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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

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 of registrant as specified in its charter)

 

 

 

Delaware   27-3865930

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Park Plaza

Nashville, Tennessee

  37203
(Address of principal executive offices)   (Zip Code)

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Class of Common Stock

 

Outstanding at July 31, 2014

Voting common stock, $.01 par value   432,385,100 shares

 

 

 


Table of Contents

HCA HOLDINGS, INC.

Form 10-Q

June 30, 2014

 

         Page of
Form 10-Q
 

Part I.

  Financial Information   

Item 1.

  Financial Statements (Unaudited):   
 

Condensed Consolidated Income Statements — for the quarters and six months ended June  30, 2014 and 2013

     2   
 

Condensed Consolidated Comprehensive Income Statements — for the quarters and six months ended June 30, 2014 and 2013

     3   
 

Condensed Consolidated Balance Sheets — June 30, 2014 and December 31, 2013

     4   
 

Condensed Consolidated Statements of Cash Flows — for the six months ended June  30, 2014 and 2013

     5   
 

Notes to Condensed Consolidated Financial Statements

     6   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     28   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      47   

Item 4.

 

Controls and Procedures

     47   

Part II.

  Other Information   

Item 1.

  Legal Proceedings      47   

Item 1A.

  Risk Factors      49   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      49   

Item 6.

 

Exhibits

     50   

Signatures

     51   

 

1


Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Unaudited

(Dollars in millions, except per share amounts)

 

     Quarter     Six Months  
     2014     2013     2014     2013  

Revenues before provision for doubtful accounts

   $ 9,958      $ 9,473      $ 19,641      $ 18,667   

Provision for doubtful accounts

     728        1,023        1,579        1,777   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

     9,230        8,450        18,062        16,890   

Salaries and benefits

     4,098        3,848        8,148        7,765   

Supplies

     1,532        1,470        3,064        2,949   

Other operating expenses

     1,644        1,507        3,289        3,030   

Electronic health record incentive income

     (35 )      (52     (65 )      (91

Equity in earnings of affiliates

     (9 )      (12     (18 )      (20

Depreciation and amortization

     454        425        901        849   

Interest expense

     427        462        887        934   

Losses (gains) on sales of facilities

     (11 )      (4     (32 )      12   

Losses on retirement of debt

     226               226        17   

Legal claim costs

                   78          
  

 

 

   

 

 

   

 

 

   

 

 

 
     8,326        7,644        16,478        15,445   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     904        806        1,584        1,445   

Provision for income taxes

     272        269        498        470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     632        537        1,086        975   

Net income attributable to noncontrolling interests

     149        114        256        208   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to HCA Holdings, Inc.

   $ 483      $ 423      $ 830      $ 767   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Basic earnings per share

   $ 1.10      $ 0.95      $ 1.88      $ 1.72   

Diluted earnings per share

   $ 1.07      $ 0.91      $ 1.82      $ 1.66   

Shares used in earnings per share calculations (in thousands):

        

Basic

     438,833        446,612        440,482        445,513   

Diluted

     453,009        463,184        455,220        462,782   

See accompanying notes.

 

2


Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Unaudited

(Dollars in millions)

 

     Quarter     Six Months  
     2014     2013     2014     2013  

Net income

   $ 632      $ 537      $ 1,086      $ 975   

Other comprehensive income before taxes:

        

Foreign currency translation

     30               40        (60

Unrealized gains (losses) on available-for-sale securities

     4        (9     8        (8

Defined benefit plans

                            

Pension costs included in salaries and benefits

     4        8        8        15   
  

 

 

   

 

 

   

 

 

   

 

 

 
     4        8        8        15   

Change in fair value of derivative financial instruments

     (19 )      47        (29 )      40   

Interest costs included in interest expense

     32        32        65        64   
  

 

 

   

 

 

   

 

 

   

 

 

 
     13        79        36        104   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before taxes

     51        78        92        51   

Income taxes related to other comprehensive income items

     18        29        34        20   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     33        49        58        31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     665        586        1,144        1,006   

Comprehensive income attributable to noncontrolling interests

     149        114        256        208   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to HCA Holdings, Inc.

   $ 516      $ 472      $ 888      $ 798   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

3


Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)

 

     June 30,
2014
    December 31,
2013
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 658      $ 414   

Accounts receivable, less allowance for doubtful accounts of $5,267 and $5,488

     5,472        5,208   

Inventories

     1,211        1,179   

Deferred income taxes

     500        489   

Other

     931        747   
  

 

 

   

 

 

 
     8,772        8,037   

Property and equipment, at cost

     31,841        31,073   

Accumulated depreciation

     (18,120 )      (17,454
  

 

 

   

 

 

 
     13,721        13,619   

Investments of insurance subsidiaries

     426        448   

Investments in and advances to affiliates

     150        121   

Goodwill and other intangible assets

     5,909        5,903   

Deferred loan costs

     230        237   

Other

     614        466   
  

 

 

   

 

 

 
   $ 29,822      $ 28,831   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

Current liabilities:

    

Accounts payable

   $ 1,717      $ 1,803   

Accrued salaries

     1,140        1,193   

Other accrued expenses

     1,992        1,913   

Long-term debt due within one year

     1,046        786   
  

 

 

   

 

 

 
     5,895        5,695   

Long-term debt

     27,942        27,590   

Professional liability risks

     1,019        949   

Income taxes and other liabilities

     1,554        1,525   

Stockholders’ deficit:

    

Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 431,372,800 shares in 2014 and 439,604,000 shares in 2013

     4        4   

Capital in excess of par value

     777        1,386   

Accumulated other comprehensive loss

     (199 )      (257

Retained deficit

     (8,572 )      (9,403
  

 

 

   

 

 

 

Stockholders’ deficit attributable to HCA Holdings, Inc.

