility uninsured admissions increased by 3,383 admissions, or 8.8%, in the third quarter of 2018, compared to the third quarter of 2017. Same facility uninsured admissions increased 7.8%, in the second quarter of 2018, compared to the second quarter of 2017. Same facility uninsured admissions increased 10.1%, in the first quarter of 2018, compared to the first quarter of 2017. Same facility uninsured admissions in 2017, compared to 2016, increased 6.4% in the fourth quarter of 2017, increased 6.4% in the third quarter of 2017, increased 4.9% in the second quarter of 2017 and increased 3.2% in the first quarter of 2017.

 

32


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

 

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters and nine months ended September 30, 2018 and 2017 are set forth in the following table.

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Medicare

     29     30     30     31

Managed Medicare

     17       15       17       16  

Medicaid

     5       5       5       5  

Managed Medicaid

     12       13       12       12  

Managed care and insurers

     28       28       28       28  

Uninsured

     9       9       8       8  
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and other for the quarters and nine months ended September 30, 2018 and 2017 are set forth in the following table.

 

     Quarter     Nine Months  
     2018     2017     2018     2017  

Medicare

     28     29     28     29

Managed Medicare

     13       12       14       13  

Medicaid

     4       4       4       5  

Managed Medicaid

     6       5       6       5  

Managed care and insurers

     49       48       48       48  

Other

           2              
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018, we had 92 hospitals in the states of Texas and Florida. During the third quarter of 2018, 57% of our admissions and 49% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 70% of our uninsured admissions during the third quarter of 2018.

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. In December 2017, the Centers for Medicare & Medicaid Services (“CMS”) announced that it will phase out federal matching funds for Designated State Health Programs under waivers granted under section 1115 of the Social Security Act. Texas currently operates its Healthcare Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicated that it will phase out some of the federal funding. Our Texas Medicaid revenues included Medicaid supplemental payments of $101 million and $60 million during the third quarters of 2018 and 2017, respectively, and $296 million and $261 million during the first nine months of 2018 and 2017, respectively.

In addition, we receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made waiver requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and

 

33


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

 

waiver requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.

Operating Results Summary

The following is a comparative summary of results of operations for the quarters and nine months ended September 30, 2018 and 2017 (dollars in millions):

 

     Quarter  
     2018     2017  
     Amount     Ratio     Amount     Ratio  

Revenues

   $ 11,451       100.0     $ 10,696       100.0  

Salaries and benefits

     5,377       46.9       5,081       47.5  

Supplies

     1,890       16.5       1,777       16.6  

Other operating expenses

     2,097       18.4       2,075       19.4  

Equity in earnings of affiliates

     (9     (0.1     (13     (0.1

Depreciation and amortization

     582       5.1       539       5.0  

Interest expense

     442       3.9       427       4.0  

Gains on sales of facilities

     (6     (0.1     (7     (0.1

Losses on retirement of debt

     9       0.1       39       0.4  
  

 

 

   

 

 

   

 

 

   

 

 

 
     10,382       90.7       9,918       92.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,069       9.3       778       7.3  

Provision for income taxes

     173       1.5       248       2.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     896       7.8       530       5.0  

Net income attributable to noncontrolling interests

     137       1.2       104       1.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Healthcare, Inc.

   $ 759       6.6     $ 426       4.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

% changes from prior year:

        

Revenues

     7.1       4.2  

Income before income taxes

     37.5         (23.6  

Net income attributable to HCA Healthcare, Inc.

     78.3         (31.1  

Admissions(a)

     3.2         2.7    

Equivalent admissions(b)

     4.4         2.5    

Revenue per equivalent admission

     2.5         1.6    

Same facility % changes from prior year(c):

        

Revenues

     7.4         2.3    

Admissions(a)

     3.1         0.6    

Equivalent admissions(b)

     3.4         0.3    

Revenue per equivalent admission

     3.9         2.0    

 

34


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary (continued)

 

