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HCA Healthcare, Inc. - Quarter Report: 2019 March (Form 10-Q)

HCA Healthcare, Inc.
   
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
 
10-Q
​​​​​​​
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2019
​​​​​​​
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 Healthcare, 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  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
 12b-2
of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
Non-accelerated
filer
 
 
Smaller reporting company
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
 
Trading Symbol(s)
 
 
Name of each exchange on which registered
Voting common stock, $.01 par value
 
 
HCA
 
 
New York Stock Exchange
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 April 30, 2019
Voting common stock, $.01 par value
 
342,307,400 shares
 
 
 
   
 
 
HCA HEALTHCARE, INC.
Form 10-Q
March 31, 2019
 
 
Page of
Form 10-Q
 
Part I.
 
Financial Information
  
 
       
Item 1.
 
Financial Statements (Unaudited):
  
 
       
   
2
 
       
   
3
 
       
   
4
 
       
   
5
 
       
   
6
 
       
   
7
 
       
Item 2.
   
25
 
       
Item 3.
   
38
 
       
Item 4.
   
38
 
       
Part II.
   
 
       
Item 1.
   
38
 
       
Item 1A.
   
39
 
       
Item 2.
   
39
 
       
Item 6.
   
40
 
      
  
41
  
 
1
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018
Unaudited
(Dollars in millions, except per share amounts)
                 
 
2019
   
2018
 
Revenues
 
$
12,517
    $
11,423
 
                 
Salaries and benefits
   
5,647
     
5,289
 
Supplies
   
2,041
     
1,915
 
Other operating expenses
   
2,299
     
2,110
 
Equity in earnings of affiliates
   
(11
)
   
(9
)
Depreciation and amortization
   
619
     
553
 
Interest expense
   
461
     
431
 
Losses (gains) on sales of facilities
   
1
     
(405
)
                 
   
11,057
     
9,884
 
                 
Income before income taxes
   
1,460
     
1,539
 
Provision for income taxes
   
279
     
257
 
                 
Net income
   
1,181
     
1,282
 
Net income attributable to noncontrolling interests
   
142
     
138
 
                 
Net income attributable to HCA Healthcare, Inc.
 
$
1,039
    $
1,144
 
                 
Per share data:
   
     
 
Basic earnings
 
$
3.03
    $
3.26
 
Diluted earnings
 
$
2.97
    $
3.18
 
Shares used in earnings per share calculations (in millions):
   
     
 
Basic
   
342.876
     
350.850
 
Diluted
   
350.316
     
359.749
 
 
 
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
2
 
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018
Unaudited
(Dollars in millions)
                 
 
2019
   
2018
 
Net income
 
$
1,181
    $
1,282
 
Other comprehensive income (loss) before taxes:
   
     
 
Foreign currency translation
   
20
     
54
 
                 
Unrealized gains (losses) on
available-for-sale
securities
   
8
     
(5
)
                 
Defined benefit plans
   
     
 
Pension costs included in salaries and benefits
   
3
     
5
 
                 
   
3
     
5
 
                 
Change in fair value of derivative financial instruments
   
(18
)
   
35
 
Interest benefits included in interest expense
   
(5
)
   
 
                 
   
(23
)
   
35
 
                 
Other comprehensive income before taxes
   
8
     
89
 
Income taxes related to other comprehensive income items
   
1
     
8
 
                 
Other comprehensive income
   
7
     
81
 
                 
Comprehensive income
   
1,188
     
1,363
 
Comprehensive income attributable to noncontrolling interests
   
142
     
138
 
                 
Comprehensive income attributable to HCA Healthcare, Inc.
 
$
1,046
    $
1,225
 
                 
 
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
3
 
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(Dollars in millions)
 
March 31,
2019
  
December 31,
2018
 
ASSETS
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
 
$
531
  $
502
 
Accounts receivable
  
7,420
   
6,789
 
Inventories
  
1,778
   
1,732
 
Other
  
1,379
   
1,190
 
         
  
11,108
   
10,213
 
         
Property and equipment, at cost
  
44,583
   
42,965
 
Accumulated depreciation
  
(23,455
)
  
(23,208
)
         
  
21,128
   
19,757
 
         
Investments of insurance subsidiaries
  
338
   
362
 
Investments in and advances to affiliates
  
246
   
232
 
Goodwill and other intangible assets
  
8,159
   
7,953
 
Right-of-use
operating lease assets
  
1,812
   
 
Other
  
588
   
690
 
         
 
$
43,379
  $
39,207
 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT
  
   
 
Current liabilities:
  
   
 
Accounts payable
 
$
2,693
  $
2,577
 
Accrued salaries
  
1,424
   
1,580
 
Other accrued expenses
  
2,618
   
2,624
 
Long-term debt due within one year
  
3,796
   
788
 
         
  
10,531
   
7,569
 
         
Long-term debt, less net debt issuance costs of $170 and $157
  
31,019
   
32,033
 
Professional liability risks
  
1,313
   
1,275
 
Right-of-use
operating lease obligations
  
1,494
   
 
Income taxes and other liabilities
  
1,277
   
1,248
 
         
Stockholders’ deficit:
  
   
 
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 343,030,500 shares in 2019 and 342,895,200 shares in 2018
  
3
   
3
 
Accumulated other comprehensive loss
  
(374
)
  
(381
)
Retained deficit
  
(3,983
)
  
(4,572
)
         
Stockholders’ deficit attributable to HCA Healthcare, Inc.
  
(4,354
)
  
(4,950
)
Noncontrolling interests
  
2,099
   
2,032
 
         
  
(2,255
)
  
(2,918
)
         
 
$
43,379
  $
39,207
 
         
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
4
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018
Unaudited
(Dollars in millions)
                                                         
 
Equity (Deficit) Attributable to HCA Healthcare, Inc.
   
Equity
Attributable to
Noncontrolling
Interests
   
Total
   
 
Common Stock
   
Capital in
Excess of
Par
Value
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Deficit
   
 
Shares
(in millions)
   
Par
Value
   
Balances, December 31, 2017
   
350.092
    $
4
    $
    $
(278
)   $
(6,532
)   $
1,811
    $
(4,995
)
Comprehensive income
   
     
     
     
81
     
1,144
     
138
     
1,363
 
Repurchase of common stock
   
(4.370
)    
     
114
     
     
(537
)    
     
(423
)
Share-based benefit plans
   
5.265
     
     
(114
)    
     
     
     
(114
)
Cash dividends declared ($0.35 per share)
   
     
     
     
     
(126
)    
     
(126
)
Distributions
   
     
     
     
     
     
(92
)    
(92
)
Other
   
     
     
     
     
     
(47
)    
(47
)
                                                         
Balances, March 31, 2018
   
350.987
     
4
     
     
(197
)    
(6,051
)    
1,810
     
(4,434
)
Comprehensive income
   
     
     
     
(64
)    
820
     
146
     
902
 
Repurchase of common stock
   
(4.670
)    
(1
)    
(93
)    
     
(376
)    
     
(470
)
Share-based benefit plans
   
0.443
     
     
96
     
     
     
     
96
 
Cash dividends declared ($0.35 per share)
   
     
     
     
     
(124
)    
     
(124
)
Distributions
   
     
     
     
     
     
(93
)    
(93
)
Other
   
     
     
(3
)    
     
     
1
     
(2
)
                                                         
Balances, June 30, 2018
   
346.760
     
3
     
     
(261
)    
(5,731
)    
1,864
     
(4,125
)
Comprehensive income
   
     
     
     
(5
)    
759
     
137
     
891
 
Repurchase of common stock
   
(2.518
)    
     
(55
)    
     
(247
)    
     
(302
)
Share-based benefit plans
   
0.844
     
     
54
     
     
     
     
54
 
Cash dividends declared ($0.35 per share)
   
     
     
     
     
(123
)    
     
(123
)
Distributions
   
     
     
     
     
     
(130
)    
(130
)
Other
   
     
     
1
     
     
     
4
     
5
 
                                                         
Balances, September 30, 2018
   
345.086
     
3
     
     
(266
)    
(5,342
)    
1,875
     
(3,730
)
Comprehensive income
   
     
     
     
(20
)    
1,064
     
181
     
1,225
 
Repurchase of common stock
   
(2.512
)    
     
(69
)    
     
(266
)    
     
(335
)
Share-based benefit plans
   
0.321
     
     
79
     
     
     
     
79
 
Cash dividends declared ($0.35 per share)
   
     
     
     
     
(123
)    
     
(123
)
Distributions
   
     
     
     
     
     
(126
)    
(126
)
Reclassification of stranded tax effects
   
     
     
     
(95
)    
95
     
     
 
Other
   
     
     
(10
)    
     
     
102
     
92
 
                                                         
Balances, December 31, 2018
   
342.895
     
3
     
     
(381
)    
(4,572
)    
2,032
     
(2,918
)
Comprehensive income
   
     
     
     
7
     
1,039
     
142
     
1,188
 
Repurchase of common stock
   
(2.106
)    
     
32
     
     
(310
)    
     
(278
)
Share-based benefit plans
   
2.242
     
     
(29
)    
     
