HCA Holdings 2012 Annual Report Download - page 84

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)
operating expenses include $317 million and $354 million of indigent care costs in certain Texas markets during
2011 and 2010, respectively. Provisions for losses related to professional liability risks were $244 million and
$222 million for 2011 and 2010, respectively.
We recognized $210 million of electronic health record incentive income related to Medicaid ($87 million)
and Medicare ($123 million) 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 for the full cost report year that will determine the final calculation of the incentive payment is
available.
Equity in earnings of affiliates declined from $282 million for 2010 to $258 million for 2011. Equity in
earnings of affiliates relates primarily to our Denver, Colorado market joint venture, which effective
November 1, 2011, we began consolidating due to our acquisition of the approximate 40% remaining ownership
interest.
Depreciation and amortization declined, as a percentage of revenues, to 4.9% in 2011 from 5.0% in 2010.
Depreciation expense was $1.461 billion for 2011 and $1.416 billion for 2010.
Interest expense declined to $2.037 billion for 2011 from $2.097 billion for 2010. The decline in interest
expense was due primarily to a decline in the average interest rate. Our average debt balance was $26.588 billion
for 2011 compared to $26.751 billion for 2010. The average interest rate for our long-term debt declined from
7.8% for 2010 to 7.7% for 2011.
Net gains on sales of facilities were $142 million for 2011 and primarily related to the sale of a hospital
facility and other health care entity investments. 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.
During October 2011, we completed our acquisition of the Colorado Health Foundation’s approximate 40%
remaining ownership interest in the HCA-HealthONE LLC joint venture for $1.450 billion. We recorded a gain
on the acquisition of a controlling interest in an equity investment of $1.522 billion related to the remeasurement
of our previous equity investment in HealthONE based upon our acquisition of the Foundation’s ownership
interest and the resulting consolidation of the entire enterprise at estimated fair value.
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. There were no impairments of long-lived assets in 2011.
During 2011, we recorded losses on retirement of debt of $481 million related to the redemptions of all
$1.000 billion aggregate principal amount of our 9
1
⁄ 8 % Senior Secured Notes due 2014, at a redemption price of
104.563% of the principal amount; $108 million aggregate principal amount of our 9
7
⁄ 8 % Senior Secured Notes
due 2017, at a redemption price of 109.875% of the principal amount; all of our outstanding $1.578 billion
9
5
⁄ 8 %/10
3
⁄ 8 % second lien toggle notes due 2016, at a redemption price of 106.783% of the principal amount and
all of our outstanding $3.200 billion 9
1
⁄ 4 % second lien notes due 2016, at a redemption price of 106.513% of the
principal amount. There were no losses on retirement of debt during 2010.
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