     Nine Months  
     2018     2017  
     Amount     Ratio     Amount     Ratio  

Revenues

   $ 34,403       100.0     $ 32,052       100.0  

Salaries and benefits

     15,940       46.3       14,878       46.4  

Supplies

     5,722       16.6       5,369       16.8  

Other operating expenses

     6,325       18.5       5,970       18.6  

Equity in earnings of affiliates

     (25     (0.1     (36     (0.1

Depreciation and amortization

     1,697       4.9       1,581       4.9  

Interest expense

     1,309       3.8       1,257       3.9  

Gains on sales of facilities

     (420     (1.2     (10      

Losses on retirement of debt

     9             39       0.1  
  

 

 

   

 

 

   

 

 

   

 

 

 
     30,557       88.8       29,048       90.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3,846       11.2       3,004       9.4  

Provision for income taxes

     702       2.1       902       2.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,144       9.1       2,102       6.6  

Net income attributable to noncontrolling interests

     421       1.2       360       1.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Healthcare, Inc.

   $ 2,723       7.9     $ 1,742       5.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

% changes from prior year:

        

Revenues

     7.3       3.9  

Income before income taxes

     28.0         (7.4  

Net income attributable to HCA Healthcare, Inc.

     56.4         (11.6  

Admissions(a)

     4.1         1.8    

Equivalent admissions(b)

     4.7         2.1    

Revenue per equivalent admission

     2.5         1.7    

Same facility % changes from prior year(c):

        

Revenues

     6.6         3.0    

Admissions(a)

     2.7         1.0    

Equivalent admissions(b)

     2.7         1.2    

Revenue per equivalent admission

     3.8         1.8    

 

(a)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

(b)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.

(c)

Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.

 

35


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

 

Quarters Ended September 30, 2018 and 2017

Net income attributable to HCA Healthcare, Inc. totaled $759 million, or $2.15 per diluted share, for the third quarter of 2018, compared to $426 million, or $1.15 per diluted share, for the third quarter of 2017. Third quarter 2018 results included net gains on sales of facilities of $6 million, or $0.01 per diluted share, and losses on retirement of debt of $9 million, or $0.02 per diluted share. Third quarter 2017 results include net gains on sales of facilities of $7 million, or $0.01 per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share. Third quarter 2018 results also included a reduction to the provision for income taxes of $132 million, or $0.37 per diluted share, related to the impact of tax rate changes under the 2017 Tax Cuts and Jobs Act. Third quarter 2017 results also include additional expenses and losses of revenues of approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma, and a negative impact to operating results related to the Texas Medicaid waiver program of $50 million, or $0.08 per diluted share, related to final settlement amounts for the program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance recoveries. During the third quarter of 2018, we recorded a reduction to the provision for income taxes of $28 million, or $0.08 per diluted share, for tax credits related to certain 2017 hurricane-related expenses. Our provisions for income taxes for the third quarters of 2018 and 2017 also included tax benefits of $23 million, or $0.07 per diluted share, and $4 million, or $0.01 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 353.639 million shares for the quarter ended September 30, 2018 and 369.834 million shares for the quarter ended September 30, 2017. During 2017 and the first nine months of 2018, we repurchased 25.092 million shares and 11.558 million shares of our common stock, respectively.

Revenues increased 7.1% primarily due to the combined impact of revenue per equivalent admission growth of 2.5% and a 4.4% increase in equivalent admissions for the third quarter of 2018 compared to the third quarter of 2017. Same facility revenues increased 7.4% due to the combined impact of a 3.9% increase in same facility revenue per equivalent admission and a 3.4% increase in same facility equivalent admissions for the third quarter of 2018 compared to the third quarter of 2017.

Salaries and benefits, as a percentage of revenues, were 46.9% in the third quarter of 2018 and 47.5% in the third quarter of 2017. Salaries and benefits per equivalent admission increased 1.3% in the third quarter of 2018 compared to the third quarter of 2017. Same facility labor rate increases averaged 3.1% for the third quarter of 2018 compared to the third quarter of 2017.

Supplies, as a percentage of revenues, were 16.5% in the third quarter of 2018 and 16.6% in the third quarter of 2017. Supply costs per equivalent admission increased 1.9% in the third quarter of 2018 compared to the third quarter of 2017. Supply costs per equivalent admission increased 5.0% for medical devices and 1.8% for general medical and surgical items, and declined 2.5% for pharmacy supplies in the third quarter of 2018 compared to the third quarter of 2017.