     
     
(29
)
Cash dividends declared ($0.40 per share)
   
     
     
     
     
(140
)    
     
(140
)
Distributions
   
     
     
     
     
     
(136
)    
(136
)
Other
   
     
     
(3
)    
     
     
61
     
58
 
                                                         
Balances, March 31, 2019
   
343.031
   
$
3
   
$
   
$
(374
)
 
$
(3,983
)
 
$
2,099
   
$
(2,255
)
                                                         
 
 
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
5
 
 
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018
Unaudited
(Dollars in millions)
 
2019
  
2018
 
Cash flows from operating activities:
  
   
 
Net income
 
$
1,181
  $
1,282
 
Adjustments to reconcile net income to net cash provided by operating activities:
  
   
 
Decrease in cash from operating assets and liabilities:
  
   
 
Accounts receivable
  
(369
)
  
(4
)
Inventories and other assets
  
(174
)
  
(218
)
Accounts payable and accrued expenses
  
(651
)
  
(263
)
Depreciation and amortization
  
619
   
553
 
Income taxes
  
269
   
246
 
Losses (gains) on sales of facilities
  
1
   
(405
)
Amortization of debt issuance costs
  
8
   
8
 
Share-based compensation
  
62
   
60
 
Other
  
28
   
24
 
         
Net cash provided by operating activities
  
974
   
1,283
 
         
Cash flows from investing activities:
  
   
 
Purchase of property and equipment
  
(781
)
  
(694
)
Acquisition of hospitals and health care entities
  
(1,474
)
  
(379
)
Disposal of hospitals and health care entities
  
30
   
767
 
Change in investments
  
36
   
11
 
Other
  
24
   
(40
)
         
Net cash used in investing activities
  
(2,165
)
  
(335
)
         
Cash flows from financing activities:
  
   
 
Issuances of long-term debt
  
1,500
   
 
Net change in revolving bank credit facilities
  
460
   
270
 
Repayment of long-term debt
  
(49
)
  
(50
)
Distributions to noncontrolling interests
  
(136
)
  
(92
)
Payment of debt issuance costs
  
(22
)
  
(2
)
Payment of cash dividends
  
(141
)
  
(123
)
Repurchases of common stock
  
(278
)
  
(423
)
Other
  
(118
)
  
(191
)
         
Net cash provided by (used in) financing activities
  
1,216
   
(611
)
         
Effect of exchange rate changes on cash and cash equivalents
  
4
   
17
 
         
Change in cash and cash equivalents
  
29
   
354
 
Cash and cash equivalents at beginning of period
  
502
   
732
 
         
Cash and cash equivalents at end of period
 
$
531
  $
1,086
 
         
Interest payments
 
$
580
  $
549
 
Income tax payments, net
 
$
10
  $
11
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
6
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Reporting Entity
 
HCA Healthcare, 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 Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At March 31, 2019, these affiliates owned and operated 185 hospitals, 124 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located in 21 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 Healthcare, 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 $86 million and $81 million for the quarters ended March 31, 2019 and 2018, respectively. Operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.
Revenues
 
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied.
Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days
, and revenues are recognized based on charges incurred in relation to total expected charges.
Our performance obligations for outpatient services are generally satisfied over a period of less than one day
. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Our revenues for the quarter ended March 31, 2019 include $86 million related to the resolution of transaction price differences regarding certain out-of-network services performed in prior periods. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
7
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Revenues (continued)
 
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and others (including uninsured patients) for the quarters ended March 31, 2019 and 2018 are summarized in the following table (dollars in millions):
                                 
 
2019
   
Ratio
   
2018
   
Ratio
 
Medicare
 
$
2,770
     
22.1
%
  $
2,524
     
22.1
%
Managed Medicare
   
1,589
     
12.7
     
1,399
     
12.3
 
Medicaid
   
347
     
2.8
     
281
     
2.5
 
Managed Medicaid
   
613
     
4.9
     
561
     
4.9
 
Managed care and insurers
   
6,426
     
51.4
     
6,062
     
53.1
 
International (managed care and insurers)
   
297
     
2.4
     
305
     
2.7
 
Other
   
475
     
3.7
     
291
     
2.4
 
                                 
Revenues
 
$
12,517
     
100.0
%
  $
11,423
     
100.0
%
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
To quantify the total impact of the trends related to uninsured accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters ended March 31, 2019 and 2018 follows (dollars in millions):
                 
 
2019
   
2018
 
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)
 
$
10,606
    $
9,867
 
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)
   
11.8
%
   
12.4
%
Total uncompensated care
 
$
7,085
    $
6,252
 
Multiply by the cost-to-charges ratio
   
11.8
%
   
12.4
%
                 
Estimated cost of total uncompensated care
 
$
836
    $
775
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 36.1% and 35.4% for the quarters ended March 31, 2019 and 2018, respectively. The total uncompensated care amounts include charity care of $2.905 billion and $1.879 billion, and the related estimated costs of charity care were $343 million and $233 million for the quarters ended March 31, 2019 and 2018, respectively.
Reclassifications
 
Certain prior year amounts have been reclassified to conform to the current year presentation.
8
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 2 — ACQUISITIONS AND DISPOSITIONS
 
During the quarter ended March 31, 2019, we paid $1.398 billion to acquire a
seven
-hospital health system in North Carolina and $76 million to acquire other nonhospital health care entities. During the quarter ended March 31, 2018, we paid $360 million to acquire a hospital facility and $19 million to acquire other nonhospital health care entities. Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. The purchase price paid in excess of the fair value of identifiable net assets of these acquired entities aggregated $207 million for the quarter ended March 31, 2019. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.
During the quarter ended March 31, 2019, we received proceeds of $25 million and recognized a net pretax loss of $
1
 million related to a sale of a hospital facility in one of our Louisiana markets. During the quarter ended March 31, 2019, we also received proceeds of $5 million related to sales of real estate and other investments. During the quarter ended March 31, 2018, we received proceeds of $758 million and recognized a net pretax gain of $376 million related to the sale of the two hospital facilities in our Oklahoma market. During the quarter ended March 31, 2018, we also received proceeds of $9 million and recognized a net pretax gain of $29 million related to sales of real estate and other investments.
NOTE 3 — INCOME TAXES
 
Our provision for income taxes for the quarters ended March 31, 2019 and 2018 was $279 million and $257 million, respectively, and the effective tax rates were 21.2% and 18.4%, respectively. Our provision for income taxes included tax benefits related to the settlement of employee equity awards of $49 million and $92 million for the quarters ended March 31, 2019 and 2018, respectively.
Our liability for unrecognized tax benefits was $457 million, including accrued interest of $53 million, as of March 31, 2019 ($435 million and $48 million, respectively, as of December 31, 2018). Unrecognized tax benefits of $143 million ($137 million as of December 31, 2018) would affect the effective rate, if recognized.
The Internal Revenue Service began an examination of the Company’s 2016 and 2017 federal income tax returns during 2019. We are also subject to examination by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease 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 equity awards and potential shares, computed using the treasury stock method.
9
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 4 — EARNINGS PER SHARE (continued)
 
The following table sets forth the computation of basic and diluted earnings per share for the quarters ended March 31, 2019 and 2018 (dollars and shares in millions, except per share amounts):
                 
 
2019
   
2018
 
Net income attributable to HCA Healthcare, Inc.
 
$
1,039
    $
1,144
 
                 
Weighted average common shares outstanding
   
342.876
     
350.850
 
Effect of dilutive incremental shares
   
7.440
     
8.899
 
                 
Shares used for diluted earnings per share
   
350.316
     
359.749
 
                 
Earnings per share:
   
     
 
Basic earnings
 
$
3.03
    $
3.26
 
Diluted earnings
 
$
2.97
    $
3.18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES
 
A summary of our insurance subsidiaries’ investments at March 31, 2019 and December 31, 2018 follows (dollars in millions):
                                 
 
March 31, 2019
 
 
Amortized
Cost
   
Unrealized
Amounts
   
Fair
Value
   
 
Gains
   
Losses
   
Debt securities
 
$
336
   
$
11
   
$
   
$
347
 
Money market funds and other
   
81
     
     
     
81
 
                                 
 
$
417
   
$
11
   
$
     
428
 
                                 
Amounts classified as current assets
   
     
     
     
(90
)
                                 
Investment carrying value
   
     
     
   
$
338
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                 
 
December 31, 2018
 
 
Amortized
Cost
   
Unrealized
Amounts
   
Fair
Value
   
 
Gains
   
Losses
   
Debt securities
  $
338
    $
5
    $
(2
)   $
341
 
Money market funds and other
   
68
     
     
     
68
 
                                 
  $
406
    $
5
    $
(2
)    
409
 
                                 
Amounts classified as current assets
   
     
     
     
(47
)
                                 
Investment carrying value
   
     
     
    $
362
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2019 and December 31, 2018, 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).
10
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)
 
Scheduled maturities of investments in debt securities at March 31, 2019 were as follows (dollars in millions):
                 
