filings.toolsItem 16. Form 10-K Summary
132K characters. Original on sec.gov · Markdown
Item 16. Form 10-K Summary
| --- | --- |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ SAMUEL N. HAZEN | |
| Samuel N. Hazen Chief Executive Officer |
Dated: February 19, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /S/ SAMUEL N. HAZEN Samuel N. Hazen | Chief Executive Officer and Director (Principal Executive Officer) | February 19, 2021 | ||
| /S/ WILLIAM B. RUTHERFORD William B. Rutherford | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | February 19, 2021 | ||
| /S/ THOMAS F. FRIST III Thomas F. Frist III | Chairman and Director | February 19, 2021 | ||
| /S/ MEG G. CROFTON Meg G. Crofton | Director | February 19, 2021 | ||
| /S/ ROBERT J. DENNIS Robert J. Dennis | Director | February 19, 2021 | ||
| /s/ NANCY-ANN DEPARLE Nancy-Ann DeParle | Director | February 19, 2021 | ||
| /S/ WILLIAM R. FRIST William R. Frist | Director | February 19, 2021 | ||
| /S/ CHARLES O. HOLLIDAY, JR. Charles O. Holliday, Jr. | Director | February 19, 2021 | ||
| /S/ MICHAEL W. MICHELSON Michael W. Michelson | Director | February 19, 2021 | ||
| /S/ WAYNE J. RILEY Wayne J. Riley | Director | February 19, 2021 |
HCA HEALTHCARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Healthcare, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HCA Healthcare, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
| Revenue Recognition | ||
| Description of the Matter | For the year ended December 31, 2020, the Company’s revenues were $51.533 billion. As discussed in Note 1 to the consolidated financial statements, revenues are based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payers. Estimates of contractual allowances under managed care, commercial, and governmental insurance plans are based upon the payment terms specified in the related contractual agreements or as mandated under government payer programs. Management continually reviews the contractual allowances 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 related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care insurance coverage may have discounts applied (uninsured discounts and contractual discounts). The Company also records estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues and accounts receivable at the estimated amounts the Company expects to collect. The primary collection risks relate to uninsured patient accounts, including amounts owed from patients after insurance has paid the amounts covered by the applicable agreement. Implicit price concessions relate primarily to amounts due directly from patients and are based upon management’s assessment of historical write-offs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Auditing management’s estimates of contractual allowances and implicit price concessions was complex and judgmental due to the significant data inputs and subjective assumptions utilized in determining related amounts. | |
| How We Addressed the Matter in Our Audit | We tested internal controls that address the risks of material misstatement related to the measurement and valuation of revenues, including estimation of contractual allowances and implicit price concessions. For example, we tested management’s internal controls over the key data inputs to the contractual allowances and implicit price concessions models, significant assumptions underlying management’s models, and management’s internal controls over retrospective hindsight reviews of historical reserve accuracy. To test the estimated contractual allowances and implicit price concessions, we performed audit procedures that included, among others, assessing methodologies and evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its estimates. We compared the significant assumptions used by management to current industry and economic trends and considered changes, if any, to the Company’s business and other relevant factors. We also assessed the historical accuracy of management’s estimates as a source of potential corroborative or contrary evidence. | |
| Professional Liability Claims | ||
| Description of the Matter | At December 31, 2020, the Company’s reserves for professional liability risks were $1.963 billion and the Company’s related provision for losses for the year ended December 31, 2020 was $435 million. As discussed in Note 1 to the consolidated financial statements, reserves for professional liability risks represent the estimated ultimate cost of all reported and unreported losses incurred and unpaid as of the consolidated balance sheet date. Management determines professional liability reserves and provisions for losses using individual case-basis valuations and actuarial analyses. Trends in the average frequency (number of claims) and ultimate average severity (cost per claim) of claims are significant assumptions in estimating the reserves. |
F-3
| Auditing management’s professional liability claims reserves was complex and judgmental due to the significant estimations required in determining the reserves, particularly the actuarial methodology and assumptions related to the severity and frequency of claims. | ||
| How We Addressed the Matter in Our Audit | We tested management’s internal controls that address the risks of material misstatement over the Company’s professional liability claims reserve estimation process. For example, we tested internal controls over management’s review of the actuarial methodology and significant assumptions, and the completeness and accuracy of claims data supporting the recorded reserves. To test the Company’s determination of the estimated professional liability expense and reserves, we performed audit procedures that included, among others, testing the completeness and accuracy of underlying claims data used by the Company and its actuaries in its determination of reserves and reviewing the Company’s insurance contracts to assess self-insured limits, deductibles and coverage limits. Additionally, with the involvement of our actuarial specialists, we performed audit procedures that included, among others, assessing the actuarial valuation methodologies utilized by management and its actuaries, testing the significant assumptions, including consideration of Company-specific claim reporting and payment data, assessing the accuracy of management’s historical reserve estimates, and developing an independent range of reserves for comparison to the Company’s recorded amounts. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Nashville, Tennessee
February 19, 2021
F-4
HCA HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(Dollars in millions, except per share amounts)
| 2020 | 2019 | 2018 | ||||||||||
| Revenues | $ | 51,533 | $ | 51,336 | $ | 46,677 | ||||||
| Salaries and benefits | 23,874 | 23,560 | 21,425 | |||||||||
| Supplies | 8,369 | 8,481 | 7,724 | |||||||||
| Other operating expenses | 9,307 | 9,481 | 8,608 | |||||||||
| Equity in earnings of affiliates | (54 | ) | (43 | ) | (29 | ) | ||||||
| Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
| Interest expense | 1,584 | 1,824 | 1,755 | |||||||||
| Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
| Losses on retirement of debt | 295 | 211 | 9 | |||||||||
| 46,103 | 46,092 | 41,342 | ||||||||||
| Income before income taxes | 5,430 | 5,244 | 5,335 | |||||||||
| Provision for income taxes | 1,043 | 1,099 | 946 | |||||||||
| Net income | 4,387 | 4,145 | 4,389 | |||||||||
| Net income attributable to noncontrolling interests | 633 | 640 | 602 | |||||||||
| Net income attributable to HCA Healthcare, Inc. | $ | 3,754 | $ | 3,505 | $ | 3,787 | ||||||
| Per share data: | ||||||||||||
| Basic earnings per share | $ | 11.10 | $ | 10.27 | $ | 10.90 | ||||||
| Diluted earnings per share | $ | 10.93 | $ | 10.07 | $ | 10.66 | ||||||
| Shares used in earnings per share calculations (in millions): | ||||||||||||
| Basic | 338.274 | 341.210 | 347.297 | |||||||||
| Diluted | 343.605 | 348.226 | 355.303 |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
HCA HEALTHCARE, INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(Dollars in millions)
| 2020 | 2019 | 2018 | ||||||||||
| Net income | $ | 4,387 | $ | 4,145 | $ | 4,389 | ||||||
| Other comprehensive income (loss) before taxes: | ||||||||||||
| Foreign currency translation | 18 | 5 | (71 | ) | ||||||||
| Unrealized gains (losses) on available-for-sale securities | 14 | 15 | (7 | ) | ||||||||
| Defined benefit plans | (71 | ) | (63 | ) | 44 | |||||||
| Pension costs included in salaries and benefits | 28 | 13 | 21 | |||||||||
| (43 | ) | (50 | ) | 65 | ||||||||
| Change in fair value of derivative financial instruments | (66 | ) | (50 | ) | 23 | |||||||
| Interest costs (benefits) included in interest expense | 24 | (17 | ) | (10 | ) | |||||||
| (42 | ) | (67 | ) | 13 | ||||||||
| Other comprehensive loss before taxes | (53 | ) | (97 | ) | — | |||||||
| Income taxes (benefits) related to other comprehensive income items | (11 | ) | (18 | ) | 8 | |||||||
| Other comprehensive loss | (42 | ) | (79 | ) | (8 | ) | ||||||
| Comprehensive income | 4,345 | 4,066 | 4,381 | |||||||||
| Comprehensive income attributable to noncontrolling interests | 633 | 640 | 602 | |||||||||
| Comprehensive income attributable to HCA Healthcare, Inc. | $ | 3,712 | $ | 3,426 | $ | 3,779 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
HCA HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019
(Dollars in millions)
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,793 | $ | 621 | ||||
| Accounts receivable | 7,051 | 7,380 | ||||||
| Inventories | 2,025 | 1,849 | ||||||
| Other | 1,464 | 1,346 | ||||||
| 12,333 | 11,196 | |||||||
| Property and equipment, at cost: | ||||||||
| Land | 2,269 | 2,178 | ||||||
| Buildings | 18,471 | 17,669 | ||||||
| Equipment | 27,082 | 25,756 | ||||||
| Construction in progress | 1,495 | 1,632 | ||||||
| 49,317 | 47,235 | |||||||
| Accumulated depreciation | (26,118 | ) | (24,520 | ) | ||||
| 23,199 | 22,715 | |||||||
| Investments of insurance subsidiaries | 388 | 315 | ||||||
| Investments in and advances to affiliates | 422 | 249 | ||||||
| Goodwill and other intangible assets | 8,578 | 8,269 | ||||||
| Right-of-use operating lease assets | 2,024 | 1,834 | ||||||
