UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11239
COLUMBIA/HCA HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2497104
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
201 West Main Street, Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
(502) 572-2000
(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, 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 practicable date.
Outstanding at
Class of Common Stock July 31, 1994
Voting common stock, $.01 par value 326,314,000 shares
Nonvoting common stock, $.01 par value 14,190,000 shares
1 of 24
COLUMBIA/HCA HEALTHCARE CORPORATION
FORM 10-Q
JUNE 30, 1994
<TABLE>
<CAPTION>
Page of
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Part I: Financial Information Form 10-Q
Item 1. Financial Statements
Condensed Consolidated Statement of Income - for the
quarters and six months ended June 30, 1994
and 1993 .................................................... 3
Condensed Consolidated Balance Sheet - June 30, 1994
and December 31, 1993 ....................................... 4
Consolidated Statement of Cash Flows - for the six months
ended June 30, 1994 and 1993 ................................ 5
Notes to Condensed Consolidated Financial Statements ........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 14
Part II: Other Information
Items 1 to 6 ......................................................... 20
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the quarters and six months ended June 30, 1994 and 1993
Unaudited
(Dollars in millions, except per share amounts)
<CAPTION>
Quarter Six Months
1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues ....................................... $ 2,689 $ 2,536 $ 5,467 $ 5,190
Salaries, wages and benefits ................... 1,090 1,049 2,203 2,121
Supplies ....................................... 414 413 848 846
Other operating expenses ....................... 512 461 1,004 939
Provision for doubtful accounts ................ 151 132 301 258
Depreciation and amortization .................. 144 138 288 274
Interest expense ............................... 56 85 120 170
Investment income .............................. (21) (15) (35) (27)
Non-recurring transactions ..................... - - 159 -
2,346 2,263 4,888 4,581
Income from continuing operations before
minority interests and income taxes .......... 343 273 579 609
Minority interests in earnings of consolidated
entities ..................................... 6 3 9 7
Income from continuing operations before
income taxes ................................. 337 270 570 602
Provision for income taxes ..................... 132 104 228 231
Income from continuing operations .............. 205 166 342 371
Income from operations of discontinued
health plan segment, net of income taxes ..... - - - 16
Extraordinary loss on extinguishment of
debt, net of income tax benefit .............. - - (92) -
Net income ................................ $ 205 $ 166 $ 250 $ 387
Earnings per common and common equivalent share:
Income from continuing operations ............ $ .60 $ .49 $ 1.00 $ 1.10
Income from operations of discontinued
health plan segment ........................ - - - .04
Extraordinary loss on extinguishment of
debt ....................................... - - (.27) -
Net income ................................ $ .60 $ .49 $ .73 $ 1.14
Cash dividends per common share ................ $ .03 $ - $ .06 $ -
Shares used in earnings per common and common
equivalent share computation (000) ........... 342,103 338,544 341,862 338,165
See accompanying notes.
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited
(Dollars in millions, except per share amounts)
June 30, December 31,
ASSETS 1994 1993
Current assets:
Cash and cash equivalents .......................... $ 93 $ 224
Accounts receivable less allowance for loss of
$553 - June 30, 1994 and $513 - December 31, 1993. 1,530 1,566
Inventories ........................................ 258 245
Other .............................................. 485 453
2,366 2,488
Property and equipment, at cost ...................... 8,791 8,392
Accumulated depreciation ............................. (3,030) (2,792)
5,761 5,600
Investments of professional liability insurance
subsidiaries........................................ 711 700
Intangible assets .................................... 1,325 1,232
Other ................................................ 235 196
$ 10,398 $ 10,216
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 399 $ 445
Salaries, wages and other compensation ............. 229 232
Other accrued expenses ............................. 817 853
Income taxes ....................................... 69 22
Long-term debt due within one year ................. 79 363
1,593 1,915
Long-term debt ....................................... 3,577 3,335
Deferred credits and other liabilities ............... 1,361 1,438
Minority interests in equity of consolidated
entities ........................................... 143 57
Contingencies
Common stockholders' equity:
Common stock, $.01 par; authorized 800,000,000
voting shares and 25,000,000 nonvoting
shares; issued and outstanding 324,555,000
voting shares and 14,190,000 nonvoting shares
- June 30, 1994 and 317,686,800 voting shares
and 18,990,000 nonvoting shares - December 31,
1993 ............................................. 3 3
Other .............................................. 3,721 3,468
3,724 3,471
$ 10,398 $ 10,216
See accompanying notes.
