HCA Holdings 2011 Annual Report Download - page 81

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)
Depreciation and amortization declined, as a percentage of revenues, to 5.0% in 2010 from 5.2% in 2009.
Depreciation expense was $1.416 billion for 2010 and $1.419 billion for 2009.
Interest expense increased to $2.097 billion for 2010 from $1.987 billion for 2009. The increase in interest
expense was due primarily to an increase in the average interest rate. Our average debt balance was
$26.751 billion for 2010 compared to $26.267 billion for 2009. The average interest rate for our long-term debt
increased from 7.6% for 2009 to 7.8% for 2010.
Net gains on sales of facilities were $4 million for 2010 and were related to sales of real estate and other
health care entity investments. Net losses on sales of facilities were $15 million for 2009 and included $8 million
of net losses on the sales of three hospital facilities and $7 million of net losses on sales of real estate and other
health care entity investments.
Impairments of long-lived assets were $123 million for 2010 and included $74 million related to two
hospital facilities and $49 million related to other health care entity investments, which includes $35 million for
the writeoff of capitalized engineering and design costs related to certain building safety requirements (California
earthquake standards) that have been revised. Impairments of long-lived assets were $43 million for 2009 and
included $19 million related to goodwill and $24 million related to property and equipment.
The effective tax rate was 35.3% and 37.3% for 2010 and 2009, respectively. The effective tax rate
computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.
Our provisions for income taxes for 2010 and 2009 were reduced by $44 million and $12 million, respectively,
related to reductions in interest expense related to taxing authority examinations. Excluding the effect of these
adjustments, the effective tax rate for 2010 and 2009 would have been 37.6% and 38.0%, respectively.
Net income attributable to noncontrolling interests increased from $321 million for 2009 to $366 million for
2010. The increase in net income attributable to noncontrolling interests related primarily to growth in operating
results of hospital joint ventures in two Texas markets.
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 stockholders and distributions to noncontrolling interests. Our primary cash sources are
cash flows from operating activities, issuances of debt and equity securities and dispositions of hospitals and
other health care entities.
Cash provided by operating activities totaled $3.933 billion in 2011 compared to $3.085 billion in 2010 and
$2.747 billion in 2009. Working capital totaled $1.679 billion at December 31, 2011 and $2.650 billion at
December 31, 2010. The decline in working capital is primarily related to an increase in our long-term debt due
within one year. The $848 million increase in cash provided by operating activities for 2011, compared to 2010,
was primarily related to $885 million improvement from lower income tax payments. The $338 million increase
in cash provided by operating activities for 2010, compared to 2009, was primarily comprised of the net impact
of the $198 million increase in net income, a $547 million improvement from lower income tax payments and a
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