HCA Holdings 2011 Annual Report Download

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2011 Annual Report to Stockholders

Table of contents

  • Page 1
    2011 Annual Report to Stockholders

  • Page 2
    ... Registered Public Accounting Firm Ernst & Young LLP Nashville, Tennessee Corporate Headquarters One Park Plaza Nashville, Tennessee 37203 615-344-9551 Form 10-K The Company has filed an annual report on Form 10-K for the year ended December 31, 2011, with the United States Securities and Exchange...

  • Page 3
    ... and Operations Integration Michael P. O'Boyle President and CEO Parallon Business Solutions Jonathan B. Perlin, MD President Clinical and Physician Services Group and Chief Medical Officer W. Paul Rutledge President Central Group Joseph A. Sowell, III Senior Vice President and Chief Development Of...

  • Page 4
    ... TO For the fiscal year ended December 31, 2011 ' SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 HOLDINGS, INC. (Exact Name...

  • Page 5
    ... Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security...

  • Page 6
    ... health care services companies in the United States. At December 31, 2011, we operated 163 hospitals, comprised of 157 general, acute care hospitals; five psychiatric hospitals; and one rehabilitation hospital. In addition, we operated 108 freestanding surgery centers. Our facilities are located...

  • Page 7
    ... profitability; and selectively pursue a disciplined development strategy. Health Care Facilities We currently own, manage or operate hospitals; freestanding surgery centers; diagnostic and imaging centers; radiation and oncology therapy centers; comprehensive rehabilitation and physical therapy...

  • Page 8
    ... care facilities, diagnostic and imaging centers, comprehensive outpatient rehabilitation and physical therapy centers, outpatient radiation and oncology therapy centers and various other facilities. These outpatient services are an integral component of our strategy to develop comprehensive health...

  • Page 9
    ...services provided. Our hospitals generally offer discounts from established charges to certain group purchasers of health care services, including private insurance companies, employers, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and other managed care plans...

  • Page 10
    ... using cost relative weights each federal fiscal year (which begins October 1). The index used to update the MS-DRG rates (the "market basket") gives consideration to the inflation experienced by hospitals and entities outside the health care industry in purchasing goods and services. The Patient...

  • Page 11
    ... for erroneous surgical procedures performed on an inpatient or outpatient basis. The Health Reform Law provides for reduced payments based on a hospital's HAC rates. Beginning in federal fiscal year 2015, the 25% of hospitals with the worst national risk-adjusted HAC rates in the previous year will...

  • Page 12
    ... quality data relating to outpatient care to avoid receiving a 2% reduction to the market basket update under the outpatient PPS. CMS required hospitals to report data on 15 quality measures in calendar year 2011 for the payment determination in calendar year 2012 and requires hospitals to report 23...

  • Page 13
    ... BLS data is typically a few years old). The Health Reform Law also required HHS to submit a report to Congress on plans for developing a value-based purchasing program for ASCs. In its report, HHS recommends a phased-in approach for implementing a valuebased purchasing program but states additional...

  • Page 14
    ... implementing other corrective actions in response to filed protests. While chain providers had the option of having all hospitals use one home office MAC, HCA chose to use the MACs assigned to the geographic areas in which our hospitals are located. The individual MAC jurisdictions are in varying...

  • Page 15
    ...by states under approved plans. Most state Medicaid program payments are made under a PPS or are based on negotiated payment levels with individual hospitals. Medicaid reimbursement is often less than a hospital's cost of services. The Health Reform Law requires states to expand Medicaid coverage to...

  • Page 16
    ... the cost of Medicaid programs. However, general economic conditions in the states in which we operate may require reductions in premium payments to these plans and may reduce enrollment in these plans. Accountable Care Organizations and Bundled Payment Initiatives The Health Reform Law requires HHS...

  • Page 17
    ... where applicable, state regulations require the submission of annual cost reports covering the revenues, costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients. Annual cost reports required under the Medicare and Medicaid programs...

  • Page 18
    ... group purchasers of health care services, including managed care plans and private insurance companies. Admissions reimbursed by commercial managed care and other insurers were 31%, 32%, and 34% of our total admissions for the years ended December 31, 2011, 2010 and 2009, respectively. Managed care...

  • Page 19
    ... of the hospital and the number and quality of physicians and other health care professionals providing patient care within the facility. Generally, we believe the ability of a hospital to be a market leader is determined by its breadth of services, level of technology, quality and condition of the...

  • Page 20
    .... The data set forth in this table includes only those facilities that are consolidated for financial reporting purposes. 2011 Years Ended December 31, 2010 2009 2008 2007 Number of hospitals at end of period(a) ...Number of freestanding outpatient surgery centers at end of period(b) ...Number of...