Other operating expenses, as a percentage of revenues, were 18.4% in the third quarter of 2018 and 19.4% in the third quarter of 2017. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $60 million and $116 million for the third quarters of 2018 and 2017, respectively. During the third quarter of 2018, we recorded a reduction of $70 million, or $0.15 per diluted share, to our provision for professional liability risks related to the receipt of updated actuarial information.

 

36


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Quarters Ended September 30, 2018 and 2017 (continued)

 

Equity in earnings of affiliates was $9 million and $13 million in the third quarters of 2018 and 2017, respectively.

Depreciation and amortization increased $43 million, from $539 million in the third quarter of 2017 to $582 million in the third quarter of 2018. The increase in depreciation relates to both acquired facilities and increased capital expenditures at our existing facilities.

Interest expense was $442 million in the third quarter of 2018 and $427 million in the third quarter of 2017. Our average debt balance was $33.091 billion for the third quarter of 2018 compared to $32.337 billion for the third quarter of 2017. The average effective interest rate for our long-term debt increased to 5.3% from 5.2% for the quarters ended September 30, 2018 and 2017, respectively.

During the third quarters of 2018 and 2017, we recorded net gains on sales of facilities of $6 million and $7 million, respectively.

During August 2018, we issued $2.000 billion aggregate principal amount of senior notes comprised of $1.000 billion aggregate principal amount of 5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625% notes due 2028. We used the net proceeds for general corporate purposes, including funding the purchase of a hospital, and the redemption of all $1.500 billion aggregate principal amount of our existing 3.750% senior secured notes maturing in March 2019. The pretax loss on retirement of debt was $9 million. During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.

The effective tax rates were 18.6% and 36.7% for the third quarters of 2018 and 2017, 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 the third quarters of 2018 and 2017 included tax benefits of $23 million and $4 million, respectively, related to employee equity award settlements. Our provision for income taxes for the third quarter of 2018 also included $28 million of reductions for tax credits related to certain 2017 hurricane-related expenses. Excluding the effect of these adjustments, the effective tax rate for the third quarters of 2018 and 2017 would have been 24.1% and 37.2%, respectively. The reduction in the effective tax rate was primarily related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act which, along with other revisions, lowered the federal statutory corporate tax rate from 35% to 21% beginning in 2018.

Net income attributable to noncontrolling interests increased from $104 million for the third quarter of 2017 to $137 million for the third quarter of 2018. The increase in net income attributable to noncontrolling interests related primarily to one of our Texas markets.

 

37


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

 

Nine Months Ended September 30, 2018 and 2017

Net income attributable to HCA Healthcare, Inc. totaled $2.723 billion, or $7.65 per diluted share, in the nine months ended September 30, 2018, compared to $1.742 billion, or $4.64 per diluted share, in the nine months ended September 30, 2017. The first nine months of 2018 results included net gains on sales of facilities of $420 million, or $0.89 per diluted share, and losses on retirement of debt of $9 million, or $0.02 per diluted share. The first nine months of 2017 results include net gains on sales of facilities of $10 million, or $0.02 per diluted share, and losses on retirement of debt of $39 million, or $0.07 per diluted share. The first nine months of 2018 results also included a reduction to the provision for income taxes of $316 million, or $0.89 per diluted share, on net income attributable to HCA Healthcare, Inc., excluding gains on sales of facilities and losses on retirement of debt, related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act. The first nine months of 2017 results also include additional expenses and losses of revenues of approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma, and a negative impact to operating results related to the Texas Medicaid waiver program of $50 million, or $0.08 per diluted share, related to final settlement amounts for the program year ended September 30, 2017. The amount associated with the hurricanes is prior to any insurance recoveries. During the nine months ended September 30, 2018, we recorded a reduction to the provision for income taxes of $28 million, or $0.08 per diluted share, for tax credits related to certain 2017 hurricane-related expenses. Our provisions for income taxes for the first nine months of 2018 and 2017 also included tax benefits of $119 million, or $0.33 per diluted share, and $80 million, or $0.21 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 356.124 million shares for the nine months ended September 30, 2018 and 375.013 million shares for the nine months ended September 30, 2017. During 2017 and the first nine months of 2018, we repurchased 25.092 million shares and 11.558 million shares of our common stock, respectively.

