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, 1994
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 - 90,895,540 shares as of December
31, 1994.
INDEX
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
November 30, 1994 and August 31, 1994 3
Condensed consolidated statements of
operations--three months ended November 30,
1994 and 1993 4
Condensed consolidated statements of
cash flows--three months ended November 30,
1994 and 1993 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
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
1994 1994
CURRENT ASSETS
Cash and cash equivalents $ 94,783 $ 92,327
Accounts receivable, less allowances for
doubtful accounts of $179,050 and $175,838 595,139 549,554
Supplies 87,021 86,576
Other current assets 113,092 113,752
TOTAL CURRENT ASSETS 890,035 842,209
PROPERTY, PLANT AND EQUIPMENT 3,019,994 2,990,559
Less accumulated depreciation 780,266 736,863
2,239,728 2,253,696
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 743,514 736,189
OTHER ASSETS 134,188 135,188
TOTAL ASSETS $4,007,465 $3,967,282
CURRENT LIABILITIES
Accounts payable $ 118,772 $ 153,821
Other current liabilities 407,533 405,244
TOTAL CURRENT LIABILITIES 526,305 559,065
LONG-TERM DEBT 1,741,921 1,740,872
DEFERRED INCOME TAXES 91,186 91,230
DEFERRED PROFESSIONAL LIABILITY RISKS 224,688 215,503
OTHER LIABILITIES 347,421 335,008
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value; 400,000,000
shares authorized, 90,722,600 and 90,733,447
shares issued and outstanding 91 91
Paid-in capital 1,022,340 1,021,929
Retained earnings 53,513 3,584
STOCKHOLDERS' EQUITY 1,075,944 1,025,604
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,007,465 $3,967,282
See accompanying notes.
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended November 30
1994 1993
Net operating revenue $ 969,924 $ 622,095
Costs and expenses:
Hospital service costs:
Salaries and benefits 374,748 232,263
Supplies 129,108 87,990
Fees 103,988 64,716
Other expenses 102,380 65,740
Bad debt expense 64,572 43,590
774,796 494,299
Depreciation and amortization 56,080 34,620
Interest 40,458 21,555
Pension expense 16,357 10,218
Other income (net) (3,694) (5,450)
883,997 555,242
INCOME BEFORE MINORITY INTERESTS
AND INCOME TAXES 85,927 66,853
Minority interests 2,013 1,442
INCOME BEFORE INCOME TAXES 83,914 65,411
Income tax provision 33,985 26,559
NET INCOME $ 49,929 $ 38,852
Net income per share $ 0.54 $ 0.46
Shares used in computation of net
income per share 92,633,566 84,426,187
See accompanying notes.
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended November 30
1994 1993
OPERATING ACTIVITIES
Net income $ 49,929 $ 38,852
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 49,788 32,462
Amortization 6,292 2,158
Non-cash insurance expense 1,881 5,120
Pension expense 16,357 10,218
Increase in accounts and agency
receivables (45,104) (21,212)
Decrease in accounts payable and
accrued liabilities (37,602) (47,244)
Other 1,089 (1,860)
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,630 18,494
INVESTING ACTIVITIES
Purchases of property, plant and equipment (38,164) (34,318)
Proceeds from sales of property, plant
and equipment 2,344 96,208
Other (8,765) (321)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (44,585) 61,569
FINANCING ACTIVITIES
Principal payments on long-term debt (51,000) (65,000)
Proceeds from long-term borrowings 55,000 -
Other 411 1,007
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 4,411 (63,993)
INCREASE IN CASH AND CASH EQUIVALENTS 2,456 16,070
Cash and cash equivalents at beginning of period 92,327 151,346
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 94,783 $ 167,416
Cash paid during the period for:
Interest $ 63,184 $ 41,232
Income taxes 3,326 26,544
See accompanying notes.
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, 1994 are not necessarily
indicative of the results that may be expected for the fiscal
year ending August 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto for
the year ended August 31, 1994 (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%).
Proposed Merger With Columbia/HCA Healthcare Corporation
On October 4, 1994, the Company and Columbia/HCA Healthcare
Corporation jointly announced the signing of a definitive merger
agreement under which the Company's shareholders will receive
0.88 shares of Columbia common stock in exchange for each share
of Healthtrust common stock they hold. The proposed transaction
is expected to be accounted for as a pooling of interests.
The completion of the transaction is subject to the approval of
the shareholders of both companies and regulatory approvals. The
shareholders meetings to vote on the proposed merger transaction
are scheduled to be held on February 28, 1995.
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, November 30,
1994 1993 %Increase
Number of Hospitals 77 77
Gross Revenue:
Inpatient $ 667.9 $ 626.4 6.6%
Outpatient $ 360.4 $ 313.0 15.1%
Net Operating Revenue $ 623.6 $ 587.9 6.1%
Hospital Service Costs $ 479.0 $ 460.7 4.0%
Admissions 70,784 67,177 5.4%
Adjusted Admissions 108,981 100,749 8.2%
Patient Days 345,480 345,106 0.1%
Adjusted Patient Days 531,908 517,576 2.8%
Average Length of Stay (days) 4.88 5.14
Occupancy Rate 38% 39%
Operating Margin 23.2% 21.6%
(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. 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
45% and 43%, for the quarters ended November 30, 1994 and 1993,
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.
The Company acquired EPIC Holdings, Inc. (EPIC), which owned 34
hospitals and various related healthcare entities, and three
other hospital facilities during 1994. These acquisitions were
made during the third and fourth quarters of fiscal 1994,
therefore the results of operations of these acquired facilities
are included in consolidated operations for the quarter ended
November 30, 1994, but are not included for the quarter ended
November 30, 1993.