  • Page 21
    ... attract and retain quality physicians, skilled clinical personnel and other health care professionals, location, breadth of services, technology offered, quality and condition of the facilities and prices charged. The Health Reform Law requires hospitals to publish annually a list of their standard...

  • Page 22
    ... of continuing to provide quality patient care while dealing with rising costs and strong competition for patients. Changes in medical technology, existing and future legislation, regulations and interpretations and managed care contracting for provider services by private and government payers...

  • Page 23
    ... on the hospital's group health insurance plans at an inappropriately low cost to the physician, (i) payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, (j) purchasing goods or services from physicians at prices in 20

  • Page 24
    ... to our hospitals and other health care facilities, including employment contracts, leases, medical director agreements and professional service agreements. We also have similar relationships with physicians and facilities to which patients are referred from our facilities. In addition, we provide...

  • Page 25
    ... obtain higher reimbursement, billing for unnecessary goods and services and cost report fraud. Federal enforcement officials have the ability to exclude from Medicare and Medicaid any investors, officers and managing employees associated with business entities that have committed health care fraud...

  • Page 26
    ... the date a corresponding cost report is due, whichever is later. Further, the Health Reform Law expands the scope of the FCA to cover payments in connection with the Exchanges to be created by the Health Reform Law, if those payments include any federal funds. In some cases, whistleblowers and the...

  • Page 27
    .... The privacy and security regulations promulgated pursuant to HIPAA extensively regulate the use and disclosure of individually identifiable health information and require covered entities, including health plans and most health care providers, to implement administrative, physical and technical...

  • Page 28
    ... Some of the states in which we operate have laws prohibiting corporations and other entities from employing physicians, practicing medicine for a profit and making certain direct and indirect payments or fee-splitting arrangements between health care providers designed to induce or encourage...

  • Page 29
    ... federal fiscal year 2011 and $65 million in federal fiscal year 2012. In addition, governmental agencies and their agents, such as MACs, fiscal intermediaries and carriers, may conduct audits of our health care operations. Private payers may conduct similar post-payment audits, and we also perform...

  • Page 30
    ... of health coverage through the private sector as a result of the Health Reform Law will occur through new requirements applicable to health insurers, employers and individuals. Health insurers must keep their annual nonmedical costs lower than 15% of premium revenue for the group market and...

  • Page 31
    ... rates are updated each federal fiscal year, which begins October 1, using a market basket index that takes into account inflation experienced by hospitals and other entities outside the health care industry in purchasing goods and services. The Health Reform Law provides for three types of annual...

  • Page 32
    ... the value-based purchasing program for hospital inpatient services. Under this final rule, CMS states that it estimates it will distribute $850 million in federal fiscal year 2013 to hospitals based on their overall performance on a set of quality measures that have been linked to improved clinical...

  • Page 33
    ...until July 1, 2012. In a final rule issued June 1, 2011, CMS authorizes states to add additional provider-preventable conditions to the list of HACs for which Medicaid reimbursement will not be allowed. Outpatient Market Basket and Productivity Adjustment. Hospital outpatient services paid under PPS...

  • Page 34
    ... the payment for each condition. In addition, the Health Reform Law provides for a five-year bundled payment pilot program for Medicaid services. HHS may select up to eight states to participate based on the potential to lower costs under the Medicaid program while improving care. State programs may...

  • Page 35
    ... of patients using our facilities who have either private or public program coverage. In addition, a disproportionately large percentage of the new Medicaid coverage is likely to be in states that currently have relatively low income eligibility requirements. Two such states are Texas and Florida...

  • Page 36
    ... of the Health Reform Law, including the prohibition on excluding individuals based on pre-existing conditions, the requirement to keep medical costs at or above a specified minimum percentage of premium revenue, other health insurance reforms and the annual fee applied to all health insurers, will...

  • Page 37
    ...laws and regulations. As part of the ethics and compliance program, we provide annual ethics and compliance training to our employees and encourage all employees to report any violations to their supervisor, an ethics and compliance officer or a toll-free telephone ethics line. The Health Reform Law...

  • Page 38
    ... physicians and physicians who are not employees of our hospitals. Some physicians provide services in our hospitals under contracts, which generally describe a term of service, provide and establish the duties and obligations of such physicians, require the maintenance of certain performance...

  • Page 39
    ...President - Operations President - Service Line and Operations Integration President and CEO - Parallon Business Solutionssm President - Clinical and Physician Services Group and Chief Medical Officer President - Central Group Senior Vice President and Chief Development Officer Senior Vice President...

