FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended November 30, 1993
Commission file number 001-10915
Healthtrust, Inc. - The Hospital Company
(Exact name of registrant as specified in its charter)
Delaware 62-1234332
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4525 Harding Road
Nashville, Tennessee 37205
(Address of principal executive (Zip Code)
offices)
(615) 383-4444
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 periods that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practical date.
Common Stock, $.001 Par Value - 81,167,288 shares as
of December 31, 1993.
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INDEX
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
November 30, 1993 and August 31, 1993 3
Condensed consolidated statements of
operations--three months ended November 30,
1993 and 1992 4
Condensed consolidated statements of
cash flows--three months ended November 30,
1993 and 1992 5
Notes to condensed consolidated
financial statements 6
Item 2. Management's Discussion and Analysis of 7-11
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
------------------------------
November 30, August 31,
1993 1993
------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 167,416 $ 151,346
Accounts receivable, less allowances for
doubtful accounts of $119,728 and $107,758 381,249 346,491
Supplies 53,245 51,740
Other current assets 26,588 121,345
TOTAL CURRENT ASSETS 628,498 670,922
PROPERTY, PLANT AND EQUIPMENT 2,198,363 2,168,365
Less accumulated depreciation 629,550 600,853
1,568,813 1,567,512
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED 177,797 178,549
OTHER ASSETS 113,899 119,730
TOTAL ASSETS $ 2,489,007 $ 2,536,713
CURRENT LIABILITIES
Accounts payable $ 79,254 $ 109,545
Other current liabilities 243,690 342,274
TOTAL CURRENT LIABILITIES 322,944 451,819
LONG-TERM DEBT 948,308 948,604
DEFERRED INCOME TAXES 160,064 133,385
DEFERRED PROFESSIONAL LIABILITY RISKS 145,244 140,124
OTHER LIABILITIES 216,641 207,124
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value;
400,000,000 shares authorized,
81,130,136 and 81,065,074 shares
issued and outstanding 81 81
Paid-in capital 827,357 826,350
Deferred compensation (872) (1,162)
Retained deficit (130,760) (169,612)
STOCKHOLDERS' EQUITY 695,806 655,657
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,489,007 $ 2,536,713
See accompanying notes.
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HEALTHTRUST, INC. - THE HOSPITAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share data)
--------------------------------
Three Months Ended November 30
1993 1992
--------------------------------
Net operating revenue $ 622,095 $ 591,779
Costs and expenses:
Hospital service costs:
Salaries and benefits 232,263 219,575
Supplies 87,990 86,311
Fees 64,716 65,984
Other expenses 65,740 58,655
Bad debt expense 43,590 33,451
494,299 463,976
Depreciation and amortization 34,620 33,113
Interest 21,555 25,556
Pension expense 9,928 11,584
Deferred compensation expense 290 870
Other income (net) (5,450) (3,156)
555,242 531,943
INCOME BEFORE MINORITY INTERESTS
AND INCOME TAXES 66,853 59,836
Minority interests 1,442 3,364
INCOME BEFORE INCOME TAXES 65,411 56,472
Income tax provision 26,559 23,150
NET INCOME $ 38,852 $ 33,322
Net income per share $ 0.46 $ 0.40
Shares used in computation of net
income per share 84,426,187 83,132,994
See accompanying notes.
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HEALTHTRUST, INC. - THE HOSPITAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
------------------------------
Three Months Ended November 30
1993 1992
------------------------------
OPERATING ACTIVITIES
Net income $ 38,852 $ 33,322
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 32,462 31,265
Amortization 2,158 1,848
Non-cash insurance expense 5,120 3,211
Pension expense 9,928 11,584
Deferred compensation expense 290 870
Non-cash interest expense 541 335
Deferred tax expense 26,559 23,150
Increase in accounts and agency payables (21,212) (21,320)
Decrease in accounts payable and accrued
liabilities (73,803) (18,124)
Other (2,401) (3,526)
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,494 62,615
INVESTING ACTIVITIES
Purchases of property, plant and equipment (34,318) (38,986)
Proceeds from sales of property, plant and
equipment 96,208 1,016
Other (321) (624)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 61,569 (38,594)
FINANCING ACTIVITIES
Principal payments on long-term debt (65,000) (328,750)
Proceeds from long-term borrowings 300,000
Payment of debt issuance costs (4,419)
Other 1,007 (330)
NET CASH USED IN FINANCING ACTIVITIES (63,993) (33,499)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,070 (9,478)
Cash and cash equivalents at beginning of period 151,346 172,600
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 167,416 $ 163,122
Cash paid during the year for:
Interest $ 41,232 $ 30,463
Income taxes 26,544 3,705
See accompanying notes.