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 1994 and 1993
Unaudited
(Dollars in millions)
1994 1993
Cash flows from continuing operations:
Net income ............................................. $ 250 $ 387
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued operations ................. - (16)
Non-recurring transactions .......................... 159 -
Depreciation and amortization ....................... 288 274
Deferred income taxes ............................... (84) -
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable ........ 66 (13)
(Increase) decrease in inventories and other
assets ......................................... (52) 16
Increase in income taxes .......................... 55 89
Decrease in other liabilities ..................... (167) -
Extraordinary loss on extinguishment of debt ........ 149 -
Other ............................................... 28 25
Net cash provided by continuing operations ........ 692 762
Cash flows from investing activities:
Purchase of property and equipment ..................... (440) (386)
Acquisition of hospitals and health care facilities .... (127) (73)
Disposition of property and equipment .................. 66 94
Change in investments .................................. (50) (9)
Other .................................................. (103) (10)
Net cash used in investing activities ............. (654) (384)
Cash flows from financing activities:
Issuance of long-term debt ............................. 475 -
Net changes in commercial paper borrowings and lines
of credit ............................................ 1,510 (30)
Repayment of long-term debt ............................ (2,179) (214)
Payment of cash dividends .............................. (15) (36)
Issuance of common stock ............................... 14 17
Payment to Humana Inc. in spinoff transaction .......... - (135)
Other .................................................. 26 13
Net cash used in financing activities ............. (169) (385)
Change in cash and cash equivalents ..................... (131) (7)
Cash and cash equivalents at beginning of period ........ 224 217
Cash and cash equivalents at end of period .............. $ 93 $ 210
Interest payments ....................................... $ 156 $ 134
Income tax payments, net of refunds ..................... 200 142
</TABLE>
See accompanying notes.
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1 - REPORTING ENTITY
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware
corporation which began operations on February 10, 1994 as a result of a
merger involving Columbia Healthcare Corporation ("Columbia") and HCA -
Hospital Corporation of America ("HCA") (the "HCA Merger"). See Note 4 for
a description of the specific terms of the HCA Merger.
Prior to the HCA Merger, Columbia began operations on September 1, 1993 as
a result of a merger involving a wholly owned subsidiary of Columbia Hospital
Corporation ("CHC") and Galen Health Care, Inc. ("Galen") (the "Galen
Merger"). See Note 5 for a description of the specific terms of the Galen
Merger.
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries or (ii) ownership of
controlling interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner.
NOTE 2 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally required in annual reports filed on Form 10-K.
Accordingly, these financial statements should be read in conjunction with
the audited consolidated financial statements of Columbia/HCA for the year
ended December 31, 1993 filed on Form 10-K with the Securities and Exchange
Commission.
The financial information has been prepared in accordance with Columbia/HCA's
customary accounting practices and has not been audited. Management believes
that the financial information presented reflects all adjustments necessary
for a fair statement of interim results. All such adjustments are of a
normal and recurring nature.
For accounting purposes, the HCA and Galen Mergers have been treated as
poolings of interests. Accordingly, these financial statements give
retroactive effect to the mergers and include the combined operations of the
respective former entities for all periods presented. In addition, the
historical financial information related to Galen (which prior to the Galen
Merger was reported on a fiscal year ending August 31) has been recast to
conform to Columbia/HCA's annual reporting period ending December 31.
NOTE 3 - EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon weighted
average common shares outstanding adjusted for the dilutive effect of common
stock equivalents consisting primarily of stock options. Fully diluted
earnings per common and common equivalent share are not presented because
such amounts approximate earnings per common and common equivalent share.
