HCA Inc.

10-Q 1 g96438e10vq.htm HCA INC. HCA Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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


		For the quarterly period ended June 30, 2005


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


		For the transition period from to

Commission file number 1-11239

HCA Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		75-2497104 (I.R.S. Employer Identification No.)

One Park Plaza Nashville, Tennessee (Address of principal executive offices)		37203 (Zip Code)

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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


Class of Common Stock		Outstanding at June 30, 2005

Voting common stock, $.01 par value		430,962,600 shares
Nonvoting common stock, $.01 par value		21,000,000 shares

HCA INC.

Form 10-Q

June 30, 2005


		Page of
		Form 10-Q

Part I.	Financial Information
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Income Statements — for the quarters and six months ended June 30, 2005 and 2004		3
	Condensed Consolidated Balance Sheets — June 30, 2005 and December 31, 2004		4
	Condensed Consolidated Statements of Cash Flows — for the six months ended June 30, 2005 and 2004		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.	Controls and Procedures		32
Part II.	Other Information
Item 1.	Legal Proceedings		32
Item 4.	Submission of Matters to a Vote of Security Holders		33
Item 6.	Exhibits		33
Signatures			34
Ex-12 Statement re: Computaion of Ratio of Earnings to Fixed Charges
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32 Section 906 Certification of the CEO & CFO

HCA INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004

Unaudited

(Dollars in millions, except per share amounts)


			Quarter						Six Months

			2005			2004			2005			2004

Revenues			$	6,070		$	5,833		$	12,252		$	11,770
Salaries and benefits				2,463			2,334			4,906			4,667
Supplies				1,042			967			2,093			1,947
Other operating expenses				981			891			1,953			1,842
Provision for doubtful accounts				541			661			1,115			1,355
Gains on investments				(22	)		(18	)		(31	)		(28	)
Equity in earnings of affiliates				(53	)		(53	)		(106	)		(99	)
Depreciation and amortization				364			315			701			618
Interest expense				165			136			329			271
Gains on sales of facilities				(29	)		—			(29	)		—

				5,452			5,233			10,931			10,573

Income before minority interests and income taxes				618			600			1,321			1,197
Minority interests in earnings of consolidated entities				49			35			89			73

Income before income taxes				569			565			1,232			1,124
Provision for income taxes				164			213			413			427

		Net income	$	405		$	352		$	819		$	697

Per share data:
	Basic earnings per share		$	0.91		$	0.73		$	1.88		$	1.44
	Diluted earnings per share		$	0.90		$	0.72		$	1.84		$	1.41
	Cash dividends declared per share		$	0.15		$	0.13		$	0.30		$	0.26
Shares used in earnings per share calculations (in thousands):
	Basic			443,489			482,159			435,626			484,943
	Diluted			451,731			490,261			443,739			493,941

See accompanying notes.

HCA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)


		June 30,			December 31,
		2005			2004

ASSETS
Current assets:
	Cash and cash equivalents	$	463		$	129
	Accounts receivable, less allowance for doubtful accounts of $2,892 and $2,942		3,214			3,083
	Inventories		580			577
	Deferred income taxes		464			467
	Other		370			427

			5,091			4,683
Property and equipment, at cost			20,344			19,970
Accumulated depreciation			(9,160	)		(8,574	)

			11,184			11,396
Investments of insurance subsidiary			1,997			2,047
Investments in and advances to affiliates			556			486
Goodwill			2,622			2,540
Deferred loan costs			92			99
Other			176			214

		$	21,718		$	21,465


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	832		$	855
	Accrued salaries		578			579
	Other accrued expenses		1,255			1,254
	Long-term debt due within one year		560			486

			3,225			3,174
Long-term debt			8,800			10,044
Professional liability risks			1,303			1,283
Deferred income taxes and other liabilities			1,472			1,748
Minority interests in equity of consolidated entities			801			809
Stockholders’ equity:
	Common stock $.01 par; authorized 1,650,000,000 shares; outstanding 451,962,600 shares in 2005 and 422,642,100 shares in 2004		5			4
	Capital in excess of par value		1,080			—
	Accumulated other comprehensive income		131			193
	Retained earnings		4,901			4,210

			6,117			4,407

		$	21,718		$	21,465

See accompanying notes.

HCA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

Unaudited

(Dollars in millions)


				2005			2004

Cash flows from operating activities:
	Net income			$	819		$	697
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for doubtful accounts			1,115			1,355
		Depreciation and amortization			701			618
		Income taxes			222			254
		Changes in operating assets and liabilities			(1,341	)		(1,533	)
		Other			70			63

			Net cash provided by operating activities		1,586			1,454

Cash flows from investing activities:
		Purchase of property and equipment			(625	)		(787	)
		Acquisition of hospitals and health care entities			(84	)		(30	)
		Disposition of hospitals and health care entities			36			28
		Change in investments			(110	)		(71	)
		Other			25			1

			Net cash used in investing activities		(758	)		(859	)

Cash flows from financing activities:
		Issuance of long-term debt			—			501
		Net change in revolving bank credit facility			(700	)		(160	)
		Repayment of long-term debt			(480	)		(383	)
		Payment of cash dividends			(123	)		(72	)
		Repurchases of common stock			—			(592	)
		Issuances of common stock			922			127
		Other			(113	)		(11	)

			Net cash used in financing activities		(494	)		(590	)

Change in cash and cash equivalents					334			5
Cash and cash equivalents at beginning of period					129			115

Cash and cash equivalents at end of period				$	463		$	120

Interest payments				$	308		$	258
Income tax payments, net of refunds				$	191		$	173

See accompanying notes.

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited


NOTE 1 —	INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Basis of Presentation

HCA 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 Inc. and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2005, these affiliates owned and operated 183 hospitals, 84 freestanding surgery centers and provided extensive outpatient and ancillary services. Affiliates of HCA Inc. are also partners in joint ventures that own and operate seven hospitals and eight freestanding surgery centers which are accounted for using the equity method. The Company’s facilities are located in 23 states, England and Switzerland. The terms “HCA” or the “Company,” as used in this Quarterly Report on Form 10-Q, refer to HCA Inc. and its affiliates unless otherwise stated or indicated by context.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as general and administrative by HCA would include the HCA corporate office costs, which were $45 million and $40 million for the quarters ended June 30, 2005 and 2004, respectively, and $86 million and $76 million for the six months ended June 30, 2005 and 2004, respectively. Operating results for the quarter and six months ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

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


	Share-based Compensation

HCA applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock benefit plans. Accordingly, no compensation cost has been recognized for HCA’s stock options granted under the plans because the exercise prices for options granted were equal to the quoted market prices on the option grant dates and all option grants were to employees or directors. Income tax benefits associated with nonqualified stock option exercises of $72 million and $18 million for the quarters ended June 30, 2005 and 2004, respectively, and $155 million and $35 million for the six months ended June 30, 2005 and 2004, respectively, were recorded as increases to stockholders’ equity.

As required by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), HCA has determined pro forma net income and earnings per share, as if compensation cost for HCA’s employee stock option and stock purchase plans had been determined based

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 1 —	INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Share-based Compensation (continued)

upon fair values at the grant dates. These pro forma amounts are as follows (dollars in millions, except per share amounts):


		Quarter				Six Months

		2005		2004		2005		2004

Net income:
	As reported	$	405	$	352	$	819	$	697
	Share-based employee compensation expense determined under a fair value method, net of income taxes		2		22		9		43

	Pro forma	$	403	$	330	$	810	$	654

Basic earnings per share:
	As reported	$	0.91	$	0.73	$	1.88	$	1.44
	Pro forma	$	0.91	$	0.68	$	1.86	$	1.35
Diluted earnings per share:
	As reported	$	0.90	$	0.72	$	1.84	$	1.41
	Pro forma	$	0.89	$	0.67	$	1.82	$	1.32

The weighted average fair values of HCA’s stock options granted for the quarters ended June 30, 2005 and 2004 were $17.27 and $11.50 per share, respectively. For the six months ended June 30, 2005 and 2004 the weighted average fair values were $15.66 and $12.93 per share, respectively. The fair values were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:


	Quarter						Six Months

	2005			2004			2005			2004

Risk-free interest rate		3.86	%		3.50	%		3.80	%		2.53	%
Expected volatility		33	%		35	%		33	%		35	%
Expected life, in years		5			4			5			4
Expected dividend yield		1.25	%		1.24	%		1.33	%		1.18	%

The expected volatility is derived using weekly, historical data for periods preceding the date of grant. The risk-free interest rate is the approximate yield on United States Treasury Strips on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised. The valuation model was not adjusted for nontransferability, risk of forfeiture or the vesting restrictions of the options, all of which would reduce the value if factored into the calculation.