| Other | 546 | 480 | ||||||
| $ | 47,490 | $ | 45,058 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,535 | $ | 2,905 | ||||
| Accrued salaries | 1,720 | 1,775 | ||||||
| Other accrued expenses | 3,240 | 2,932 | ||||||
| Long-term debt due within one year | 209 | 145 | ||||||
| 8,704 | 7,757 | |||||||
| Long-term debt, less debt issuance costs and discounts of $236 and $239 | 30,795 | 33,577 | ||||||
| Professional liability risks | 1,486 | 1,370 | ||||||
| Right-of-use operating lease obligations | 1,673 | 1,499 | ||||||
| Income taxes and other liabilities | 1,940 | 1,420 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 339,425,600 shares — 2020 and 338,445,600 shares — 2019 | 3 | 3 | ||||||
| Capital in excess of par value | 294 | — | ||||||
| Accumulated other comprehensive loss | (502 | ) | (460 | ) | ||||
| Retained earnings (deficit) | 777 | (2,351 | ) | |||||
| Stockholders’ equity (deficit) attributable to HCA Healthcare, Inc. | 572 | (2,808 | ) | |||||
| Noncontrolling interests | 2,320 | 2,243 | ||||||
| 2,892 | (565 | ) | ||||||
| $ | 47,490 | $ | 45,058 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
HCA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(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 Earnings (Deficit) | |||||||||||||||||||||||||
| Shares (in millions ) | Par Value | |||||||||||||||||||||||||||
| Balances, December 31, 2017 | 350.092 | $ | 4 | $ | — | $ | (278 | ) | $ | (6,532 | ) | $ | 1,811 | $ | (4,995 | ) | ||||||||||||
| Comprehensive income (loss) | (8 | ) | 3,787 | 602 | 4,381 | |||||||||||||||||||||||
| Repurchase of common stock | (14.070 | ) | (1 | ) | (103 | ) | (1,426 | ) | (1,530 | ) | ||||||||||||||||||
| Share-based benefit plans | 6.873 | 115 | 115 | |||||||||||||||||||||||||
| Cash dividends declared ($1.40 share) | (496 | ) | (496 | ) | ||||||||||||||||||||||||
| Distributions | (441 | ) | (441 | ) | ||||||||||||||||||||||||
| Reclassification of stranded tax effects | (95 | ) | 95 | — | ||||||||||||||||||||||||
| Other | (12 | ) | 60 | 48 | ||||||||||||||||||||||||
| Balances, December 31, 2018 | 342.895 | 3 | — | (381 | ) | (4,572 | ) | 2,032 | (2,918 | ) | ||||||||||||||||||
| Comprehensive income (loss) | (79 | ) | 3,505 | 640 | 4,066 | |||||||||||||||||||||||
| Repurchase of common stock | (7.949 | ) | (302 | ) | (729 | ) | (1,031 | ) | ||||||||||||||||||||
| Share-based benefit plans | 3.500 | 313 | 313 | |||||||||||||||||||||||||
| Cash dividends declared ($1.60 share) | (555 | ) | (555 | ) | ||||||||||||||||||||||||
| Distributions | (542 | ) | (542 | ) | ||||||||||||||||||||||||
| Other | (11 | ) | 113 | 102 | ||||||||||||||||||||||||
| Balances, December 31, 2019 | 338.446 | 3 | — | (460 | ) | (2,351 | ) | 2,243 | (565 | ) | ||||||||||||||||||
| Comprehensive income (loss) | (42 | ) | 3,754 | 633 | 4,345 | |||||||||||||||||||||||
| Repurchase of common stock | (3.287 | ) | (441 | ) | (441 | ) | ||||||||||||||||||||||
| Share-based benefit plans | 4.267 | 300 | (35 | ) | 265 | |||||||||||||||||||||||
| Cash dividends declared ($0.43 share) | (150 | ) | (150 | ) | ||||||||||||||||||||||||
| Distributions | (626 | ) | (626 | ) | ||||||||||||||||||||||||
| Other | (6 | ) | 70 | 64 | ||||||||||||||||||||||||
| Balances, December 31, 2020 | 339.426 | $ | 3 | $ | 294 | $ | (502 | ) | $ | 777 | $ | 2,320 | $ | 2,892 | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-8
HCA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(Dollars in millions)
| 2020 | 2019 | 2018 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 4,387 | $ | 4,145 | $ | 4,389 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Increase (decrease) in cash from operating assets and liabilities: | ||||||||||||
| Accounts receivable | 327 | (326 | ) | (423 | ) | |||||||
| Inventories and other assets | (304 | ) | (158 | ) | (242 | ) | ||||||
| Accounts payable and accrued expenses | 1,255 | 396 | 698 | |||||||||
| Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
| Income taxes | 41 | 250 | 74 | |||||||||
| Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
| Losses on retirement of debt | 295 | 211 | 9 | |||||||||
| Amortization of debt issuance costs | 30 | 30 | 31 | |||||||||
| Share-based compensation | 362 | 347 | 268 | |||||||||
| Other | 111 | 129 | 107 | |||||||||
| Net cash provided by operating activities | 9,232 | 7,602 | 6,761 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property and equipment | (2,835 | ) | (4,158 | ) | (3,573 | ) | ||||||
| Acquisition of hospitals and health care entities | (568 | ) | (1,682 | ) | (1,253 | ) | ||||||
| Sales of hospitals and health care entities | 68 | 61 | 808 | |||||||||
| Change in investments | (20 | ) | 25 | 57 | ||||||||
| Other | (38 | ) | 34 | 60 | ||||||||
| Net cash used in investing activities | (3,393 | ) | (5,720 | ) | (3,901 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Issuances of long-term debt | 2,700 | 6,451 | 2,000 | |||||||||
| Net change in revolving credit facilities | (2,480 | ) | (560 | ) | (640 | ) | ||||||
| Repayment of long-term debt | (3,437 | ) | (5,324 | ) | (1,704 | ) | ||||||
| Distributions to noncontrolling interests | (626 | ) | (542 | ) | (441 | ) | ||||||
| Payment of debt issuance costs | (35 | ) | (73 | ) | (25 | ) | ||||||
| Payment of dividends | (153 | ) | (550 | ) | (487 | ) | ||||||
| Repurchase of common stock | (441 | ) | (1,031 | ) | (1,530 | ) | ||||||
| Other | (205 | ) | (142 | ) | (248 | ) | ||||||
| Net cash used in financing activities | (4,677 | ) | (1,771 | ) | (3,075 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 10 | 8 | (15 | ) | ||||||||
| Change in cash and cash equivalents | 1,172 | 119 | (230 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 621 | 502 | 732 | |||||||||
| Cash and cash equivalents at end of period | $ | 1,793 | $ | 621 | $ | 502 | ||||||
| Interest payments | $ | 1,607 | $ | 1,914 | $ | 1,744 | ||||||
| Income tax payments, net | $ | 1,002 | $ | 849 | $ | 872 |
The accompanying notes are an integral part of the consolidated financial statements.
F-9
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — 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 December 31, 2020 these affiliates owned and operated 185 hospitals, 121
freestanding surgery centers, 21 freestanding endoscopy centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located
in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries and entities controlled by HCA. We generally define “control” as ownership of a majority of the voting interest of an entity. The consolidated financial statements include entities in which we absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The accounts of acquired entities are included in our consolidated financial statements for periods subsequent to our acquisition of controlling interests. Significant intercompany transactions have been eliminated. Investments in entities we do not control, but in which we have a substantial ownership interest and can exercise significant influence, are accounted for using the equity method.
The majority of our expenses are “cost of revenue” items. Costs that could be classified as general and administrative include our corporate office costs, which were $416 million, $370 million and $344 million for the years ended December 31, 2020, 2019 and 2018, respectively.
COVID-19
Pandemic and CARES Act Funding
On March 11, 2020, the World Health Organization designated
COVID-19
as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted during the latter portion of the first quarter and the first half of the second quarter of 2020 and have continued to be impacted as various policies that were implemented by federal, state and local governments in response to the
COVID-19
pandemic, including policies that have caused many people to remain at home, forced the closure of or limitations on certain businesses, and suspended elective surgical procedures by health care facilities. While many of these restrictions have been eased across the U.S. and most states have lifted moratoriums on
non-emergent
procedures, restrictions remain in place or may be adopted or
re-imposed,
and the possibility exists that the public, particularly segments with a high mortality risk, could remain wary of real or perceived opportunities for exposure to the virus. We are unable to predict the future impact of the pandemic on our operations.
During 2020, we received approximately $4.4 billion of accelerated Medicare payments and approximately $1.8 billion in general and targeted distributions from the Provider Relief Fund, both as provided for and established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. During October 2020,
we announced our decision to return, or repay early, all of our share of the Provider Relief Fund distributions and all of the Medicare accelerated payments. During the fourth quarter of 2020, we returned, or repaid early, approximately $6.1 billion of these funds. The unreturned Provider Relief Funds of $83
million, related to amounts received by certain of our partnership entities, are recorded under the caption “other accrued
F-10
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
COVID-19
Pandemic and CARES Act Funding (continued)
expenses” in our consolidated balance sheet at December 31, 2020. Our share of these funds will be returned in 2021 after final determination of amounts earned and distributable to the members of each respective partnership.
The CARES Act also provides for a deferral of payments of the employer portion of Social Security tax incurred during the pandemic, allowing half of such payroll taxes to be deferred until December 2021 and the remaining half until December 2022. At December 31, 2020, the Company had deferred $688 million of Social Security taxes. Additionally, the CARES Act created a payroll tax credit designed to encourage companies to retain employees during the pandemic. During the year ended December 31, 2020, the Company evaluated its eligibility for this credit and recorded $60 million of employee retention payroll tax credits pursuant to the CARES Act. These tax credits were recorded as a reduction of salaries and benefits in our consolidated income statement.