 
Amortized
Cost
   
Fair
Value
 
Due in one year or less
  $
3
    $
3
 
Due after one year through five years
   
64
     
65
 
Due after five years through ten years
   
201
     
209
 
Due after ten years
   
68
     
70
 
                 
  $
336
    $
347
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The average expected maturity of the investments in debt securities at March 31, 2019 was
5.9
 years, compared to the average scheduled maturity of 10.2 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 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.
The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at March 31, 2019 (dollars in millions):
                         
 
Notional
Amount
   
Maturity Date
   
Fair
Value
 
Pay-fixed interest rate swaps
  $
2,000
     
December 2021
    $
38
 
Pay-fixed interest rate swaps
   
500
     
December 2022
     
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
During the next 12 months, we estimate $20 million will be reclassified from other comprehensive income (“OCI”) and will reduce interest expense.
Derivatives — Results of Operations
 
The following table presents the effect of our interest rate swaps on our results of operations for the quarter ended March 31, 2019 (dollars in millions):
                         
Derivatives in Cash Flow Hedging Relationships
 
Amount of Loss
Recognized in OCI on
Derivatives, Net of Tax
   
Location of Gain
Reclassified from
Accumulated OCI
into Operations
   
Amount of Gain
Reclassified from
Accumulated OCI
into Operations
 
Interest rate swaps
  $
14
     
Interest expense
    $
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
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, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes 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 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.
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.
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 of these instruments.
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 March 31, 2019 and December 31, 2018, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.
12
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
 
Derivative Financial Instruments (continued)
 
The following tables summarize our assets measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):
                                 
 
March 31, 2019
 
 
   
Fair Value Measurements Using
 
 
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
   
     
     
     
 
Investments of insurance subsidiaries:
   
     
     
     
 
Debt securities
 
$
347
   
$
   
$
347
   
$
 
Money market funds and other
   
81
     
81
     
     
 
                                 
Investments of insurance subsidiaries
   
428
     
81
     
347
     
 
Less amounts classified as current assets
   
(90
)
   
(80
)
   
(10
)
   
 
                                 
 
$
338
     
1
   
$
337
   
$
 
                                 
Interest rate swaps (Other)
 
$
40
   
$
   
$
40
   
$
 
       
 
December 31, 2018
 
 
   
Fair Value Measurements Using
 
 
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
   
     
     
     
 
Investments of insurance subsidiaries:
   
     
     
     
 
Debt securities
  $
341
    $
    $
341
    $
 
Money market funds and other
   
68
     
68
     
     
 
                                 
Investments of insurance subsidiaries
   
409
     
68
     
341
     
 
Less amounts classified as current assets
   
(47
)    
(47
)    
     
 
                                 
  $
362
    $
21
    $
341
    $
 
                                 
Interest rate swaps (Other)
  $
63
    $
    $
63
    $
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The estimated fair value of our long-term debt was $36.602 billion and $32.887 billion at March 31, 2019 and December 31, 2018, respectively, compared to carrying amounts, excluding net debt issuance costs, aggregating $34.985 billion and $32.978 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.
13
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 8 — LONG-TERM DEBT
 
A summary of long-term debt at March 31, 2019 and December 31, 2018, including related interest rates at March 31, 2019, follows (dollars in millions):
                 
 
March 31,
2019
   
December 31,
2018
 
Senior secured asset-based revolving credit facility (effective interest rate of 3.7%)
 
$
3,500
    $
3,040
 
Senior secured revolving credit facility
   
     
 
Senior secured term loan facilities (effective interest rate of 3.7%)
   
3,776
     
3,801
 
Senior secured notes (effective interest rate of 5.6%)
   
13,800
     
13,800
 
Other senior secured debt (effective interest rate of 5.5%)
   
657
     
585
 
                 
Senior secured debt
   
21,733
     
21,226
 
Senior unsecured notes (effective interest rate of 6.3%)
   
13,252
     
11,752
 
Net debt issuance costs
   
(170
)
   
(157
)
                 
Total debt (average life of 6.3 years, rates averaging 5.4%)
   
34,815
     
32,821
 
Less amounts due within one year
   
3,796
     
788
 
                 
 
$
31,019
    $
32,033
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
During January 2019, we issued $1.500 billion aggregate principal amount of senior unsecured notes comprised of $1.000 billion aggregate principal amount of 5.875% notes due 2029 and $500 million aggregate principal amount of 5.625% notes due 2028. We used the net proceeds to fund the purchase of a
seven-hospital
health system located in western North Carolina.
NOTE 9 — LEASES
 
We adopted ASU No.
 2016-02,
Leases (Topic 842)
, which requires leases with durations greater than 12 months to be recognized on the balance sheet, effective January 1, 2019, using the modified retrospective approach. Prior period financial statement amounts and disclosures have not been adjusted to reflect the provisions of the new standard. We elected the package of transition provisions available which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.
We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related
right-of-use
assets and
right-of-use
obligations at the present value of lease payments over the term. Many of our leases include rental escalation clauses and renewal options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts.
Generally, we use our estimated incremental borrowing rate to discount the lease payments based on information available at lease commencement, as most of our leases do not provide a readily determinable implicit interest rate.
14
 
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 9 — LEASES (continued)
 
The following table presents our lease-related assets and liabilities at March 31, 2019 (dollars in millions):
                 
 
Balance Sheet Classification
   
March 31, 2019
 
Assets:
   
     
 
Operating leases
   
Right-of-use
 operating lease assets
    $
1,812
 
Finance leases
   
Property and equipment
     
590
 
                 
Total lease assets
   
    $
2,402
 
                 
Liabilities:
   
     
 
Current:
   
     
 
Operating leases
   
Other accrued expenses
    $
310
 
Finance leases
   
Long-term
 debt due within one year
     
39
 
Noncurrent:
   
     
 
Operating leases
   
Right-of-use
 operating lease obligations
     
1,494
 
Finance leases
   
Long-term debt
     
519
 
                 
Total lease liabilities
   
    $
2,362
 
                 
Weighted-average remaining term:
   
     
 
Operating leases
   
     
12.3 years
 
Finance leases
   
     
9.2 years
 
Weighted-average discount rate:
   
     
 
Operating leases(1)
   
     
5.6
%
Finance leases
   
     
5.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
 
 
 
 
 
 
 
 
 
 
The following table presents certain information related to lease expense for finance and operating leases for the quarter ended March 31, 2019 (dollars in millions):
         
 
2019
 
Finance lease expense:
   
 
Amortization of leased assets
  $
17
 
Interest of lease liabilities
   
6
 
Operating leases(2)
   
94
 
Short-term lease expense(2)
   
78
 
Variable lease expense(2)
   
39
 
         
Total lease expense
  $
234
 
         
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Expenses are included in “other operating expenses” in our condensed consolidated income statement.
 
 
 
 
 
 
 
 
 
 
15
 

HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 — LEASES (continued)
Other Information
The following table presents supplemental cash flow information for the quarter ended March 31, 2019 (dollars in millions):
         
 
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
   
 
Operating cash flows for operating leases
  $
144
 
Operating cash flows for finance leases
   
6
 
Financing cash flows for finance leases
   
17
 
 
 
 
 
 
 
 
 
 
 
Maturities of Lease Liabilities
The following table reconciles the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recorded on the balance sheet at March 31, 2019 (dollars in millions):
                 
 
Operating
Leases
   
Finance
Leases
 
2019
  $
294
    $
72
 
2020
   
370
     
92
 
2021
   
315
     
71
 
2022
   
254
     
62
 
2023
   
198
     
52
 
Thereafter
   
1,265
     
318
 
                 
Total minimum lease payments
   
2,696
     
667
 
Less: amount of lease payments representing interest
   
(892
)    
(109
)
                 
Present value of future minimum lease payments
   
1,804
     
558
 
Less: current obligations under leases
   
(310
)    
(39
)
                 
Long-term lease obligations
  $
1,494
    $
519
 
                 
 
 
 
 
 
 
 
 
 
 
NOTE 10 — CONTINGENCIES
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. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.
Health care companies are subject to numerous investigations by various governmental agencies. 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
16
 

HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 10 — CONTINGENCIES (continued)
 
conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.
Texas operates a state Medicaid program pursuant to a waiver from CMS under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. The Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas have requested information about whether the Program as operated in Harris County complies with the laws and regulations applicable to provider related donations. The Company is cooperating with this request. We believe that our participation is and has been consistent with the requirements of the Program. However, at this time, we cannot predict what effect, if any, the request or resulting claims under the federal FCA, other statutes, regulations or laws, could have on the Company.
NOTE 11 — SHARE REPURCHASES TRANSACTIONS AND OTHER COMPREHENSIVE LOSS
 
During January 2019, our Board of Directors authorized a share repurchase program for up to $2 billion of our outstanding common stock. During the quarter ended March 31, 2019, we repurchased 2.106 million shares of our common stock at an average price of $131.92 per share through market purchases pursuant to the $2.0 billion share repurchase program authorized during October 2017 (which was completed during the first quarter of 2019) and the $2.0 billion share repurchase program authorized during January 2019. At March 31, 2019, we had $1.995 billion of repurchase authorization available under the January 2019 authorization.
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, 2018
  $
3
    $
(283
)   $
(148
)   $
47
    $
(381
)
Unrealized gains on
available-for-sale
securities, net of $2 of income taxes
   