In December 2004, HCA accelerated the vesting of all unvested stock options awarded to employees and officers which had exercise prices greater than the closing price at December 14, 2004 of $40.89 per share. Options to purchase approximately 19.1 million shares became exercisable immediately as a result of the vesting acceleration. In April 2005, the Securities and Exchange Commission amended the date for compliance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), so that HCA will be required to apply the expense recognition provisions of SFAS 123R beginning January 1, 2006. Assuming SFAS 123R is adopted as expected, the decision to accelerate vesting of the identified stock options will result in the Company not being required to recognize share-based compensation expense, net of taxes, of approximately $36 million in 2006, $19 million in 2007, and $2 million in 2008. The elimination of the requirement to recognize compensation

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited

NOTE 1 — INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Share-based Compensation (continued)

expense in future periods related to the unvested stock options was management’s basis for the decision to accelerate the vesting. The effect of accelerating the vesting for all unvested options with exercise prices greater than $40.89 per share was an increase to the pro forma share-based employee compensation expense for the fourth quarter of 2004 of $112 million after-tax ($0.24 per basic share and $0.23 per diluted share).


	Professional Liability Insurance Claims

A substantial portion of HCA’s professional liability risks is insured through a wholly-owned insurance subsidiary, which is funded annually. Reserves for professional liability risks were $1.613 billion and $1.593 billion at June 30, 2005 and December 31, 2004, respectively. The current portion of the reserves, $310 million at June 30, 2005 and December 31, 2004, is included in “other accrued expenses” in the condensed consolidated balance sheet. Provisions for losses related to professional liability risks were $59 million and $35 million for the quarters ended June 30, 2005 and June 30, 2004, respectively, and $161 million and $128 million for the six months ended June 30, 2005 and June 30, 2004, respectively, and are included in “other operating expenses” in the Company’s condensed consolidated income statement. The Company recognized a reduction in its estimated professional liability insurance reserves of $36 million pretax, or $0.05 per diluted share, during the second quarter of 2005. Results for the second quarter of 2004 included a reduction in its estimated professional liability reserves of $59 million pretax, or $0.07 per diluted share. The malpractice reserve reductions in the second quarters of 2005 and 2004 reflect the recognition by HCA’s external actuaries of improving frequency and severity claim trends at HCA. This declining frequency and moderating severity can be primarily attributed to tort reforms enacted in key states, particularly Texas, and HCA’s risk management and patient safety initiatives, particularly in the areas of obstetrics and emergency services.


NOTE 2 —	INCOME TAXES

HCA is currently contesting before the Appeals Division of the Internal Revenue Service (the “IRS”), the United States Tax Court (the “Tax Court”), and the United States Court of Federal Claims certain claimed deficiencies and adjustments proposed by the IRS in conjunction with its examinations of HCA’s 1994 through 2000 federal income tax returns, Columbia Healthcare Corporation’s (“CHC”) 1993 and 1994 federal income tax returns, HCA-Hospital Corporation of America’s (“Hospital Corporation of America”) 1991 through 1993 federal income tax returns and Healthtrust, Inc. — The Hospital Company’s (“Healthtrust”) 1990 through 1994 federal income tax returns.

During the second quarter of 2005, HCA reached a partial settlement with the IRS Appeals Division regarding the amount of gain or loss recognized on the divestiture of certain noncore business units. As a result of this settlement, HCA recorded an income tax benefit of $48 million, or $0.11 per diluted share, during the second quarter.

During 2003, the United States Court of Appeals for the Sixth Circuit affirmed a 1996 Tax Court decision related to the IRS examination of Hospital Corporation of America’s 1987 and 1988 federal income tax returns, in which the IRS contested the method that Hospital Corporation of America used to calculate its tax allowance for doubtful accounts. HCA filed a petition for review by the United States Supreme Court, which was denied in October 2004. Due to the volume and complexity of calculating the tax allowance for doubtful accounts, the IRS has not determined the amount of additional tax and interest that it may claim for subsequent taxable years. HCA made a deposit of $109 million during 2004 based on its estimate of additional tax and interest due for taxable periods through 2000.

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 2 —	INCOME TAXES (continued)

Other disputed items include the deductibility of a portion of a 2001 government settlement payment, the timing of recognition of certain patient service revenues in 2000 through 2002, and the amount of insurance expense deducted in 1999 through 2002. The IRS has claimed an additional $412 million in income taxes and interest, through June 30, 2005, with respect to these issues.

HCA expects the IRS to complete its examination of HCA’s 2001 and 2002 federal income tax returns during 2005. The IRS has not determined the amount of any additional income tax and interest that it may claim upon completion of this examination.

Management believes that adequate provisions have been recorded to satisfy final resolution of the disputed issues. Management believes that HCA, CHC, Hospital Corporation of America and Healthtrust properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS during previous examinations and that final resolution of these disputes will not have a material adverse effect on results of operations or financial position.


NOTE 3 —	EARNINGS PER SHARE

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options and other stock awards.

The following table sets forth the computation of basic and diluted earnings per share for the quarters and six months ended June 30, 2005 and 2004 (dollars in millions, except per share amounts, and shares in thousands):


		Quarter				Six Months

		2005		2004		2005		2004

Net income		$	405	$	352	$	819	$	697
Weighted average common shares outstanding			443,489		482,159		435,626		484,943
Effect of dilutive securities:
	Stock options		6,970		6,481		6,817		7,251
	Other		1,272		1,621		1,296		1,747

Shares used for diluted earnings per share			451,731		490,261		443,739		493,941

Earnings per share:
	Basic earnings per share	$	0.91	$	0.73	$	1.88	$	1.44
	Diluted earnings per share	$	0.90	$	0.72	$	1.84	$	1.41

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 4 —	INVESTMENTS OF INSURANCE SUBSIDIARY

A summary of the insurance subsidiary’s investments at June 30, 2005 and December 31, 2004 follows (dollars in millions):


		June 30, 2005

				Unrealized
				Amounts
		Amortized							Fair
		Cost		Gains		Losses			Value

Debt securities:
	States and municipalities	$	1,218	$	44	$	(1	)	$	1,261
	Mortgage-backed securities		8		4		—			12
	Corporate and other		25		1		—			26
	Money market funds		154		—		—			154

			1,405		49		(1	)		1,453

Equity securities:
	Perpetual preferred stocks		10		—		—			10
	Common stocks		683		132		(6	)		809

			693		132		(6	)		819

		$	2,098	$	181	$	(7	)		2,272

Amounts classified as current assets										(275	)

Investment carrying value									$	1,997


		December 31, 2004

				Unrealized
				Amounts
		Amortized							Fair
		Cost		Gains		Losses			Value

Debt securities:
	United States government	$	2	$	—	$	—		$	2
	States and municipalities		1,219		50		(1	)		1,268
	Mortgage-backed securities		37		2		—			39
	Corporate and other		82		1		—			83
	Money market funds		48		—		—			48
	Redeemable preferred stocks		1		—		—			1

			1,389		53		(1	)		1,441

Equity securities:
	Perpetual preferred stocks		8		—		—			8
	Common stocks		694		180		(1	)		873

			702		180		(1	)		881

		$	2,091	$	233	$	(2	)		2,322

Amounts classified as current assets										(275	)

Investment carrying value									$	2,047

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 4 —	INVESTMENTS OF INSURANCE SUBSIDIARY (continued)

The fair value of investment securities is generally based on quoted market prices. At June 30, 2005 and December 31, 2004, the investments of HCA’s insurance subsidiary were classified as “available for sale.” The aggregate common stock investment is comprised of 511 equity positions at June 30, 2005, with 441 positions reflecting unrealized gains and 70 positions reflecting unrealized losses (none of the individual unrealized loss positions exceed $2 million). None of the equity positions with unrealized losses at June 30, 2005 represent situations where there has been a continuous decline of more than 20% from cost for more than one year. The equity positions (including those with unrealized losses) at June 30, 2005 are not concentrated in any particular industries.