We believe the extent of the COVID-19 pandemic’s impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Such factors include, but are not limited to
:
the severity or duration of the pandemic, including whether there will be additional periods of increases in the number of COVID-19 cases in the areas in which we operate, the rollout and availability of effective medical treatments and vaccines, the efficacy of public health controls, including vaccines, and the impact of any mutations of the virus; the scope and duration of stay-at-home practices and business closures and restrictions; recommended or required suspensions of elective procedures; continued declines in patient volumes for an indeterminable length of time; increases in the number of uninsured and underinsured patients as a result of higher sustained rates of unemployment; incremental expenses required for supplies and personal protective equipment; and changes in professional and general liability exposure. Because of these and other uncertainties, we cannot estimate how long or how severely the pandemic will impact our business. If we experience declines in cash flows and results of operations, such declines could have an impact on the inputs and assumptions used in significant accounting estimates, including estimated implicit price concessions related to uninsured patient accounts, professional and general liability reserves, and potential impairments of goodwill and long-lived assets.
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
F-11
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Revenues (continued)
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.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments 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 these revenues at the estimated amounts we expect to collect. Our revenues by primary third-party payer classification and other (including uninsured patients) for the years ended December 31, are summarized in the following table (dollars in millions):
| Years Ended December 31, | ||||||||||||||||||||||||
| 2020 | Ratio | 2019 | Ratio | 2018 | Ratio | |||||||||||||||||||
| Medicare | $ | 10,420 | 20.2 | % | $ | 10,798 | 21.0 | % | $ | 9,831 | 21.1 | % | ||||||||||||
| Managed Medicare | 6,997 | 13.6 | 6,452 | 12.6 | 5,497 | 11.8 | ||||||||||||||||||
| Medicaid | 1,965 | 3.8 | 1,572 | 3.1 | 1,358 | 2.9 | ||||||||||||||||||
| Managed Medicaid | 2,621 | 5.1 | 2,450 | 4.8 | 2,403 | 5.1 | ||||||||||||||||||
| Managed care and other insurers | 26,535 | 51.5 | 26,544 | 51.6 | 24,467 | 52.4 | ||||||||||||||||||
| International (managed care and other insurers) | 1,120 | 2.2 | 1,162 | 2.3 | 1,156 | 2.5 | ||||||||||||||||||
| Other | 1,875 | 3.6 | 2,358 | 4.6 | 1,965 | 4.2 | ||||||||||||||||||
| Revenues | $ | 51,533 | 100.0 | % | $ | 51,336 | 100.0 | % | $ | 46,677 | 100.0 | % | ||||||||||||
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process). The adjustments to estimated Medicare and Medicaid reimbursement amounts and disproportionate-share funds related primarily to cost reports filed during the respective year resulted in net increases to revenues of $70 million, $51 million and $29 million in 2020, 2019 and 2018, respectively. The adjustments to estimated reimbursement amounts related primarily to cost reports filed during previous years resulted in a net
reduction
to revenues of $5 million in 2020 and net increases to revenues of $13 million and $51 million in 2019 and 2018, respectively.
The Emergency Medical Treatment and Labor Act (“EMTALA”) requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital’s emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an
F-12
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Revenues (continued)
individual’s ability to pay for treatment. Federal and state laws and regulations require, and our commitment to providing quality patient care encourages, us to provide services to patients who are financially unable to pay for the health care services they receive.
Patients treated at hospitals for
non-elective
care, who have income at or below 400%
of the federal poverty level, were eligible for charity care, and we limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. Patients treated at hospitals for non-elective care, who have income above 400% of the federal poverty level, were eligible for certain other discounts which limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. We apply additional discounts to limit patient responsibility for certain emergency services. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. We may attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance, or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
The collection of outstanding receivables for Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary source of cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain outstanding. Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the age of those accounts. Accounts are written off when all reasonable collection efforts have been performed.
The estimates for implicit price concessions are based upon management’s assessment of historical writeoffs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical writeoffs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our quarterly updates to the estimated implicit price concession amounts at each of our hospital facilities provide reasonable estimates of our revenues and valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted in material adjustments to the valuations of our accounts receivable or
period-to-period
comparisons of our
revenues
. At December 31, 2020 and 2019, estimated implicit price concessions of $6.108 billion and $6.953 billion, respectively, had been recorded to adjust our revenues and accounts receivable to the estimated amounts we expect to collect.
F-13
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Revenues (continued)
To quantify the total impact of the trends related to uninsured patient 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 years ended December 31, follows (dollars in millions):
| 2020 | 2019 | 2018 | ||||||||||
| Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization) | $ | 44,271 | $ | 44,118 | $ | 40,035 | ||||||
| Cost-to-charges ratio (patient care costs as percentage of gross patient charges) | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
| Total uncompensated care | $ | 29,029 | $ | 31,105 | $ | 26,757 | ||||||
| Multiply by the cost-to-charges ratio | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
| Estimated cost of total uncompensated care | $ | 3,483 | $ | 3,733 | $ | 3,318 | ||||||
The total uncompensated care amounts include charity care of $13.763 billion, $13.260 billion and $8.611 billion for the years ended December 31, 2020, 2019 and 2018, respectively. The estimated costs of charity care were $1.652 billion, $1.591 billion and $1.068 billion for the years ended December 31, 2020, 2019 and 2018, respectively.
Cash and Cash
Equivalents
Cash and cash equivalents include
highly
liquid investments with a maturity of three months or less when purchased. Our insurance subsidiaries’ cash equivalent investments in excess of the amounts required to pay estimated professional liability claims during the next twelve months are not included in cash and cash equivalents as these funds are not available for general corporate purposes. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments.
Our cash management system provides for daily investment of available balances and the funding of outstanding checks when presented for payment. Outstanding, but unpresented, checks totaling $495 million and $486 million at December 31, 2020 and 2019, respectively, have been included in “accounts payable” in the consolidated balance sheets. Upon presentation for payment, these checks are funded through available cash balances or our credit facility.
Accounts Receivable
We receive payments for services rendered from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. We recognize that revenues and receivables from government agencies are significant to our operations, but do not believe there are significant credit risks associated with these government agencies. We do not believe there are any other significant concentrations of revenues from any particular payer that would subject us to any significant credit risks in the collection of our accounts receivable. Days revenues in accounts receivable were 45 days, 50 days and 51 days at December 31, 2020, 2019 and 2018,
respectively. The five-day decline from December 31, 2019 to December 31, 2020 was primarily due to the combined impact of a $329 million decline in accounts receivable at December 31, 2020, compared to December 31, 2019, and a 5.7% increase in fourth
F-14
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Accounts Receivable (continued)
quarter 2020 revenues per day compared to fourth quarter 2019 revenues per day. Changes in general economic conditions, patient accounting service center operations, payer mix, or federal or state governmental health care coverage could affect our collection of accounts receivable, cash flows and results of operations.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out)
or market.
Property and Equipment
Depreciation expense, computed using the straight-line method, was $2.693 billion in 2020, $2.579 billion in 2019 and $2.262 billion in 2018. Buildings and improvements are depreciated over estimated useful lives ranging generally from 10 to 40 years. Estimated useful lives of equipment vary generally from four to 10 years.
When events, circumstances or operating results indicate the carrying values of certain long-lived assets expected to be held and used might be impaired, we prepare projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value may be estimated based upon internal evaluations that include quantitative analyses of revenues and cash flows, reviews of recent sales of similar assets and independent appraisals.
Long-lived assets to be disposed of are reported at the lower of their carrying amounts or fair value less costs to sell or close. The estimates of fair value are usually based upon recent sales of similar assets and market responses based upon discussions with and offers received from potential buyers.
Investments of Insurance Subsidiaries
At December 31, 2020 and 2019, the investments of our 100% owned insurance subsidiaries were classified as
“available-for-sale”
as defined in Accounting Standards Codification (“ASC”) No. 320,
Investments — Debt Securities
and are recorded at fair value. The investment securities are held for the purpose of providing a funding source to pay liability claims covered by the insurance subsidiaries. We perform quarterly assessments of individual investment securities to determine whether declines in fair value are due to credit-related or noncredit-related factors. Our investment securities evaluation process involves subjective judgments, often involves estimating the outcome of future events, and requires a significant level of professional judgment in determining whether a credit-related impairment has occurred. We evaluate, among other things, the financial position and near term prospects of the issuer, conditions in the issuer’s industry, liquidity of the investment, changes in the amount or timing of expected future cash flows from the investment, and recent downgrades of the issuer by a rating agency, to determine if, and when, a decline in the fair value of an investment below amortized cost is considered to be a credit-related impairment. The extent to which the fair value of the investment is less than amortized cost and our ability and intent to retain the investment, to allow for any anticipated recovery of the investment’s fair value, are important components of our investment securities evaluation process.
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests. In addition to the annual impairment review, impairment reviews are performed whenever circumstances indicate a possible impairment may exist.
F-15
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Goodwill and Intangible Assets (continued)
Impairment testing for goodwill is done at the reporting unit level. Reporting units are one level below the business segment level, and our impairment testing is performed at the operating division level. We compare the fair value of the reporting unit assets to the carrying amount, on at least an annual basis, to determine if there is potential impairment. If the fair value of the reporting unit assets is less than their carrying value, an impairment loss is recognized. Fair value is estimated based upon internal evaluations of each reporting unit that include quantitative analyses of market multiples, revenues and cash flows and reviews of recent sales of similar facilities. No goodwill impairments were recognized during 2020, 2019 or 2018.