Three Months Ended November 30, 1994 and 1993
Net operating revenue for the Company's hospitals for the three
months ended November 30, 1994, increased 55.9% (14.2% excluding
EPIC) to $969.9 million, while same hospitals net operating
revenue increased 6.1%. Gross revenue during the three months
ended November 30, 1994, increased 59.1% (15.8% excluding EPIC)
due to a 73.3% increase (23.3% excluding EPIC) in gross
outpatient revenue and a 49.9% increase (12.0% excluding EPIC) in
gross inpatient revenue. On a same hospitals basis, gross
revenue increased 9.4% compared to the prior year period, due to
a 15.0% increase in gross outpatient revenue and a 6.6% increase
in gross inpatient revenue. In each case, gross revenue grew
faster than net operating revenue, primarily because the patient
day 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 three
months ended November 30, 1994 increased 56.7%. The 55.9%
increase in net operating revenue and 56.7% increase in the costs
of hospital services resulted in the operating margin decreasing
from 20.5% for the three months ended November 30, 1993 to 20.1%
for the 1994 period. Salaries and benefits, the largest
component of hospital services, increased from 37.3% to 38.6% of
net operating revenue due to higher than average expense at the
facilities acquired during the third and fourth quarters of
fiscal 1994. Supplies expense decreased from 14.2% of net
operating revenue for the three months ended November 30, 1993 to
13.3% of net operating revenue for the 1994 period, reflecting
the benefits from the Company's efforts to standardize supplies
and consolidate vendors. Bad debt expense declined from 7.0% to
6.7% of net operating revenue for the three months ended November
30, 1994.
Interest expense increased from $21.6 million to $40.5 million
for the three months ended November 30, 1994, due primarily to
the additional debt incurred to finance the acquisition of EPIC
and the other fiscal 1994 acquisitions.
Income before income taxes increased $18.5 million, due primarily
to the net effect of the $67.3 million increase in net operating
revenue less hospital service costs and $46.5 million increase in
depreciation, amortization, interest, and pension expenses.
The Company's combined federal and state effective tax rate was
40.5% for the three months ended November 30, 1994 and 40.6% for
the 1993 period.
The Company continues to generate significant levels of cash
flows from operating activities, $42.6 million for the three
months ended November 30, 1994 and $18.5 million for the 1993
period. Although net income increased by $11.1 million,
increases in depreciation and amortization resulted in cash flows
from operations increasing by $24.1 million.
Liquidity and Capital Resources
Healthtrust ended the first quarter of fiscal 1995 in its
strongest financial position: cash totaled $94.8 million; total
assets reached $4.01 billion; stockholders' equity climbed to
$1.08 billion; and debt as a percentage of total capital was at
61.8%.
Cash provided from operations continued to satisfy all of the
Company's working capital, capital expenditure (excluding EPIC
and other facility acquisitions) and debt principal payment
requirements.
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.
During April 1994, the Company entered into a credit agreement
with the Bank of Nova Scotia, acting as administrative agent for
the lenders (the "1994 Credit Agreement"). The 1994 Credit
Agreement provides for an aggregate of up to $1.2 billion in
credit available to the Company. Loans under the 1994 Credit
Agreement bear interest at fluctuating rates, as selected by the
Company at specified times, equal to either (i) an alternate base
rate (the higher of the Bank of Nova Scotia's base rate for
dollar loans or the Federal Funds rate plus 50 basis points)plus
50 basis points or (ii) LIBO plus 150 basis points.
At November 30, 1994, the Company had outstanding $394 million of
term loans, $277 million of delayed term loans and $80 million
of revolving loans under the 1994 Credit Agreement. At November
30, 1994, the Company had approximately $428 million of credit
available under the 1994 Credit Agreement.
During 1994, the Company spent $221 million (excluding the EPIC
and other facility acquisitions) 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
1995 are expected to be approximately $300 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.
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 three months ended November
30, 1994, approximately 45% 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 $246.2 million at November 30,
1994. Payments of professional and general liability claims
aggregated $13.4 million for the three months ended November 30,
1994. 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Statement re: Computation of Earnings Per
Share
(27) Financial Data Schedule (included only in filings
under the EDGAR system)
(b) The Company filed a report on Form 8-K dated October 4,
1994, announcing the signing of a definitive agreement
between the Company and Columbia/HCA Healthcare Corp.
to merge in a tax- free, stock-for-stock transaction.
A copy of the press release issued by the Company was
included in the report.
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 17, 1995 /S/ R. Clayton McWhorter
Date R. Clayton McWhorter
Chairman of the Board,
Chief Executive Officer and
President
January 17, 1995 /S/ Kenneth C. Donahey
Date Kenneth C. Donahey
Senior Vice President and
Controller
Chief Accounting Officer
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
Exhibit 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended November 30, 1994 and 1993
(Dollars in thousands, except per share data)
Three Months Ended November 30
1994 1993
Primary:
Weighted average shares outstanding 90,671,526 81,097,606
Net effect of dilutive warrants 695,092 2,610,014
Net effect of dilutive stock options 1,266,948 718,567
Total shares and share equivalents 92,633,566 84,426,187
Net income $ 49,929 $ 38,852
Net income per share $ 0.54 $ 0.46
Fully Diluted:
Weighted average shares outstanding 90,671,526 81,097,606
Net effect of dilutive warrants 695,092 2,633,083
Net effect of dilutive stock options 1,266,948 764,757
Total shares and share equivalents 92,633,566 84,495,446
Net income $ 49,929 $ 38,852
Net income per share $ 0.54 $ 0.46
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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