NOTE 5 —	LONG-TERM DEBT

HCA’s revolving credit facility (the “Credit Facility”) is a $1.750 billion agreement that expires November 2009. At June 30, 2005, HCA had $1.693 billion available under the Credit Facility.

At June 30, 2005, interest on Credit Facility borrowings is payable generally at either a spread to LIBOR, a spread to the prime lending rate or a competitive bid rate. The Credit Facility contains customary covenants which include (i) a limitation on debt levels, (ii) a limitation on sales of assets, mergers and changes of ownership and (iii) maintenance of minimum interest coverage ratios. As of June 30, 2005, HCA was in compliance with all such covenants.


NOTE 6 —	CONTINGENCIES


	General Liability

HCA operates 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 the Company in the normal course of business. This includes, but is not limited to, personal injury claims, claims relating to wrongful restriction or interference with physician staff privileges, employment disputes, contractual disputes, and claims regarding billing or other business practices. Some of these matters include claims for which the Company is uninsured. Disputed facts and uncertainties in the law make it difficult to predict the outcome of individual matters with certainty, and unanticipated results in a particular matter or group of matters could have a material, adverse effect on HCA’s results of operations and financial position.


	Government Investigation, Claims and Litigation

In January 2001, HCA entered into an eight-year Corporate Integrity Agreement (“CIA”) with the Office of Inspector General of the Department of Health and Human Services. Violation or breach of the CIA, or violation of federal or state laws relating to Medicare, Medicaid or similar programs, could subject the Company to substantial monetary fines, civil and criminal penalties and/or exclusion from participation in the Medicare and Medicaid programs. Alleged violations may be pursued by the government or through private qui tam actions. Sanctions imposed against the Company as a result of such actions could have a material, adverse effect on the Company’s results of operations and financial position.

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 7 —	COMPREHENSIVE INCOME

The components of comprehensive income, net of related taxes, for the quarters and six months ended June 30, 2005 and 2004 are as follows (in millions):


	Quarter						Six Months

	2005			2004			2005			2004

Net income	$	405		$	352		$	819		$	697
Unrealized losses on available-for-sale securities		—			(24	)		(37	)		(19	)
Currency translation adjustments		(18	)		(2	)		(25	)		2

Comprehensive income	$	387		$	326		$	757		$	680

The components of accumulated other comprehensive income, net of related taxes, are as follows (in millions):


	June 30,			December 31,
	2005			2004

Net unrealized gains on available-for-sale securities	$	111		$	148
Currency translation adjustments		42			67
Defined benefit plans		(22	)		(22	)

Accumulated other comprehensive income	$	131		$	193


NOTE 8 —	SEGMENT AND GEOGRAPHIC INFORMATION

HCA operates in one line of business, which is operating hospitals and related health care entities. During each of the quarters and six months ended June 30, 2005 and 2004, approximately 28% of the Company’s revenues related to patients participating in the Medicare program.

HCA’s operations are structured into two geographically organized groups: the Eastern Group includes 92 consolidating hospitals located in the Eastern United States and the Western Group includes 83 consolidating hospitals located in the Western United States. HCA also operates eight consolidating hospitals in England and Switzerland and these facilities are included in the Corporate and other group.

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, gains on sales of facilities, minority interests and income taxes. HCA uses 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

HCA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unaudited


NOTE 8 —	SEGMENT AND GEOGRAPHIC INFORMATION (continued)

geographic distributions of HCA’s revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization are summarized in the following table (dollars in millions):


		Quarters						Six Months

		2005			2004			2005			2004

Revenues:
	Eastern Group	$	2,978		$	2,824		$	6,047		$	5,739
	Western Group		2,906			2,843			5,833			5,701
	Corporate and other		186			166			372			330

		$	6,070		$	5,833		$	12,252		$	11,770

Equity in earnings of affiliates:
	Eastern Group	$	(1	)	$	(2	)	$	(2	)	$	(4	)
	Western Group		(52	)		(41	)		(104	)		(85	)
	Corporate and other		—			(10	)		—			(10	)

		$	(53	)	$	(53	)	$	(106	)	$	(99	)

Adjusted segment EBITDA:
	Eastern Group	$	542		$	489		$	1,156		$	1,062
	Western Group		543			509			1,134			999
	Corporate and other		33			53			32			25

		$	1,118		$	1,051		$	2,322		$	2,086

Depreciation and amortization:
	Eastern Group	$	168		$	137		$	313		$	270
	Western Group		155			136			306			272
	Corporate and other		41			42			82			76

		$	364		$	315		$	701		$	618

Adjusted segment EBITDA		$	1,118		$	1,051		$	2,322		$	2,086
	Depreciation and amortization		364			315			701			618
	Interest expense		165			136			329			271
	Gains on sales of facilities		(29	)		—			(29	)		—

Income before minority interests and income taxes		$	618		$	600		$	1,321		$	1,197

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains disclosures which contain “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on the current plans and expectations of HCA and are subject to a number of known and unknown uncertainties and risks, many of which are beyond HCA’s control, that could significantly affect current plans and expectations and HCA’s future financial position and results of operations. These factors include, but are not limited to, (i) increases in the amount and risk of collectability of uninsured accounts, and deductibles and copayment amounts for insured accounts, (ii) the ability to achieve operating and financial targets, achieve expected levels of patient volumes and control the costs of providing services, (iii) the highly competitive nature of the health care business, (iv) the efforts of insurers, health care providers and others to contain health care costs, (v) possible changes in the Medicare, Medicaid and other state programs that may impact reimbursements to health care providers and insurers, (vi) the ability to attract and retain qualified management and other personnel, including affiliated physicians, nurses and medical support personnel, (vii) potential liabilities and other claims that may be asserted against HCA, (viii) fluctuations in the market value of HCA’s common stock, (ix) the impact of HCA’s charity care and uninsured discounting policy changes, (x) changes in accounting practices, (xi) changes in general economic conditions, (xii) future divestitures which may result in charges, (xiii) changes in revenue mix and the ability to enter into and renew managed care provider arrangements on acceptable terms, (xiv) the availability and terms of capital to fund the expansion of the Company’s business, (xv) changes in business strategy or development plans, (xvi) delays in receiving payments for services provided, (xvii) the possible enactment of federal or state health care reform, (xviii) the outcome of pending and any future tax audits, appeals and litigation associated with HCA’s tax positions, (xix) the outcome of HCA’s continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures and HCA’s corporate integrity agreement with the government, (xx) changes in federal, state or local regulations affecting the health care industry, (xxi) the ability to develop and implement the payroll and human resources information systems within the expected time and cost projections and, upon implementation, to realize the expected benefits and efficiencies, and (xxii) other risk factors detailed in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission (“SEC”). As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Second Quarter 2005 Operations Summary

Net income totaled $405 million, or $0.90 per diluted share, for the quarter ended June 30, 2005, compared to $352 million, or $0.72 per diluted share, for the quarter ended June 30, 2004. The second quarter 2005 operating results include: a favorable tax settlement of $48 million, or $0.11 per diluted share, related to the Company’s divestiture of certain noncore business units in 1998 and 2001; the recognition of a previously deferred gain of $29 million, or $0.04 per diluted share, on the sale of certain medical office buildings; and additional depreciation expense of $30 million, or $0.04 per diluted share, related to reclassifying certain medical equipment from seven year depreciable lives to four year depreciable lives to correct accumulated depreciation at certain facilities and attain consistent application of the Company’s accounting policy for fixed assets. HCA’s shares used for diluted earnings per share for the quarter ended June 30, 2005 were 451.7 million shares, compared to 490.3 million shares for the quarter ended June 30, 2004.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Second Quarter 2005 Operations Summary (continued)

Revenue per equivalent admission increased 2.6% in the second quarter of 2005 compared to the second quarter of 2004. HCA’s revised uninsured discount policy, which became effective January 1, 2005, resulted in $184 million in discounts to the uninsured being recorded during the second quarter of 2005. See “Supplemental Non-GAAP Disclosures, Operating Measures Adjusted for the Impact of Discounts for the Uninsured.”