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HEALTHTRUST, INC. - THE HOSPITAL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. All significant intercompany transactions have
been eliminated in consolidation. Operating results for the
three months ended November 30, 1993 are not necessarily
indicative of the results that may be expected for the fiscal
year ending August 31, 1994. For further information, refer
to the consolidated financial statements and footnotes
thereto for the year ended August 31, 1993 (included in the
Company's Annual Report on Form 10-K).
Income Per Share
Income per share has been computed by dividing the net
income for each period by the weighted average number of
shares and share equivalents outstanding during the
applicable period, adjusted for stock splits.
Fully diluted per share data is not presented since the
effect would dilute earnings per share by less than three
percent (3%).
Subsequent Event - Acquisition of EPIC Holdings
A definitive agreement has been approved by the boards
of directors of both Healthtrust and EPIC, under which the
shareholders of EPIC will receive $7.00 for each share of
EPIC common stock (approximately $277 million in the
aggregate) and Healthtrust will assume or refinance
approximately $727 million of EPIC indebtedness.
EPIC owns and operates 34 hospitals in 10 states and
reported net operating revenue of $1,019.1 million and a net
loss of $47.1 million for the fiscal year ended September
30, 1993. The transaction is expected to be completed by May
1994 and will be recorded using the purchase method of
accounting.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SELECTED OPERATING STATISTICS
(dollars in millions)
Same Hospitals Operating Data (1):
Three Months Ended November 30
------------------------------------
% Increase
1993 1992 (Decrease)
------------------------------------
Number of Hospitals 77 77
Gross Revenue:
Inpatient $626.4 $591.2 6.0%
Outpatient $313.0 $268.6 16.5%
Net Operating Revenue $587.9 $552.0 6.5%
Hospital Service Costs $460.7 $427.2 7.8%
Patient Days 345,106 360,879 -4.4%
Adjusted Patient Days 517,576 524,863 -1.4%
Admissions 67,177 66,333 1.3%
Adjusted Admissions 100,749 96,475 4.4%
Average Length of Stay (days) 5.14 5.44
Occupancy Rate 38.9% 40.5%
Operating Margin 21.6% 22.6%
(1) The results of operations applicable to hospital acquisitions
and dispositions have been excluded.
General
The Company continues to experience gross and net
operating revenue increases and the Company's results of
operations continue to be affected by the trend toward
certain services being performed more frequently on an
outpatient basis. While admissions increased 1.3%, patient
days declined 4.4% due to a reduction in the average length
of stay from 5.44 days to 5.14 days. The Company has been
able to achieve increases in net operating revenue due to the
higher utilization of outpatient and ancillary services,
general price increases and an increased severity of illness
for the patients admitted. Although the Company's net
operating revenue has grown in each period, the impact of
price increases and increases in patient acuity have been
partially offset by the increasing proportion of revenue
derived from fixed payment sources, including Medicare and
Medicaid (approximately 43% and 40%, for the quarters ended
November 30, 1993 and 1992, respectively, of the Company's
net operating revenue was related to Medicare and Medicaid
patients).
The growth in outpatient services is expected to
continue as procedures currently being performed on an
inpatient basis become available on an outpatient basis
through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an
outpatient basis has also been influenced by pressures from
payors to direct certain procedures from inpatient care to
outpatient care. While the Company expects the growth in
outpatient services to continue, the rate of increase is
expected to decline.
The Company expects Medicare and Medicaid revenue to
continue to increase due to the general aging of the
population and the expansion of state Medicaid programs. The
Medicare program reimburses the Company's hospitals primarily
based on established rates that are dependant on each
patient's diagnosis, regardless of the provider's cost to
treat the patient or the length of time the patient stays in
the hospital. The Medicare program's established rates are
indexed for inflation annually, but these increases have
historically been less than both the actual inflation rate
and the Company's increases to its standard charges.