NOTE 4 - HCA MERGER
On October 2, 1993, Columbia entered into a definitive agreement to merge
with HCA. This transaction was completed on February 10, 1994. In
connection with the HCA Merger, Columbia stockholders approved an amendment
to Columbia's Certificate of Incorporation changing the name of the
corporation to "Columbia/HCA Healthcare Corporation". HCA was then merged
into a wholly owned subsidiary of Columbia/HCA. Shares of HCA Class A voting
common stock and Class B nonvoting common stock were converted on a tax-free
basis into approximately 166,846,000 shares of Columbia/HCA
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 4 - HCA MERGER (Continued)
voting common stock and approximately 18,990,000 shares of Columbia/HCA
nonvoting common stock, respectively (an exchange ratio of 1.05 shares of
Columbia/HCA common stock for each share of HCA voting and nonvoting common
stock).
The HCA Merger has been accounted for as a pooling of interests, and
accordingly, the condensed consolidated financial statements give retroactive
effect to the HCA Merger and include the combined operations of Columbia and
HCA for all periods presented. The following is a summary of the results of
operations of the separate entities for periods prior to the HCA Merger
(dollars in millions):
<TABLE>
<CAPTION>
Columbia HCA Consolidated
One month ended January 31, 1994:
<S> <C> <C> <C> <C>
Revenues .......................... $ 480 $ 460 $ 940
Net income ........................ 33 44 77
Three months ended June 30, 1993:
Revenues .......................... $1,262 $1,274 $2,536
Net income ........................ 70 96 166
Six months ended June 30, 1993:
Revenues .......................... $2,591 $2,599 $5,190
Net income:
Continuing operations ........... $ 160 $ 211 $ 371
Discontinued operations ......... 16 - 16
$ 176 $ 211 $ 387
</TABLE>
NOTE 5 - GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the Galen
Merger, effective as of September 1, 1993. In connection with the Galen
Merger, CHC, a Nevada corporation, was merged into Columbia. Each CHC share
of common stock was converted on a tax-free basis into one share of Columbia
common stock. Immediately subsequent thereto, a wholly owned subsidiary of
Columbia was merged into Galen, at which time Galen became a wholly owned
subsidiary of Columbia. In connection with this transaction, Columbia issued
approximately 123,830,000 shares of common stock in a tax-free exchange for
all of the outstanding common shares of Galen (an exchange ratio of 0.775 of
a share of Columbia common stock for each share of Galen common stock).
The Galen Merger has been accounted for as a pooling of interests, and
accordingly, the condensed consolidated financial statements give retroactive
effect to the Galen Merger and include the combined operations of CHC and
Galen for all periods presented. The following is a summary of the results
of operations of the separate entities for the respective 1993 periods
(dollars in millions):
<TABLE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
<CAPTION>
NOTE 5 - GALEN MERGER (Continued)
CHC Galen Consolidated
Three months ended June 30, 1993:
<S> <C> <C> <C> <C>
Revenues ......................... $ 312 $ 950 $1,262
Net income ....................... 10 60 70
Six months ended June 30, 1993:
Revenues ......................... $ 624 $1,967 $2,591
Net income:
Continuing operations .......... $ 20 $ 140 $ 160
Discontinued operations ........ - 16 16
$ 20 $ 156 $ 176
</TABLE>
NOTE 6 - SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS
Prior to the Galen Merger, Galen began operating its hospital business as an
independent publicly held corporation on March 1, 1993 as a result of a
spinoff transaction by Humana Inc. ("Humana")(the "Spinoff"), which retained
its managed care health plan business. The Spinoff separated Humana's
previously integrated hospital and managed care health plan businesses and
was effected through the distribution of Galen common stock to then current
Humana stockholders on a one-for-one basis.
For accounting purposes, because of the relative significance of the hospital
business, the consolidated financial statements of Galen (and now those of
Columbia/HCA) include the separate results of Humana's hospital business,
while the operations and net assets of Humana's managed care health plans
have been classified as discontinued operations.
Revenues of the discontinued managed care health plan business (included in
discontinued operations in the condensed consolidated statement of income)
were $523 million for the six months ended June 30, 1993.
NOTE 7 - NON-RECURRING TRANSACTIONS AND EXTINGUISHMENT OF DEBT
In the first quarter of 1994 Columbia/HCA recorded the following charges in
connection with the HCA Merger (dollars in millions):
Employee benefit and certain severance actions ........... $ 40
Investment advisory and professional fees ................ 12
Costs of information systems consolidations
primarily related to the writedown of assets ........... 42
Writedown of assets in connection with
consolidation of duplicative facilities ................ 53
Other .................................................... 12
$ 159
In addition to employee severance costs above, Columbia/HCA is a party to
employment agreements with certain key employees as a result of the Galen and
HCA Mergers. Future severance payments under these agreements, which may
occur as a result of continued consolidation activities, will be charged to
earnings as incurred.