During the second quarter of 2005, same facility admissions decreased 0.3%, compared to the second quarter of 2004. Same facility outpatient surgeries increased 1.2% during the second quarter of 2005 compared to the second quarter of 2004.

The Company recognized a reduction in its estimated professional liability insurance reserves of $36 million pretax, or $0.05 per diluted share, during the second quarter of 2005. Results for the second quarter of 2004 included a reduction in its estimated professional liability reserves of $59 million pretax, or $0.07 per diluted share.

For the second quarter of 2005, the provision for doubtful accounts decreased to 8.9% of revenues from 11.3% in the second quarter of 2004. Adjusting for the effect of the uninsured discounts, the provision for doubtful accounts for the second quarter of 2005 was 11.6% of revenues. Same facility uninsured admissions, compared to the 2004 second quarter, increased 5.1%. Same facility uninsured emergency room visits increased 10.4% in the second quarter of 2005 compared to the second quarter of 2004.

Update of Critical Accounting Policies and Estimates


	Professional Liability Insurance Claims

Results of Operations


	Revenue/Volume Trends

HCA’s revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. HCA facilities’ gross charges typically do not reflect what the facilities are actually paid. HCA’s facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Revenue/Volume Trends (continued)

HCA does not pursue collection of amounts related to patients who meet the Company’s guidelines to qualify for charity care; therefore, they are not reported in revenues. On January 1, 2005, HCA modified its policies to provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans.

Revenues increased 4.1% from $5.833 billion in the second quarter of 2004 to $6.070 billion for the second quarter of 2005. The increase in revenues can be attributed to a 1.5% increase in equivalent admissions and a 2.6% increase in revenue per equivalent admission. HCA’s revised uninsured discount policy resulted in $184 million in discounts to the uninsured being recorded during the second quarter of 2005.

Consolidated admissions decreased 0.7% and same facility admissions decreased 0.3% compared to the second quarter of 2004. Consolidated outpatient surgeries increased 1.5% and same facility outpatient surgeries increased 1.2% in the second quarter of 2005 compared to the second quarter of 2004.

Admissions related to Medicare, Medicaid, managed Medicaid, managed care and other discounted plans and the uninsured for the quarters and six months ended June 30, 2005 and 2004 are set forth below. Certain prior year amounts have been reclassified to conform to the 2005 presentation.


	Quarter						Six Months

	2005			2004			2005			2004

Medicare		38	%		39	%		39	%		40	%
Medicaid		10			10			10			10
Managed Medicaid		5			4			5			4
Managed care and other discounted plans		42			42			41			42
Uninsured		5			5			5			4

		100	%		100	%		100	%		100	%

Same facility uninsured admissions increased 5.1% in the second quarter of 2005 compared to the second quarter of 2004 and increased 3.3% in the first quarter of 2005 compared to the first quarter of 2004. The trend of quarterly same facility admissions growth during 2004, compared to 2003, was 13.7% during the first quarter, 15.2% during the second quarter, 7.2% during the third quarter and 3.7% during the fourth quarter.

At June 30, 2005, HCA had 76 hospitals in the states of Texas and Florida. During the second quarter of 2005, 51% of the Company’s admissions and 49% of the Company’s revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represent 57% of the Company’s uninsured admissions.

HCA facilities’ gross charges typically do not reflect what the facilities are actually paid. HCA’s facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. The recording of $184 million in discounts to the uninsured during the second quarter of 2005 lowered the rate of growth in revenue per equivalent admission in the second quarter of 2005, compared to the second quarter of 2004. Same facility revenue per equivalent admission increased 3.1% in the second quarter of 2005 compared to the 2004 second quarter. Adjusting for the effect of the new discount policy for the uninsured, same facility revenue per equivalent admission increased 6.2% for the second quarter of 2005. Charity care and discounts to the uninsured total $459 million in the second quarter of 2005, compared to $232 million in the second quarter of 2004.

The approximate percentages of the Company’s inpatient revenues related to Medicare, Medicaid, managed Medicaid, managed care and other discounted plans and the uninsured for the quarters and six

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Revenue/Volume Trends (continued)

months ended June 30, 2005 and 2004 are set forth in the following table. The uninsured discounts and continued increases in charity care resulted in a decline in uninsured inpatient revenues in the second quarter of 2005, compared to the second quarter of 2004. Certain prior year amounts have been reclassified to conform to the 2005 presentation.


	Quarter						Six Months

	2005			2004			2005			2004

Medicare		36	%		37	%		37	%		37	%
Medicaid		7			6			7			6
Managed Medicaid		3			3			3			3
Managed care and other discounted plans		50			46			49			46
Uninsured		4			8			4			8

		100	%		100	%		100	%		100	%

HCA receives a significant portion of its revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. Legislative changes have resulted in limitations and even reductions in levels of payments to health care providers for certain services under these government programs.

HCA recorded $39 million and $29 million of revenues related to Medicare operating outlier cases for the second quarters of 2005 and 2004, respectively. These amounts represent 2.4% and 1.8% of Medicare revenues and 0.6% and 0.5% of total revenues for the second quarters of 2005 and 2004, respectively. HCA recorded $75 million and $62 million of revenues related to Medicare operating outlier cases during the first six months of 2005 and 2004, respectively. These amounts represent 2.2% and 1.9% of Medicare net revenues and 0.6% and 0.5% of total net revenues for the first six months of 2005 and 2004, respectively. There can be no assurances that HCA will continue to receive these levels of Medicare outlier payments in future periods.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Operating Results Summary

The following are comparative summaries of results of operations for the quarters and six months ended June 30, 2005 and 2004(dollars in millions, except per share amounts):


		Quarter

		2005						2004

		Amount			Ratio			Amount			Ratio

Revenues		$	6,070			100.0		$	5,833			100.0

Salaries and benefits			2,463			40.6			2,334			40.0
Supplies			1,042			17.2			967			16.6
Other operating expenses			981			16.2			891			15.3
Provision for doubtful accounts			541			8.9			661			11.3
Gains on investments			(22	)		(0.4	)		(18	)		(0.3	)
Equity in earnings of affiliates			(53	)		(0.9	)		(53	)		(0.9	)
Depreciation and amortization			364			6.0			315			5.4
Interest expense			165			2.7			136			2.3
Gains on sales of facilities			(29	)		(0.5	)		—			—

			5,452			89.8			5,233			89.7

Income before minority interests and income taxes			618			10.2			600			10.3
Minority interests in earnings of consolidated entities			49			0.8			35			0.6

Income before income taxes			569			9.4			565			9.7
Provision for income taxes			164			2.7			213			3.7