6
     
     
     
     
6
 
Foreign currency translation adjustments, net of $3 of income taxes
   
     
17
     
     
     
17
 
Change in fair value of derivative instruments, net of $4 income tax benefits
   
     
     
     
(14
)    
(14
)
Expense (income) reclassified into operations from other comprehensive income, net of $1 income tax benefits and $1 of income taxes, respectively
   
     
     
2
     
(4
)    
(2
)
                                         
Balances at March 31, 2019
  $
9
    $
(266
)   $
(146
)   $
29
    $
(374
)
                                         
 
 
 
 
 
 
 
 
 
 
NOTE 12 — SEGMENT AND GEOGRAPHIC INFORMATION
 
We operate in one line of business, which is operating hospitals and related health care entities. We operate in
two
geographically organized groups: the National and American Groups. The National Group includes 95 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, North Carolina, South Carolina, Utah and Virginia, and the American Group includes 84
17
 

HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 12 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)
 
hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Tennessee and Texas. We also operate
six
hospitals in England, and these facilities are included in the Corporate and other group.
Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, 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 ended March 31, 2019 and 2018 are summarized in the following table (dollars in millions):
                 
 
2019
   
2018
 
Revenues:
   
     
 
National Group
 
$
6,317
    $
5,568
 
American Group
   
5,595
     
5,327
 
Corporate and other
   
605
     
528
 
                 
 
$
12,517
    $
11,423
 
                 
Equity in earnings of affiliates:
   
     
 
National Group
 
$
(2
)
  $
(2
)
American Group
   
(11
)
   
(9
)
Corporate and other
   
2
     
2
 
                 
 
$
(11
)
  $
(9
)
                 
Adjusted segment EBITDA:
   
     
 
National Group
 
$
1,454
    $
1,182
 
American Group
   
1,141
     
1,031
 
Corporate and other
   
(54
)
   
(95
)
                 
 
$
2,541
    $
2,118
 
                 
Depreciation and amortization:
   
     
 
National Group
 
$
265
    $
225
 
American Group
   
281
     
252
 
Corporate and other
   
73
     
76
 
                 
 
$
619
    $
553
 
                 
Adjusted segment EBITDA
 
$
2,541
    $
2,118
 
Depreciation and amortization
   
619
     
553
 
Interest expense
   
461
     
431
 
Losses (gains) on sales of facilities
   
1
     
(405
)
                 
Income before income taxes
 
$
1,460
    $
1,539
 
                 
 
 
 
 
 
 
 
 
 
 
18
 

 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
HCA Healthcare, Inc. has $1.000 billion aggregate principal amount of 6.250% senior unsecured notes due 2021 outstanding. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.
HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, 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 Healthcare, Inc.). The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed by HCA Healthcare, 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 ended March 31, 2019 and 2018, condensed consolidating balance sheets at March 31, 2019 and December 31, 2018 and condensed consolidating statements of cash flows for the quarters ended March 31, 2019 and 2018, segregating HCA Healthcare, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary
non-guarantors
and eliminations, follow:
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT
FOR THE QUARTER ENDED MARCH 31, 2019
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
Revenues
  $
    $
    $
7,224
    $
5,293
    $
    $
12,517
 
Salaries and benefits
   
     
     
3,137
     
2,510
     
     
5,647
 
Supplies
   
     
     
1,177
     
864
     
     
2,041
 
Other operating expenses
   
2
     
     
1,146
     
1,151
     
     
2,299
 
Equity in earnings of affiliates
   
(1,026
)    
     
(2
)    
(9
)    
1,026
     
(11
)
Depreciation and amortization
   
     
     
355
     
264
     
     
619
 
Interest expense (income)
   
16
     
995
     
(473
)    
(77
)    
     
461
 
Losses on sales of facilities
   
     
     
1
     
     
     
1
 
Management fees
   
     
     
(171
)    
171
     
     
 
                                                 
   
(1,008
)    
995
     
5,170
     
4,874
     
1,026
     
11,057
 
                                                 
Income (loss) before income taxes
   
1,008
     
(995
)    
2,054
     
419
     
(1,026
)    
1,460
 
Provision (benefit) for income taxes
   
(31
)    
(231
)    
472
     
69
     
     
279
 
                                                 
Net income (loss)
   
1,039
     
(764
)    
1,582
     
350
     
(1,026
)    
1,181
 
Net income attributable to noncontrolling interests
   
     
     
20
     
122
     
     
142
 
                                                 
Net income (loss) attributable to HCA Healthcare, Inc.
  $
1,039
    $
(764
)   $
1,562
    $
228
    $
(1,026
)   $
1,039
 
                                                 
Comprehensive income (loss) attributable to HCA Healthcare, Inc.
  $
1,046
    $
(782
)   $
1,564
    $
251
    $
(1,033
)   $
1,046
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
 
 
HCA HEALTHCARE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
 
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT
FOR THE QUARTER ENDED MARCH 31, 2018
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
Revenues
  $
    $
    $
6,776
    $
4,647
    $
    $
11,423
 
                                                 
Salaries and benefits
   
     
     
3,069
     
2,220
     
     
5,289
 
Supplies
   
     
     
1,141
     
774
     
     
1,915
 
Other operating expenses
   
1
     
     
1,128
     
981
     
     
2,110
 
Equity in earnings of affiliates
   
(1,090
)    
     
(2
)    
(7
)    
1,090
     
(9
)
Depreciation and amortization
   
     
     
323
     
230
     
     
553
 
Interest expense
   
16
     
837
     
(367
)    
(55
)    
     
431
 
Gains on sales of facilities
   
     
     
(395
)    
(10
)    
     
(405
)
Management fees
   
     
     
(158
)    
158
     
     
 
                                                 
   
(1,073
)    
837
     
4,739
     
4,291
     
1,090
     
9,884
 
                                                 
                                                 
Income (loss) before income taxes
   
1,073
     
(837
)    
2,037
     
356
     
(1,090
)    
1,539
 
Provision (benefit) for income taxes
   
(71
)    
(195
)    
467
     
56
     
     
257
 
                                                 
Net income (loss)
   
1,144
     
(642
)    
1,570
     
300
     
(1,090
)    
1,282
 
Net income attributable to noncontrolling interests
   
     
     
28
     
110
     
     
138
 
                                                 
Net income (loss) attributable to HCA Healthcare, Inc.
  $
1,144
    $
(642
)   $
1,542
    $
190
    $
(1,090
)   $
1,144
 
                                                 
Comprehensive income (loss) attributable to HCA Healthcare, Inc.
  $
1,225
    $
(615
)   $
1,546
    $
240
    $
(1,171
)   $
1,225
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
 
 
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2019
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
ASSETS
   
     
     
     
     
     
 
Current assets:
   
     
     
     
     
     
 
Cash and cash equivalents
 
$
   
$
   
$
139
   
$
392
   
$
   
$
531
 
Accounts receivable
   
     
     
4,200
     
3,220
     
     
7,420
 
Inventories
   
     
     
1,149
     
629
     
     
1,778
 
Other
   
     
     
699
     
680
     
     
1,379
 
                                                 
   
     
     
6,187
     
4,921
     
     
11,108
 
Property and equipment, net
   
     
     
12,587
     
8,541
     
     
21,128
 
Investments of insurance subsidiaries
   
     
     
     
338
     
     
338
 
Investments in and advances to affiliates
   
34,199
     
     
29
     
217
     
(34,199
)
   
246
 
Goodwill and other intangible assets
   
     
     
5,725
     
2,434
     
     
8,159
 
Right-of-use operating lease assets
   
     
     
438
     
1,374
     
     
1,812
 
Other
   
404
     
40
     
32
     
112
     
     
588
 
 
$
34,603
   
$
40
   
$
24,998
   
$
17,937
   
$
(34,199
)
 
$
43,379
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND
STOCKHOLDERS’ (DEFICIT)
EQUITY
   
     
     
     
     
     
 
Current liabilities:
   
     
     
     
     
     
 
Accounts payable
 
$
   
$
   
$
1,767
   
$
926
   
$
   
$
2,693
 
Accrued salaries
   
     
     
851
     
573
     
     
1,424
 
Other accrued expenses
   
300
     
302
     
736
     
1,280
     
     
2,618
 
Long-term debt due within one year
   
     
3,697
     
54
     
45
     
     
3,796
 
                                                 
   
300
     
3,999
     
3,408
     
2,824
     
     
10,531
 
Long-term debt, net
   
997
     
29,464
     
231
     
327
     
     
31,019
 
Intercompany balances
   
37,135
     
(7,851
)
   
(29,293
)
   
9
     
     
 
Professional liability risks
   
     
     
     
1,313
     
     
1,313
 
Right-of-use operating lease obligations
   
     
     
336
     
1,158
     
     
1,494
 
Income taxes and other liabilities
   
525
     
     
233
     
519
     
     
1,277
 
                                                 
   
38,957
     
25,612
     
(25,085
)
   
6,150
     
     
45,634
 
Stockholders’ (deficit) equity attributable to HCA Healthcare, Inc.
   