During 2020, goodwill increased by $279
million related to acquisitions, including the finalization of the accounting for certain prior year acquisitions, and declined
by $9 million related to foreign currency translation and other adjustments. During 2019, goodwill increased by $332 million related to acquisitions and declined by $4 million related to foreign currency translation and other adjustments.
During 2020, identifiable intangible assets increased by $65 million related to acquisitions, including the finalization of the accounting for certain prior year acquisitions, and declined by
$26 million due to amortization and other adjustments. During 2019, identifiable intangible assets declined by $12 million due to amortization, foreign currency translation and other adjustments. Identifiable intangible assets are amortized over estimated lives ranging generally from three to 10 years.
The gross carrying amounts of identifiable intangible assets at December 31, 2020 and 2019 were
$249 million and $184 million, respectively, and accumulated amortization was $149 million and $123 million, respectively. The gross carrying amount of indefinite-lived identifiable intangible assets at both December 31, 2020 and 2019 was $269 million. Indefinite-lived identifiable intangible assets are not amortized but are subject to annual impairment tests, and impairment reviews are performed whenever circumstances indicate a possible impairment may exist.
Debt Issuance Costs and Discounts
Debt issuance costs and discounts are amortized based upon the terms of the respective debt obligations. The gross carrying amount of debt issuance costs and discounts at December 31, 2020 and 2019 was $411 million and $413 million, respectively, and accumulated amortization was $175 million and $174 million, respectively. Amortization of debt issuance costs and discounts is included in interest expense and was $30 million, $30 million and $31 million for 2020, 2019 and 2018, respectively.
Professional Liability Claims
Reserves for professional liability risks were $1.963 billion and $1.827 billion at December 31, 2020 and 2019, respectively. The current portion of the reserves, $477 million and $457
million at December 31, 2020 and 2019, respectively, is included in “other accrued expenses” in the consolidated balance sheets. Provisions for losses related to professional liability risks were
$435 million, $497 million and $447
million for 2020, 2019 and 2018, respectively, and are included in “other operating expenses” in our consolidated income statements. Provisions for losses related to professional liability risks are based upon actuarially determined estimates. During 2020, 2019 and 2018, we recorded reductions to the provision for professional liability risks of
$112 million
,
$50
million and $70 million,
respectively, due to the receipt of updated actuarial information. Loss and loss expense reserves represent the estimated ultimate net cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates. The reserves for unpaid losses and loss expenses are estimated using individual case-basis valuations and actuarial analyses. Those estimates are subject to the effects of trends in loss severity and
F-16
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Professional Liability Claims (continued)
frequency. The estimates are continually reviewed and adjustments are recorded as experience develops or new information becomes known. Adjustments to the estimated reserve amounts are included in current operating results. The reserves for professional liability risks cover approximately 2,300 individual claims at both December 31, 2020 and 2019 and estimates for unreported potential claims. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. During 2020 and 2019, $292 million and $408 million, respectively, of net payments were made for professional and general liability claims. The estimation of the timing of payments beyond a year can vary significantly. Although considerable variability is inherent in professional liability reserve estimates, we believe the reserves for losses and loss expenses are adequate; however, there can be no assurance the ultimate liability will not exceed our estimates.
A portion of our professional liability risks is insured through a 100% owned insurance subsidiary. Subject, in most cases, to a $15 million per occurrence self-insured retention, our facilities are insured by our 100% owned insurance subsidiary for losses up to $50
million per occurrence. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of either
$25
million or $35 million per occurrence, depending on the jurisdiction for the related claim. We also maintain professional liability insurance with unrelated commercial carriers for losses in excess of amounts insured by our insurance subsidiary.
The obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent the reinsurers and excess insurance carriers do not meet their obligations under the reinsurance and excess insurance contracts. The amounts receivable under the reinsurance contracts include $31 million and $37 million at December 31, 2020 and 2019, respectively, recorded in “other assets,” and $8 million and $9 million at December 31, 2020 and 2019, respectively, recorded in “other current assets.”
Financial Instruments
Derivative financial instruments are employed to manage interest rate risks, and are not used for trading or speculative purposes. We recognize our interest rate swap derivative instruments in the consolidated balance sheets at fair value. Changes in the fair value of derivatives are recognized periodically in stockholders’ equity, as a component of other comprehensive income (loss), provided the derivative financial instrument qualifies for hedge accounting. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income (loss), and subsequently reclassified to earnings to offset the impact of the forecasted transactions when they occur. In the event the forecasted transaction to which a cash flow hedge relates is no longer likely, the amount in other comprehensive income is recognized in earnings and generally the derivative is terminated.
The net interest paid or received on interest rate swaps is recognized as adjustments to interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining term of the debt originally associated with the terminated swap.
Noncontrolling Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities, revenues and expenses of less than 100% owned entities that we control. Accordingly, we have recorded noncontrolling interests in the earnings and equity of such entities.
F-17
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — SHARE-BASED COMPENSATION
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2020 presentation.
Stock Incentive Plans
In May 2020, the 2020 Stock Incentive Plan for Key Employees of HCA Healthcare, Inc. and its
Affiliates
(the “2020 Plan”) was established to replace the 2006 Stock Incentive Plan for Key Employees of HCA
Holdings
, Inc. and its
Affiliates (the “2006 Plan”).
Our stock incentive plans are designed to promote the long term financial interests and growth of the Company by attracting and retaining management and other personnel, motivating them to achieve long range goals and aligning their interests with those of our stockholders through opportunities for stock-based compensation and stock ownership in the Company. Stock option, stock appreciation right (“SARs”) and restricted share unit (“RSUs”) grants vest solely based upon continued employment over a specific period of time, and performance share unit (“PSUs”) grants vest based upon both continued employment over a specific period of time and the achievement of predetermined financial targets over time.
No further grants will be made under the 2006 Plan, and no shares under the 2006 Plan are available for grant under the 2020 Plan.
At December 31, 2020 there were 20.274 million shares available for future grants under the 2020 Plan.
Employee Stock Purchase Plan
Our employee stock purchase plan (“ESPP”) provides our participating employees an opportunity to obtain shares of our common stock at a discount (through payroll deductions over three-month periods). At December 31, 2020, 5.865 million shares of common stock were reserved for issuance under the ESPP provisions. During 2020, 2019 and 2018, the Company recognized $13 million, $12 million and $10 million, respectively, of compensation expense related to the ESPP.
Stock Option, SAR, RSU and PSU Activity – All Plans
The fair value of each stock option and SAR award is estimated on the grant date, using valuation models and the weighted average assumptions indicated in the following table. Awards under our stock incentive plans generally vest based on continued employment (“Time Stock Options and SARs” and “Time RSUs”) and based upon continued employment and the achievement of certain financial targets (“Performance Stock Options and SARs”, “Performance RSUs” and “PSUs”). PSUs have a three-year cumulative earnings per share target, and the number of PSUs earned can vary from zero (for actual performance of less than 90% of target for 2020 and 2019 grants and less than 80% of target for 2018 and prior grants) to two times the original PSU grant (for actual performance of 110% or more of target for 2020 and 2019 grants and 120% or more of target for 2018 and prior grants). Each grant is valued as a single award with an expected term equal to the average expected term of the component vesting tranches. The expected term of the share-based award is limited by the contractual term. We use historical exercise behavior data and other factors to estimate the expected term of the options and SARs.
Compensation cost is recognized on the straight-line attribution method. The straight-line attribution method requires that total compensation expense recognized must at least equal the vested portion of the grant-date fair value. The expected volatility is derived using historical stock price information for our common stock and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal to the expected share-based award life on the date of grant. The expected life is an estimate of the number of years a share-based award will be held before it is exercised. The expected dividend yield is estimated based on the assumption that the dividend yield at date of grant will be maintained over the expected life of the grant.
F-18
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — SHARE-BASED COMPENSATION (continued)
Stock Option, SAR, RSU and PSU Activity – All Plans (continued)
| 2020 | 2019 | 2018 | ||||||||||
| Risk-free interest rate | 1.44 | % | 2.50 | % | 2.62 | % | ||||||
| Expected volatility | 27 | % | 27 | % | 29 | % | ||||||
| Expected life, in years | 6.15 | 6.18 | 6.15 | |||||||||
| Expected dividend yield | 1.19 | % | 1.16 | % | 1.37 | % |
Information regarding Time Stock Options and SARs and Performance Stock Options and SARs activity during 2020, 2019 and 2018 is summarized below (share amounts in thousands):
| Time Stock Options and SARs | Performance Stock Options and SARs | Total Stock Options and SARs | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value (dollars in millions) | |||||||||||||||||||
| Options and SARs outstanding, December 31, 2017 | 11,156 | 4,586 | 15,742 | $ | 43.47 | |||||||||||||||||||
| Granted | 2,342 | — | 2,342 | 101.96 | ||||||||||||||||||||
| Exercised | (3,917 | ) | (1,774 | ) | (5,691 | ) | 27.86 | |||||||||||||||||
| Cancelled | (221 | ) | (145 | ) | (366 | ) | 68.43 | |||||||||||||||||
| Options and SARs outstanding, December 31, 2018 | 9,360 | 2,667 | 12,027 | 61.49 | ||||||||||||||||||||
| Granted | 1,349 | — | 1,349 | 138.31 | ||||||||||||||||||||
| Exercised | (1,137 | ) | (523 | ) | (1,660 | ) | 44.45 | |||||||||||||||||
| Cancelled | (522 | ) | — | (522 | ) | 93.26 | ||||||||||||||||||
| Options and SARs outstanding, December 31, 2019 | 9,050 | 2,144 | 11,194 | 71.79 | ||||||||||||||||||||
| Granted | 1,120 | — | 1,120 | 144.47 | ||||||||||||||||||||
| Exercised | (2,159 | ) | (1,325 | ) | (3,484 | ) | 44.07 | |||||||||||||||||
| Cancelled | (175 | ) | — | (175 | ) | 111.69 | ||||||||||||||||||
| Options and SARs outstanding, December 31, 2020 | 7,836 | 819 | 8,655 | $ | 91.53 | 6.0 years | $ | 631 | ||||||||||||||||
| Options and SARs exercisable, December 31, 2020 | 4,562 | 819 | 5,381 | $ | 71.25 | 4.8 years | $ | 502 |
The weighted average fair values of stock options and SARs granted during 2020, 2019 and 2018 were $35.98, $38.21 and $28.90 per share, respectively. The total intrinsic value of stock options and SARs exercised during 2020, 2019 and 2018 was $328 million, $153 million and $456 million, respectively. As of December 31, 2020, the unrecognized compensation cost related to nonvested stock options and SARs was $53 million.