     (7,990 )      (8,270

Noncontrolling interests

     1,402        1,342   
  

 

 

   

 

 

 
     (6,588 )      (6,928
  

 

 

   

 

 

 
   $ 29,822      $ 28,831   
  

 

 

   

 

 

 

See accompanying notes.

 

4


Table of Contents

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Unaudited

(Dollars in millions)

 

     2014     2013  

Cash flows from operating activities:

    

Net income

   $ 1,086      $ 975   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Changes in operating assets and liabilities

     (2,151 )      (2,335

Provision for doubtful accounts

     1,579        1,777   

Depreciation and amortization

     901        849   

Income taxes

     (94 )      183   

Losses (gains) on sales of facilities

     (32 )      12   

Loss on retirement of debt

     226        17   

Legal claim costs

     78          

Amortization of deferred loan costs

     23        28   

Share-based compensation

     77        51   

Other

            (3
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,693        1,554   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (913 )      (896

Acquisition of hospitals and health care entities

     (27 )      (23

Disposition of hospitals and health care entities

     32        31   

Change in investments

     43        102   

Other

     1        (4
  

 

 

   

 

 

 

Net cash used in investing activities

     (864 )      (790
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuance of long-term debt

     3,502          

Net change in revolving credit facilities

     340        (20

Repayment of long-term debt

     (3,482 )      (768

Distributions to noncontrolling interests

     (197 )      (196

Payment of debt issuance costs

     (49 )      (5

Repurchase of common stock

     (750 )        

Distributions to stockholders

     (7 )      (10

Income tax benefits

     75        61   

Other

     (17 )      (69
  

 

 

   

 

 

 

Net cash used in financing activities

     (585 )      (1,007
  

 

 

   

 

 

 

Change in cash and cash equivalents

     244        (243

Cash and cash equivalents at beginning of period

     414        705   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 658      $ 462   
  

 

 

   

 

 

 

Interest payments

   $ 899      $ 909   

Income tax payments, net

   $ 517      $ 226   

See accompanying notes.

 

5


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Holdings, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Holdings, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2014, these affiliates owned and operated 165 hospitals, 115 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 used herein and unless otherwise stated or indicated by context, refer to HCA Holdings, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $67 million and $65 million for the quarters ended June 30, 2014 and 2013, respectively, and $135 million and $131 million for the six months ended June 30, 2014 and 2013, respectively. Operating results for the quarter and the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2013.

 

6


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues

 

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under Medicare, Medicaid and other programs), managed care health plans (includes the health insurance exchanges, beginning with the first quarter of 2014), 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 agreements. Revenues related to uninsured patients and copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts related to uninsured accounts to record the net self pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and the uninsured for the quarters and six months ended June 30, 2014 and 2013 are summarized in the following table (dollars in millions):

 

     Quarter  
     2014     Ratio     2013     Ratio  

Medicare

   $ 2,040        22.1   $ 1,976        23.4

Managed Medicare

     906        9.8        804        9.5   

Medicaid

     588        6.4        365        4.3   

Managed Medicaid

     452        4.9        378        4.5   

Managed care and other insurers

     4,959        53.8        4,655        55.1   

International (managed care and other insurers)

     334        3.6        291        3.4   
  

 

 

   

 

 

   

 

 

   

 

 

 
     9,279        100.6        8,469        100.2   

Uninsured

     318        3.4        693        8.2   

Other

     361        3.9        311        3.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     9,958        107.9        9,473        112.1   

Provision for doubtful accounts

     (728     (7.9     (1,023     (12.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $     9,230        100.0   $     8,450        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months  
     2014     Ratio     2013     Ratio  

Medicare

   $ 4,165        23.1   $ 4,114        24.4

Managed Medicare

     1,805        10.0        1,647        9.8   

Medicaid

     1,032        5.7        697        4.1   

Managed Medicaid

     873        4.8        779        4.6   

Managed care and other insurers

     9,669        53.5        9,141        54.1   

International (managed care and other insurers)

     660        3.7        581        3.4   
  

 

 

   

 

 

   

 

 

   

 

 

 
     18,204        100.8        16,959        100.4   

Uninsured

     706        3.9        1,092        6.5   

Other

     731        4.0        616        3.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues before provision for doubtful accounts

     19,641        108.7        18,667        110.5   

Provision for doubtful accounts

     (1,579     (8.7     (1,777     (10.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $     18,062        100.0   $     16,890        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

 

The increase in Medicaid revenues for the quarter and the six months ended June 30, 2014 compared to the quarter and six months ended June 30, 2013 was primarily due to our recording of $142 million, or $0.20 per diluted share, of Medicaid revenues related to the receipt of reimbursements in excess of our estimates for the indigent care component of the Texas Medicaid Waiver Program for the program year ended September 30, 2013.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a new five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing United States Generally Accepted Accounting Principles (“US GAAP”) and International Financial Reporting Standards revenue recognition guidance, will require significant management judgment in addition to changing the way many companies recognize revenue in their financial statements. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted under US GAAP. We are evaluating the effects the adoption of this standard will have on our financial statements and financial disclosures.