(4,354
)
   
(25,572
)
   
50,001
     
9,770
     
(34,199
)
   
(4,354
)
Noncontrolling interests
   
     
     
82
     
2,017
     
     
2,099
 
                                                 
   
(4,354
)
   
(25,572
)
   
50,083
     
11,787
     
(34,199
)
   
(2,255
)
                                                 
 
$
34,603
   
$
40
   
$
24,998
   
$
17,937
   
$
(34,199
)
 
$
43,379
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
 
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2018
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
ASSETS
   
     
     
     
     
     
 
Current assets:
   
     
     
     
     
     
 
Cash and cash equivalents
  $
    $
    $
174
    $
328
    $
    $
502
 
Accounts receivable, net
   
     
     
3,964
     
2,825
     
     
6,789
 
Inventories
   
     
     
1,178
     
554
     
     
1,732
 
Other
   
     
     
669
     
521
     
     
1,190
 
                                                 
   
     
     
5,985
     
4,228
     
     
10,213
 
Property and equipment, net
   
     
     
12,450
     
7,307
     
     
19,757
 
Investments of insurance subsidiaries
   
     
     
     
362
     
     
362
 
Investments in and advances to affiliates
   
33,166
     
     
29
     
203
     
(33,166
)    
232
 
Goodwill and other intangible assets
   
     
     
5,724
     
2,229
     
     
7,953
 
Other
   
478
     
64
     
35
     
113
     
     
690
 
                                                 
  $
33,644
    $
64
    $
24,223
    $
14,442
    $
(33,166
)   $
39,207
 
                                                 
LIABILITIES AND
STOCKHOLDERS’ (DEFICIT) EQUITY
   
     
     
     
     
     
 
Current liabilities:
   
     
     
     
     
     
 
Accounts payable
  $
    $
    $
1,721
    $
856
    $
    $
2,577
 
Accrued salaries
   
     
     
998
     
582
     
     
1,580
 
Other accrued expenses
   
142
     
403
     
905
     
1,174
     
     
2,624
 
Long-term debt due within one year
   
     
696
     
55
     
37
     
     
788
 
                                                 
   
142
     
1,099
     
3,679
     
2,649
     
     
7,569
 
Long-term debt, net
   
996
     
30,544
     
212
     
281
     
     
32,033
 
Intercompany balances
   
36,951
     
(6,789
)    
(28,415
)    
(1,747
)    
     
 
Professional liability risks
   
     
     
     
1,275
     
     
1,275
 
Income taxes and other liabilities
   
505
     
     
223
     
520
     
     
1,248
 
                                                 
   
38,594
     
24,854
     
(24,301
)    
2,978
     
     
42,125
 
Stockholders’ (deficit) equity attributable to HCA Healthcare, Inc.
   
(4,950
)    
(24,790
)    
48,437
     
9,519
     
(33,166
)    
(4,950
)
Noncontrolling interests
   
     
     
87
     
1,945
     
     
2,032
 
                                                 
   
(4,950
)    
(24,790
)    
48,524
     
11,464
     
(33,166
)    
(2,918
)
                                                 
  $
33,644
    $
64
    $
24,223
    $
14,442
    $
(33,166
)   $
39,207
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
 
 
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2019
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
Cash flows from operating activities:
   
     
     
     
     
     
 
Net income (loss)
 
$
 1,039
   
$
(764
)
 
$
1,582
   
$
350
   
$
(1,026
)
 
$
1,181
 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
   
     
     
     
     
     
 
Changes in operating assets and liabilities
   
(15
)
   
(101
)
   
(600
)
   
(478
)
   
     
(1,194
)
Depreciation and amortization
   
     
     
355
     
264
     
     
619
 
Income taxes
   
269
     
     
     
     
     
269
 
Losses on sales of facilities
   
     
     
1
     
     
     
1
 
Amortization of debt issuance costs
   
     
8
     
     
     
     
8
 
Share-based compensation
   
     
     
62
     
     
     
62
 
Equity in earnings of affiliates
   
(1,026
)
   
     
     
     
1,026
     
 
Other
   
25
     
     
5
     
(2
)
   
     
28
 
                                                 
Net cash provided by (used in) operating activities
   
292
     
(857
)
   
1,405
     
134
     
     
974
 
                                                 
Cash flows from investing activities:
   
     
     
     
     
     
 
Purchase of property and equipment
   
     
     
(471
)
   
(310
)
   
     
(781
)
Acquisition of hospitals and health care entities
   
     
     
(12
)
   
(1,462
)
   
     
(1,474
)
Disposition of hospitals and health care entities
   
     
     
30
     
     
     
30
 
Change in investments
   
     
     
     
36
     
     
36
 
Other
   
     
     
(5
)
   
29
     
     
24
 
                                                 
Net cash used in investing activities
   
     
     
(458
)
   
(1,707
)
   
     
(2,165
)
                                                 
Cash flows from financing activities:
   
     
     
     
     
     
 
Issuance of long-term debt
   
     
1,500
     
     
     
     
1,500
 
Net change in revolving credit facilities
   
     
460
     
     
     
     
460
 
Repayment of long-term debt
   
     
(23
)
   
(16
)
   
(10
)
   
     
(49
)
Distributions to noncontrolling interests
   
     
     
(25
)
   
(111
)
   
     
(136
)
Payment of debt issuance costs
   
     
(22
)
   
     
     
     
(22
)
Payment of cash dividends
   
(141
)
   
     
     
     
     
(141
)
Repurchases of common stock
   
(278
)
   
     
     
     
     
(278
)
Changes in intercompany balances with affiliates, net
   
243
     
(1,058
)
   
(941
)
   
1,756
     
     
 
Other
   
(116
)
   
     
     
(2
)
   
     
(118
)
                                                 
Net cash (used in) provided by financing activities
   
(292
)
   
857
     
(982
)
   
1,633
     
     
1,216
 
                                                 
Effect on exchange rate changes on cash and cash equivalents
   
     
     
     
4
     
     
4
 
                                                 
Change in cash and cash equivalents
   
     
     
(35
)
   
64
     
     
29
 
Cash and cash equivalents at beginning of period
   
     
     
174
     
328
     
     
502
 
                                                 
Cash and cash equivalents at end of period
 
$
   
$
   
$
139
   
$
392
   
$
   
$
531
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2018
(Dollars in millions)
                                                 
 
HCA
Healthcare, Inc.
Issuer
   
HCA Inc.
Issuer
   
Subsidiary
Guarantors
   
Subsidiary
Non-
Guarantors
   
Eliminations
   
Condensed
Consolidated
 
Cash flows from operating activities:
   
     
     
     
     
     
 
Net income (loss)
  $
1,144
    $
(642
)   $
1,570
    $
300
    $
(1,090
)   $
1,282
 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
   
     
     
     
     
     
 
Changes in operating assets and liabilities
   
(15
)    
(99
)    
(347
)    
(24
)    
     
(485
)
Depreciation and amortization
   
     
     
323
     
230
     
     
553
 
Income taxes
   
246
     
     
     
     
     
246
 
Gains on sales of facilities
   
     
     
(395
)    
(10
)    
     
(405
)
Amortization of debt issuance costs
   
     
8
     
     
     
     
8
 
Share-based compensation
   
     
     
60
     
     
     
60
 
Equity in earnings of affiliates
   
(1,090
)    
     
     
     
1,090
     
 
Other
   
21
     
     
     
3
     
     
24
 
                                                 
Net cash provided by (used in) operating activities
   
306
     
(733
)    
1,211
     
499
     
     
1,283
 
                                                 
Cash flows from investing activities:
   
     
     
     
     
     
 
Purchase of property and equipment
   
     
     
(413
)    
(281
)    
     
(694
)
Acquisition of hospitals and health care entities
   
     
     
(373
)    
(6
)    
     
(379
)
Disposition of hospitals and health care entities
   
     
     
767
     
     
     
767
 
Change in investments
   
     
     
13
     
(2
)    
     
11
 
Other
   
     
     
(48
)    
8
     
     
(40
)
                                                 
Net cash used in investing activities
   
     
     
(54
)    
(281
)    
     
(335
)
                                                 
Cash flows from financing activities:
   
     
     
     
     
     
 
Net change in revolving credit facilities
   
     
270
     
     
     
     
270
 
Repayment of long-term debt
   
     
(18
)    
(22
)    
(10
)    
     
(50
)
Distributions to noncontrolling interests
   
     
     
(24
)    
(68
)    
     
(92
)
Payment of debt issuance costs
   
     
(2
)    
     
     
     
(2
)
Payment of cash dividends
   
(123
)    
     
     
     
     
(123
)
Repurchases of common stock
   
(423
)    
     
     
     
     
(423
)
Changes in intercompany balances with affiliates, net
   
434
     
483
     
(919
)    
2
     
     
 
Other
   
(195
)    
     
     
4
     
     
(191
)
                                                 
Net cash (used in) provided by financing activities
   
(307
)    
733
     
(965
)    
(72
)    
     