Net income		$	405			6.7		$	352			6.0

Basic earnings per share		$	0.91					$	0.73
Diluted earnings per share		$	0.90					$	0.72
% changes from prior year:
	Revenues		4.1	%					6.7	%
	Income before income taxes		0.9						44.6
	Net income		15.4						46.5
	Basic earnings per share		24.7						55.3
	Diluted earnings per share		25.0						53.2
	Admissions(a)		(0.7	)					0.4
	Equivalent admissions(b)		1.5						0.9
	Revenue per equivalent admission		2.6						5.7
Same facility % changes from prior year(c):
	Revenues		4.3						6.8
	Admissions(a)		(0.3	)					0.4
	Equivalent admissions(b)		1.2						0.9
	Revenue per equivalent admission		3.1						5.8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Operating Results Summary (continued)


		Six Months

		2005						2004

		Amount			Ratio			Amount			Ratio

Revenues		$	12,252			100.0		$	11,770			100.0

Salaries and benefits			4,906			40.0			4,667			39.7
Supplies			2,093			17.1			1,947			16.5
Other operating expenses			1,953			15.9			1,842			15.6
Provision for doubtful accounts			1,115			9.1			1,355			11.5
Gains on investments			(31	)		(0.2	)		(28	)		(0.2	)
Equity in earnings of affiliates			(106	)		(0.9	)		(99	)		(0.8	)
Depreciation and amortization			701			5.7			618			5.2
Interest expense			329			2.7			271			2.3
Gains on sales of facilities			(29	)		(0.2	)		—			—

			10,931			89.2			10,573			89.8

Income before minority interests and income taxes			1,321			10.8			1,197			10.2
Minority interests in earnings of consolidated entities			89			0.7			73			0.7

Income before income taxes			1,232			10.1			1,124			9.5
Provision for income taxes			413			3.4			427			3.6

Net income		$	819			6.7		$	697			5.9

Basic earnings per share		$	1.88					$	1.44
Diluted earnings per share		$	1.84					$	1.41
% changes from prior year:
	Revenues		4.1	%					9.6	%
	Income before income taxes		9.7						(2.7	)
	Net income		17.5						(1.7	)
	Basic earnings per share		30.6						3.6
	Diluted earnings per share		30.5						2.9
	Admissions(a)		(0.1	)					3.4
	Equivalent admissions(b)		1.6						3.6
	Revenue per equivalent admission		2.4						5.7
Same facility % changes from prior year(c):
	Revenues		4.5						8.0
	Admissions(a)		0.3						1.5
	Equivalent admissions(b)		1.7						1.8
	Revenue per equivalent admission		2.7						6.1


(a)		Represents the total number of patients admitted to the Company’s hospitals and is used by management and certain investors as a general measure of inpatient volume.

(b)		Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. Prior year amounts have been reclassified to conform to the 2005 presentation.

(c)		Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Operating Results Summary (continued)

Supplemental Non-GAAP Disclosures

Operating Measures Adjusted for the Impact of Discounts for the Uninsured

(Dollars in millions, except revenue per equivalent admission)

The results of operations for the quarter and six months ended June 30, 2005, adjusted for the impact of HCA’s revised uninsured discount policy, are presented below:


	Quarter Ended June 30, 2005

															Non-GAAP %
	Reported			Uninsured		Non-GAAP			GAAP % of						of Adjusted
	GAAP			Discounts		Adjusted			Revenues						Revenues
	Amounts			Adjustment (a)		Amounts (b)
									2005			2004			2005

Revenues	$	6,070		$	184	$	6,254			100.0	%		100.0	%		100.0	%
Salaries and benefits		2,463			—		2,463			40.6			40.0			39.4
Supplies		1,042			—		1,042			17.2			16.6			16.7
Other operating expenses		981			—		981			16.2			15.3			15.5
Provision for doubtful accounts		541			184		725			8.9			11.3			11.6
Admissions		407,600					407,600
Equivalent admissions		619,700					619,700
Revenue per equivalent admission	$	9,795				$	10,092
% change from prior year		2.6	%				5.7	%
Same Facility(c):
Revenues	$	6,010		$	183	$	6,193
Admissions		406,300					406,300
Equivalent admissions		613,900					613,900
Revenue per equivalent admission	$	9,790				$	10,087
% change from prior year		3.1	%				6.2	%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Operating Results Summary (continued)


	Six Months Ended June 30, 2005

															Non-GAAP %
	Reported			Uninsured		Non-GAAP			GAAP % of						of Adjusted
	GAAP			Discounts		Adjusted			Revenues						Revenues
	Amounts			Adjustment (a)		Amounts (b)
									2005			2004			2005

Revenues	$	12,252		$	293	$	12,545			100.0	%		100.0	%		100.0	%
Salaries and benefits		4,906			—		4,906			40.0			39.7			39.1
Supplies		2,093			—		2,093			17.1			16.5			16.7
Other operating expenses		1,953			—		1,953			15.9			15.6			15.5
Provision for doubtful accounts		1,115			293		1,408			9.1			11.5			11.2
Admissions		840,200					840,200
Equivalent admissions		1,256,100					1,256,100
Revenue per equivalent admission	$	9,754				$	9,987
% change from prior year		2.4	%				4.9	%
Same Facility(c):
Revenues	$	12,143		$	291	$	12,434
Admissions		837,500					837,500
Equivalent admissions		1,248,800					1,248,800
Revenue per equivalent admission	$	9,724				$	9,957
% change from prior year		2.7	%				5.2	%


(a)		Represents the impact of the discounts for the uninsured for the period. On January 1, 2005, HCA modified its policies to provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans. In implementing the discount policy, HCA first attempts to qualify uninsured patients 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.

(b)		Revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission have been adjusted to exclude the discounts under HCA’s uninsured discount policy (non-GAAP financial measures). The Company believes that these non-GAAP financial measures are useful to investors to provide disclosures of its results of operations on the same basis as that used by management. Management uses this information to compare revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission for periods prior and subsequent to the January 1, 2005 implementation of the uninsured discount policy. Management finds this information to be useful to enable the evaluation of revenue and certain expense category trends that are influenced by patient volumes and are generally analyzed as a percentage of net revenues. These non-GAAP financial measures should not be considered an alternative to GAAP financial measures. The Company believes this supplemental information provides it and the users of its financial statements with useful information for period-to-period comparisons. Investors are encouraged to use GAAP measures when evaluating the Company’s overall financial performance.

(c)		Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Quarters Ended June 30, 2005 and 2004

Net income totaled $405 million, or $0.90 per diluted share, in the second quarter of 2005 compared to $352 million, or $0.72 per diluted share, in the second quarter of 2004. HCA’s shares used for diluted earnings per share for the quarter ended June 30, 2005 were 451.7 million shares, compared to 490.3 million shares for the quarter ended June 30, 2004. The lower share amount is due to the Company’s completion of a tender offer during the fourth quarter of 2004 in which 62.9 million shares of the Company’s common stock were repurchased.

For the second quarter of 2005, admissions decreased 0.7% and same facility admissions decreased 0.3% compared to the second quarter of 2004. Outpatient surgical volumes increased 1.5% on a consolidated basis and 1.2% on a same facility basis compared to the second quarter of 2004.

HCA’s revised uninsured discount policy, which became effective January 1, 2005, resulted in $184 million in discounts to the uninsured being recorded during the second quarter of 2005. The discounts to the uninsured had the effect of reducing revenues and the provision for doubtful accounts by generally corresponding amounts. The reduction of revenues caused expense items, other than the provision for doubtful accounts, to increase, as a percentage of revenues, compared to what they would have been if the uninsured discount policy had not been implemented.

Salaries and benefits, as a percentage of revenues, were 40.6% in the second quarter of 2005 and 40.0% in the same quarter of 2004. Adjusting for the effect of the uninsured discount policy, salaries and benefits, as a percentage of revenues, were 39.4% in the second quarter of 2005.