  • Page 40
    ... served as Vice President of Communications for the Company from November 1997 to February 2011. Ms. Davis joined HCA in 1997 from Burson-Marsteller, where she was a Managing Director and served as Corporate Practice Chair for Latin American operations. Ms. Davis also held a number of Public Affairs...

  • Page 41
    ... Centennial Medical Center from May 1993 to June 1996. He has served in leadership capacities with HCA for more than 29 years, working with hospitals in the United States and London, England. Joseph A. Sowell, III was appointed as Senior Vice President and Chief Development Officer of the Company in...

  • Page 42
    ...our ability to obtain additional financing for working capital, capital expenditures, product or service line development, debt service requirements, acquisitions and general corporate or other purposes; and limiting our ability to adjust to changing market conditions and placing us at a competitive...

  • Page 43
    ...at a higher interest rate. Our ability to refinance our indebtedness on favorable terms, or at all, is directly affected by the current global economic and financial conditions. In addition, our ability to incur secured indebtedness (which would generally enable us to achieve better pricing than the...

  • Page 44
    ... federal fiscal year 2013. The amount of the provision for doubtful accounts is based upon management's assessment of historical write-offs and expected net collections, business and economic conditions, trends in federal and state governmental and private employer health care coverage, the rate of...

  • Page 45
    ...may not have insurance coverage. Further, implementation of the Health Reform Law could result in some patients terminating their current insurance plans in favor of lower cost Medicaid plans or other insurance coverage with lower reimbursement levels. Patient responsibility accounts may continue to...

  • Page 46
    ... of patients using our facilities who have either private or public program coverage. In addition, a disproportionately large percentage of the new Medicaid coverage is likely to be in states that currently have relatively low income eligibility requirements. Two such states are Texas and Florida...

  • Page 47
    ... plans, since health insurers offering those kinds of products have traditionally sought to pay lower rates to hospitals; whether the net effect of the Health Reform Law, including the prohibition on excluding individuals based on pre-existing conditions, the requirement to keep medical costs...

  • Page 48
    ... in federal fiscal year 2014; the allocation to our hospitals of the Medicaid DSH reductions, commencing in federal fiscal year 2014; what the losses in revenues will be, if any, from the Health Reform Law's quality initiatives; how successful ACOs will be at coordinating care and reducing costs or...

  • Page 49
    ... increase labor costs and reduce profitability. Our operations are dependent on the efforts, abilities and experience of our management and medical support personnel, such as nurses, pharmacists and lab technicians, as well as our physicians. We compete with other health care providers in recruiting...

  • Page 50
    ... individuals who have emergency medical conditions; licensure and certification; hospital rate or budget review; preparing and filing of cost reports; operating policies and procedures; activities regarding competitors; and addition of facilities and services. Among these laws are the federal Anti...

  • Page 51
    ...service Medicare program. The Health Reform Law expands the RAC program's scope to include managed Medicare plans and to include Medicaid claims. In addition, CMS employs MICs to perform post-payment audits of Medicaid claims and identify overpayments. The Health Reform Law increases federal funding...

  • Page 52
    ... value-based purchasing of health care services. These value-based purchasing programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care provided by facilities. Governmental programs including Medicare currently require hospitals...

  • Page 53
    ... results of operations. Health plans and providers, including our hospitals, are required to transition to the new ICD-10 coding system, which greatly expands the number and detail of billing codes used for inpatient claims. Under current regulations, use of the ICD-10 system is required beginning...

  • Page 54
    ... conditions and changes in those states. We operated 163 hospitals at December 31, 2011, and 75 of those hospitals are located in Florida and Texas. Our Florida and Texas facilities' combined revenues represented approximately 50% of our consolidated revenues for the year ended December 31, 2011...

  • Page 55
    ... 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...

  • Page 56
    ... operated by us as of December 31, 2011: State Hospitals Beds Alaska ...California ...Colorado ...Florida ...Georgia ...Idaho ...Indiana ...Kansas ...Kentucky ...Louisiana ...Mississippi ...Missouri ...Nevada ...New Hampshire ...Oklahoma ...South Carolina ...Tennessee ...Texas ...Utah ...Virginia...

  • Page 57
    ..., regulations or laws. At this time, we cannot predict what effect, if any, this review or any resulting claims could have on the Company. New Hampshire Hospital Litigation In 2006, the Foundation for Seacoast Health (the "Foundation") filed suit against HCA in state court in New Hampshire. The...