F-19
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — SHARE-BASED COMPENSATION (continued)
Stock Option, SAR, RSU and PSU Activity – All Plans (continued)
Information regarding Time RSUs, Performance RSUs and PSUs activity during 2020, 2019 and 2018 is summarized below (share amounts in thousands):
| Time RSUs | Performance RSUs | PSUs | Total RSUs and PSUs | Weighted Average Grant Date Fair Value | ||||||||||||||||
| RSUs and PSUs outstanding, December 31, 2017 | 3,465 | 227 | 3,562 | 7,254 | $ | 72.05 | ||||||||||||||
| Granted | 1,464 | — | 1,261 | 2,725 | 101.85 | |||||||||||||||
| Performance adjustment | — | — | 1,250 | 1,250 | 69.27 | |||||||||||||||
| Vested | (1,487 | ) | (136 | ) | (2,500 | ) | (4,123 | ) | 67.33 | |||||||||||
| Cancelled | (319 | ) | (91 | ) | (151 | ) | (561 | ) | 78.82 | |||||||||||
| RSUs and PSUs outstanding, December 31, 2018 | 3,123 | — | 3,422 | 6,545 | 86.32 | |||||||||||||||
| Granted | 973 | — | 796 | 1,769 | 138.45 | |||||||||||||||
| Performance adjustment | — | — | 227 | 227 | 69.94 | |||||||||||||||
| Vested | (1,216 | ) | — | (1,251 | ) | (2,467 | ) | 75.97 | ||||||||||||
| Cancelled | (260 | ) | — | (159 | ) | (419 | ) | 103.27 | ||||||||||||
| RSUs and PSUs outstanding, December 31, 2019 | 2,620 | — | 3,035 | 5,655 | 105.23 | |||||||||||||||
| Granted | 1,048 | — | 808 | 1,856 | 144.17 | |||||||||||||||
| Performance adjustment | — | — | 206 | 206 | 81.89 | |||||||||||||||
| Vested | (1,030 | ) | — | (1,364 | ) | (2,394 | ) | 88.63 | ||||||||||||
| Cancelled | (162 | ) | — | (93 | ) | (255 | ) | 124.50 | ||||||||||||
| RSUs and PSUs outstanding, December 31, 2020 | 2,476 | — | 2,592 | 5,068 | $ | 125.40 | ||||||||||||||
The total fair value of RSUs and PSUs that vested during 2020, 2019 and 2018 was $349 million, $346 million and $413 million, respectively. As of December 31, 2020, the unrecognized compensation cost related to RSUs and PSUs was $330 million.
NOTE 3 — ACQUISITIONS AND DISPOSITIONS
During 2020, we paid $568 million to acquire a hospital in New Hampshire and other nonhospital health care entities. During 2019, we paid $1.384 billion to acquire a seven-hospital health system in North Carolina and $298 million to acquire nonhospital health care entities. During 2018, we paid $792 million to acquire two hospital facilities and $461 million to acquire 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 $279 million, $332 million and $636 million in 2020, 2019 and 2018, respectively. 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 2020, we received proceeds of $68 million and recognized a pretax loss of $7 million ($9 million after tax) related to the sale of a hospital facility from our American Group (Mississippi market) and sales of real estate and other investments. During 2019, we received proceeds of $61 million and recognized a pretax gain of $18 million ($13 million after tax) related to the sale of a hospital facility from our American Group (a Louisiana
F-20
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 — ACQUISITIONS AND DISPOSITIONS (continued)
market) and sales of real estate and other investments. During 2018, we received proceeds of $
758 million and recognized a pretax gain of $353 million ($265 million after tax) related to the sale of two hospital facilities from our American Group (Oklahoma market). During 2018, we also received proceeds of $50 million and recognized pretax gains of $75 million ($59 million after tax) related to sales of real estate and other investments.
NOTE 4 — INCOME TAXES
The provision for income taxes consists of the following (dollars in millions):
| 2020 | 2019 | 2018 | ||||||||||
| Current: | ||||||||||||
| Federal | $ | 1,021 | $ | 670 | $ | 759 | ||||||
| State | 126 | 134 | 149 | |||||||||
| Foreign | 5 | 17 | 23 | |||||||||
| Deferred: | ||||||||||||
| Federal | (73 | ) | 254 | 9 | ||||||||
| State | (39 | ) | 29 | 13 | ||||||||
| Foreign | 3 | (5 | ) | (7 | ) | |||||||
| $ | 1,043 | $ | 1,099 | $ | 946 | |||||||
The 2017 Tax Cuts and Jobs Act (“Tax Act”) significantly revised U.S. corporate income taxes, including lowering the statutory corporate tax rate from 35% to 21% beginning in 2018. We completed our analysis of the impact of the Tax Act during 2018, reducing our provision for income taxes for the year ended December 31, 2018 by $67 million related to a remeasurement of certain deferred tax assets and liabilities for which we were unable to make reasonable estimates in 2017.
Our provision for income taxes for the years ended December 31, 2020, 2019 and 2018 included tax benefits of $92 million, $65 million and $124 million, respectively, related to the settlement of employee equity awards. During 2018, we recorded a reduction to our provision for income taxes of $28 million for tax credits related to certain 2017 hurricane-related expenses. Our foreign pretax income was $9 million, $50 million and $86 million for the years ended December 31, 2020, 2019 and 2018, respectively.
A reconciliation of the federal statutory rate to the effective income tax rate follows:
| 2020 | 2019 | 2018 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
| State income taxes, net of federal tax benefit | 1.9 | 2.7 | 2.9 | |||||||||
| Change in liability for uncertain tax positions | (0.2 | ) | 0.4 | (0.1 | ) | |||||||
| Tax benefit from settlements of employee equity awards | (1.8 | ) | (1.3 | ) | (2.4 | ) | ||||||
| Impact of Tax Act on deferred tax balances | — | — | (1.6 | ) | ||||||||
| Other items, net | 0.8 | 1.1 | 0.2 | |||||||||
| Effective income tax rate on income attributable to HCA Healthcare, Inc. | 21.7 | 23.9 | 20.0 | |||||||||
| Income attributable to noncontrolling interests from consolidated partnerships | (2.5 | ) | (2.9 | ) | (2.3 | ) | ||||||
| Effective income tax rate on income before income taxes | 19.2 | % | 21.0 | % | 17.7 | % | ||||||
F-21
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 — INCOME TAXES (continued)
A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):
| 2020 | 2019 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| Depreciation and fixed asset basis differences | $ | — | $ | 678 | $ | — | $ | 601 | ||||||||
| Allowances for professional liability and other risks | 407 | — | 376 | — | ||||||||||||
| Accounts receivable | 283 | — | 307 | — | ||||||||||||
| Compensation | 487 | — | 292 | — | ||||||||||||
| Right-of-use lease assets and obligations | 416 | 409 | 369 | 366 | ||||||||||||
| Other | 485 | 606 | 461 | 538 | ||||||||||||
| $ | 2,078 | $ | 1,693 | $ | 1,805 | $ | 1,505 | |||||||||
At December 31, 2020, federal and state net operating loss carryforwards (expiring in years 2023 through 2039) available to offset future taxable income approximated $56 million and $127 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited.
The following table summarizes the activity related to our unrecognized tax benefits (dollars in millions):
| 2020 | 2019 | |||||||
| Balance at January 1 | $ | 522 | $ | 390 | ||||
| Additions (reductions) based on tax positions related to the current year | (3 | ) | 29 | |||||
| Additions for tax positions of prior years | 13 | 119 | ||||||
| Reductions for tax positions of prior years | (30 | ) | (3 | ) | ||||
| Settlements | (22 | ) | — | |||||
| Lapse of applicable statutes of limitations | (11 | ) | (13 | ) | ||||
| Balance at December 31 | $ | 469 | $ | 522 | ||||
Our liability for unrecognized tax benefits was $508 million, including accrued interest of $73 million and excluding $34 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2020 ($550 million, $62 million and $34 million, respectively, as of December 31, 2019). Unrecognized tax benefits of $157 million as of December 31, 2020 ($160 million as of December 31, 2019) would affect the effective rate, if recognized.
The Internal Revenue Service (“IRS”) was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at December 31, 2020. 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.