Revenues increased 7.3% due to the combined impact of revenue per equivalent admission growth of 2.5% and a 4.7% increase in equivalent admissions for the first nine months of 2018 compared to the first nine months of 2017. Same facility revenues increased 6.6% due to the combined impact of a 3.8% increase in same facility revenue per equivalent admission and a 2.7% increase in same facility equivalent admissions for the first nine months of 2018 compared to the first nine months of 2017.

Salaries and benefits, as a percentage of revenues, were 46.3% in the first nine months of 2018 and 46.4% in the first nine months of 2017. Salaries and benefits per equivalent admission increased 2.3% in the first nine months of 2018 compared to the first nine months of 2017. Same facility labor rate increases averaged 3.3% for the first nine months of 2018 compared to the first nine months of 2017.

Supplies, as a percentage of revenues, were 16.6% in the first nine months of 2018 and 16.8% in the first nine months of 2017. Supply costs per equivalent admission increased 1.8% in the first nine months of 2018 compared to the first nine months of 2017. Supply costs per equivalent admission increased 4.0% for medical devices and 1.6% for general medical and surgical items, and declined 0.8% for pharmacy supplies in the first nine months of 2018 compared to the first nine months of 2017.

Other operating expenses, as a percentage of revenues, were 18.5% in the first nine months of 2018 and 18.6% in the first nine months of 2017. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $312 million and $353 million for the first nine months of 2018 and 2017, respectively. During the first nine months of 2018, we recorded a reduction of $70 million, or $0.15 per diluted share, to our provision for professional liability risks related to the receipt of updated actuarial information.

 

38


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Nine Months Ended September 30, 2018 and 2017 (continued)

 

Equity in earnings of affiliates was $25 million and $36 million in the first nine months of 2018 and 2017, respectively.

Depreciation and amortization increased $116 million, from $1.581 billion in the first nine months of 2017 to $1.697 billion in the first nine months of 2018. The increase in depreciation relates to both acquired facilities and increased capital expenditures at our existing facilities.

Interest expense was $1.309 billion in the first nine months of 2018 and $1.257 billion in the first nine months of 2017. Our average debt balance was $33.129 billion for the first nine months of 2018 compared to $31.846 billion for the first nine months of 2017. The average effective interest rate for our long-term debt was 5.3% for each of the nine months ended September 30, 2018 and 2017.

During the first nine months of 2018 and 2017, we recorded net gains on sales of facilities of $420 million and $10 million, respectively. The net gains on sales of facilities for 2018 related primarily to the sale of the two hospital facilities in our Oklahoma market.

During August 2018, we issued $2.000 billion aggregate principal amount of senior notes comprised of $1.000 billion aggregate principal amount of 5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625% notes due 2028. We used the net proceeds for general corporate purposes, including funding the purchase of a hospital, and the redemption of all $1.500 billion aggregate principal amount of our existing 3.750% senior secured notes maturing in March 2019. The pretax loss on retirement of debt was $9 million. During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.

The effective tax rates were 20.5% and 34.1% for the first nine months of 2018 and 2017, 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 the first nine months of 2018 and 2017 included tax benefits of $119 million and $80 million, respectively, related to employee equity award settlements. Our provision for income taxes for the first nine months of 2018 also included $28 million of reductions for tax credits related to certain 2017 hurricane-related expenses. Excluding the effect of these adjustments, the effective tax rate for the first nine months of 2018 and 2017 would have been 24.8% and 37.1%, respectively. The reduction in the effective tax rate was primarily related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act which, along with other revisions, lowered the federal statutory corporate tax rate from 35% to 21% beginning in 2018.

Net income attributable to noncontrolling interests increased from $360 million for the first nine months of 2017 to $421 million for the first nine months of 2018. The increase in net income attributable to noncontrolling interests related primarily to two of our Texas markets.