Insurance companies, government programs (other than
Medicare) and employers purchasing health care services for
their employees are negotiating the amounts they will pay
health care providers, rather than paying the providers
standard prices. This leads to these purchasers of health
care services becoming managed care payors, similar to HMO's
and PPO's, in virtually all markets and making it
increasingly difficult for providers to maintain their
historical net revenue growth trends.
The Congress is currently reviewing various proposals
for comprehensive health care reform. The reform proposals
contain coverage guarantees, benefits standards and cost
control mechanisms. The Company cannot predict what reforms
the Congress will adopt, when such reforms will be
implemented or the resulting implications for providers, at
this time. However, the Company believes that the delivery
of primary care, emergency care, obstetrical services and
rehabilitative services, on a local basis, to rural and
suburban markets will be an integral component of any
strategy for controlling health care costs and the Company
believes it is well positioned to provide these services.
Three Months Ended November 30, 1993 and 1992
Net operating revenue for the Company's hospitals for
the quarter ended November 30, 1993, increased 5.1% to $622.1
million, while same hospitals net operating revenue increased
6.5%. Gross revenue during the quarter ended November 30,
1993, increased 7.3% due to a 14.8% increase in gross
outpatient revenue and a 3.9% increase in gross inpatient
revenue. On a same hospitals basis, gross revenue increased
9.3% compared to the prior year, due to a 16.5% increase in
gross outpatient revenue and a 6.0% increase in gross
inpatient revenue. In each case, gross revenue grew faster
than net operating revenue, primarily because the patient mix
became more heavily weighted to Medicare, Medicaid and
specialty unit patients (for which reimbursement rate
increases have been less than implemented price increases)
and increased utilization by managed care programs.
Costs of hospital services (salaries and benefits, fees,
supplies, bad debt expense and other expenses) for the
quarter ended November 30, 1993 increased 6.5%. The 5.1%
increase in net operating revenue and 6.5% increase in the
costs of hospital services resulted in the operating margin
declining from 21.6% for the quarter ended November 30, 1992
to 20.5% for the quarter ended November 30, 1993. Salaries
and benefits, the largest component of hospital services,
increased 5.8%. Supplies expense declined from 14.6% of net
operating revenue for the quarter ended November 30, 1992 to
14.1% of net operating revenue for the quarter ended November
30, 1993, primarily resulting from the Company's efforts to
consolidate vendors and negotiate contracts on a consolidated
basis. Bad debt expense increased from 5.7% to 7.0% of net
operating revenue for the quarters ended November 30, 1992
and 1993, respectively. The increase in bad debt expense
relates to higher than average bad debt expense for the
hospitals the Company acquired during fiscal 1993 and the
implementation of a new patient accounting system in certain
facilities, which diverted time from the routine hospital
business office function of collecting accounts receivable.
Interest expense declined $4.0 million for the quarter
ended November 30, 1993. This decrease was primarily due to
lower interest rates on the Company's variable rate debt and
reductions in the total amount of debt outstanding.
Income before income taxes increased $8.9 million due
primarily to (i) reductions in interest expense ($4.0
million), pension expense ($1.7 million) and minority
interests ($1.9 million) and (ii) an increase in other income
of $2.3 million.
The Company generated $18.5 million of cash flows from
operations during the quarter ended November 30, 1993. This
represented a $44.1 million decrease in cash flows provided
by operations compared to the prior year. The most
significant component of this decrease was a $55.7 million
change in accounts payable and accrued liabilities (accounts
payable were reduced by $30.3 million and accrued interest
was reduced by $18.2 million due to payments made during the
quarter).
Liquidity and Capital Resources
The Company began fiscal 1994 with a strong balance
sheet; cash totaled $151.3 million; total assets were $2.537
billion; stockholders' equity had climbed to $655.7 million;
and debt as a percentage of total capital was reduced to 59%
from 66% the previous year. These improvements were achieved
through 1) strong cash flows provided by operations; 2)
the refinancing of the Company's bank credit agreement under
more favorable terms; and 3) the refinancing of
approximately $270 million of high cost debt securities with
$300 million of lower cost 8 3/4% fixed rate subordinated
debentures.
Cash provided from operations continued to satisfy all
of the Company's working capital, capital expenditure and
debt principal payment requirements.