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the six months ended June 30, 2014, we paid $14 million to acquire a hospital and $13 million to acquire other nonhospital health care entities. During the six months ended June 30, 2013, we paid $23 million to acquire nonhospital health care entities.

During the six months ended June 30, 2014, we received proceeds of $32 million and recognized net pretax gains of $32 million related to sales of real estate and other investments. During the six months ended June 30, 2013, we received proceeds of $31 million and recognized net pretax losses of $12 million related to sales of a hospital facility and real estate and other investments.

NOTE 3 — INCOME TAXES

The IRS Examination Division began an audit of HCA Holdings, Inc.’s 2011 and 2012 federal income tax returns during 2014. We are also subject to examination by state and foreign taxing authorities.

Our liability for unrecognized tax benefits was $507 million, including accrued interest of $40 million, as of June 30, 2014 ($462 million and $30 million, respectively, as of December 31, 2013). Unrecognized tax benefits of $176 million ($160 million as of December 31, 2013) would affect the effective rate, if recognized. The provision for income taxes reflects $4 million and $3 million (each $2 million, net of tax) of interest expense related to taxing authority examinations for the quarters ended June 30, 2014 and 2013, respectively. The provision for income taxes reflects $8 million ($5 million, net of tax) of interest expense related to taxing authority examinations and $15 million ($9 million, net of tax) of reductions in interest expense related to taxing authority examinations for the six months ended June 30, 2014 and 2013, respectively. The provision for income taxes for the quarter and six months ended June 30, 2014 also reflects a reduction of $22 million related primarily to resolutions of prior year examinations.

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3 — INCOME TAXES (continued)

 

Depending on the completion of examinations by federal, state or foreign taxing authorities, the resolution of any tax disputes, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible our liability for unrecognized tax benefits may significantly increase or decline within the next 12 months. However, we are currently unable to estimate the range of any possible change.

NOTE 4 — EARNINGS PER SHARE

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding stock options, stock appreciation rights and restricted share units, computed using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and six months ended June 30, 2014 and 2013 (dollars in millions, except per share amounts, and shares in thousands):

 

     Quarter      Six Months  
     2014      2013      2014      2013  

Net income attributable to HCA Holdings, Inc.

   $ 483       $ 423       $ 830       $ 767   

Weighted average common shares outstanding

     438,833         446,612         440,482         445,513   

Effect of dilutive incremental shares

     14,176         16,572         14,738         17,269   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used for diluted earnings per share

     453,009         463,184         455,220         462,782   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

           

Basic earnings per share

   $ 1.10       $ 0.95       $ 1.88       $ 1.72   

Diluted earnings per share

   $ 1.07       $ 0.91       $ 1.82       $ 1.66   

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at June 30, 2014 and December 31, 2013 follows (dollars in millions):

 

     June 30, 2014  
     Amortized
Cost
     Unrealized
Amounts
    Fair
Value
 
        Gains      Losses    

Debt securities:

          

States and municipalities

   $ 447       $ 17       $ (1   $ 463   

Money market funds

     29                        29   
  

 

 

    

 

 

    

 

 

   

 

 

 
     476         17         (1     492   

Equity securities

     1         2                3   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 477       $ 19       $ (1     495   
  

 

 

    

 

 

    

 

 

   

Amounts classified as current assets

             (69
          

 

 

 

Investment carrying value

           $ 426   
          

 

 

 

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

 

     December 31, 2013  
     Amortized
Cost
     Unrealized
Amounts
    Fair
Value
 
        Gains      Losses    

Debt securities:

          

States and municipalities

   $ 404       $ 11       $ (3   $ 412   

Money market funds

     94                        94   
  

 

 

    

 

 

    

 

 

   

 

 

 
     498         11         (3     506   

Equity securities

     2         2                4   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 500       $ 13       $ (3     510   
  

 

 

    

 

 

    

 

 

   

Amounts classified as current assets

             (62
          

 

 

 

Investment carrying value

           $ 448   
          

 

 

 

At June 30, 2014 and December 31, 2013, the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).

Scheduled maturities of investments in debt securities at June 30, 2014 were as follows (dollars in millions):

 

     Amortized
Cost
     Fair
Value
 

Due in one year or less

   $ 41       $ 41   

Due after one year through five years

     232         238   

Due after five years through ten years

     90         96   

Due after ten years

     113         117   
  

 

 

    

 

 

 
   $ 476       $ 492   
  

 

 

    

 

 

 

The average expected maturity of the investments in debt securities at June 30, 2014 was 4.1 years, compared to the average scheduled maturity of 5.7 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between two parties based on common notional principal amounts and maturity dates. Pay-fixed interest rate swaps effectively convert LIBOR indexed variable rate obligations to fixed interest rate obligations. The interest payments under these agreements are settled on a net basis. The net interest payments, based on the notional amounts in these agreements, generally match the timing of the related liabilities for the interest rate swap agreements which have been designated as cash flow hedges. The notional amounts of the swap agreements represent amounts used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

Interest Rate Swap Agreements (continued)

 

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at June 30, 2014 (dollars in millions):

 

     Notional
Amount
     Maturity Date      Fair
Value
 

Pay-fixed interest rate swaps

   $ 500         December 2014       $ (3

Pay-fixed interest rate swaps

     3,000         December 2016         (214

Pay-fixed interest rate swaps

     1,000         December 2017         (42

During the next 12 months, we estimate $126 million will be reclassified from other comprehensive income (“OCI”) to interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the six months ended June 30, 2014 (dollars in millions):

 

Derivatives in Cash Flow Hedging Relationships

   Amount of Loss
Recognized in OCI on
Derivatives, Net of  Tax
     Location of Loss
Reclassified from
Accumulated OCI
into Operations
     Amount of Loss
Reclassified from
Accumulated OCI
into Operations
 

Interest rate swaps

   $ 19         Interest expense       $ 65   

Credit-risk-related Contingent Features

We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of June 30, 2014, we have not been required to post any collateral related to these agreements. If we had breached these provisions at June 30, 2014, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $269 million.