Supplies increased, as a percentage of revenues, from 16.6% in the second quarter of 2004 to 17.2% in the second quarter of 2005. Adjusting for the effect of the uninsured discount policy, supplies were 16.7% of revenues in the second quarter of 2005. Supply costs continue to increase in the cardiac, orthopedic and pharmaceutical areas.

Other operating expenses, as a percentage of revenues, increased to 16.2% in the second quarter of 2005 compared to 15.3% in the second quarter of 2004. Adjusting for the effect of the uninsured discount policy, other operating expenses were 15.5% of revenues in the second quarter of 2005. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. These expenses tend to decrease, as a percentage of revenues, when the Company experiences revenue increases, because the majority of these expenses are fixed in nature. Other operating expenses include a reduction in estimated professional liability insurance reserves of $36 million pretax during the second quarter of 2005. Results for the second quarter of 2004 included a reduction in estimated professional liability reserves of $59 million pretax.

Provision for doubtful accounts, as a percentage of revenues, decreased to 8.9% in the second quarter of 2005 from 11.3% in the second quarter of 2004. Adjusting for the effect of the uninsured discount policy, the provision for doubtful accounts was 11.6% of revenues in the second quarter of 2005. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to uninsured amounts due directly from patients. At June 30, 2005, the Company’s allowance for doubtful accounts represented approximately 77% of the $3.761 billion total patient due accounts receivable balance.

Gains on investments of $22 million in the second quarter of 2005 and $18 million in the second quarter of 2004 consist primarily of net gains on investment securities held by HCA’s wholly-owned insurance subsidiary.

Depreciation and amortization increased by $49 million from the second quarter of 2004 to the second quarter of 2005. The increase is primarily the result of additional depreciation expense of approximately

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Quarters Ended June 30, 2005 and 2004 (continued)

$30 million to correct accumulated depreciation of certain facilities and assure a consistent application of the Company’s accounting policy relative to certain short-lived medical equipment.

Interest expense increased from $136 million in the second quarter of 2004 to $165 million in the second quarter of 2005. The increase was due to both higher interest rates and higher levels of debt in the second quarter of 2005 compared to the second quarter of 2004. HCA’s average debt balance was $9.726 billion for second quarter of 2005 compared to $8.632 billion for the second quarter of 2004. The increase in the average debt balance was primarily due to borrowings related to the Company’s completion of a tender offer during the fourth quarter of 2004 in which 62.9 million shares of the Company’s stock were repurchased.

The effective tax rate was 28.9% in the second quarter of 2005 and 37.8% in the second quarter of 2004. The Company’s effective tax rate for the second quarter of 2005 was reduced due to a favorable tax settlement of $48 million related to the Company’s divesture of certain noncore business units. Excluding the effect of the $48 million tax benefit, the Company’s effective tax rate for the second quarter of 2005 would have been 37.3%.


	Six Months Ended June 30, 2005 and 2004

Net income totaled $819 million, or $1.84 per diluted share, in the six months ended June 30, 2005 compared to $697 million, or $1.41 per diluted share, in the six months ended June 30, 2004. HCA’s shares used for diluted earnings per share for the six months ended June 30, 2005 were 443.7 million shares, compared to 493.9 million shares for the six months ended June 30, 2004. The lower shares amount is due to the Company’s completion of a tender offer during the fourth quarter of 2004 in which 62.9 million shares of the Company’s common stock were repurchased.

For the first six months of 2005, admissions decreased 0.1% and same facility admissions increased 0.3% compared to the first six months of 2004. Outpatient surgical volumes increased 1.6% on a consolidated basis and 1.4% on a same facility basis compared to the first six months of 2004.

HCA’s revised uninsured discount policy, which became effective January 1, 2005, resulted in $293 million in discounts to the uninsured being recorded during the first six months of 2005. The discounts to the uninsured had the effect of reducing revenues and the provision for doubtful accounts by generally corresponding amounts. The reduction of revenues caused expense items, other than the provision for doubtful accounts, to increase, as a percentage of revenues, compared to what they would have been if the uninsured discount policy had not been implemented.

Salaries and benefits, as a percentage of revenues, were 40.0% in the first six months of 2005 and 39.7% in the same six months of 2004. Adjusting for the effect of the uninsured discount policy, salaries and benefits were 39.1% of revenues in the first six months of 2005.

Supplies increased, as a percentage of revenues, from 16.5% in the first six months of 2004 to 17.1% in the first six months of 2005. Adjusting for the effect of the uninsured discount policy, supplies were 16.7% of revenues in the first six months of 2005. Supply costs continue to increase in the cardiac, orthopedic and pharmaceutical areas.

Other operating expenses, as a percentage of revenues, increased to 15.9% in the first six months of 2005 compared to 15.6% in the first six months of 2004. Adjusting for the effect of the uninsured discount policy, other operating expenses were 15.5% of revenues in the first six months of 2005. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. These expenses tend to decrease, as a percentage of revenues, when the Company experiences revenue increases, because the majority of these

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Results of Operations (continued)


	Six Months Ended June 30, 2005 and 2004 (continued)

expenses are fixed in nature. Other operating expenses include a reduction in estimated professional liability insurance reserves of $36 million pretax during the first six months of 2005. Results for the first six months of 2004 included a reduction in estimated professional liability reserves of $59 million pretax.

Provision for doubtful accounts, as a percentage of revenues, decreased to 9.1% in the first six months of 2005 from 11.5% in the first six months of 2004. Adjusting for the effect of the uninsured discount policy, the provision for doubtful accounts was 11.2% of revenues in the first six months of 2005. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to uninsured amounts due directly from patients. At June 30, 2005, the Company’s allowance for doubtful accounts represented approximately 77% of the $3.761 billion total patient due accounts receivable balance.

Gains on investments of $31 million in the first six months of 2005 and $28 million in the first six months of 2004 consist primarily of net gains on investment securities held by HCA’s wholly-owned insurance subsidiary.

Equity in earnings of affiliates increased from $99 million in the first six months of 2004 to $106 million in the first six months of 2005 due to an increase in profits at joint ventures accounted for under the equity method of accounting.

Depreciation and amortization increased by $83 million from the first six months of 2004 to the first six months of 2005. A portion of the increase is the result of additional depreciation expense of approximately $44 million to correct accumulated depreciation at certain facilities and assure a consistent application of the Company’s accounting policy relative to certain short-lived medical equipment.

Interest expense increased from $271 million in the first six months of 2004 to $329 million in the first six months of 2005. The increase was due to both higher interest rates and higher levels of debt in the first six months of 2005 compared to the first six months of 2004. HCA’s average debt balance was $10.004 billion for first six months of 2005 compared to $8.704 billion for the first six months of 2004. The increase in the average debt balance was primarily due to borrowings related to the Company’s completion of a tender offer during the fourth quarter of 2004 in which 62.9 million shares of the Company’s stock were repurchased.

The effective tax rate was 33.6% in the first six months of 2005 and 38.0% in the first six months of 2004. The Company’s effective tax rate was reduced due to a favorable tax settlement of $48 million related to the Company’s divesture of certain noncore business units. Excluding the effect of the $48 million tax benefit, the Company’s effective tax rate for the first six months of 2005 would have been 37.4%.

Liquidity and Capital Resources

Cash flows provided by operating activities totaled $1.586 billion for the first six months of 2005 compared to $1.454 billion for the first six months of 2004. Cash flows provided by operating activities include income tax benefits related to the exercise of employee stock options which increased from $35 million for the first six months of 2004 to $155 million for the fist six months of 2005. Working capital totaled $1.866 billion at June 30, 2005 and $1.509 billion at December 31, 2004.