  • Page 58
    ...to the terms of our stock option plans, the holders of nonvested stock options received a $3.88 per share reduction to the exercise price of their share-based awards. On May 5, 2010, our Board of Directors declared a distribution to the Company's stockholders and holders of vested stock options. The...

  • Page 59
    ...Bank of America Corporation at a purchase price of $18.61 per share, the closing price of the Company's common stock on the NYSE on September 14, 2011. The repurchase was financed using a combination of cash on hand and borrowings under available credit facilities. The shares repurchased represented...

  • Page 60
    ... the S&P Health Care Index. The graph assumes $100 invested on March 10, 2011 in our common stock and in each index with the subsequent reinvestment of dividends. The stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price...

  • Page 61
    ...Selected Financial Data HCA HOLDINGS, INC. SELECTED FINANCIAL DATA AS OF AND FOR THE YEARS ENDED DECEMBER 31 (Dollars in millions, except per share amounts) 2011 2010 2009 2008 2007 Summary of Operations: Revenues before provision for doubtful accounts ...Provision for doubtful accounts ...Revenues...

  • Page 62
    ... consolidated (accounted for using the equity method) for financial reporting purposes. (c) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (d) Represents the average number of licensed beds, weighted based on periods...

  • Page 63
    ... expected levels of patient volumes and control the costs of providing services, (5) possible changes in the Medicare, Medicaid and other state programs, including Medicaid upper payment limit programs or Waiver Programs, that may impact reimbursements to health care providers and insurers, (6) the...

  • Page 64
    ...years ended December 31, 2011 and 2010, respectively. During March 2011, we completed the initial public offering of 87.719 million shares of our common stock, and during September 2011, we repurchased 80.771 million shares of our common stock from affiliates of Bank of America Corporation. Revenues...

  • Page 65
    ...focus on selectively developing and acquiring new hospitals, outpatient facilities and other health care service providers. We believe the challenges faced by the hospital industry may spur consolidation and we believe our size, scale, national presence and access to capital will position us well to...

  • Page 66
    ...health care services are provided, based upon the estimated amounts due from payers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Laws and regulations governing the Medicare and Medicaid programs...

  • Page 67
    ... in accordance with ASU 2011-07. The amount of the provision for doubtful accounts is 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...

  • Page 68
    ... collection of the patient due accounts. Adverse changes in the percentage of our patients having adequate health care coverage, general economic conditions, patient accounting service center operations, payer mix, or trends in federal, state, and private employer health care coverage could affect...

  • Page 69
    ...of direct expenses and fees paid to outside counsel and experts, but does not include the general overhead costs of our insurance subsidiary or corporate office. Individual case reserves are established based upon the particular circumstances of each reported claim and represent our estimates of the...

  • Page 70
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Critical Accounting Policies and Estimates (Continued) Professional Liability Claims (Continued) historical and current case loss reserves, actual and projected hospital statistical...

  • Page 71
    ... revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Gross charges typically do not reflect what our facilities...

  • Page 72
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Revenue/Volume Trends (Continued) revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care that are ...

  • Page 73
    ...state of Florida. Our Florida facilities' revenues totaled $6.989 billion, $6.538 billion and $6.217 billion for the years ended December 31, 2011, 2010 and 2009, respectively. At December 31, 2011, we owned and operated 36 hospitals and 22 surgery centers in the state of Texas. Our Texas facilities...

  • Page 74
    ... meaningful use of certified EHR technology for the applicable period. However, unlike Medicaid, this initial payment amount will be adjusted based upon an updated calculation using the annual cost report information for the cost report period that began during the applicable payment year. Thus...

  • Page 75
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Electronic Health Record Incentive Payments (Continued) For 2012, we estimate EHR incentive income will be recognized in the range of $325 million ...

  • Page 76
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Operating Results Summary The following are comparative summaries of operating results for the years ended December 31, 2011, 2010 and 2009 (...

  • Page 77
    .... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Years Ended December 31, 2011 and 2010 Net income attributable to HCA Holdings, Inc. totaled $2.465 billion, or $4.97 per diluted share, for the year ended December...

  • Page 78
    ...incentive programs during 2011. We recognize income related to Medicare and Medicaid incentive payments using a gain contingency model that is based upon when our eligible hospitals have demonstrated meaningful use of certified EHR technology for the applicable period and the cost report information...

  • Page 79
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Years Ended December 31, 2011 and 2010 (Continued) Impairments of long-lived assets were $123 million for 2010 and included $74 million related to ...

  • Page 80
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Results of Operations (Continued) Years Ended December 31, 2010 and 2009 (Continued) declined 1.4% during 2010 compared to 2009. Consolidated outpatient surgical volumes declined ...