The Company receives payment for services rendered from
federal and state agencies (under the Medicare, Medicaid and
Champus programs), private insurance carriers, employers,
managed care programs and patients. During the quarter
ended November 30, 1993, approximately 43% of the Company's net
operating revenue related to patients participating in the
Medicare and Medicaid programs. The Company recognizes that
revenue and receivables from government agencies are
significant to the Company's operations, but the Company does
not believe that there are any significant credit risks
associated with these government agencies. The Company does
not believe that there are any other significant
concentrations of revenue from any particular payor that
would subject the Company to any significant credit risks in
the collection of its accounts receivable.
The Company is primarily self-insured for professional
and general liability risks. The unfunded reserve for
professional and general liability risks was $161.1 million
at November 30, 1993. Payments of professional and general
liability claims aggregated $2.9 million for the quarter
ended November 30, 1993. The Company does not believe that
the payment of these self-insured risks will have any
significant impact on the Company's liquidity or working
capital.
At December 31, 1993, the Company had outstanding
delayed term loans of $167.0 million (after a $65.0 million
prepayment during September 1993) and approximately $192
million of credit available under the 1992 Credit Agreement.
During fiscal 1993, the Company acquired five hospital
facilities in Tennessee and Texas for an aggregate purchase
price of $90.1 million. During October 1993, the Company
signed a letter of intent to acquire three hospitals in Utah
from the Holy Cross Health System Corporation and a letter of
intent to acquire Nashville Memorial Hospital in Nashville,
Tennessee. These transactions are not expected to be
completed until the second quarter of fiscal 1994.
During August 1993, the Company sold one hospital
facility in Houston, Texas for approximately $85.1 million.
The proceeds from this sale were received in September 1993.
During 1993, the Company spent $219.5 million (excluding
the five facilities acquired) for capital expenditures,
primarily to renovate and add new equipment and technology to
existing facilities. The Company intends to continue to
invest in its existing facilities and in new facilities
within its existing health care business and capital
expenditures for fiscal 1994 are expected to be approximately
$230 million (capital expenditures for the quarter ended
November 30, 1993 were $34.3 million). The Company may seek
to sell certain of its hospitals from time to time.
Management does not consider the sale of any assets to be
necessary to repay the Company's indebtedness or to provide
working capital. The Company's cash, cash expected to be
generated from operations and available sources of capital
are believed by management to be adequate to finance its
planned future growth.
Management believes that, based upon its analysis of the
Company's financial condition, the cash flow generated from
operations in the future should provide sufficient liquidity
to meet all cash requirements for at least the next year
without substantial additional borrowings. In addition, the
Company believes, based on current internal long-term
projections of future results of operations, that it will be
able to satisfy its current and expected obligations as they
become due without incurring substantial additional
indebtedness, and that satisfaction of such obligations will
not prevent the Company from meeting liquidity requirements
for operations and capital expenditures. However, there can
be no assurance that future developments in the health care
industry or general economic trends will not adversely affect
the Company's operations or its ability to meet such
obligations.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is included herein:
(11) Statement re: Computation of Earnings Per Share
(b) The Company did not file any reports on Form 8-K
during the three months ended November 30, 1993.
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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.
Healthtrust, Inc. - The Hospital Company
(Registrant)
January 10, 1994 /S/ R. Clayton McWhorter
Date R. Clayton McWhorter
Chairman of the Board,
Chief Executive Officer and President
January 10, 1994 /S/ Kenneth C. Donahey
Date Kenneth C. Donahey
Senior Vice President and Controller
Chief Accounting Officer
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HEALTHTRUST, INC. - THE HOSPITAL COMPANY
Exhibit 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended November 30, 1993 and 1992
(Dollars in thousands, except per share data)
-------------------------------
Three Months Ended November 30
1993 1992
-------------------------------
Primary:
Average shares outstanding 81,097,606 81,307,214
Net effect of dilutive warrants 2,610,014 1,808,725
Net effect of dilutive stock options 718,567 17,055
Total weighted average shares 84,426,187 83,132,994
Net income $ 38,852 $ 33,322
Net income per share $ 0.46 $ 0.40
Fully Diluted:
Average shares outstanding 81,097,606 81,307,214
Net effect of dilutive warrants 2,633,083 2,067,761
Net effect of dilutive stock options 764,757 268,097
Total weighted average shares 84,495,446 83,643,072
Net income $ 38,852 $ 33,322
Net income per share $ 0.46 $ 0.40