(611
)
                                                 
Effect on exchange rate changes on cash and cash equivalents
   
     
     
     
17
     
     
17
 
                                                 
Change in cash and cash equivalents
   
(1
)    
     
192
     
163
     
     
354
 
Cash and cash equivalents at beginning of period
   
1
     
     
112
     
619
     
     
732
 
                                                 
Cash and cash equivalents at end of period
  $
    $
    $
304
    $
782
    $
    $
1,086
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
This quarterly report on Form
 10-Q
 
includes certain disclosures which contain “forward-looking statements.” Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures and expected net claim payments and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), including the effects of court challenges to, any repeal of, or changes to, the Health Reform Law or changes to its implementation, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, (3) the effects related to the continued implementation of the sequestration spending reductions required under the Budget Control Act of 2011, and related legislation extending these reductions, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (4) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (5) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (6) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (7) the highly competitive nature of the health care business, (8) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (9) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (13) changes in accounting practices, (14) changes in general economic conditions nationally and regionally in our markets, (15) the emergence of and effects related to infectious diseases, (16) future divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (20) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) the impact of potential cybersecurity incidents or security breaches, (22) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology, (23) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (24) the effects of the 2017 Tax Cuts and Jobs Act (the “Tax Act”), including potential legislation or interpretive guidance that may be issued by federal and state taxing authorities or other standard-setting bodies, and (25) other risk factors described in our annual report on Form
 10-K
 
for the year ended December 31, 2018 and our other filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
25
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
First Quarter 2019 Operations Summary
Revenues increased to $12.517 billion in the first quarter of 2019 from $11.423 billion in the first quarter of 2018. Net income attributable to HCA Healthcare, Inc. totaled $1.039 billion, or $2.97 per diluted share, for the quarter ended March 31, 2019, compared to $1.144 billion, or $3.18 per diluted share, for the quarter ended March 31, 2018. First quarter 2019 revenues include $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain
 
out-of-network
 
services performed in prior periods. First quarter 2018 results include net gains on sales of facilities of $405 million, or $0.85 per diluted share. Our provision for income taxes for the first quarters of 2019 and 2018 included tax benefits of $49 million, or $0.14 per diluted share, and $92 million, or $0.26 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 350.316 million shares for the quarter ended March 31, 2019 and 359.749 million shares for the quarter ended March 31, 2018. During 2018 and the first quarter of 2019, we repurchased 14.070 million shares and 2.106 million shares of our common stock, respectively.
Revenues increased 9.6% on a consolidated basis and increased 6.3% on a same facility basis for the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018. The increase in consolidated revenues can be primarily attributed to the combined impact of a 4.6% increase in revenue per equivalent admission and a 4.8% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 4.4% increase in same facility revenue per equivalent admission and a 1.8% increase in same facility equivalent admissions.
During the quarter ended March 31, 2019, consolidated admissions and same facility admissions increased 3.0% and 0.9%, respectively, compared to the quarter ended March 31, 2018. Surgeries increased 2.9% on a consolidated basis and 0.7% on a same facility basis during the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018. Emergency department visits declined 0.6% on a consolidated basis and 2.3% on a same facility basis during the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018. Same facility uninsured admissions were flat for the quarter ended March 31, 2019, compared to the quarter ended March 31, 2018.
Cash flows from operating activities declined $309 million from $1.283 billion for the first quarter of 2018 to $974 million for the first quarter of 2019. The decline in cash provided by operating activities was primarily related to the net impact of an increase in net income, excluding gains and losses on sales of facilities, of $305 million and negative changes of $709 million related to working capital items.
Results of Operations
 
Revenue/Volume Trends
 
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare
 
26
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
Revenues increased 9.6% from $11.423 billion in the first quarter of 2018 to $12.517 billion in the first quarter of 2019. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and others (including uninsured patients) for the quarters ended March 31, 2019 and 2018 are summarized in the following table (dollars in millions):
                                 
 
2019
   
Ratio
   
2018
   
Ratio
 
Medicare
 
$
2,770
     
22.1
%
  $
2,524
     
22.1
%
Managed Medicare
   
1,589
     
12.7
     
1,399
     
12.3
 
Medicaid
   
347
     
2.8
     
281
     
2.5
 
Managed Medicaid
   
613
     
4.9
     
561
     
4.9
 
Managed care and insurers
   
6,426
     
51.4
     
6,062
     
53.1
 
International (managed care and insurers)
   
297
     
2.4
     
305
     
2.7
 
Other
   
475
     
3.7
     
291
     
2.4
 
                                 
Revenues
 
$
12,517
     
100.0
%
  $
11,423
     
100.0
%
                                 
 
 
 
 
 
 
 
 
 
Consolidated and same facility revenue per equivalent admission increased 4.6% and 4.4%, respectively, in the first quarter of 2019, compared to the first quarter of 2018. Consolidated and same facility equivalent admissions increased 4.8% and 1.8%, respectively, in the first quarter of 2019, compared to the first quarter of 2018. Consolidated and same facility outpatient surgeries increased 3.6% and 1.3%, respectively, in the first quarter of 2019, compared to the first quarter of 2018. Consolidated and same facility inpatient surgeries increased 1.7% and declined 0.3%, respectively, in the first quarter of 2019, compared to the first quarter of 2018. Consolidated and same facility emergency department visits declined 0.6% and 2.3%, respectively, in the first quarter of 2019, compared to the first quarter of 2018.
 
27
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
To quantify the total impact of the trends related to uninsured accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters ended March 31, 2019 and 2018 follows (dollars in millions):
                 
 
2019
   
2018
 
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)
 
$
10,606
    $
9,867
 
Cost-to-charges
ratio (patient care costs as percentage of gross patient charges)
   
11.8
%
   
12.4
%
Total uncompensated care
 
$
7,085
    $
6,252
 
Multiply by the
cost-to-charges
ratio
   
11.8
%
   
12.4
%
                 
Estimated cost of total uncompensated care
 
$
836
    $
775
 
                 
 
 
 
 
 
 
 
 
 
Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 36.1% and 35.4% for the quarters ended March 31, 2019 and 2018, respectively.
Same facility uninsured admissions were flat in the first quarter of 2019 compared to the first quarter of 2018. Same facility uninsured admissions in 2018, compared to 2017, increased 7.4% in the fourth quarter of 2018, increased 8.8% in the third quarter of 2018, increased 7.8% in the second quarter of 2018, and increased 10.1% in the first quarter of 2018.
The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters ended March 31, 2019 and 2018 are set forth in the following table.
                 
 
2019
   
2018
 
Medicare
   
30
%
   
31
%
Managed Medicare
   
19
     
18
 
Medicaid
   
5
     
5
 
Managed Medicaid
   
12
     
12
 
Managed care and insurers
   
27
     
27
 
Uninsured
   
7
     
7
 
                 
   
100
%
   
100
%
                 
 
 
 
 
 
 
 
 
 
The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters ended March 31, 2019 and 2018 are set forth in the following table.
                 
 
2019
   
2018
 
Medicare
   
29
%
   
29
%
Managed Medicare
   
15
     
14
 
Medicaid
   
4
     
4
 
Managed Medicaid
   
5
     
5
 
Managed care and insurers
   
47
     
48
 
                 
   
100
%
   
100
%
                 
 
 
 
 
 
 
 
 
 
 
28
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
At March 31, 2019, we had 92 hospitals in the states of Texas and Florida. During the first quarter of 2019, 56% of our admissions and 48% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 70% of our uninsured admissions during the first quarter of 2019.
We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. In December 2017, the Centers for Medicare & Medicaid Services (“CMS”) announced that it will phase out federal matching funds for Designated State Health Programs under waivers granted under section 1115 of the Social Security Act. Texas currently operates its Healthcare Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicated that it will phase out some of the federal funding. Our Texas Medicaid revenues included Medicaid supplemental payments of $108 million and $98 million during the first quarters of 2019 and 2018, respectively.
In addition, we receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.
 
29
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Results of Operations (continued)
 
Operating Results Summary
 
The following is a comparative summary of results of operations for the quarters ended March 31, 2019 and 2018 (dollars in millions):
                                 
 
2019
   
2018
 
 
Amount
   
Ratio
   
Amount
   
Ratio
 
Revenues
 
$
12,517
     
100.0
    $
11,423
     
100.0
 
                                 
Salaries and benefits
   
5,647
     
45.1
     
5,289
     
46.3
 
Supplies
   
2,041
     
16.3
     
1,915
     
16.8
 
Other operating expenses
   
2,299
     
18.4
     
2,110
     
18.5
 
Equity in earnings of affiliates
   
(11
)
   
(0.1
)
   
(9
)    
(0.1
)
Depreciation and amortization
   
619
     
4.9
     
553
     
4.7
 
Interest expense
   
461
     
3.7
     
431
     
3.8
 
Losses (gains) on sales of facilities
   
1
     
     
(405
)    
(3.5
)
                                 
   
11,057
     
88.3
     
9,884
     
86.5
 
Income before income taxes
   
1,460
     
11.7
     
1,539
     
13.5
 
Provision for income taxes
   
279
     
2.3
     
257
     
2.3
 
                                 
Net income
   
1,181
     
9.4
     
1,282
     
11.2
 
Net income attributable to noncontrolling interests
   
142
     
1.1
     
138
     
1.2
 
                                 
Net income attributable to HCA Healthcare, Inc.
 