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”) emphasizes fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions market participants would 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 entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement 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 quotations, or alternative pricing sources with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. The valuation of these securities involves management’s judgment, after consideration of market factors and the absence of market transparency, market liquidity and observable inputs. Our valuation models derived fair market values compared to tax-equivalent yields of other securities of similar credit worthiness and similar effective maturities.

Derivative Financial Instruments

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. 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 and implied volatilities. 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 June 30, 2014 and December 31, 2013, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

 

    June 30, 2014  
    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

  $ 463      $      $ 456      $  7   

Money market funds

    29        29                 
 

 

 

   

 

 

   

 

 

   

 

 

 
    492        29        456        7   

Equity securities

    3        2               1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiaries

    495        31        456        8   

Less amounts classified as current assets

    (69     (29     (40       
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 426      $ 2      $ 416      $ 8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Interest rate swaps (Income taxes and other liabilities)

  $ 259      $      $ 259      $  —   

 

    December 31, 2013  
          Fair Value Measurements Using  
    Fair Value     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

  $ 412      $      $ 405      $ 7   

Money market funds

    94        94                 
 

 

 

   

 

 

   

 

 

   

 

 

 
    506        94        405        7   

Equity securities

    4        3               1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Investments of insurance subsidiaries

    510        97        405        8   

Less amounts classified as current assets

    (62     (62              
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 448      $ 35      $ 405      $ 8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

       

Interest rate swaps (Income taxes and other liabilities)

  $ 295      $      $ 295      $  —   

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

 

The estimated fair value of our long-term debt was $30.449 billion and $29.603 billion at June 30, 2014 and December 31, 2013, respectively, compared to carrying amounts aggregating $28.988 billion and $28.376 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at June 30, 2014 and December 31, 2013, including related interest rates at June 30, 2014, follows (dollars in millions):

 

     June 30,
2014
     December 31,
2013
 

Senior secured asset-based revolving credit facility (effective interest rate of 1.7%)

   $ 2,500       $ 2,440   

Senior secured revolving credit facility (effective interest rate of 1.7%)

     280           

Senior secured term loan facilities (effective interest rate of 5.3%)

     5,558         5,598   

Senior secured first lien notes (effective interest rate of 5.8%)

     10,491         9,695   

Other senior secured debt (effective interest rate of 6.7%)

     464         448   
  

 

 

    

 

 

 

First lien debt

     19,293         18,181   

Senior unsecured notes (effective interest rate of 7.2%)

     9,695         10,195   
  

 

 

    

 

 

 

Total debt (average life of 6.4 years, rates averaging 5.8%)

     28,988         28,376   

Less amounts due within one year

     1,046         786   
  

 

 

    

 

 

 
   $ 27,942       $ 27,590   
  

 

 

    

 

 

 

2014 Activity

During March 2014, we issued $3.500 billion aggregate principal amount of notes, comprised of $1.500 billion aggregate principal amount of 3.75% senior secured notes due 2019 and $2.000 billion aggregate principal amount of 5.00% senior secured notes due 2024, and repaid at maturity all $500 million aggregate principal amount of our outstanding 5.75% senior unsecured notes. During April 2014, we used proceeds from the March 2014 debt issuance to redeem all $1.500 billion aggregate principal amount of our outstanding 8 1/2% senior secured notes due 2019 and all $1.250 billion aggregate principal amount of our outstanding 7 7/8% senior secured notes due 2020. The pretax loss on retirement of debt related to these redemptions was $226 million.

2013 Activity

During March 2013, we redeemed all $201 million aggregate principal amount of our 9 7/8% senior secured second lien notes due 2017. The pretax loss on retirement of debt related to this redemption was $17 million.

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations or financial position.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

 

Government Investigations, Claims and Litigation

Health care companies are subject to numerous investigations by various governmental agencies. Further, under the federal False Claims Act (“FCA”), private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our financial position, results of operations and liquidity.

As initially disclosed in 2010, the Civil Division of the Department of Justice (“DOJ”) has contacted the Company in connection with its nationwide review of whether, in certain cases, hospital charges to the federal government relating to implantable cardio-defibrillators (“ICDs”) met the CMS criteria. In connection with this nationwide review, the DOJ has indicated that it will be reviewing certain ICD billing and medical records at 95 HCA hospitals; the review covers the period from October 2003 to the present. In August 2012, HCA, along with non-HCA hospitals across the country subject to the DOJ’s review, received from the DOJ a proposed framework for resolving the DOJ’s review of ICDs. The Company is cooperating in the review. The review could potentially give rise to claims against the Company under the federal FCA or other statutes, regulations or laws. At this time, we cannot predict what effect, if any, this review or any resulting claims could have on the Company.

In July 2012, the Civil Division of the U.S. Attorney’s Office in Miami requested information on reviews assessing the medical necessity of interventional cardiology services provided at any Company facility (other than peer reviews). The Company is cooperating with the government’s request and has produced medical records associated with particular reviews at eight hospitals, located primarily in Florida. At this time, we cannot predict what effect, if any, the request or any resulting claims, including any potential claims under the federal FCA, other statutes, regulations or laws, could have on the Company.

