HCA Holdings 2012 Annual Report Download - page 135

HCA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
Derivative Financial Instruments
We have entered into interest rate and cross currency swap agreements to manage our exposure to
fluctuations in interest rates and foreign currency risks. 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, foreign exchange rates and implied
volatilities. To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to reflect
both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value
measurements.
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 December 31, 2012 and 2011, we determined the credit valuation adjustments were
not significant to the overall valuation of our derivatives.
The following table summarizes our assets and liabilities measured at fair value on a recurring basis as of
December 31, 2012 and 2011, aggregated by the level in the fair value hierarchy within which those
measurements fall (dollars in millions):
December 31, 2012
Fair Value
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Assets:
Investments of insurance subsidiaries:
Debt securities:
States and municipalities . . $418 $ — $418 $—
Auction rate securities .... 68 — — 68
Asset-backed securities . . . 14 — 14 —
Money market funds ...... 67 67 — —
567 67 432 68
Equity securities ............. 31 — 2
Investments of insurance
subsidiaries ........... 570 68 432 70
Less amounts classified as
current assets ......... (55) (55) — —
$515 $ 13 $432 $70
Liabilities:
Cross currency swap (Income taxes
and other liabilities) ............ $ 13 $ — $ 13 $—
Interest rate swaps (Income taxes and
other liabilities) ................ 429 — 429 —
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