  • Page 81
    ... in two Texas markets. Liquidity and Capital Resources Our primary cash requirements are paying our operating expenses, servicing our debt, capital expenditures on our existing properties, acquisitions of hospitals and other health care entities, repurchases of our common stock, distributions to...

  • Page 82
    ... or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws. Funds for...

  • Page 83
    ... senior secured credit facilities ($2.137 billion as of December 31, 2011 and $2.070 billion as of January 31, 2012) and anticipated access to public and private debt and equity markets. During 2010, our Board of Directors declared three distributions to our stockholders and holders of stock options...

  • Page 84
    ... America Corporation at a purchase price of $18.61 per share, the closing price of the Company's common stock on the New York Stock Exchange on September 14, 2011. The repurchase was financed using a combination of cash on hand and borrowings under available credit facilities. The shares repurchased...

  • Page 85
    ... cases are closed. (e) Amounts relate primarily to various insurance programs and employee benefit plan obligations for which we have letters of credit outstanding. (f) In consideration for physicians relocating to the communities in which our hospitals are located and agreeing to engage in private...

  • Page 86
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Market Risk We are exposed to market risk related to changes in market values of securities. The investments in debt and equity securities of our wholly-owned insurance subsidiaries...

  • Page 87
    HCA HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Market Risk (Continued) On September 30, 2011, we refinanced our $2.000 billion asset-based revolving credit facility maturing on November 16, 2012 to increase the total capacity to...

  • Page 88
    ... Disclosures about Market Risk Information with respect to this Item is provided under the caption "Market Risk" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 8. Financial Statements and Supplementary Data Information with respect...

  • Page 89
    ... Treadway Commission. Based on our assessment under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011. Ernst & Young, LLP, the independent registered public accounting firm that...

  • Page 90
    ..., effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of HCA Holdings, Inc. as of December 31...

  • Page 91
    ... accounting officer) at this location on our website or report the same on a Current Report on Form 8-K. Our Code of Conduct is available free of charge upon request to our Corporate Secretary, HCA Holdings, Inc., One Park Plaza, Nashville, TN 37203. Item 11. Executive Compensation The information...

  • Page 92
    This table provides certain information as of December 31, 2011 with respect to our equity compensation plans: EQUITY COMPENSATION PLAN INFORMATION (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding ...

  • Page 93
    ... within the consolidated financial statements. 3. List of Exhibits 2.1 - Agreement and Plan of Merger, dated July 24, 2006, by and among HCA Inc., Hercules Holding II, LLC and Hercules Acquisition Corporation (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed July 25, 2006, and...

  • Page 94
    ... arrangers and bookrunners, Deutsche Bank Securities and Wachovia Capital Markets LLC, as joint bookrunners and Merrill Lynch Capital Corporation, as documentation agent (filed as Exhibit 4.7(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated...

  • Page 95
    ..., Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent, and Law Debenture Trust Company of New York, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 28, 2009, and incorporated herein by reference). - Security Agreement, dated as...

  • Page 96
    ... the Company's Current Report on Form 8-K filed October 3, 2011, and incorporated herein by reference). 4.18(j) - Additional General Intercreditor Agreement, dated as of February 16, 2012, by and among Bank of America, N.A., in its capacity as First Lien Collateral Agent, The Bank of New York Mellon...

  • Page 97
    ... Rate Global Medium-Term Note (filed as Exhibit 4.20 to the Company's Registration Statement on Form S-4 (File No. 333-145054), and incorporated herein by reference). - Form of 7.69% Note due 2025 (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December...

  • Page 98
    ... as of November 23, 2010, among HCA Holdings, Inc., Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent, and Law Debenture Trust Company of New York, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed November 24, 2010, and incorporated...

  • Page 99
    ...of August 1, 2011, among HCA Inc., HCA Holdings, Inc., Law Debenture Trust Company of New York, 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 1, 2011, and incorporated...

  • Page 100
    ... as Exhibit 10.2 to the Company's Current Report on Form 8-K filed February 14, 2012, and incorporated herein by reference).* - Form of Director Restricted Share Unit Agreement (Annual Award) Under the 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as Amended...

  • Page 101
    ... Amendment No. 1 to the 2008-2009 Senior Officer Performance Excellence Program (filed as Exhibit 10.28(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference).* 10.29(a) - Employment Agreement dated November 16, 2006 (Richard...

  • Page 102
    ... 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No. 001-11239), and incorporated herein by reference). - HCA Inc. 2010 Senior Officer Performance Excellence Program (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated April...