$
1,039
     
8.3
    $
1,144
     
10.0
 
                                 
% changes from prior year:
   
     
     
     
 
Revenues
   
9.6
%
   
     
7.5
%    
 
Income before income taxes
   
(5.2
)
   
     
44.4
     
 
Net income attributable to HCA Healthcare, Inc.
   
(9.2
)
   
     
73.5
     
 
Admissions(a)
   
3.0
     
     
4.6
     
 
Equivalent admissions(b)
   
4.8
     
     
4.6
     
 
Revenue per equivalent admission
   
4.6
     
     
2.9
     
 
Same facility % changes from prior year(c):
   
     
     
     
 
Revenues
   
6.3
     
     
5.8
     
 
Admissions(a)
   
0.9
     
     
2.2
     
 
Equivalent admissions(b)
   
1.8
     
     
1.8
     
 
Revenue per equivalent admission
   
4.4
     
     
3.9
     
 
 
 
 
 
 
 
 
 
 
(a) Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.
 
 
 
 
 
 
 
 
 
(b) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.
 
 
 
 
 
 
 
 
 
(c) Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.
 
 
 
 
 
 
 
 
 
 
30
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Results of Operations (continued)
 
Quarters Ended March 31, 2019 and 2018
 
Revenues increased to $12.517 billion in the first quarter of 2019 from $11.423 billion in the first quarter of 2018. Net income attributable to HCA Healthcare, Inc. totaled $1.039 billion, or $2.97 per diluted share, for the quarter ended March 31, 2019, compared to $1.144 billion, or $3.18 per diluted share, for the quarter ended March 31, 2018. First quarter 2019 revenues include $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain
out-of-network
services performed in prior periods. First quarter 2018 results include net gains on sales of facilities of $405 million, or $0.85 per diluted share. Our provision for income taxes for the first quarters of 2019 and 2018 included tax benefits of $49 million, or $0.14 per diluted share, and $92 million, or $0.26 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 350.316 million shares for the quarter ended March 31, 2019 and 359.749 million shares for the quarter ended March 31, 2018. During 2018 and the first quarter of 2019, we repurchased 14.070 million shares and 2.106 million shares of our common stock, respectively.
Revenues increased 9.6% due to the combined impact of revenue per equivalent admission growth of 4.6% and a 4.8% increase in equivalent admissions for the first quarter of 2019 compared to the first quarter of 2018. Same facility revenues increased 6.3% due to the combined impact of a 4.4% increase in same facility revenue per equivalent admission and a 1.8% increase in same facility equivalent admissions for the first quarter of 2019 compared to the first quarter of 2018.
Salaries and benefits, as a percentage of revenues, were 45.1% in the first quarter of 2019 and 46.3% in the first quarter of 2018. Salaries and benefits per equivalent admission increased 1.9% in the first quarter of 2019 compared to the first quarter of 2018. Same facility labor rate increases averaged 2.9% for the first quarter of 2019 compared to the first quarter of 2018.
Supplies, as a percentage of revenues, were 16.3% in the first quarter of 2019 and 16.8% in the first quarter of 2018. Supply costs per equivalent admission increased 1.7% in the first quarter of 2019 compared to the first quarter of 2018. Supply costs per equivalent admission increased 2.1% for medical devices, 4.7% for pharmacy supplies and 0.3% for general medical and surgical items in the first quarter of 2019 compared to the first quarter of 2018.
Other operating expenses, as a percentage of revenues, were 18.4% in the first quarter of 2019 and 18.5% in the first quarter of 2018. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $136 million and $120 million for the first quarters of 2019 and 2018, respectively.
Equity in earnings of affiliates was $11 million and $9 million in the first quarters of 2019 and 2018, respectively.
Depreciation and amortization increased $66 million, from $553 million in the first quarter of 2018 to $619 million in the first quarter of 2019. The increase in depreciation relates to both acquired facilities and increased capital expenditures at our existing facilities.
Interest expense was $461 million in the first quarter of 2019 and $431 million in the first quarter of 2018. Our average debt balance was $34.036 billion for the first quarter of 2019 compared to $33.140 billion for the
 
31
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Results of Operations (continued)
 
Quarters Ended March 31, 2019 and 2018 (continued)
 
first quarter of 2018. The average effective interest rate for our long-term debt increased to 5.5% from 5.3% for the quarters ended March 31, 2019 and 2018, respectively.
During the first quarters of 2019 and 2018, we recorded net losses and net gains on sales of facilities of $1 million and $405 million, respectively. The net gains on sales of facilities for 2018 related primarily to the sale of the two hospital facilities in our Oklahoma market.
The effective tax rates were 21.2% and 18.4% for the first quarters of 2019 and 2018, 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 the first quarters of 2019 and 2018 included tax benefits of $49 million and $92 million, respectively, related to employee equity award settlements. Excluding the effect of these adjustments, the effective tax rate for the first quarters of 2019 and 2018 would have been 24.8% and 25.0%, respectively.
Net income attributable to noncontrolling interests increased from $138 million for the first quarter of 2018 to $142 million for the first quarter of 2019. The increase in net income attributable to noncontrolling interests related primarily to one of our Texas markets.
Liquidity and Capital Resources
 
Cash provided by operating activities totaled $974 million in the first quarter of 2019 compared to $1.283 billion in the first quarter of 2018. The $309 million decline in cash provided by operating activities in the first quarter of 2019 compared to the first quarter of 2018 related primarily to the net impact of an increase in net income, excluding gains and losses on sales of facilities, of $305 million and negative changes of $709 million related to working capital items. The primary component of the negative working capital change was the payment of $428 million during the first quarter of 2019 to fund the 2018 401(k) Company match. The combined interest payments and net tax payments in the first quarters of 2019 and 2018 were $590 million and $560 million, respectively. Working capital totaled $577 million at March 31, 2019 and $2.644 billion at December 31, 2018. The $2.067 billion decline in working capital primarily related to a $3.008 billion increase in long-term debt due within one year.
Cash used in investing activities was $2.165 billion in the first quarter of 2019 compared to $335 million in the first quarter of 2018. Acquisitions of hospitals and health care entities increased from $379 million in the first quarter of 2018 to $1.474 billion in the first quarter of 2019 primarily related to an acquisition of a seven-hospital health system in North Carolina. Excluding acquisitions, capital expenditures were $781 million in the first quarter of 2019 and $694 million in the first quarter of 2018. Capital expenditures, excluding acquisitions, are expected to approximate $3.7 billion in 2019. At March 31, 2019, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $3.6 billion. We expect to finance capital expenditures with internally generated and borrowed funds. Cash received from disposals of hospitals and health care entities declined $737 million for the first quarter of 2019 compared to the first quarter of 2018 primarily related to the receipt of $758 million in 2018 from the sale of the two hospital facilities in our Oklahoma market.
Cash provided by financing activities totaled $1.216 billion in the first quarter of 2019 compared to cash used in financing activities of $611 million in the first quarter of 2018. During the first quarter of 2019, net cash
 
32
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
flows provided by financing activities included a net increase of $1.911 billion in our indebtedness, payments of cash dividends of $141 million, repurchases of common stock of $278 million and distributions to noncontrolling interests of $136 million. During the first quarter of 2018, net cash flows used in financing activities included a net increase of $220 million in our indebtedness, payment of cash dividends of $123 million, repurchases of common stock of $423 million and distributions to noncontrolling interests of $92 million.
We are a highly leveraged company with significant debt service requirements. Our debt totaled $34.815 billion at March 31, 2019. Our interest expense was $461 million for the first quarter of 2019 and $431 million for the first quarter of 2018.
In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($2.233 billion and $2.243 billion available as of March 31, 2019 and April 30, 2019, respectively) and anticipated access to public and private debt markets.
During January 2019, we issued $1.500 billion aggregate principal amount of senior unsecured notes comprised of $1.000 billion aggregate principal amount of 5.875% notes due 2029 and $500 million aggregate principal amount of 5.625% notes due 2028. We used the net proceeds to fund the purchase of a s
even-hospital
health system located in western North Carolina.
Investments of our professional liability insurance subsidiaries, to maintain statutory equity and pay claims, totaled $428 million and $409 million at March 31, 2019 and December 31, 2018, respectively. An insurance subsidiary maintained net reserves for professional liability risks of $171 million and $183 million at March 31, 2019 and December 31, 2018, respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to $50 million per occurrence; however, this coverage is generally subject, in most cases, to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.568 billion and $1.509 billion at March 31, 2019 and December 31, 2018, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $459 million. We estimate that approximately $415 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.
Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.
Market Risk
We are exposed to market risk related to changes in market values of securities. The investments in our 100% owned insurance subsidiaries were $428 million at March 31, 2019. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At March 31, 2019, we had a net unrealized gain of $11 million on the insurance subsidiaries’ investments.
We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our 100% owned insurance subsidiaries could be impaired by the inability to access the capital markets. Should the 100% owned insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize other-than-temporary impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.
 