On April 2, 2014, the UK Competition and Markets Authority (“Authority”) issued a final report on its investigation of the private health care market in London. It concluded, among other things, that many private hospitals face little competition in central London, and that there are high barriers to entry. As part of its remedies package, the Authority ordered HCA to sell either: (a) its London Bridge and Princess Grace hospitals; or (b) its Wellington Hospital, including the Hospital Platinum Medical Centre. It also imposed other remedial conditions on HCA and other private health care providers, including: regulation of incentives to referring physicians; increased access to information about fees and performance; and restrictions on future arrangements between private providers and National Health Service private patient units. HCA disagrees with the Authority’s assessment of the competitive conditions for hospitals in London, as well as its proposed divestiture remedy, and has appealed the decision to the Competition Appeal Tribunal. The appeal is expected to be decided in 2015.

Securities Class Action Litigation

On October 28, 2011, a shareholder action, Schuh v. HCA Holdings, Inc. et al., was filed in the United States District Court for the Middle District of Tennessee seeking monetary relief. The case sought to include as a class all persons who acquired the Company’s stock pursuant or traceable to the Company’s Registration Statement issued in connection with the March 9, 2011 initial public offering. The lawsuit asserted a claim under Section 11 of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserted a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors. The action alleged various deficiencies in the Company’s

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

Securities Class Action Litigation (continued)

 

disclosures in the Registration Statement. Subsequently, two additional class action complaints, Kishtah v. HCA Holdings, Inc. et al. and Daniels v. HCA Holdings, Inc. et al., setting forth substantially similar claims against substantially the same defendants were filed in the same federal court on November 16, 2011 and December 12, 2011, respectively. All three of the cases were consolidated. On May 3, 2012, the court appointed New England Teamsters & Trucking Industry Pension Fund as Lead Plaintiff for the consolidated action. On July 13, 2012, the lead plaintiff filed an amended complaint asserting claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 against the Company, certain members of the board of directors, and certain underwriters in the offering. It further asserts a claim under Section 15 of the Securities Act of 1933 against the same members of the board of directors and Hercules Holdings II, LLC, a majority shareholder of the Company at the time of the initial public offering. The consolidated complaint alleges deficiencies in the Company’s disclosures in the Registration Statement and Prospectus relating to: (1) the accounting for the Company’s 2006 recapitalization and 2010 reorganization; (2) the Company’s failure to maintain effective internal controls relating to its accounting for such transactions; and (3) the Company’s Medicare and Medicaid revenue growth rates. The Company and other defendants moved to dismiss the amended complaint on September 11, 2012. The Court granted the motion in part on May 28, 2013. The action is proceeding to discovery on the remaining claims. Plaintiffs’ motion to certify the class has been briefed and is set for oral argument in August 2014. It is not known when the court will rule on the motion.

In addition to the above described shareholder class actions, on December 8, 2011, a federal shareholder derivative action, Sutton v. Bracken, et al., putatively initiated in the name of the Company, was filed in the United States District Court for the Middle District of Tennessee against certain officers and present and former directors of the Company seeking monetary relief. The action alleges breaches of fiduciary duties by the named officers and directors in connection with the accounting and earnings claims set forth in the shareholder class actions. Setting forth substantially similar claims against substantially the same defendants, an additional federal derivative action, Schroeder v. Bracken, et al., was filed in the United States District Court for the Middle District of Tennessee on December 16, 2011, and a state derivative action, Bagot v. Bracken, et al., was filed in Tennessee state court in the Davidson County Circuit Court on December 20, 2011. The federal derivative actions were consolidated in the Middle District of Tennessee and stayed pending developments in the shareholder class actions. The state derivative action had also been stayed pending developments in the shareholder class actions, but that stay has expired. The plaintiff in the state derivative action subsequently filed an amended complaint on September 9, 2013 that added additional allegations made in the shareholder class actions. On September 24, 2013, an additional state derivative action, Steinberg v. Bracken, et al., was filed in Tennessee state court in the Davidson County Circuit Court. This action against our board of directors has been consolidated with the earlier filed state derivative action. The plaintiffs in the consolidated action filed a consolidated complaint on December 4, 2013. The Company has filed a motion to again stay the state derivative action pending developments in the class action, but the Court has not yet acted on that motion.

Health Midwest Litigation

In October 2009, the Health Care Foundation of Greater Kansas City, a nonprofit health foundation, filed suit against HCA Inc. in the Circuit Court of Jackson County, Missouri and alleged that HCA did not fund the level of capital expenditures and uncompensated care agreed to in connection with HCA’s purchase of hospitals from Health Midwest in 2003. The central issue in the case was whether HCA’s construction of new hospitals counted towards its $450 million five-year capital commitments. In addition, the plaintiff alleged that HCA did not make its required capital expenditures in a timely fashion. On January 24, 2013, the Court ruled in favor of the plaintiff and awarded at least $162 million. The Court also ordered a court-supervised accounting of HCA’s

 

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Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES AND LEGAL CLAIM COSTS (continued)

Health Midwest Litigation (continued)

 

capital expenditures, as well as of expenditures on charity and uncompensated care during the ten years following the purchase. The Court also indicated it would award plaintiff attorneys fees, which the parties have stipulated are approximately $12 million for the trial phase. HCA recorded $175 million of legal claim costs in the fourth quarter of 2012 related to this ruling, and consistent with the judge’s order, has been accruing interest on that sum at 9% per annum. On April 25, 2014, the parties stipulated to an additional $78 million shortfall relating to the capital expenditures issue. HCA recorded $78 million of legal claims costs in the first quarter of 2014 as a result of the stipulation, and is accruing interest on that amount at 9% per annum. Pursuant to the terms of the stipulation, the parties have preserved their respective rights to contest the judge’s underlying ruling, whether through motions in the trial court or on appeal. The accounting for charity and other uncompensated care is ongoing, with hearings set to begin in the third quarter of 2014. Final judgment in the case currently is not anticipated before the fourth quarter of 2014. At this time, we cannot predict what effect, if any, the final judgment could have on the Company. HCA plans to appeal the trial court’s ruling on the breach of contract claim and order for the accounting once the trial court rules on the accounting and enters judgment.