Cash flows used in investing activities were $758 million for the first six months of 2005 compared to $859 million for the first six months of 2004. Excluding acquisitions, capital expenditures were $625 million for the first six months of 2005 and $787 million for the first six months of 2004. Annual planned capital expenditures, including outpatient acquisitions, in 2005 and 2006 are expected to approximate $1.6 billion and $1.8 billion, respectively. At June 30, 2005, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $2.3 billion. HCA expects to finance capital expenditures with internally generated and borrowed funds. Definitive agreements have been

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Liquidity and Capital Resources (continued)

signed under which the Company will sell ten hospitals and related working capital and receive cash proceeds of approximately $590 million. The sales are expected to be completed during the fourth quarter of 2005.

Cash flows used in financing activities totaled $494 million for the first six months of 2005 compared to $590 million for the first six months of 2004. During the first six months of 2005, HCA repaid $1.180 billion of long-term debt and borrowings under its Credit Facility. HCA received cash inflows of $922 million related primarily to the exercise of employee stock options during the first six months of 2005.

In addition to cash flows from operations, available sources of capital include amounts available under the Credit Facility ($1.693 billion available as of June 30, 2005) and anticipated access to public and private debt markets. Management believes that its available sources of capital are adequate to expand, improve and equip its existing health care facilities and to complete selective acquisitions.

Investments of HCA’s professional liability insurance subsidiary are held to maintain statutory equity and provide the funding source to pay claims, and totaled $2.272 billion and $2.322 billion at June 30, 2005 and December 31, 2004, respectively. Claims payments, net of reinsurance recoveries, during the next twelve months are expected to approximate $275 million. The estimation of the timing of claims payments beyond a year can vary significantly. HCA’s wholly-owned insurance subsidiary has entered into certain reinsurance contracts, and the obligations covered by the reinsurance contracts remain on the balance sheet as the subsidiary remains liable to the extent that the reinsurers do not meet their obligations under the reinsurance contracts. To minimize its exposure to losses from reinsurer insolvencies, HCA routinely monitors the financial condition of its reinsurers. The amounts receivable related to the reinsurance contracts of $50 million and $79 million at June 30, 2005 and December 31, 2004, respectively, are included in other assets.


	Financing Activities

HCA’s $2.5 billion credit agreement (the “2004 Credit Agreement”) consists of a $750 million amortizing term loan which matures in November 2009 (the “2004 Term Loan”) and a $1.750 billion revolving credit facility that expires in November 2009 (the “Credit Facility”). Interest under the 2004 Credit Agreement is payable at a spread to LIBOR, a spread to the prime lending rate or a competitive bid rate. The spread is dependent on HCA’s credit ratings. The 2004 Credit Agreement contains customary covenants which include (i) limitations on debt levels, (ii) limitations on sales of assets, mergers and changes of ownership, and (iii) maintenance of minimum interest coverage ratios. As of June 30, 2005, HCA was in compliance with all such covenants.

In March 2004, HCA issued $500 million of 5.75% notes due March 15, 2014. The proceeds from the issuance were used to repay a portion of the amounts outstanding under the Credit Facility.

In December 2004, HCA filed a shelf registration statement and prospectus with the Securities and Exchange Commission that allows the Company to issue, from time to time, up to $1.5 billion in debt securities. As of June 30, 2005, HCA has not issued any debt securities under this registration statement.

Management believes that cash flows from operations, amounts available under the Credit Facility and HCA’s anticipated access to public and private debt markets are sufficient to meet expected liquidity needs during the next twelve months.


	Share Repurchase Activities

The Company did not repurchase any of its common stock during the first six months of 2005. During the first six months of 2004, HCA purchased 14.3 million shares of its common stock for $592 million through open market purchases.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Liquidity and Capital Resources (continued)


	Systems Development Projects

HCA is in the process of implementing projects to replace its payroll and human resources information systems. Management estimates that the payroll and human resources system projects will require total expenditures of approximately $332 million to develop and install. At June 30, 2005, project-to-date costs incurred were $261 million ($155 million of the costs incurred have been capitalized and $106 million have been expensed). Management expects that the system development, testing, data conversion and installation activities will continue through 2006. There can be no assurance that the development and implementation of these systems will not be delayed, that the total cost will not be significantly more than currently anticipated, that business processes will not be interrupted during implementation or that HCA will realize the expected benefits and efficiencies from the developed products.


	Market Risk

HCA is exposed to market risk related to changes in market values of securities. The investments in debt and equity securities of HCA’s wholly-owned insurance subsidiary were $1.453 billion and $819 million, respectively, at June 30, 2005. These investments are carried at fair value with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. The fair value of investments is generally based on quoted market prices. If the insurance subsidiary were to experience significant declines in the fair value of its investments, this could require additional investment by the Company to allow the insurance subsidiary to satisfy its minimum capital requirements.

HCA evaluates, 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 “other-than-temporary.” The length of time and extent to which the fair value of the investment is less than amortized cost and HCA’s ability and intent to retain the investment to allow for any anticipated recovery in the investment’s fair value are important components of management’s investment securities evaluation process. At June 30, 2005, HCA had a net unrealized gain of $174 million on the insurance subsidiary’s investment securities.

HCA is also exposed to market risk related to changes in interest rates, and HCA periodically enters into interest rate swap agreements to manage its exposure to these fluctuations. HCA’s interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates. The notional amounts and interest payments in these agreements match the cash flows of the related liabilities. The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not assets or liabilities of HCA. Any market risk or opportunity associated with these swap agreements is offset by the opposite market impact on the related debt. HCA’s credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions. The interest payments under these agreements are settled on a net basis. These derivatives and the related hedged debt amounts have been recognized in the financial statements at their respective fair values.

With respect to HCA’s interest-bearing liabilities, approximately $2.100 billion of long-term debt at June 30, 2005 is subject to variable rates of interest, while the remaining balance in long-term debt of $7.260 billion at June 30, 2005 is subject to fixed rates of interest. Both the general level of U.S. interest rates and, for the 2004 Credit Agreement, the Company’s credit rating affect HCA’s variable interest rates. HCA’s variable rate debt is comprised of the Credit Facility, on which interest is payable generally at LIBOR plus 0.4% to 1.0% (depending on HCA’s credit ratings); the 2004 Term Loan, on which interest is payable generally at LIBOR plus 0.5% to 1.25%, and fixed rate notes on which interest rate swaps have been employed, on which interest is payable at LIBOR plus 1.39% to 2.39%. Due to increases in LIBOR, the average rate for

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Liquidity and Capital Resources (continued)


	Market Risk (continued)

the Credit Facility increased from 1.85% for the quarter ended June 30, 2004 to 3.66% for the quarter ended June 30, 2005, and the average rate for the Company’s 2004 Term Loans increased from 2.18% for the quarter ended June 30, 2004 to 4.16% for the quarter ended June 30, 2005. The estimated fair value of HCA’s total long-term debt was $9.818 billion at June 30, 2005. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $21 million. The impact of such a change in interest rates on the fair value of long-term debt would not be significant. The estimated changes to interest expense and the fair value of long-term debt are determined considering the impact of hypothetical interest rates on HCA’s borrowing cost and long-term debt balances. To mitigate the impact of fluctuations in interest rates, HCA generally targets a portion of its debt portfolio to be maintained at fixed rates.

Foreign operations and the related market risks associated with foreign currency are currently insignificant to HCA’s results of operations and financial position.