33
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates. The notional amounts of the swap agreements represent balances 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. The interest payments under these agreements are settled on a net basis. These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income, and changes in the fair value of derivatives which have not been designated as hedges are recorded in operations.
With respect to our interest-bearing liabilities, approximately $4.777 billion of long-term debt at March 31, 2019 was subject to variable rates of interest, while the remaining balance in long-term debt of $30.038 billion at March 31, 2019 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our long-term debt was 5.5% and 5.3% for the quarters ended March 31, 2019 and 2018, respectively.
The estimated fair value of our total long-term debt was $36.602 billion at March 31, 2019. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $48 million. To mitigate the impact of fluctuations in interest rates, we generally target a portion of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.
 
34
 
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Tax Examinations
 
The Internal Revenue Service began an examination of the Company’s 2016 and 2017 federal income tax returns during 2019. We are also subject to examination by state and foreign taxing authorities. Management believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.
Operating Data
                 
 
2019
   
2018
 
Number of hospitals in operation at:
   
     
 
March 31
   
185
     
178
 
June 30
   
     
178
 
September 30
   
     
179
 
December 31
   
     
179
 
Number of freestanding outpatient surgical centers in operation at:
   
     
 
March 31
   
124
     
120
 
June 30
   
     
122
 
September 30
   
     
122
 
December 31
   
     
123
 
Licensed hospital beds at(a):
   
     
 
March 31
   
48,455
     
46,745
 
June 30
   
     
46,723
 
September 30
   
     
47,060
 
December 31
   
     
47,199
 
Weighted average licensed beds(b):
   
     
 
Quarter:
   
     
 
First
   
48,036
     
46,686
 
Second
   
     
46,667
 
Third
   
     
46,909
 
Fourth
   
     
47,159
 
Year
   
     
46,857
 
Average daily census(c):
   
     
 
Quarter:
   
     
 
First
   
28,966
     
28,130
 
Second
   
     
26,047
 
Third
   
     
25,991
 
Fourth
   
     
26,510
 
Year
   
     
26,663
 
Admissions(d):
   
     
 
Quarter:
   
     
 
First
   
523,196
     
507,873
 
Second
   
     
494,610
 
Third
   
     
497,899
 
Fourth
   
     
503,371
 
Year
   
     
2,003,753
 
 
 
 
 
 
 
 
 
 
35
 
 
 
  
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Operating Data (continued)
                 
 
2019
   
2018
 
Equivalent admissions(e):
   
     
 
Quarter:
   
     
 
First
   
889,956
     
849,164
 
Second
   
     
851,047
 
Third
   
     
854,940
 
Fourth
   
     
865,255
 
Year
   
     
3,420,406
 
Average length of stay (days)(f):
   
     
 
Quarter:
   
     
 
First
   
5.0
     
5.0
 
Second
   
     
4.8
 
Third
   
     
4.8
 
Fourth
   
     
4.8
 
Emergency room visits(g):
   
     
 
Quarter:
   
     
 
First
   
2,287,440
     
2,302,112
 
Second
   
     
2,148,338
 
Third
   
     
2,139,375
 
Fourth
   
     
2,174,606
 
Year
   
     
8,764,431
 
Outpatient surgeries(h):
   
     
 
Quarter:
   
     
 
First
   
240,846
     
232,483
 
Second
   
     
246,013
 
Third
   
     
236,801
 
Fourth
   
     
256,240
 
Year
   
     
971,537
 
Inpatient surgeries(i):
   
     
 
Quarter:
   
     
 
First
   
137,363
     
135,036
 
Second
   
     
137,403
 
Third
   
     
137,156
 
Fourth
   
     
138,625
 
Year
   
     
548,220
 
Days revenues in accounts receivable(j):
   
     
 
Quarter:
   
     
 
First
   
53
     
50
 
Second
   
     
52
 
Third
   
     
52
 
Fourth
   
     
51
 
 
 
 
36
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
                 
 
2019
   
2018
 
Outpatient revenues as a % of patient revenues(k):
   
     
 
Quarter:
   
     
 
First
   
38
%
   
37
%
Second
   
     
39
%
Third
   
     
39
%
Fourth
   
     
38
%
Year
   
     
38
%
 
 
(a) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.
 
 
(b) Represents the average number of licensed beds, weighted based on periods owned.
 
 
(c) Represents the average number of patients in our hospital beds each day.
 
 
(d) Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.
 
 
(e) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.
 
 
(f) Represents the average number of days admitted patients stay in our hospitals.
 
 
(g) Represents the number of patients treated in our emergency rooms.
 
 
(h) Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries. Reclassifications between inpatient surgery cases and outpatient surgery cases for 2018 have been made to conform to the 2019 presentation.
 
 
(i) Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries. Reclassifications between inpatient surgery cases and outpatient surgery cases for 2018 have been made to conform to the 2019 presentation.
 
 
(j) Revenues per day is calculated by dividing revenues for the quarter by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts receivable at the end of the quarter divided by revenues per day.
 
 
(k) Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.
 
 
 
37
 

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption “Market Risk” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
HCA’s management, with participation of HCA’s chief executive officer and chief financial officer, has evaluated the effectiveness of HCA’s disclosure controls and procedures as of March 31, 2019. Based on that evaluation, HCA’s chief executive officer and chief financial officer concluded that HCA’s disclosure controls and procedures were effective as of March 31, 2019. There were no material changes in HCA’s internal control over financial reporting during the first quarter of 2019.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
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. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.
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 results of operations, financial position or liquidity.
Texas operates a state Medicaid program pursuant to a waiver from CMS under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. The Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas have requested information about whether the Program as operated in Harris County complies with the laws and regulations applicable to provider related donations. The Company is cooperating with this request. We believe that our participation is and has been consistent with the requirements of the Program. However, at this time, we cannot predict what effect, if any, the request or resulting claims under the federal FCA, other statutes, regulations or laws, could have on the Company.
 
38
 
 
ITEM 1A.    RISK FACTORS
Reference is made to the factors set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this quarterly report on Form
 10-Q
and other risk factors described in our annual report on Form
 10-K
for the year ended December 31, 2018, which are incorporated herein by reference. There have not been any material changes to the risk factors previously disclosed in our annual report on Form
 10-K
for the year ended December 31, 2018.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During January 2019, our Board of Directors authorized a share repurchase program for up to $2 billion of our outstanding common stock. During the quarter ended March 31, 2019, we repurchased 2,106,023 shares of our common stock at an average price of $131.92 per share through market purchases pursuant to the $2 billion share repurchase program authorized during October 2017 (which was completed during the first quarter of 2019) and the $2 billion share repurchase program authorized during January 2019. At March 31, 2019, we had $1.995 billion of repurchase authorization available under the January 2019 authorization.
The following table provides certain information with respect to our repurchases of common stock from January 1, 2019 through March 31, 2019 (dollars in millions, except per share amounts).
                                 
Period
 
Total Number
of Shares
Purchased
   
Average Price
Paid per Share
   
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans  or
Programs
   
Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under  Publicly
Announced
Plans or
Programs
 
January 1, 2019 through January 31, 2019
   
1,024,645
    $
127.68
     
1,024,645
    $
2,142
 
February 1, 2019 through February 28, 2019
   
449,109
    $
140.28
     
449,109
    $
2,079
 
March 1, 2019 through March 31, 2019
   
632,269
    $
132.86
     
632,269
    $
1,995
 
                                 
Total for first quarter 2019
   
2,106,023
    $
131.92
     
2,106,023
    $
1,995
 
                                 
 
 
On April 30, 2019, our Board of Directors declared a quarterly dividend of $0.40 per share on our common stock payable on June 28, 2019 to stockholders of record on June 3, 2019. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Our ability to declare future dividends may also from time to time be limited by the terms of our debt agreements.
 
39
 

ITEM 6.    EXHIBITS
(a) List of Exhibits:
             
             
 
      31.1
   
 
             
 
      31.2
   
 
             
 
      32
   
 
             
 
      101
   
 
The following financial information from our quarterly report on Form
 10-Q
for the quarters ended March 31, 2019 and 2018, filed with the SEC on May 2, 2019, formatted in Extensible Business Reporting Language: (i) the condensed consolidated balance sheets at March 31, 2019 and December 31, 2018, (ii) the condensed consolidated income statements for the quarters ended March 31, 2019 and 2018, (iii) the condensed consolidated comprehensive income statements for the quarters ended March 31, 2019 and 2018, (iv) the condensed consolidated statements of stockholders’ deficit for the quarters ended March 31, 2019 and 2018, (v) the condensed consolidated statements of cash flows for the quarters ended March 31, 2019 and 2018 and (vi) the notes to condensed consolidated financial statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
40
 
 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
HCA Healthcare, Inc.
     
By:
 
/s/ William B. Rutherford
 
William B. Rutherford
 
Executive Vice President and Chief Financial Officer
 
 
Date: May 2, 2019
 
41