NOTE 10 — CAPITAL STRUCTURE

The changes in stockholders’ deficit, including changes in stockholders’ deficit attributable to HCA Holdings, Inc. and changes in equity attributable to noncontrolling interests, are as follows (dollars in millions):

 

    Equity (Deficit) Attributable to HCA Holdings, Inc.     Equity
Attributable to
Noncontrolling
Interests
    Total  
    Common Stock     Capital in
Excess of
Par
Value
    Accumulated
Other
Comprehensive
Loss
    Retained
Deficit
     
    Shares
(000)
    Par Value            

Balances at December 31, 2013

    439,604      $ 4      $ 1,386      $ (257   $ (9,403   $ 1,342      $ (6,928

Net income

                                830        256        1,086   

Repurchase of common stock

    (14,555            (750                          (750

Other comprehensive income

                         58                      58   

Distributions

                                       (197     (197

Share-based benefit plans

    6,324               146                             146   

Other

                  (5            1        1        (3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2014

    431,373      $ 4      $ 777      $ (199   $ (8,572   $ 1,402      $ (6,588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During May 2014, we repurchased 14,554,628 shares of our common stock at a price of $51.53 per share.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10 — CAPITAL STRUCTURE (continued)

 

The components of accumulated other comprehensive loss are as follows (dollars in millions):

 

     Unrealized
Gains on
Available-
for-Sale
Securities
     Foreign
Currency
Translation
Adjustments
     Defined
Benefit
Plans
    Change
in Fair
Value of
Derivative
Instruments
    Total  

Balances at December 31, 2013

   $ 7       $ 11       $ (88   $ (187   $ (257

Unrealized gains on available-for-sale securities, net of $3 of income taxes

     5                               5   

Foreign currency translation adjustments, net of $14 of income taxes

             26                       26   

Change in fair value of derivative instruments, net of $10 income tax benefit

                            (19     (19

Expense reclassified into operations from other comprehensive income, net of $3 and $24, respectively, income tax benefits

                     5        41        46   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balances at June 30, 2014

   $ 12       $ 37       $ (83   $ (165   $ (199
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. Effective January 1, 2013, we reorganized our operational groups into two geographically organized groups: the National and American Groups. The National Group includes 82 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia, and the American Group includes 77 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.

 

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HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

 

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, losses on retirement of debt, legal claim costs, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and six months ended June 30, 2014 and 2013 are summarized in the following table (dollars in millions):

 

     Quarter     Six Months  
     2014     2013     2014     2013  

Revenues:

        

National Group

   $ 4,267      $ 3,964      $ 8,427      $ 7,945   

American Group

     4,447        4,065        8,599        8,099   

Corporate and other

     516        421        1,036        846   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 9,230      $ 8,450      $ 18,062      $ 16,890   
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of affiliates:

        

National Group

   $ (3   $ (3   $ (6   $ (5

American Group

     (8     (7     (15     (13

Corporate and other

     2        (2     3        (2
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (9   $ (12   $ (18   $ (20
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted segment EBITDA:

        

National Group

   $ 946      $ 831      $ 1,802      $ 1,635   

American Group

     1,134        916        1,984        1,744   

Corporate and other

     (80     (58     (142     (122
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,000      $ 1,689      $ 3,644      $ 3,257   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

National Group

   $ 190      $ 177      $ 377      $ 351   

American Group

     211        202        416        404   

Corporate and other

     53        46        108        94   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 454      $ 425      $ 901      $ 849   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted segment EBITDA

   $ 2,000      $ 1,689      $ 3,644      $ 3,257   

Depreciation and amortization

     454        425        901        849   

Interest expense

     427        462        887        934   

Losses (gains) on sales of facilities

     (11     (4     (32     12   

Losses on retirement of debt

     226               226        17   

Legal claim costs

                   78          
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 904      $ 806      $ 1,584      $ 1,445   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On November 23, 2010, HCA Holdings, Inc. issued $1.525 billion aggregate principal amount of 7 3/4% senior unsecured notes due 2021. On December 6, 2012, HCA Holdings, Inc. issued $1.000 billion aggregate principal amount of 6.25% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

HCA Inc., a direct wholly-owned subsidiary of HCA Holdings, Inc., is the obligor under a significant portion of our other indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes (other than the senior unsecured notes issued by HCA Holdings, Inc.). The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed by HCA Holdings, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility).