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 7 - NON-RECURRING TRANSACTIONS AND EXTINGUISHMENT OF DEBT (Continued)
In the first quarter of 1994, Columbia/HCA refinanced approximately $2
billion of HCA's high coupon fixed and floating rate long-term debt. These
transactions were effected to reduce future interest expense and eliminate
certain restrictive covenants. After-tax losses from these extinguishments
of debt aggregated $92 million or $.27 per share.
NOTE 8 - ACQUISITIONS
The following is a summary of acquisitions and joint ventures consummated
during the respective six month periods (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C> <C>
Number of hospitals ............................... 7 2
Number of licensed beds ........................... 1,664 843
Purchase price information:
Fair value of assets acquired ................... $ 280 $ 145
Liabilities assumed ............................. (55) (33)
Net assets acquired ........................... 225 112
Net assets sold in exchange for acquired
properties .................................... (45) -
Contributions from minority partners ............ (47) (27)
Net cash acquired ............................... (6) (12)
Net cash paid for acquisitions ............. $ 127 $ 73
</TABLE>
NOTE 9 - INCOME TAXES
The Internal Revenue Service (the "IRS") has issued statutory notices of
deficiency in connection with its examinations of HCA's federal income tax
returns for 1981 through 1988. Columbia/HCA is currently contesting these
claimed deficiencies in the United States Tax Court. In addition, the IRS
has proposed certain adjustments in connection with its examinations of HCA's
1989 and 1990 federal income tax returns. The following is a discussion of
the disputed items with respect to these years.
Method of Accounting
For years 1981 through 1986, most of HCA's hospital subsidiaries (the
"Subsidiaries") reported taxable income primarily using the cash method of
accounting. This method was prevalent within the hospital industry and the
Subsidiaries applied the method in accordance with prior agreements with the
IRS. The IRS now asserts that the accrual method of accounting should have
been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act")
requires the use of the accrual method of accounting beginning in 1987.
Consequently, the Subsidiaries changed to the accrual method of accounting
beginning January 1, 1987. In accordance with the provisions of the 1986
Act, income that had been deferred at the end of 1986 is being recognized as
taxable income by the Subsidiaries in equal annual installments over ten
years. If the IRS should ultimately prevail in its claim that the
Subsidiaries should have used the accrual method for 1981 through 1986, the
claim would be reduced to the extent that HCA has recognized as taxable
income a portion of such deferred income taxes since 1986. In addition, the
sale by HCA of numerous Subsidiaries in 1987 that had been using the cash
method resulted in the recognition of a substantial gain that would not have
been recognized had the Subsidiaries been using the accrual method. If the
IRS were successful with
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 9 - INCOME TAXES (Continued)
respect to this issue, Columbia/HCA would owe an additional $110 million in
income taxes and $457 million in interest as of June 30, 1994.
Hospital Acquisitions
In connection with hospitals acquired by HCA in 1981 and 1985, the IRS has
asserted that a portion of the costs allocated to identifiable assets with
ascertainable useful lives should be reclassified as nondeductible goodwill.
If the IRS ultimately prevails in this regard, Columbia/HCA would owe an
additional $113 million in income taxes and $150 million in interest as of
June 30, 1994.
Insurance Subsidiary
Based on a Sixth Circuit Court of Appeals decision (the Court having
jurisdiction over the HCA issues), HCA has claimed that insurance premiums
paid to its wholly owned insurance subsidiary ("Parthenon") are deductible,
while the IRS asserts that such premiums are not deductible and that
corresponding losses are only deductible at the time and to the extent that
claims are actually paid. HCA has claimed the additional deductions in its
Tax Court petitions. Through June 30, 1994, Columbia/HCA is seeking a refund
totaling $51 million in income taxes and $98 million in interest in
connection with this issue.
