HCA Holdings 2011 Annual Report Download - page 118

HCA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 1 — ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Depreciation expense, computed using the straight-line method, was $1.461 billion in 2011, $1.416 billion
in 2010 and $1.419 billion in 2009. Buildings and improvements are depreciated over estimated useful lives
ranging generally from 10 to 40 years. Estimated useful lives of equipment vary generally from four to 10 years.
When events, circumstances or operating results indicate the carrying values of certain long-lived assets
expected to be held and used, might be impaired, we prepare projections of the undiscounted future cash flows
expected to result from the use of the assets and their eventual disposition. If the projections indicate the recorded
amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value may be
estimated based upon internal evaluations that include quantitative analyses of revenues and cash flows, reviews
of recent sales of similar facilities and independent appraisals.
Long-lived assets to be disposed of are reported at the lower of their carrying amounts or fair value less
costs to sell or close. The estimates of fair value are usually based upon recent sales of similar assets and market
responses based upon discussions with and offers received from potential buyers.
Investments of Insurance Subsidiaries
At December 31, 2011 and 2010, the investments of our wholly-owned insurance subsidiaries were
classified as “available-for-sale” as defined in Accounting Standards Codification (“ASC”) No. 320,
Investments — Debt and Equity Securities and are recorded at fair value. The investment securities are held for
the purpose of providing the funding source to pay professional liability claims covered by the insurance
subsidiaries. We perform a quarterly assessment of individual investment securities to determine whether
declines in market value are temporary or other-than-temporary. Our investment securities evaluation process
involves multiple subjective judgments, often involves estimating the outcome of future events, and requires a
significant level of professional judgment in determining whether an impairment has occurred. We evaluate,
among other things, the financial position and near term prospects of the issuer, conditions in the issuer’s
industry, liquidity of the investment, changes in the amount or timing of expected future cash flows from the
investment, and recent downgrades of the issuer by a rating agency, to determine if, and when, a decline in the
fair value of an investment below amortized cost is considered other-than-temporary. The length of time and
extent to which the fair value of the investment is less than amortized cost and our ability and intent to retain the
investment, to allow for any anticipated recovery of the investment’s fair value, are important components of our
investment securities evaluation process.
Goodwill and Other Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests. In addition to the annual impairment
review, impairment reviews are performed whenever circumstances indicate a possible impairment may exist.
Impairment testing for goodwill is done at the reporting unit level. Reporting units are one level below the
business segment level, and our impairment testing is performed at the operating division or market level. We
compare the fair value of the reporting unit assets to the carrying amount, on at least an annual basis, to
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