 

39


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Liquidity and Capital Resources

Cash provided by operating activities totaled $4.586 billion in the first nine months of 2018 compared to $3.692 billion in the first nine months of 2017. The $894 million increase in cash provided by operating activities in the first nine months of 2018 compared to the first nine months of 2017 related primarily to the combined impact of the increase in net income, excluding gains on sales of facilities, of $632 million, depreciation and amortization of $116 million and positive changes of $142 million related to working capital items. The combined interest payments and net tax payments in the first nine months of 2018 and 2017 were $2.124 billion and $2.294 billion, respectively. Working capital totaled $3.779 billion at September 30, 2018 and $3.819 billion at December 31, 2017.

Cash used in investing activities was $2.615 billion in the first nine months of 2018 compared to $3.172 billion in the first nine months of 2017. Acquisitions of hospitals and health care entities declined from $1.142 billion in the first nine months of 2017 to $1.056 billion in the first nine months of 2018. Excluding acquisitions, capital expenditures were $2.420 billion in the first nine months of 2018 and $2.033 billion in the first nine months of 2017. Capital expenditures, excluding acquisitions, are expected to approximate $3.5 billion in 2018. At September 30, 2018, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $3.9 billion. We expect to finance capital expenditures with internally generated and borrowed funds. Cash received from disposals of hospitals and health care entities increased $778 million for the first nine months of 2018 compared to the first nine months of 2017 primarily related to the receipt of $758 million from the sale of the two hospital facilities in our Oklahoma market.

Cash used in financing activities totaled $2.114 billion in the first nine months of 2018 compared to $448 million in the first nine months of 2017. During the first nine months of 2018, net cash flows used in financing activities included a net increase of $18 million in our indebtedness, payments of cash dividends of $366 million, repurchases of common stock of $1.195 billion and distributions to noncontrolling interests of $315 million. During the first nine months of 2017, net cash flows used in financing activities included a net increase of $1.452 billion in our indebtedness, repurchases of common stock of $1.475 billion and distributions to noncontrolling interests of $363 million.

We are a highly leveraged company with significant debt service requirements. Our debt totaled $33.107 billion at September 30, 2018. Our interest expense was $1.309 billion for the first nine months of 2018 and $1.257 billion for the first nine months of 2017.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($2.382 billion and $2.562 billion available as of September 30, 2018 and October 31, 2018, respectively) and anticipated access to public and private debt markets.

During August 2018, we issued $2.000 billion aggregate principal amount of senior notes comprised of $1.000 billion aggregate principal amount of 5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625% notes due 2028. We used the net proceeds for general corporate purposes, including funding the purchase of a hospital, and the redemption of all $1.500 billion aggregate principal amount of our existing 3.750% senior secured notes maturing in March 2019.

During March 2018, we entered into a joinder agreement to refinance our existing senior secured term B-8 loan credit facility maturing on February 15, 2024, repay a portion of our existing senior secured term B-9 loan credit facility maturing on March 18, 2023 and pay related fees and expenses with a new $1.500 billion senior secured term B-10 loan credit facility maturing on March 13, 2025. The senior secured term

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

 

B-10 loan credit facility will bear interest at LIBOR plus an applicable margin of 2.00% or a base rate plus an applicable margin of 1.00%, compared to applicable margins of 2.25% and 1.25%, respectively, under the senior secured term B-8 loan credit facility.

During March 2018, we also entered into an additional joinder agreement to refinance a portion of our existing senior secured term B-9 loan credit facility maturing on March 18, 2023 and pay related fees and expenses with a new approximately $1.166 billion senior secured term B-11 loan credit facility maturing on March 18, 2023. The senior secured term B-11 loan credit facility will bear interest at LIBOR plus an applicable margin of 1.75% or a base rate plus an applicable margin of 0.75%, compared to applicable margins of 2.00% and 1.00%, respectively, under the senior secured term B-9 loan credit facility.

Investments of our professional liability insurance subsidiaries, to maintain statutory equity and pay claims, totaled $413 million and $472 million at September 30, 2018 and December 31, 2017, respectively. An insurance subsidiary maintained net reserves for professional liability risks of $186 million and $194 million at September 30, 2018 and December 31, 2017, respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to $50 million per occurrence; however, this coverage is generally subject to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.459 billion and $1.409 billion at September 30, 2018 and December 31, 2017, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $449 million. We estimate that approximately $413 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.