As an alternative to its position, HCA has asserted that in connection with
the sale of hospitals to HealthTrust, Inc. - The Hospital Company
("HealthTrust") in 1987, premiums paid to Parthenon by the sold hospitals,
if not deductible as discussed above, became deductible at the time of the
sale. Accordingly, HCA claimed such deduction in its 1987 federal income
tax return. The IRS has disallowed the deduction and is claiming an
additional $5 million in income taxes and $16 million in interest. A final
determination that the premiums are not deductible either when paid to
Parthenon or upon the sale of certain hospitals to HealthTrust would increase
the taxable basis in the hospitals sold, thereby reducing HCA's gain realized
on the sale.
HealthTrust Sale
In connection with its sale of certain Subsidiaries to HealthTrust in 1987
in exchange for cash, HealthTrust preferred stock and stock purchase
warrants, HCA calculated its gain based on the valuation of such stock and
warrants by an independent appraiser. The IRS claims a higher aggregate
valuation, based on the face amount of the preferred stock and a separate
appraisal HealthTrust obtained for the stock purchase warrants. Application
of the higher valuation would increase the gain recognized by HCA on the
sale. However, if the IRS succeeds in its assertion, HCA's tax basis in its
HealthTrust preferred stock and warrants will be increased accordingly,
thereby substantially reducing the tax from the sale of such preferred stock
and warrants by a corresponding amount. By December 31, 1992, HCA had sold
its entire interest in the HealthTrust preferred stock and warrants.
Including the effect of the sales of these securities, the IRS is claiming
additional interest of $67 million through June 30, 1994.
Also in connection with the 1987 sale of certain Subsidiaries to HealthTrust,
the IRS claims that HCA's basis in the stock of the Subsidiaries sold to
HealthTrust should be calculated by adjusting such basis to reflect
accelerated rather than straight-line depreciation, which would reduce HCA's
basis in the stock sold and increase the taxable gain on the sale. The IRS
position is contrary to a Tax Court decision in a similar
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 9 - INCOME TAXES (Continued)
case. The IRS is claiming additional income taxes of $79 million and
interest of $72 million through June 30, 1994.
In connection with the 1987 HealthTrust transactions, the IRS further asserts
that, to the extent the Subsidiaries were properly on the cash method through
1986, and therefore properly recognizing taxable income over the ten-year
transition period, HCA should have additional income in 1987 equal to the
unamortized portion of the deferred income. It is HCA's position that no
additional income need be included in 1987 and that the deferred income
continues to qualify for the ten-year transition period after the sale.
Should the IRS prevail, Columbia/HCA would owe $11 million of additional
income taxes and $18 million of interest through June 30, 1994. The position
of the IRS is an alternative to its denial of the use of the cash method of
accounting previously discussed.
Doubtful Accounts
The IRS is asserting that in 1986 HCA was not entitled to include charity
care writeoffs in the formula used to calculate its deduction for doubtful
accounts. For years 1987 and 1988, the IRS is asserting that HCA was not
entitled to exclude from income amounts which are unlikely to be collected.
Management believes that such exclusions are permissible under the accrual
method of accounting, and because HCA is a "service business" and not a
"merchandising business," it is entitled to a special exclusion provided to
service businesses by the 1986 Act. The IRS disagrees, asserting that HCA
is engaged, at least in part, in a merchandising business. Notwithstanding
this assertion, the IRS contends that the exclusion taken by HCA is excessive
under applicable Temporary Treasury Regulations. Columbia/HCA believes that
the calculation of the exclusion is inaccurate since it does not permit the
exclusion in accordance with the controlling statute. If the IRS prevails,
Columbia/HCA would owe additional income taxes of $102 million and interest
of $55 million through June 30, 1994.
Leveraged Buy-out Expenses
The IRS has asserted that no deduction is allowed for various expenses
incurred in connection with HCA's leveraged buy-out transaction in 1989,
including the amortization of loan costs incurred to borrow funds to acquire
the stock of the former shareholders, certain fees incurred by the Special
Committee of HCA's Board of Directors to evaluate the buy-out proposal,
compensation payments to cancel employee stock plans, and various other costs
incurred after the buy-out which have been treated as part of the transaction
by the IRS. Columbia/HCA believes that all of these costs are deductible.
If the IRS prevails on these issues, Columbia/HCA would owe income taxes of
$94 million and interest of $29 million through June 30, 1994.