F-22
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 — EARNINGS PER SHARE
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options, SARs, RSUs and PSUs, computed using the treasury stock method.
During 2020, 2019 and 2018, we repurchased 3.287 million shares, 7.949 million shares and 14.070 million shares, respectively, of our common stock.
The following table sets forth the computations of basic and diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 (dollars and shares in millions, except per share amounts):
| 2020 | 2019 | 2018 | ||||||||||
| Net income attributable to HCA Healthcare, Inc. | $ | 3,754 | $ | 3,505 | $ | 3,787 | ||||||
| Weighted average common shares outstanding | 338.274 | 341.210 | 347.297 | |||||||||
| Effect of dilutive incremental shares | 5.331 | 7.016 | 8.006 | |||||||||
| Shares used for diluted earnings per share | 343.605 | 348.226 | 355.303 | |||||||||
| Earnings per share: | ||||||||||||
| Basic earnings per share | $ | 11.10 | $ | 10.27 | $ | 10.90 | ||||||
| Diluted earnings per share | $ | 10.93 | $ | 10.07 | $ | 10.66 |
NOTE 6 — INVESTMENTS OF INSURANCE SUBSIDIARIES
A summary of the insurance subsidiaries’ investments at December 31 follows (dollars in millions):
| 2020 | ||||||||||||||||
| Amortized Cost | Unrealized Amounts | Fair Value | ||||||||||||||
| Gains | Losses | |||||||||||||||
| Debt securities | $ | 384 | $ | 32 | $ | — | $ | 416 | ||||||||
| Money market funds and other | 88 | — | — | 88 | ||||||||||||
| $ | 472 | $ | 32 | $ | — | 504 | ||||||||||
| Amounts classified as current assets | (116 | ) | ||||||||||||||
| Investment carrying value | $ | 388 | ||||||||||||||
| 2019 | ||||||||||||||||
| Amortized Cost | Unrealized Amounts | Fair Value | ||||||||||||||
| Gains | Losses | |||||||||||||||
| Debt securities | $ | 359 | $ | 18 | $ | — | $ | 377 | ||||||||
| Money market funds and other | 85 | — | — | 85 | ||||||||||||
| $ | 444 | $ | 18 | $ | — | 462 | ||||||||||
| Amounts classified as current assets | (147 | ) | ||||||||||||||
| Investment carrying value | $ | 315 | ||||||||||||||
F-23
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)
At December 31, 2020 and 2019, the investments in debt securities of our insurance subsidiaries were classified as
“available-for-sale.”
Changes in unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).
Scheduled maturities of investments in debt securities at December 31, 2020 were as follows (dollars in millions):
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 4 | $ | 4 | ||||
| Due after one year through five years | 147 | 156 | ||||||
| Due after five years through ten years | 157 | 174 | ||||||
| Due after ten years | 76 | 82 | ||||||
| $ | 384 | $ | 416 | |||||
The average expected maturity of the investments in debt securities at December 31, 2020 was 5.2 years, compared to the average scheduled maturity of 9.4 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 7 — 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 us and our counterparties 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 December 31, 2020 (dollars in millions):
| Notional Amount | Maturity Date | Fair Value | ||||||||||
| Pay-fixed interest rate swaps | $ | 2,000 | December 2021 | $ | (27 | ) | ||||||
| Pay-fixed interest rate swaps | 500 | December 2022 | (19 | ) |
During the next 12 months, we estimate $37 million will be reclassified from accumulated other comprehensive income (“OCI”) and will be included in interest expense.
F-24
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 — FINANCIAL INSTRUMENTS (continued)
Derivatives — Results of Operations
The following table presents the effect of our interest rate swaps on our results of operations for the year ended December 31, 2020 (dollars in millions):
| Derivatives in Cash Flow Hedging Relationships | Amount of Loss Recognized in OCI on Derivatives, Net of Tax | Location of Loss Reclassified from Accumulated OCI into Operations | Amount of Loss Reclassified from Accumulated OCI into Operations | |||||||||
| Interest rate swaps | $ | 51 | Interest expense | $ | 24 |
Credit-risk-related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of December 31, 2020, we have not been required to post any collateral related to these agreements. If we had breached these provisions at December 31, 2020, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $46 million.
NOTE 8 — 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.
F-25
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
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.
The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):
| December 31, 2020 | ||||||||||||||||
| Fair Value | Fair Value Measurements Using | |||||||||||||||
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
| Assets: | ||||||||||||||||
| Investments of insurance subsidiaries: | ||||||||||||||||
| Debt securities | $ | 416 | $ | — | $ | 416 | $ | — | ||||||||
| Money market funds and other | 88 | 88 | — | — | ||||||||||||
| Investments of insurance subsidiaries | 504 | 88 | 416 | — | ||||||||||||
| Less amounts classified as current assets | (116 | ) | (87 | ) | (29 | ) | — | |||||||||
| $ | 388 | 1 | $ | 387 | $ | — | ||||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps (Income taxes and other liabilities) | $ | 46 | $ | — | $ | 46 | $ | — |
| December 31, 2019 | ||||||||||||||||
| Fair Value | Fair Value Measurements Using | |||||||||||||||
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
| Assets: | ||||||||||||||||
| Investments of insurance subsidiaries: | ||||||||||||||||
| Debt securities | $ | 377 | $ | — | $ | 377 | $ | — | ||||||||
| Money market funds and other | 85 | 85 | — | — | ||||||||||||
| Investments of insurance subsidiaries | 462 | 85 | 377 | — | ||||||||||||
| Less amounts classified as current assets | (147 | ) | (83 | ) | (64 | ) | — | |||||||||
| $ | 315 | 2 | $ | 313 | $ | — | ||||||||||
| Interest rate swaps (Other) | $ | 3 | $ | — | $ | 3 | $ | — | ||||||||
| Liabilities: | ||||||||||||||||
| Interest rate swaps (Income taxes and other liabilities) | $ | 7 | $ | — | $ | 7 | $ | — |
F-26
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
The estimated fair value of our long-term debt was $35.814 billion and $37.026 billion at December 31, 2020 and 2019, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $31.240 billion and $33.961 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.
NOTE 9 — LONG-TERM DEBT
A summary of long-term debt at December 31, including related interest rates at December 31, 2020, follows (dollars in millions):
| 2020 | 2019 | |||||||
| Senior secured asset-based revolving credit facility | $ | — | $ | 2,480 | ||||
| Senior secured revolving credit facility | — | — | ||||||
| Senior secured 364-day term loan facility | — | — | ||||||
| Senior secured term loan facilities (effective interest rate of 2.8%) | 3,671 | 3,725 | ||||||
| Senior secured notes (effective interest rate of 5.1%) | 13,850 | 13,850 | ||||||
| Other senior secured debt (effective interest rate of 4.7%) | 767 | 654 | ||||||
| Senior secured debt | 18,288 | 20,709 | ||||||
| Senior unsecured notes (effective interest rate of 5.5%) | 12,952 | 13,252 | ||||||
| Net debt issuance costs | (236 | ) | (239 | ) | ||||
| Total debt (average life of 8.9 years, rates averaging 5.0%) | 31,004 | 33,722 | ||||||
| Less amounts due within one year | 209 | 145 | ||||||
| $ | 30,795 | $ | 33,577 | |||||
During February 2020, we issued $2.700 billion aggregate principal amount of 3.50% senior notes due 2030. During March 2020, we used the net proceeds for the redemption of all $1.000 billion outstanding aggregate principal amount of HCA Healthcare, Inc.’s 6.25% senior notes due 2021 and, together with available funds, for the redemption of all $2.000 billion outstanding aggregate principal amount of HCA Inc.’s 7.50% senior notes due 2022. The pretax loss on retirement of debt was $295 million.
During March 2020 in response to the risks the COVID-19 pandemic presents to our business, we entered into a credit agreement that provides for a 364-day secured term loan facility for an aggregate principal amount of up to $2.000
billion. As of December 31, 2020 there was no amount outstanding or draw notices pending under the facility. We terminated this credit agreement during January 2021.
Senior Secured Credit Facilities And Other Senior Secured Debt
We have entered into the following senior secured credit facilities:
(i) a $3.750
billion asset-based revolving credit facility maturing on
June 28, 2022
with a borrowing base of
85%
of eligible accounts receivable, subject to customary reserves and eligibility criteria
(none
outstanding at December 31, 2020) (the “ABL credit facility”); (ii) a $2.000 billion senior secured revolving credit facility maturing on June 28, 2022 (none
outstanding at December 31, 2020 without giving effect to certain outstanding letters of credit); (iii) a
$2.000
billion senior secured 364-day term loan facility maturing on March 18, 2021 (none
outstanding at December 31, 2020 and
the
F-27
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 — LONG-TERM DEBT (continued)
Senior Secured Credit Facilities And Other Senior Secured Debt (continued)
facility was
terminated during January 2021); (iv) a
$1.078
billion senior secured term loan A-6 facility maturing on
July 16, 2024; (v) a $1.459
billion senior secured term loan B-12 facility maturing on
March 13, 2025; and (vi) a $1.134
billion senior secured term loan B-13 facility maturing on
March 18, 2026.
We refer to the facilities described under (ii) through (vi) above, collectively, as the “cash flow credit facility” and, together with the ABL credit facility, the “senior secured credit facilities.”
Borrowings under the senior secured credit facilities bear interest at a rate equal to, 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, plus, in each case, an applicable margin. The applicable margin for borrowings under the senior secured credit facilities may be reduced subject to attaining certain leverage ratios.