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 12 months.

Market Risk

We are exposed to market risk related to changes in market values of securities. The investments in our 100% owned insurance subsidiaries were $413 million at September 30, 2018. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At September 30, 2018, we had a net unrealized gain of $2 million on the insurance subsidiaries’ investments.

We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our 100% owned insurance subsidiaries could be impaired by the inability to access the capital markets. Should the 100% owned insurance subsidiaries 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. We may be required to recognize other-than-temporary impairments on our investment securities 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

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Market Risk (continued)

 

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 $4.676 billion of long-term debt at September 30, 2018 was subject to variable rates of interest, while the remaining balance in long-term debt of $28.431 billion at September 30, 2018 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% and (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our long-term debt was 5.3% for each of the nine months ended September 30, 2018 and 2017.

The estimated fair value of our total long-term debt was $34.125 billion at September 30, 2018. 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 $47 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.

We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.

Tax Examinations

We are subject to examination by federal, state and foreign taxing authorities. Management believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

Operating Data

 

     2018      2017  

Number of hospitals in operation at:

     

March 31

     178        171  

June 30

     178        172  

September 30

     179        177  

December 31

        179  

Number of freestanding outpatient surgical centers in operation at:

     

March 31

     120        118  

June 30

     122        119  

September 30

     122        119  

December 31

        120  

Licensed hospital beds at(a):

     

March 31

     46,745        44,374  

June 30

     46,723        44,727  

September 30

     47,060        46,250  

December 31

        46,738  

Weighted average licensed beds(b):

     

Quarter:

     

First

     46,686        44,362  

Second

     46,667        44,605  

Third

     46,909        45,887  

Fourth

        46,636  

Year

        45,380  

Average daily census(c):

     

Quarter:

     

First

     28,130        26,699  

Second

     26,047        25,353  

Third

     25,991        25,653  

Fourth

        26,304  

Year

        26,000  

Admissions(d):

     

Quarter:

     

First

     507,873        485,761  

Second

     494,610        473,174  

Third

     497,899        482,557  

Fourth

        495,121  

Year

        1,936,613  

Equivalent admissions(e):

     

Quarter:

     

First

     849,164        812,192  

Second

     851,047        809,367  

Third

     854,940        818,887  

Fourth

        845,986  

Year

        3,286,432  

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Data (continued)

 

     2018     2017  

Average length of stay (days)(f):

    

Quarter:

    

First

     5.0       4.9  

Second

     4.8       4.9  

Third

     4.8       4.9  

Fourth

       4.9  

Emergency room visits(g):

    

Quarter:

    

First

     2,302,112       2,163,138  

Second

     2,148,338       2,116,123  

Third

     2,139,375       2,130,460  

Fourth

       2,214,416  

Year

       8,624,137  

Outpatient surgeries(h):

    

Quarter:

    

First

     230,869       225,915  

Second

     244,367       234,215  

Third

     235,258       224,252  

Fourth

       250,925  

Year

       935,307  

Inpatient surgeries(i):

    

Quarter:

    

First

     136,650       133,341  

Second

     139,049       134,553  

Third

     138,699       137,187  

Fourth

       141,147  

Year

       546,228  

Days revenues in accounts receivable(j):

    

Quarter:

    

First

     50       48  

Second

     52       49  

Third

     52       51  

Fourth

       52  

Outpatient revenues as a % of patient revenues(k):

    

Quarter:

    

First

     37     38

Second

     39     37

Third

     39     38

Fourth

       39

Year

       38

  

 

(a)

Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.

(b)

Represents the average number of licensed beds, weighted based on periods owned.

(c)

Represents the average number of patients in our hospital beds each day.

(d)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Data (continued)

 

(e)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.

(f)

Represents the average number of days admitted patients stay in our hospitals.

(g)

Represents the number of patients treated in our emergency rooms.

(h)

Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.

(i)

Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.