Other Issues
Additional federal income tax issues primarily concern disputes over the
depreciable lives utilized by HCA for constructed hospital facilities,
investment tax credits, vacation pay deductions and income from foreign
operations. Many of these items, including depreciation, investment tax
credits and foreign issues, have been resolved favorably in previous
settlements. The IRS is claiming an additional $44 million in income taxes
and $27 million in interest through June 30, 1994.
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 9 - INCOME TAXES (Continued)
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior years
income taxes and related interest. This payment will not have a material
effect on 1994 earnings.
Management believes that HCA had properly reported its income and paid its
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 the results of operations or
financial position of Columbia/HCA.
NOTE 10 - CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for
disputed items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for loss have been provided to the extent
necessary and that its assessment of contingencies is reasonable. Management
believes that resolution of contingencies will not materially affect
Columbia/HCA's financial position or results of operations.
Principal contingencies are described below:
Revenues
Certain third-party payments are subject to examination by agencies
administering the programs. Columbia/HCA is contesting certain issues raised
in audits of prior year cost reports.
Professional Liability Risks
Columbia/HCA has provided for loss for professional liability risks based
upon actuarially determined estimates. Actual settlements and expenses
incident thereto may differ from the provisions for loss.
Income Taxes
Columbia/HCA is contesting adjustments proposed by the IRS.
Spinoff
Certain subsidiaries of Columbia/HCA are parties to risk-sharing arrangements
with Humana.
Regulatory Review
Federal regulators are investigating certain financial arrangements with
physicians at two psychiatric hospitals.
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Unaudited
NOTE 10 - CONTINGENCIES (Continued)
Litigation
Various suits and claims arising in the ordinary course of business are
pending against Columbia/HCA.
NOTE 11 - PROPOSED MERGER TRANSACTION
On May 23, 1994, Columbia/HCA entered into a definitive agreement to merge
with Medical Care America, Inc. ("MCA") in a tax-free stock-for-stock
transaction (the "MCA Merger"). Under the terms of the agreement, which was
approved by the boards of both companies, MCA stockholders would receive
shares of Columbia/HCA common stock in an exchange ratio that values MCA
common stock at $29 if the average price of Columbia/HCA common stock is
between $36 and $40; $29 to $30 if the average price of Columbia/HCA common
stock is greater than $40 and up to or equal to $44; $30 if the average price
of Columbia/HCA common stock is over $44; or a fixed ratio of 0.8056 shares
of Columbia/HCA common stock per share of MCA common stock if the average
price of Columbia/HCA common stock is less than $36. The average price of
Columbia/HCA common stock will be determined over a 20-trading day period
ending five days prior to the closing date. Assuming the average price of
the Columbia/HCA common stock is $38 for the measurement period, Columbia/HCA
would issue approximately 22 million shares of common stock in connection
with the transaction. The MCA Merger is expected to be tax-free to
stockholders of both companies and will be accounted for as a purchase.
The MCA Merger is subject to various conditions, including approval by MCA
stockholders, expiration of the waiting period applicable to the consummation
of the MCA Merger under the Hart-Scott-Rodino Act and receipt of certain
legal opinions with respect to the tax consequences of the proposed
transaction. A proxy statement and prospectus detailing the MCA Merger has
been distributed to MCA stockholders and a meeting to vote on the transaction
is scheduled for September 1, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background Information and Business Strategy
HCA Merger
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, the HCA Merger was completed on February 10, 1994. For
accounting purposes, this transaction was treated as a pooling of interests.
Accordingly, the accompanying condensed consolidated financial statements and
financial and operating data included in this discussion and analysis give
retroactive effect to the HCA Merger and include the combined operations of
Columbia and HCA for all periods presented.
Galen Merger
The Galen Merger was completed on September 1, 1993 and was also accounted
for as a pooling of interests. See Note 5 of the Notes to Condensed
Consolidated Financial Statements for a discussion of the Galen Merger. The
accompanying condensed consolidated financial statements and financial and
operating data included in this discussion and analysis give retroactive
effect to the Galen Merger and include the combined operations of CHC and
Galen for all periods presented. In addition, the historical financial
information related to Galen (which prior to the Galen Merger was reported
on a fiscal year ending August 31) has been recast to conform to
Columbia/HCA's annual reporting period ending December 31.