The senior secured credit facilities contain a number of covenants that restrict, subject to certain exceptions, our (and some or all of our subsidiaries’) ability to incur additional indebtedness, repay subordinated indebtedness, create liens on assets, sell assets, make investments, loans or advances, engage in certain transactions with affiliates, pay dividends and distributions, and enter into sale and leaseback transactions. In addition, we are required to satisfy and maintain a maximum total leverage ratio covenant under the cash flow credit facility and, in certain situations under the ABL credit facility, a minimum interest coverage ratio covenant.
Senior secured notes consists of (i) $1.250 billion aggregate principal amount of 4.75% first lien notes due 2023; (ii) $2.000 billion aggregate principal amount of 5.00% first lien notes due 2024; (iii) $1.400 billion aggregate principal amount of 5.25% first lien notes due 2025; (iv) $1.500 billion aggregate principal amount of 5.25% first lien notes due 2026; (v) $1.200 billion aggregate principal amount of 4.50% first lien notes due 2027; (vi) $2.000 billion aggregate principal amount of 4 1/8% first lien notes due 2029; (vii) $1.000 billion aggregate principal amount of 5 1/8% first lien notes due 2039; (viii) $1.500 billion aggregate principal amount of 5.50% first lien notes due 2047; and (ix) $2.000 billion aggregate principal amount of 5 1/4% first lien notes due 2049. Finance leases and other secured debt totaled $767 million at December 31, 2020.
We use interest rate swap agreements to manage the variable rate exposure of our debt portfolio. At December 31, 2020, we had entered into effective interest rate swap agreements, in a total notional amount of $2.500 billion, in order to hedge a portion of our exposure to variable rate interest payments associated with the senior secured credit facilities. The effect of the interest rate swaps is reflected in the effective interest rates for the senior secured credit facilities.
Senior Unsecured Notes
Senior unsecured notes consist of (i) $12.091 billion aggregate principal amount of senior notes with maturities ranging from 2023 to 2033; (ii) an aggregate principal amount of $125 million medium-term notes maturing 2025; and (iii) an aggregate principal amount of $736 million debentures with maturities ranging from 2023 to 2095.
F-28
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 — LONG-TERM DEBT (continued)
General Debt Information
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 (the “1993 Indenture”) dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our ABL credit facility).
All obligations under the ABL credit facility, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of the receivables of the borrowers and each guarantor under such ABL credit facility (the “Receivables Collateral”).
All obligations under the cash flow credit facility and the guarantees of such obligations are secured, subject to permitted liens and other exceptions, by:
| • | a first-priority lien on the capital stock owned by HCA Inc., or by any guarantor, in each of their respective first-tier subsidiaries; |
|---|
| • | a first-priority lien on substantially all present and future assets of HCA Inc. and of each guarantor other than (i) “Principal Properties” (as defined in the 1993 Indenture), (ii) certain other real properties and (iii) deposit accounts, other bank or securities accounts, cash, leaseholds, motor-vehicles and certain other exceptions; and |
|---|
| • | a second-priority lien on certain of the Receivables Collateral. |
|---|
Our senior secured notes and the related guarantees are secured by first-priority liens, subject to permitted liens, on our and our subsidiary guarantors’ assets, subject to certain exceptions, that secure our cash flow credit facility on a first-priority basis and are secured by second-priority liens, subject to permitted liens, on our and our subsidiary guarantors’ assets that secure our ABL credit facility on a first-priority basis and our other cash flow credit facility on a second-priority basis.
Maturities of long-term debt in years 2022 through 2025 are $233 million, $2.799 billion, $3.163 billion and $5.872 billion, respectively.
NOTE 10 — 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. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related assets and 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, as most of our leases do not provide a readily determinable implicit interest rate.
F-29
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 — LEASES (continued)
The following table presents our lease-related assets and liabilities at December 31, 2020 and 2019 (dollars in millions):
| Balance Sheet Classification | 2020 | 2019 | ||||||||||
| Assets: | ||||||||||||
| Operating leases | Right-of-use operating lease assets | $ | 2,024 | $ | 1,834 | |||||||
| Finance leases | Property and equipment | 553 | 520 | |||||||||
| Total lease assets | $ | 2,577 | $ | 2,354 | ||||||||
| Liabilities: | ||||||||||||
| Current: | ||||||||||||
| Operating leases | Other accrued expenses | $ | 379 | $ | 350 | |||||||
| Finance leases | Long-term debt due within one year | 128 | 87 | |||||||||
| Noncurrent: | ||||||||||||
| Operating leases | Right-of-use operating lease obligations | 1,673 | 1,499 | |||||||||
| Finance leases | Long-term debt | 494 | 470 | |||||||||
| Total lease liabilities | $ | 2,674 | $ | 2,406 | ||||||||
| Weighted-average remaining term: | ||||||||||||
| Operating leases | 10.4 years | 10.8 years | ||||||||||
| Finance leases | 11.5 years | 12.0 years | ||||||||||
| Weighted-average discount rate: | ||||||||||||
| Operating leases | 4.8 | % | 5.3 | % | ||||||||
| Finance leases | 5.4 | % | 6.0 | % |
The following table presents certain information related to lease expense for finance and operating leases for the years ended December 31, 2020 and 2019 (dollars in millions):
| 2020 | 2019 | |||||||
| Finance lease expense: | ||||||||
| Depreciation and amortization | $ | 106 | $ | 93 | ||||
| Interest | 31 | 32 | ||||||
| Operating leases( 1 ) | 447 | 389 | ||||||
| Short-term lease expense( 1 ) | 322 | 316 | ||||||
| Variable lease expense( 1 ) | 154 | 150 | ||||||
| $ | 1,060 | $ | 980 | |||||
| ( 1 ) | Expenses are included in “other operating expenses” in our consolidated income statements. |
|---|
F-30
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 — LEASES (continued)
The following table presents supplemental cash flow information for the years ended December 31, 2020 and 2019 (dollars in millions):
| 2020 | 2019 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | $ | 445 | $ | 404 | ||||
| Operating cash flows for finance leases | 31 | 32 | ||||||
| Financing cash flows for finance leases | 86 | 79 |
Maturities of Lease Liabilities
The following table reconciles the undiscounted minimum lease payment amounts to the operating and finance lease liabilities recorded on the balance sheet at December 31, 2020 and 2019 (dollars in millions):
| 2020 | 2019 | |||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
| Year 1 | $ | 431 | $ | 155 | $ | 411 | $ | 110 | ||||||||
| Year 2 | 366 | 125 | 350 | 105 | ||||||||||||
| Year 3 | 307 | 81 | 285 | 99 | ||||||||||||
| Year 4 | 255 | 82 | 228 | 58 | ||||||||||||
| Year 5 | 207 | 51 | 182 | 60 | ||||||||||||
| Thereafter | 1,136 | 353 | 1,074 | 368 | ||||||||||||
| Total minimum lease payments | 2,702 | 847 | 2,530 | 800 | ||||||||||||
| Less: amount of lease payments representing interest | (650 | ) | (225 | ) | (681 | ) | (243 | ) | ||||||||
| Present value of future minimum lease payments | 2,052 | 622 | 1,849 | 557 | ||||||||||||
| Less: current lease obligations | (379 | ) | (128 | ) | (350 | ) | (87 | ) | ||||||||
| Long-term lease obligations | $ | 1,673 | $ | 494 | $ | 1,499 | $ | 470 | ||||||||
NOTE 11 — 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.
Government Investigations, Claims and Litigation
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
F-31
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 — CONTINGENCIES (continued)
Government Investigations, Claims and Litigation (continued)
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 the Centers for Medicare & Medicaid Services 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. In 2018, the Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas requested information about whether the Program, as operated in Harris County, complied with the laws and regulations applicable to provider related donations, and the Company cooperated with that request. On May 21, 2019, a
qui tam
lawsuit asserting violations of the FCA and the Texas Medicaid Fraud Prevention Act related to the Program, as operated in Harris County, was unsealed by the U.S. District Court for the Southern District of Texas. Both the federal and state governments declined to intervene in the
qui tam
lawsuit. The Company believes that our participation is and has been consistent with the requirements of the Program and is vigorously defending against the lawsuit being pursued by the relator. We cannot predict what effect, if any, the
qui tam
lawsuit could have on the Company.
NOTE 12 — CAPITAL STOCK
The amended and restated certificate of incorporation authorizes the Company to issue up to 1,800,000,000 shares of common stock, and our amended and restated
by-laws
set the number of directors constituting the board of directors of the Company at not less than three members, the exact number to be determined from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.
Share Repurchase Transactions
During January 2020, January 2019 and October 2017, our Board of Directors authorized share repurchase programs for up to $6 billion ($2 billion for each authorization) of our outstanding common stock. During March
2020
in response to the risks the
COVID-19
pandemic presents to our business, we announced the suspension of our share repurchase programs. During February 2021,
our
Board of Directors authorized the resumption of the share repurchase program, pursuant to which $2.8 billion of pre-suspension authorization remained available, and an additional $6 billion was authorized for repurchases of the Company’s outstanding common stock ($8.8 billion of total repurchase authorization).
During 2020, we repurchased 3.287 million shares of our common stock at an average price of $134.18 per share through market purchases pursuant to the $
2.0
billion share repurchase program authorized during January 2019. At December 31, 2020, we had $2.800 billion of repurchase authorization available under the January 2019 and 2020 authorizations. During 2019, we repurchased 7.949 million shares of our common stock at an average price of $129.71 per share through market purchases pursuant to the October 2017 authorization (which was completed during the first quarter of 2019) and the January 2019 authorization. During 2018, we repurchased 14.070 million shares of our common stock at an average price of $108.74 per share through market purchases pursuant to the October 2017 authorization.