  • Page 103
    ... Omnibus Amendment to Stock Option Agreements Issued Under the 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as amended, effective February 16, 2011 (filed as Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010...

  • Page 104
    ..., thereunto duly authorized. HCA HOLDINGS, INC. /S/ RICHARD M. BRACKEN Richard M. Bracken Chairman of the Board and Chief Executive Officer By: Dated: February 23, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 105
    ... James C. Momtazee GEOFFREY G. MEYERS Geoffrey G. Meyers STEPHEN G. PAGLIUCA Stephen G. Pagliuca /S/ WAYNE J. RILEY Wayne J. Riley Director February 23, 2012 /S/ Director February 23, 2012 /S/ Director February 23, 2012 /S/ Director February 23, 2012 Director February 23, 2012 102

  • Page 106
    HCA HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements: Consolidated Income Statements for the years ended December 31, 2011, 2010 and 2009 ...Consolidated Comprehensive Income Statements for ...

  • Page 107
    .... We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), HCA Holdings, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the...

  • Page 108
    HCA HOLDINGS, INC. CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Dollars in millions, except per share amounts) 2011 2010 2009 Revenues before the provision for doubtful accounts ...Provision for doubtful accounts ...Revenues ...Salaries and benefits ......

  • Page 109
    HCA HOLDINGS, INC. CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Dollars in millions) 2011 2010 2009 Net income ...Other comprehensive income (loss) before taxes: Foreign currency translation ...Unrealized gains on available-for-sale securities ...

  • Page 110
    ... other intangible assets ...Deferred loan costs ...Other ...548 101 5,251 290 641 11,352 642 869 2,693 374 1,003 $26,898 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: ...Accounts payable ...Accrued salaries ...Other accrued expenses ...Long-term debt due within one year ... $ 23,852...

  • Page 111
    ... OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 (Dollars in millions) Equity (Deficit) Attributable to HCA Holdings, Inc. Capital in Accumulated Common Stock Excess of Other Shares Par Par Comprehensive Retained (000) Value Value Loss Deficit Equity Attributable to...

  • Page 112
    ... loan costs ...70 81 80 Share-based compensation ...26 32 40 Pay-in-kind interest ...(78) - 58 Other ...8 31 46 Net cash provided by operating activities ...3,933 3,085 2,747 Cash flows from investing activities: Purchase of property and equipment ...(1,679) (1,325) (1,317) Acquisition of hospitals...

  • Page 113
    ... are partners. At December 31, 2011, these affiliates owned and operated 163 hospitals, 108 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Holdings, Inc.'s facilities are located in 20 states and England. The terms "Company," "HCA," "we," "our" or "us," as...

  • Page 114
    ... our corporate office costs, which were $228 million, $182 million and $164 million for the years ended December 31, 2011, 2010 and 2009, respectively. Revenues In 2011, we adopted the provisions of Accounting Standards Update No. 2011-07, Presentation and Disclosure of Patient Service Revenue...

  • Page 115
    ... payers include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual...

  • Page 116
    ... stabilize emergency medical conditions exists regardless of an individual's ability to pay for treatment. Federal and state laws and regulations, including but not limited to EMTALA, require, and our commitment to providing quality patient care encourages, us to provide services to patients who are...

  • Page 117
    ... checks are funded through available cash balances or our credit facility. Accounts Receivable We receive payments for services rendered from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. We...

  • Page 118
    ... is done at the reporting unit level. Reporting units are one level below the business segment level, and our impairment testing is performed at the operating division or market level. We compare the fair value of the reporting unit assets to the carrying amount, on at least an annual basis, to F-13

  • Page 119
    .... Fair value of goodwill is estimated based upon internal evaluations of the related long-lived assets for each reporting unit that include quantitative analyses of revenues and cash flows and reviews of recent sales of similar facilities. No goodwill impairments were recognized during 2011, and...

  • Page 120
    ... are recorded as experience develops or new information becomes known. Adjustments to the estimated reserve amounts are included in current operating results. The reserves for professional liability risks cover approximately 2,700 individual claims at both December 31, 2011 and 2010 and estimates...

  • Page 121
    ... meaningful use of certified EHR technology for the applicable period. However, unlike Medicaid, this initial payment amount will be adjusted based upon an updated calculation using the annual cost report information for the cost report period that began during the applicable payment year. Thus...

  • Page 122
    ...for increased stock, or stock-based, ownership in the Company. During 2011, our Board of Directors approved certain amendments to the Stock Incentive Plan that became effective upon the initial public offering of our common stock. The amendments included an increase to the number of shares available...