Spinoff Transaction
Prior to the merger with CHC, Galen became a publicly held corporation as a
result of the Spinoff which was completed on March 1, 1993. The Spinoff
separated Humana's previously integrated hospital and managed care health
plan businesses and was effected through the distribution of Galen common
stock to then current Humana common stockholders on a one-for-one basis. For
accounting purposes, because of the relative significance of the hospital
business, the pre-Spinoff financial statements of Galen (and now those of
Columbia/HCA) include the separate results of Humana's hospital business,
while the operating results and net assets of Humana's managed care health
plans have been classified as discontinued operations.
Business Strategy
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries or (ii) ownership of
controlling interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner. Columbia/HCA's business
strategy centers on the development of comprehensive, integrated healthcare
delivery networks with physicians and other healthcare providers in targeted
markets, which typically involves significant health care facility
acquisitions and consolidation activities.
During the past several years, hospital industry inpatient admission trends
have been adversely impacted by cost containment efforts initiated by federal
and state governments and various third-party payers, including health
maintenance organizations, preferred provider organizations, commercial
insurance companies and employer-sponsored networks. In addition, a
significant number of medical procedures have shifted from inpatient to less
expensive outpatient settings as a result of both cost containment pressures
and advances in medical technology.
In response to changes in the health care industry, Columbia/HCA has
developed the following strategy to provide the highest quality health care
services at the lowest possible cost:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Background Information and Business Strategy (Continued)
Become a significant provider of services - Columbia/HCA attempts to (i)
consolidate services to reduce costs and (ii) develop the geographic coverage
necessary for inclusion in most managed care and employer-sponsored networks
in each market.
Provide a comprehensive range of services - In addition to the operation of
general, acute care hospitals, Columbia/HCA also operates psychiatric and
rehabilitation facilities, outpatient surgery and diagnostic centers, home
health agencies and other services. This strategy enables Columbia/HCA to
attract business from managed care plans and major employers seeking
efficient access to a wide array of health care services.
Deliver high quality services - Through the use of clinical information
systems and continuous quality enhancement programs, Columbia/HCA focuses on
patient outcomes and strives to continuously improve the quality of care and
service provided to patients.
Integrate fragmented delivery systems - Through its networks, Columbia/HCA
focuses on coordinating pricing, contracting, information systems, economic
incentives and quality assurance activities among providers in each market.
Management intends to implement its strategy discussed above in a substantial
number of former Galen and HCA markets as well as new markets, and further
develop the integrated health care networks in its five pre-Galen Merger
markets.
Results of Operations
Revenues increased 6% to $2.7 billion in the second quarter of 1994 and 5%
to $5.5 billion for the six months ended June 30, 1994 compared to the
respective periods last year, primarily as a result of price increases,
growth in inpatient and outpatient volumes and acquisitions. On a same-
hospital basis, admissions increased 1.1% and 1.3% for the second quarter and
six months periods, respectively, and outpatient visits increased 22% and
17.8% for the respective periods compared to 1993. The increase in
outpatient visits is primarily a result of expanding home health and other
ancillary outpatient services.
Despite a continued deterioration in payer mix, income from continuing
operations before non-recurring transactions, depreciation, interest expense,
minority interests, income taxes and amortization ("EBDITA") increased 10%
to $543 million in second quarter 1994 from $496 million last year and 9% to
$1.1 billion for the first half of 1994 from $1 billion last year. The
increase in EBDITA margins to 20.2% and 21% in the second quarter and first
six months of 1994, respectively, from 19.5% and 20.3% last year,
respectively, resulted primarily from volume growth, improvements in staffing
levels, increased discounts on medical supplies and other operating
efficiencies related to growth in volume of services. Medicare admissions
as a percentage of total admissions were 39% for both the second quarter of
1993 and 1994, while discounted and managed care admissions grew from 35% to
39%, respectively. For the six month periods, Medicare admissions as a
percentage of total admissions increased from 39% in 1993 to 40% in 1994, and
discounted and managed care admissions grew from 33% last year to 38% this
year.
During the first quarter of 1994, Columbia/HCA recorded $159 million (before
income taxes) of certain non-recurring charges in connection with the HCA
Merger. In addition to investment and advisory fees associated with the HCA
Merger, these charges reflect management's actions to reduce overhead costs,
eliminate duplicative operating facilities in certain markets and consolidate
management information systems. These cost-saving measures should be
completed during 1994. Management believes that these
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
actions related to the HCA Merger, combined with cost reductions from
renegotiations of medical supply contracts and interest savings from the
first quarter 1994 refinancing of long term debt, could result in annual
pretax savings of approximately $130 million, of which as much as $75 million
could be realized in 1994.