Our summarized condensed consolidating comprehensive income statements for the quarters and six months ended June 30, 2014 and 2013, condensed consolidating balance sheets at June 30, 2014 and December 31, 2013 and condensed consolidating statements of cash flows for the six months ended June 30, 2014 and 2013, segregating HCA Holdings, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow:

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED JUNE 30, 2014

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

  $      $      $ 5,079      $ 4,879      $      $ 9,958   

Provision for doubtful accounts

                  394        334               728   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                  4,685        4,545               9,230   

Salaries and benefits

                  2,118        1,980               4,098   

Supplies

                  805        727               1,532   

Other operating expenses

    5               789        850               1,644   

Electronic health record incentive income

                  (24     (11            (35

Equity in earnings of affiliates

    (549            (1     (8     549        (9

Depreciation and amortization

                  224        230               454   

Interest expense

    46        536        (112     (43            427   

Gains on sales of facilities

                  (11                   (11

Losses on retirement of debt

           226                             226   

Management fees

                  (176     176                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (498     762        3,612        3,901        549        8,326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    498        (762     1,073        644        (549     904   

Provision (benefit) for income taxes

    (18     (277     381        186               272   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    516        (485     692        458        (549     632   

Net income attributable to noncontrolling interests

                  18        131               149   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

  $ 516      $ (485   $ 674      $ 327      $ (549   $ 483   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to HCA Holdings, Inc.

  $ 516      $ (477   $ 677      $ 349      $ (549   $ 516   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE QUARTER ENDED JUNE 30, 2013

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

  $     $     $ 5,012     $ 4,461     $     $ 9,473  

Provision for doubtful accounts

                608       415             1,023  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                4,404       4,046             8,450  

Salaries and benefits

                2,058       1,790             3,848  

Supplies

                776       694             1,470  

Other operating expenses

    1             757       749             1,507  

Electronic health record incentive income

                (33 )     (19 )           (52 )

Equity in earnings of affiliates

    (504 )           (1 )     (11 )     504       (12 )

Depreciation and amortization

                211       214             425  

Interest expense

    51       544       (109 )     (24 )           462  

Losses (gains) on sales of facilities

                3       (7 )           (4 )

Management fees

                (181 )     181              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (452 )     544       3,481       3,567       504       7,644  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    452       (544 )     923       479       (504 )     806  

Provision (benefit) for income taxes

    (20 )     (213 )     354       148             269  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    472       (331 )     569       331       (504 )     537  

Net income attributable to noncontrolling interests

                16       98             114  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

  $ 472     $ (331 )   $ 553     $ 233     $ (504 )   $ 423  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to HCA Holdings, Inc.

  $ 472     $ (283 )   $ 558     $ 229     $ (504 )   $ 472  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(Dollars in millions)

 

     HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $      $      $ 10,109      $ 9,532      $      $ 19,641   

Provision for doubtful accounts

                   931        648               1,579   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                   9,178        8,884               18,062   

Salaries and benefits

                   4,217        3,931               8,148   

Supplies

                   1,619        1,445               3,064   

Other operating expenses

     10               1,562        1,717               3,289   

Electronic health record incentive income

                   (46     (19            (65

Equity in earnings of affiliates

     (952            (2     (16     952        (18

Depreciation and amortization

                   442        459               901   

Interest expense

     92        1,093        (234     (64            887   

Gains on sales of facilities

                   (32                   (32

Losses on retirement of debt

            226                             226   

Legal claim costs

            78                             78   

Management fees

                   (350     350                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (850     1,397        7,176        7,803        952        16,478   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     850        (1,397     2,002        1,081        (952     1,584   

Provision (benefit) for income taxes

     (38     (524     733        327               498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     888        (873     1,269        754        (952     1,086   

Net income attributable to noncontrolling interests

                   47        209               256   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

   $ 888      $ (873   $ 1,222      $ 545      $ (952   $ 830   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to HCA Holdings, Inc.

   $ 888      $ (851   $ 1,227      $ 576      $ (952   $ 888   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(Dollars in millions)

 

     HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Revenues before provision for doubtful accounts

   $     $      $ 9,884      $ 8,783      $      $ 18,667   

Provision for doubtful accounts

                  1,051        726               1,777   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

                  8,833        8,057               16,890   

Salaries and benefits

                  4,185        3,580               7,765   

Supplies

                  1,567        1,382               2,949   

Other operating expenses

     2              1,489        1,539               3,030   

Electronic health record incentive income

                  (62 )     (29 )            (91 )

Equity in earnings of affiliates

     (860 )            (2 )     (18 )     860        (20 )

Depreciation and amortization

                  420        429               849   

Interest expense

     97       1,102        (215 )     (50 )            934   

Losses (gains) on sales of facilities

                  19        (7 )            12   

Loss on retirement of debt

           17                             17   

Management fees

                  (364 )     364                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (761 )     1,119        7,037        7,190        860        15,445   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     761       (1,119 )     1,796        867        (860 )     1,445   

Provision (benefit) for income taxes

     (37 )     (425 )     671        261               470   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     798       (694 )     1,125        606        (860 )     975   

Net income attributable to noncontrolling interests

                  29        179               208   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to HCA Holdings, Inc.

   $ 798     $ (694 )   $ 1,096      $ 427      $ (860 )   $ 767   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to HCA Holdings, Inc.