  • Page 123
    ... of the grant-date fair value. The expected volatility is derived using historical stock price information of certain peer group companies for a period of time equal to the expected option term. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal...

  • Page 124
    ... of the applicable stock options) to the exercise price of the share-based awards. The weighted average fair values of stock options granted during 2011, 2010 and 2009 were $8.53, $7.13 and $3.54 per share, respectively. The total intrinsic value of stock options exercised in the year ended December...

  • Page 125
    ...hospitals and $70 million to acquire other health care entities. During 2009, we paid $61 million to acquire 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...

  • Page 126
    ... to other health care entity investments in our National Group, $17 million related to a hospital facility in our Southwest Group and $44 million related to Corporate and other, which includes $35 million for the writeoff of capitalized engineering and design costs related to certain building safety...

  • Page 127
    ... for professional liability and other risks ...Accounts receivable ...Compensation ...Other ... $ - 337 706 216 698 $402 - - - 511 $913 $ - 329 1,011 202 776 $211 - - - 400 $611 $1,957 $2,318 At December 31, 2011, state net operating loss carryforwards (expiring in years 2012 through 2031...

  • Page 128
    ...the insurance subsidiaries' investments at December 31 follows (dollars in millions): 2011 Unrealized Amounts Gains Losses Amortized Cost Fair Value Debt securities: States and municipalities ...Auction rate securities ...Asset-backed securities ...Money market funds ...Equity securities ... $398...

  • Page 129
    ...(Continued) NOTE 7 - INVESTMENTS OF INSURANCE SUBSIDIARIES (Continued) 2010 Unrealized Amounts Gains Losses Amortized Cost Fair Value Debt securities: States and municipalities ...Auction rate securities ...Asset-backed securities ...Money market funds ...Equity securities ... $312 251 26 135 724...

  • Page 130
    ...) NOTE 7 - INVESTMENTS OF INSURANCE SUBSIDIARIES (Continued) The cost of securities sold is based on the specific identification method. Sales of securities for the years ended December 31 are summarized below (dollars in millions): 2011 2010 2009 Debt securities: Cash proceeds ...Gross realized...

  • Page 131
    ... use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting...

  • Page 132
    ... in its entirety requires judgment, and considers factors specific to the asset or liability. Cash Traded Investments Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer...

  • Page 133
    ...Fair Value Assets: Investments of insurance subsidiaries: Debt securities: States and municipalities ...Auction rate securities ...Asset-backed securities ...Money market funds ...Equity securities ...Investments of insurance subsidiaries ...Less amounts classified as current assets ...Liabilities...

  • Page 134
    ... (Level 2) (Level 3) Fair Value Assets: Investments of insurance subsidiaries: Debt securities: States and municipalities ...Auction rate securities ...Asset-backed securities ...Money market funds ...Equity securities ...Investments of insurance subsidiaries ...Less amounts classified as current...

  • Page 135
    HCA HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 10 - LONG-TERM DEBT A summary of long-term debt at December 31, including related interest rates at December 31, 2011, follows (dollars in millions): 2011 2010 Senior secured asset-based revolving credit facility (...

  • Page 136
    ...our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period, plus, in each case, an applicable margin. The applicable...

  • Page 137
    ... 2015 to 2095; (iv) an aggregate principal amount of $1.525 billion senior notes due 2021 issued by HCA Holdings, Inc. (the "2021 Notes"); and (v) $7 million of unamortized debt discounts that reduce the indebtedness. General Debt Information The senior secured credit facilities and senior secured...

  • Page 138
    ... United States District Court for the Middle District of Tennessee. The case seeks to include as a class all persons who acquired the Company's stock pursuant or traceable to the Company's Registration Statement and Prospectus issued in connection with the March 9, 2011 initial public offering. The...

  • Page 139
    ... America Corporation at a purchase price of $18.61 per share, the closing price of the Company's common stock on the New York Stock Exchange on September 14, 2011. The repurchase was financed using a combination of cash on hand and borrowings under available credit facilities. The shares repurchased...

  • Page 140
    ... California, Nevada, Utah and Idaho, the Southwest Group includes 46 hospitals located in Colorado, Texas, Oklahoma and the Wichita, Kansas market, and the Central Group includes 47 hospitals located in Louisiana, Indiana, Kentucky, Tennessee, Virginia, New Hampshire, northern Georgia and the Kansas...

  • Page 141
    ... intangible assets are summarized in the following table (dollars in millions): For the Years Ended December 31, 2011 2010 2009 Revenues: National Group ...Southwest Group ...Central Group ...Corporate and other ...Equity in earnings of affiliates: National Group ...Southwest Group ...Central Group...