(j)

Revenues per day is calculated by dividing revenues for the quarter by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts receivable at the end of the quarter divided by revenues per day.

(k)

Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.

 

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption “Market Risk” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

HCA’s management, with participation of HCA’s chief executive officer and chief financial officer, has evaluated the effectiveness of HCA’s disclosure controls and procedures as of September 30, 2018. Based on that evaluation, HCA’s chief executive officer and chief financial officer concluded that HCA’s disclosure controls and procedures were effective as of September 30, 2018. There were no material changes in HCA’s internal control over financial reporting during the third quarter of 2018.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. 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. Further, 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.

 

ITEM

1A.    RISK FACTORS

Reference is made to the factors set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this quarterly report on Form 10-Q and other risk factors described in our annual report on Form 10-K for the year ended December 31, 2017, which are incorporated herein by reference. There have not been any material changes to the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2017.

 

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended September 30, 2018, we repurchased 2,517,742 shares of our common stock at an average price of $120.26 per share through market purchases pursuant to the $2 billion share repurchase program authorized during October 2017. At September 30, 2018, we had $607 million of repurchase authorization available under the October 2017 authorization.

The following table provides certain information with respect to our repurchases of common stock from July 1, 2018 through September 30, 2018 (dollars in millions, except per share amounts).

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid per Share
     Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
     Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under Publicly
Announced
Plans  or
Programs
 

July 1, 2018 through July 31, 2018

     1,095,236      $ 106.68        1,095,236      $ 793  

August 1, 2018 through August 31, 2018

     709,923      $ 128.18        709,923      $ 702  

September 1, 2018 through September 30, 2018

     712,583      $ 133.25        712,583      $ 607  
  

 

 

       

 

 

    

Total for third quarter 2018

     2,517,742      $ 120.26        2,517,742      $ 607  
  

 

 

       

 

 

    

On October 29, 2018, our Board of Directors declared a quarterly dividend of $0.35 per share on our common stock payable on December 28, 2018 to stockholders of record on December 3, 2018. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Our ability to declare future dividends may also from time to time be limited by the terms of our debt agreements.

 

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ITEM 6.    EXHIBITS

(a) List of Exhibits:

 

        4.1     

Supplemental Indenture No. 19, dated as of August 23, 2018, among HCA Inc., HCA Healthcare, Inc., Delaware Trust Company, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed August 23, 2018 and incorporated herein by reference).

        4.2     

Supplemental Indenture No. 20, dated as of August 23, 2018, among HCA Inc., HCA Healthcare, Inc., Delaware Trust Company, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed August 23, 2018 and incorporated herein by reference).

        4.3     

Form of Global Note representing the 2026 Notes (included in Exhibit 4.1).

        4.4     

Form of Global Note representing the 2028 Notes (included in Exhibit 4.2).

      10.1     

Amended and Restated Employment Agreement dated September 10, 2018 (R. Milton Johnson) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 12, 2018 and incorporated herein by reference).*

      31.1     

Certification of Chief Executive  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

      31.2     

Certification of Chief Financial Officer Pursuant to Section  302 of the Sarbanes-Oxley Act of 2002.

      32     

Certification Pursuant to 18 U.S.C. Section  1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      101     

The following financial information from our quarterly report on Form 10-Q for the quarters and nine months ended September 30, 2018 and 2017, filed with the SEC on November 6, 2018, formatted in Extensible Business Reporting Language: (i) the condensed consolidated balance sheets at September 30, 2018 and December 31, 2017, (ii) the condensed consolidated income statements for the quarters and nine months ended September 30, 2018 and 2017, (iii) the condensed consolidated comprehensive income statements for the quarters and nine months ended September 30, 2018 and 2017, (iv) the condensed consolidated statements of stockholders’ deficit for the quarters and nine months ended September 30, 2018 and 2017, (v) the condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 and (vi) the notes to condensed consolidated financial statements.

 

*

Management compensatory plan or arrangement.

 

48


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

HCA Healthcare, Inc.

By:

 

/S/ WILLIAM B. RUTHERFORD

  William B. Rutherford
  Executive Vice President and Chief Financial Officer

Date: November 6, 2018

 

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