F-32
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 — EMPLOYEE BENEFIT PLANS
We maintain defined contribution benefit plans that are available to employees who meet certain minimum requirements. Certain of the plans require that we match specified percentages of participant contributions up to certain maximum levels (generally,
100% of the first 3% to 9%,
depending upon years of vesting service, of compensation deferred by participants). The cost of these plans totaled
$552
million for 2020,
$532
million for 20
19 and
$499
million for 2018. Our matching contributions are funded during the year following the participant contributions.
We maintain the noncontributory, nonqualified Restoration Plan to provide certain retirement benefits for eligible employees. Eligibility for the Restoration Plan is based upon earning eligible compensation in excess of a base amount and
attaining 1,000 or more hours
of service during the plan year. Company credits to participants’ hypothetical account balances (the Restoration Plan is not funded) depend upon participants’ compensation, years of vesting service, hypothetical investment returns (gains or losses) and certain IRS limitations. Benefits expense under this plan was
$35 million for 2020, $44 million for 2019 and $22 million for 2018. Accrued benefits liabilities under this plan totaled $242 million at December 31, 2020 and $227 million at December 31, 2019.
We maintain a Supplemental Executive Retirement Plan (“SERP”) for certain executives (the SERP is not funded). The plan is designed to ensure that upon retirement the participant receives the value of a prescribed life annuity from the combination of the SERP and our other benefit plans. Benefits expense under the plan was
$24 million for 2020, $19 million for 2019 and $26 million for 2018. Accrued benefits liabilities under this plan totaled $204 million at December 31, 2020 and $192 million at December 31, 2019.
We maintain defined benefit pension plans which resulted from certain hospital acquisitions in prior years. Benefits expense under these plans was
$8
million for 2020,
$11
million for 2019, and
$9
million for 2018. Accrued benefits liabilities under these plans totaled
$96
million at December 31, 2020 and
$63
million at December 31, 2019.
NOTE 14 — 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. At December 31, 2020, the National Group included 96 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 included 82 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Missouri, Tennessee and Texas. We also operate seven hospitals in England, and these facilities are included in the Corporate and other group.
F-33
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)
Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses and gains on sales of facilities, losses on retirement of debt, 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, depreciation and amortization, assets and goodwill and other intangible assets are summarized in the following table (dollars in millions):
| For the Years Ended December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Revenues: | ||||||||||||
| National Group | $ | 25,694 | $ | 25,913 | $ | 22,581 | ||||||
| American Group | 23,593 | 23,173 | 21,959 | |||||||||
| Corporate and other | 2,246 | 2,250 | 2,137 | |||||||||
| $ | 51,533 | $ | 51,336 | $ | 46,677 | |||||||
| Equity in earnings of affiliates: | ||||||||||||
| National Group | $ | (28 | ) | $ | (2 | ) | $ | (4 | ) | |||
| American Group | (42 | ) | (44 | ) | (40 | ) | ||||||
| Corporate and other | 16 | 3 | 15 | |||||||||
| $ | (54 | ) | $ | (43 | ) | $ | (29 | ) | ||||
| Adjusted segment EBITDA: | ||||||||||||
| National Group | $ | 5,532 | $ | 5,634 | $ | 4,980 | ||||||
| American Group | 5,333 | 4,904 | 4,593 | |||||||||
| Corporate and other | (828 | ) | (681 | ) | (624 | ) | ||||||
| $ | 10,037 | $ | 9,857 | $ | 8,949 | |||||||
| Depreciation and amortization: | ||||||||||||
| National Group | $ | 1,216 | $ | 1,161 | $ | 946 | ||||||
| American Group | 1,164 | 1,117 | 1,027 | |||||||||
| Corporate and other | 341 | 318 | 305 | |||||||||
| $ | 2,721 | $ | 2,596 | $ | 2,278 | |||||||
F-34
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)
| For the Years Ended December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Adjusted segment EBITDA | $ | 10,037 | $ | 9,857 | $ | 8,949 | ||||||
| Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
| Interest expense | 1,584 | 1,824 | 1,755 | |||||||||
| Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
| Losses on retirement of debt | 295 | 211 | 9 | |||||||||
| Income before income taxes | $ | 5,430 | $ | 5,244 | $ | 5,335 | ||||||
| December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Assets: | ||||||||||||
| National Group | $ | 18,913 | $ | 18,290 | $ | 14,839 | ||||||
| American Group | 20,760 | 20,608 | 19,122 | |||||||||
| Corporate and other | 7,817 | 6,160 | 5,246 | |||||||||
| $ | 47,490 | $ | 45,058 | $ | 39,207 | |||||||
| National Group | American Group | Corporate and Other | Total | |||||||||||||
| Goodwill and other intangible assets: | ||||||||||||||||
| Balance at December 31, 2017 | $ | 1,474 | $ | 5,265 | $ | 655 | $ | 7,394 | ||||||||
| Acquisitions | 132 | 504 | — | 636 | ||||||||||||
| Foreign currency translation, amortization and other | (9 | ) | (40 | ) | (28 | ) | (77 | ) | ||||||||
| Balance at December 31, 2018 | 1,597 | 5,729 | 627 | 7,953 | ||||||||||||
| Acquisitions | 155 | 39 | 138 | 332 | ||||||||||||
| Foreign currency translation, amortization and other | (13 | ) | (3 | ) | — | (16 | ) | |||||||||
| Balance at December 31, 2019 | 1,739 | 5,765 | 765 | 8,269 | ||||||||||||
| Acquisitions | 38 | 27 | 279 | 344 | ||||||||||||
| Foreign currency translation, amortization and other | (2 | ) | (17 | ) | (16 | ) | (35 | ) | ||||||||
| Balance at December 31, 2020 | $ | 1,775 | $ | 5,775 | $ | 1,028 | $ | 8,578 | ||||||||
F-35
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 — OTHER COMPREHENSIVE LOSS
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, 2017 | $ | 7 | $ | (149 | ) | $ | (168 | ) | $ | 32 | $ | (278 | ) | |||||||
| Unrealized losses on available-for-sale securities, net of $2 income tax benefit | (5 | ) | — | — | — | (5 | ) | |||||||||||||
| Foreign currency translation adjustments, net of $8 income tax benefit | — | (63 | ) | — | — | (63 | ) | |||||||||||||
| Defined benefit plans, net of $10 of income taxes | — | — | 34 | — | 34 | |||||||||||||||
| Change in fair value of derivative instruments, net of $5 of income taxes | — | — | — | 18 | 18 | |||||||||||||||
| Expense (income) reclassified into operations from other comprehensive income, net of $5 income tax benefit and $2 of income taxes, respectively | — | — | 16 | (8 | ) | 8 | ||||||||||||||
| Reclassification of stranded tax effects | 1 | (71 | ) | (30 | ) | 5 | (95 | ) | ||||||||||||
| Balances at December 31, 2018 | 3 | (283 | ) | (148 | ) | 47 | (381 | ) | ||||||||||||
| Unrealized gains on available-for-sale securities, net of $4 of income taxes | 11 | — | — | — | 11 | |||||||||||||||
| Foreign currency translation adjustments, net of $5 of income taxes | — | — | — | — | — | |||||||||||||||
| Defined benefit plans, net of $14 income tax benefit | — | — | (49 | ) | — | (49 | ) | |||||||||||||
| Change in fair value of derivative instruments, net of $13 income tax benefit | — | — | — | (37 | ) | (37 | ) | |||||||||||||
| Expense (income) reclassified into operations from other comprehensive income, net of $3 income tax benefit and $3 of income taxes, respectively | — | — | 10 | (14 | ) | (4 | ) | |||||||||||||
| Balances at December 31, 2019 | 14 | (283 | ) | (187 | ) | (4 | ) | (460 | ) | |||||||||||
| Unrealized gains on available-for-sale securities, net of $3 of income taxes | 11 | — | — | — | 11 | |||||||||||||||
| Foreign currency translation adjustments, net of $6 of income taxes | — | 12 | — | — | 12 | |||||||||||||||
| Defined benefit plans, net of $16 income tax benefit | — | — | (55 | ) | — | (55 | ) | |||||||||||||
| Change in fair value of derivative instruments, net of $15 income tax benefit | — | — | — | (51 | ) | (51 | ) | |||||||||||||
| Expense reclassified into operations from other comprehensive income, net of $6 and $5 income tax benefits, respectively | — | — | 22 | 19 | 41 | |||||||||||||||
| Balances at December 31, 2020 | $ | 25 | $ | (271 | ) | $ | (220 | ) | $ | (36 | ) | $ | (502 | ) | ||||||
F-36
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 — ACCRUED EXPENSES
A summary of other accrued expenses at December 31 follows (dollars in millions):
| 2020 | 2019 | |||||||
| Professional liability risks | $ | 477 | $ | 457 | ||||
| Defined contribution benefit plan | 547 | 528 | ||||||
| Right-of-use operating lease | 379 | 350 | ||||||
| Taxes other than income | 343 | 325 | ||||||
| Interest | 315 | 368 | ||||||
| Government stimulus refund liability | 83 | — | ||||||
| Other | 1,096 | 904 | ||||||
| $ | 3,240 | $ | 2,932 | |||||
F-37
Previous: Item 15. Exhibits and Financial Statement Schedules