  • Page 142
    HCA HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 15 - SEGMENT AND GEOGRAPHIC INFORMATION (Continued) For the Years Ended December 31, 2011 2010 2009 Adjusted segment EBITDA ...Depreciation and amortization ...Interest expense ...Losses (gains) on sales of facilities ...

  • Page 143
    ...comprehensive loss are as follows (dollars in millions): Unrealized Gains (Losses) on Available-for-Sale Securities Foreign Currency Translation Adjustments Defined Benefit Plans Change in Fair Value of Derivative Instruments Total Balances at December 31, 2008 ...Unrealized gains on available-for...

  • Page 144
    ......Year ended December 31, 2011 ... $4,741 4,860 3,939 $3,276 2,648 2,824 $(3,157) (3,569) (2,657) $4,860 3,939 4,106 NOTE 18 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION On November 22, 2010, HCA Inc. reorganized by creating a new holding...

  • Page 145
    ...-RELATED INFORMATION (Continued) HCA HOLDINGS, INC. CONDENSED CONSOLIDATING INCOME STATEMENT For The Year Ended December 31, 2011 (Dollars in millions) HCA Holdings, Inc. Issuer HCA Inc. Issuer Subsidiary Guarantors Subsidiary NonGuarantors Condensed Consolidated Eliminations Revenues before...

  • Page 146
    ...-RELATED INFORMATION (Continued) HCA HOLDINGS, INC. CONDENSED CONSOLIDATING INCOME STATEMENT For The Year Ended December 31, 2010 (Dollars in millions) HCA Holdings, Inc. Issuer HCA Inc. Issuer Subsidiary Guarantors Subsidiary NonGuarantors Condensed Consolidated Eliminations Revenues before...

  • Page 147
    ...-RELATED INFORMATION (Continued) HCA HOLDINGS, INC. CONDENSED CONSOLIDATING INCOME STATEMENT For The Year Ended December 31, 2009 (Dollars in millions) HCA Inc. Issuer Subsidiary Guarantors Subsidiary NonGuarantors Condensed Consolidated Eliminations Revenues before provision for doubtful accounts...

  • Page 148
    ... Current liabilities: Accounts payable ...Accrued salaries ...Other accrued expenses ...Long-term debt due within one year ...Long-term debt ...Intercompany balances ...Professional liability risks ...Income taxes and other liabilities ...Stockholders' (deficit) equity attributable to HCA Holdings...

  • Page 149
    ... and other intangible assets ...Deferred loan costs ...Investments in and advances to subsidiaries ...Other ...LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable ...Accrued salaries ...Other accrued expenses ...Long-term debt due within one year ...Long-term debt...

  • Page 150
    ...deferred loan costs ...Share-based compensation ...Pay-in-kind interest ...Equity in earnings of affiliates ...Other ...Net cash provided by (used in) operating activities ...Cash flows from investing activities: Purchase of property and equipment ...Acquisition of hospitals and health care entities...

  • Page 151
    ...cash provided by (used in) operating activities: ...Change in operating assets and liabilities ...Provision for doubtful accounts ...Depreciation and amortization ...Income taxes ...Gains on sales of facilities ...Impairments of long-lived assets ...Amortization of deferred loan costs ...Share-based...

  • Page 152
    ... by (used in) operating activities: Change in operating assets and liabilities ...Provision for doubtful accounts ...Depreciation and amortization ...Income taxes ...Losses (gains) on sales of facilities ...Impairments of long-lived assets ...Amortization of deferred loan costs ...Share-based...

  • Page 153
    ... 16, 2012. The distribution is expected to be funded using funds available under our existing senior secured credit facilities. Pursuant to the terms of our stock award plans, the holders of nonvested stock options and stock appreciation rights will receive a $2.00 per share reduction (subject...

  • Page 154
    HCA HOLDINGS, INC. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (Dollars in millions) 2011 First Second Third Fourth Revenues(i) ...Net income ...Net income attributable to HCA Holdings, Inc...Basic earnings per share ...Diluted earnings per share ... $7,406 $ 334(a) $ 240(a) $ 0.54 $ ...

  • Page 155
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  • Page 156
    ... and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /S/ RICHARD M. BRACKEN Richard M. Bracken Chairman of the Board and Chief Executive Officer Date: February 23, 2012

  • Page 157

  • Page 158
    ...and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /S/ R. MILTON JOHNSON R. Milton Johnson President and Chief Financial Officer Date...

  • Page 159
    ... the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /S/ RICHARD M. BRACKEN Richard M. Bracken Chairman of the Board and Chief Executive Officer February...