   $ 798     $ (630 )   $ 1,105      $ 385      $ (860 )   $ 798   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 30, 2014

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 
ASSETS            

Current assets:

           

Cash and cash equivalents

  $      $      $ 215      $ 443      $      $ 658   

Accounts receivable, net

                  2,709        2,763               5,472   

Inventories

                  707        504               1,211   

Deferred income taxes

    500                                    500   

Other

                  344        587               931   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    500               3,975        4,297               8,772   

Property and equipment, net

                  7,676        6,045               13,721   

Investments of insurance subsidiaries

                         426               426   

Investments in and advances to affiliates

    21,308               15        135        (21,308     150   

Goodwill and other intangible assets

                  1,694        4,215               5,909   

Deferred loan costs

    27        203                             230   

Other

    406               19        189               614   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 22,241      $ 203      $ 13,379      $ 15,307      $ (21,308   $ 29,822   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ (DEFICIT)

EQUITY

           

Current liabilities:

           

Accounts payable

  $ 4      $      $ 1,081      $ 632      $      $ 1,717   

Accrued salaries

                  656        484               1,140   

Other accrued expenses

    407        330        433        822               1,992   

Long-term debt due within one year

           952        50        44               1,046   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    411        1,282        2,220        1,982               5,895   

Long-term debt

    2,525        25,047        183        187               27,942   

Intercompany balances

    26,762        (10,203     (20,098     3,539                 

Professional liability risks

                         1,019               1,019   

Income taxes and other liabilities

    533        260        543        218               1,554   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    30,231        16,386        (17,152     6,945               36,410   

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.

    (7,990     (16,183     30,412        7,079        (21,308     (7,990

Noncontrolling interests

                  119        1,283               1,402   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (7,990     (16,183     30,531        8,362        (21,308     (6,588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 22,241      $ 203      $ 13,379      $ 15,307      $ (21,308   $ 29,822   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2013

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 
ASSETS            

Current assets:

           

Cash and cash equivalents

  $      $      $ 112      $ 302      $      $ 414   

Accounts receivable, net

                  2,565        2,643               5,208   

Inventories

                  692        487               1,179   

Deferred income taxes

    489                                    489   

Other

                  301        446               747   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    489               3,670        3,878               8,037   

Property and equipment, net

                  7,504        6,115               13,619   

Investments of insurance subsidiaries

                         448               448   

Investments in and advances to affiliates

    20,356               13        108        (20,356     121   

Goodwill and other intangible assets

                  1,695        4,208               5,903   

Deferred loan costs

    30        207                             237   

Other

    250               48        168               466   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 21,125      $ 207      $ 12,930      $ 14,925      $ (20,356   $ 28,831   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY            

Current liabilities:

           

Accounts payable

  $ 1      $      $ 1,169      $ 633      $      $ 1,803   

Accrued salaries

                  694        499               1,193   

Other accrued expenses

    272        353        464        824               1,913   

Long-term debt due within one year

           702        45        39               786   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    273        1,055        2,372        1,995               5,695   

Long-term debt

    2,525        24,701        181        183               27,590   

Intercompany balances

    26,107        (10,513     (19,428     3,834                 

Professional liability risks

                         949               949   

Income taxes and other liabilities

    490        296        521        218               1,525   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    29,395        15,539        (16,354     7,179               35,759   

Stockholders’ (deficit) equity attributable to HCA Holdings, Inc.

    (8,270     (15,332     29,185        6,503        (20,356     (8,270

Noncontrolling interests

                  99        1,243               1,342   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (8,270     (15,332     29,284        7,746        (20,356     (6,928
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 21,125      $ 207      $ 12,930      $ 14,925      $ (20,356   $ 28,831   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Cash flows from operating activities:

           

Net income (loss)

  $ 888      $ (873   $ 1,269      $ 754      $ (952   $ 1,086   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

           

Changes in operating assets and liabilities

    13        (32     (1,258     (874            (2,151

Provision for doubtful accounts

                  931        648               1,579   

Depreciation and amortization

                  442        459               901   

Income taxes

    (94                                 (94

Gains on sales of facilities

                  (32                   (32

Losses on retirement of debt

           226                             226   

Legal claim costs

           78                             78   

Amortization of deferred loan costs

    2        21                             23   

Share-based compensation

    77                                    77   

Equity in earnings of affiliates

    (952                          952          

Other

           1               (1              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

    (66     (579     1,352        986               1,693   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchase of property and equipment

                  (583     (330            (913

Acquisition of hospitals and health care entities

                  (2     (25            (27

Disposition of hospitals and health care entities

                  25        7               32   

Change in investments

                  26        17               43   

Other

                         1               1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

                  (534     (330            (864
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Issuance of long-term debt

           3,502                             3,502   

Net change in revolving credit facilities

           340                             340   

Repayment of long-term debt

           (3,441     (25     (16            (3,482

Distributions to noncontrolling interests

                  (27     (170            (197

Payment of debt issuance costs

           (49                          (49

Repurchase of common stock

    (750                                 (750

Distributions to stockholders

    (7                                 (7

Changes in intercompany balances with affiliates, net

    756        227        (663     (320              

Income tax benefits

    75                                    75   

Other

    (8                   (9            (17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    66        579        (715     (515            (585
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

                  103        141               244   

Cash and cash equivalents at beginning of period

                  112        302               414   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $      $      $ 215      $ 443      $      $ 658   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

HCA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)

 

HCA HOLDINGS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(Dollars in millions)

 

    HCA
Holdings, Inc.
Issuer
    HCA Inc.
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Condensed
Consolidated
 

Cash flows from operating activities:

           

Net income (loss)

  $ 798      $ (694 )   $ 1,125      $ 606      $ (860 )   $ 975   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

           

Changes in operating assets and liabilities

    41        (18 )     (1,217 )     (1,141 )            (2,335 )

Provision for doubtful accounts

                  1,051        726               1,777   

Depreciation and amortization

                  420        429               849   

Income taxes

    183