Pending IRS Disputes

During 2003, the United States Court of Appeals for the Sixth Circuit affirmed a 1996 Tax Court decision related to the IRS examination of Hospital Corporation of America’s 1987 and 1988 federal income tax returns, in which the IRS contested the method that Hospital Corporation of America used to calculate its tax allowance for doubtful accounts. HCA filed a petition for review by the United States Supreme Court, which was denied in October 2004. Due to the volume and complexity of calculating the tax allowance for doubtful accounts, the IRS has not determined the amount of additional tax and interest that it may claim for subsequent taxable years. HCA made a deposit of $109 million during 2004 for additional tax and interest, based on its estimate of additional tax and interest due for taxable periods through 2000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Operating Data


			2005		2004

CONSOLIDATING
Number of hospitals in operation at:
	March 31			183		184
	June 30			183		183
	September 30					183
	December 31					182
Number of freestanding outpatient surgical centers in operation at:
	March 31			84		79
	June 30			84		82
	September 30					81
	December 31					84
Licensed hospital beds at(a):
	March 31			41,892		41,931
	June 30			42,013		41,930
	September 30					42,044
	December 31					41,852
Weighted average licensed beds(b):
	Quarter:
		First		41,856		41,934
		Second		41,948		41,962
		Third				42,030
		Fourth				42,060
	Year					41,997
Average daily census(c):
	Quarter:
		First		23,991		23,885
		Second		22,078		22,345
		Third				21,900
		Fourth				21,854
	Year					22,493
Admissions(d):
	Quarter:
		First		432,600		430,300
		Second		407,600		410,500
		Third				410,800
		Fourth				407,600
	Year					1,659,200

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Operating Data (continued)


			2005		2004

Equivalent admissions(e):
	Quarter:
		First		636,400		625,200
		Second		619,700		610,800
		Third				611,400
		Fourth				606,600
	Year					2,454,000
Average length of stay (days)(f):
	Quarter:
		First		5.0		5.1
		Second		4.9		5.0
		Third				4.9
		Fourth				4.9
	Year					5.0
Emergency room visits(g):
	Quarter:
		First		1,391,800		1,296,900
		Second		1,345,600		1,309,600
		Third				1,320,900
		Fourth				1,292,100
	Year					5,219,500
Outpatient surgeries(h):
	Quarter:
		First		211,000		207,500
		Second		216,200		213,000
		Third				207,800
		Fourth				206,500
	Year					834,800
Inpatient surgeries(i):
	Quarter:
		First		135,500		135,400
		Second		136,400		135,500
		Third				136,400
		Fourth				133,700
	Year					541,000

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Operating Data (continued)


			2005			2004

Days in accounts receivable(j):
	Quarter:
		First		47			50
		Second		48			49
		Third					47
		Fourth					48
	Year						48
Gross patient revenues(k) (dollars in millions):
	Quarter:
		First	$	19,988		$	18,026
		Second		19,453			17,534
		Third					17,524
		Fourth					18,195
	Year						71,279
Outpatient revenues as a % of patient revenues(l)
	Quarter:
		First		36	%		36	%
		Second		38	%		37	%
		Third					37	%
		Fourth					37	%
	Year						37	%
NONCONSOLIDATING(m)
Number of hospitals in operation at:
		March 31		7			7
		June 30		7			7
		September 30					7
		December 31					7
Number of freestanding outpatient surgical centers in operation at:
		March 31		8			4
		June 30		8			9
		September 30					10
		December 31					8
Licensed hospital beds at:
		March 31		2,231			2,199
		June 30		2,231			2,199
		September 30					2,199
		December 31					2,225

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Operating Data (continued)

BALANCE SHEET DATA


			% of Accounts Receivable

			Under 91 Days			91 - 180 Days			Over 180 Days

Accounts Receivable Aging at June 30, 2005:
	Medicare and Medicaid			13	%		2	%		2	%
	Managed care and other discounted			16			3			3
	Uninsured			24			11			26

		Total		53	%		16	%		31	%


(a)		Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.
(b)		Weighted average licensed beds represents the average number of licensed beds, weighted based on periods owned.
(c)		Represents the average number of patients in the Company’s hospital beds each day.
(d)		Represents the total number of patients admitted to the Company’s hospitals and is used by management and certain investors as a general measure of inpatient volume.
(e)		Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. Prior year amounts have been reclassified to conform to the 2005 presentation.
(f)		Represents the average number of days admitted patients stay in the Company’s hospitals.
(g)		Represents the number of patients treated in the Company’s emergency rooms.
(h)		Represents the number of surgeries performed on patients who were not admitted to the Company’s hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.
(i)		Represents the number of surgeries performed on patients who have been admitted to the Company’s hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.
(j)		Days in accounts receivable are calculated by dividing the revenues for the period by the days in the period (revenues per day). Accounts receivable, net of allowance for doubtful accounts, at the end of the period is then divided by the revenues per day.
(k)		Gross patient revenues are based upon the Company’s standard charge listing. Gross charges/revenues typically do not reflect what our hospital facilities are paid. Gross charges/revenues are reduced by contractual adjustments, discounts and charity care to determine reported revenues.
(l)		Represents the percentage of patient revenues related to patients who are not admitted to HCA’s hospitals. Prior year amounts have been reclassified to conform to the 2005 presentation.
(m)		The nonconsolidating facilities include facilities operated through 50/50 joint ventures which are not controlled by the Company and are accounted for using the equity method of accounting.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption “Market Risk” under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

HCA’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of HCA’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on that evaluation, the chief executive officer and chief financial officer have concluded that HCA’s disclosure controls and procedures effectively and timely provide them with material information relating to HCA and its consolidated subsidiaries required to be disclosed in the reports HCA files or submits under the Exchange Act.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Part II: Other Information

Item 1: Legal Proceedings

General Liability

Government Investigation, Claims and Litigation

Commencing in 1997, HCA became aware it was the subject of governmental investigations and litigation relating to its business practices. The investigations were concluded through a series of agreements executed in 2000 and 2003. In January 2001, HCA entered into an eight-year Corporate Integrity Agreement (“CIA”) with the Office of Inspector General of the Department of Health and Human Services. Violation or breach of the CIA, or other violation of federal or state laws relating to Medicare, Medicaid or similar programs, could subject the Company to substantial monetary fines, civil and criminal penalties and/or exclusion from participation in the Medicare and Medicaid programs. Alleged violations may be pursued by the government or through private qui tam actions. Sanctions imposed against the Company as a result of such actions could have a material, adverse effect on the Company’s results of operations and financial position.

Tax Related Proceedings

The Company is a party to certain proceedings relating to claims for income taxes and related interest in the United States Tax Court and the United States Court of Federal Claims. For a description of those proceedings, see Note 2 — Income Taxes in the notes to unaudited condensed consolidated financial statements.

Item 4: Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of stockholders was held on May 26, 2005. The following matters were voted upon at the meeting:


		Votes in Favor		Votes Withheld

1.	Election of Directors
	C. Michael Armstrong		358,318,779		6,649,169
	Magdalena H. Averhoff, M.D.		356,821,705		8,146,243
	Jack O. Bovender, Jr.		356,563,962		8,403,986
	Richard M. Bracken		356,770,730		8,197,218
	Martin Feldstein		357,949,932		7,018,016
	Thomas F. Frist, Jr., M.D.		345,916,789		19,051,159
	Frederick W. Gluck		357,927,571		7,040,377
	Glenda A. Hatchett		358,302,089		6,665,859
	Charles O. Holliday, Jr.		358,378,077		6,589,871
	T. Michael Long		356,817,714		8,150,234
	John H. McArthur		357,840,066		7,127,882
	Kent C. Nelson		357,963,691		7,004,257
	Frank S. Royal, M.D.		349,610,191		15,357,757
	Harold T. Shapiro		357,878,829		7,089,119


		Votes in Favor		Votes Against		Abstentions		Broker Non-Votes

2.	Ratification of the Appointment Of Ernst & Young LLP as HCA’s Independent Auditor		355,341,374		7,547,250		2,079,324		—
3.	Approval of the HCA 2005 Equity Incentive Plan		220,308,108		110,933,569		3,024,297		30,701,974


Item 6:	*Exhibits*

(a) List of Exhibits:


	Exhibit 12 — Statement re: Computation of Ratio of Earnings to Fixed Charges.

	Exhibit 31.1 — Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 31.2 — Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Exhibit 32 — Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HCA INC.


	By:	/s/ R. Milton Johnson



	R. Milton Johnson
	Executive Vice President and
	Chief Financial Officer

Date: August 4, 2005

EXHIBIT INDEX


12		Statement re: Computation of Ratio of Earnings to Fixed Charges
31	.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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