Income from continuing operations increased 24% to $205 million ($.60 per
share) in the second quarter of 1994 from $166 million ($.49 per share) last
year, and, excluding the effects of non-recurring transactions, income from
continuing operations increased 20% to $444 million ($1.30 per share) for the
six months ended June 30, 1994 from $371 million ($1.10 per share) for the
first half of last year. The increase in both periods was attributable to
the previously discussed growth of EBDITA and declines in interest expense
resulting from refinancing activities and reductions of long-term debt.
Results of operations for the periods prior to the Spinoff in 1993 include
income from discontinued operations of $16 million or $.04 per share related
to Humana's health plan business. See Note 6 of the Notes to Condensed
Consolidated Financial Statements.
In the first quarter of 1994, Columbia/HCA refinanced approximately $2
billion of HCA's high coupon fixed and floating rate long-term debt. These
transactions were effected to reduce future interest expense and eliminate
certain restrictive covenants. After-tax losses from these extinguishments
of debt aggregated $92 million or $.27 per share.
In connection with the Galen Merger, Columbia/HCA recorded charges in the
third quarter of 1993 totaling $151 million (before income taxes) for
management actions similar to those previously discussed as part of the HCA
Merger. Consolidation and cost-saving activities related to these charges
have been substantially completed. Management believes that these actions
related to the Galen Merger, combined with cost reductions from
renegotiations of medical supply contracts and interest savings from the
third quarter 1993 refinancing of long-term debt, could result in annual
pretax savings in 1994 of approximately $30 million.
Liquidity
Cash provided by continuing operations totaled $692 million for the six
months ended June 30, 1994 compared to $762 million last year. Cash flows
in 1994 were reduced by approximately $75 million in connection with the
payment to the IRS related to disputed prior year income taxes and interest.
In both periods, cash flows in excess of Columbia/HCA's capital expenditure
program were used primarily to reduce long-term debt and in 1993, to finance
a payment of $135 million to Humana in connection with the Spinoff. Working
capital totaled $773 million at June 30, 1994 compared to $573 million at
December 31, 1993. Management believes that cash flows from operations and
amounts available under Columbia/HCA's revolving credit facilities and
related commercial paper programs are sufficient to meet expected future
liquidity needs.
A substantial portion of the non-recurring transactions recorded in the first
quarter of 1994 comprises the writedown of recorded assets and, accordingly,
management does not expect that these transactions will have a material
adverse effect on cash flows from continuing operations in 1994.
Investments of Columbia/HCA's professional liability insurance subsidiaries
to maintain statutory equity and pay claims totaled $796 million at June 30,
1994 and $778 million at December 31, 1993.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources
Excluding acquisitions, capital expenditures totaled $440 million in the
first half of 1994 compared to $386 million for the same period in 1993.
Planned capital expenditures in 1994 (excluding acquisitions) are expected
to approximate $900 million. Management believes that its capital
expenditure program is adequate to expand, improve and equip existing health
care facilities.
Columbia/HCA also expended $127 million and $73 million for acquisitions and
joint ventures during the respective six month periods of 1994 and 1993.
See Note 8 of the Notes to Condensed Consolidated Financial Statements for
a description of these activities. As part of its business strategy,
Columbia/HCA intends to acquire additional health care facilities in the
future.
Columbia/HCA intends to finance all capital expenditures with internally
generated and borrowed funds. Available sources of capital include public
or private debt, commercial paper, unused bank revolving credits and equity.
At June 30, 1994, there were projects under construction which had an
estimated additional cost to complete of approximately $282 million.
On April 29, 1994, Columbia/HCA filed a registration statement on Form S-3
with the Securities and Exchange Commission in connection with the planned
public offering of up to approximately $1.5 billion of long-term debt. The
proceeds from the sales of such securities will be used for general corporate
purposes, which may include repayment of commercial paper and other
indebtedness, additional capitalization of Columbia/HCA's subsidiaries,
capital expenditures and possible acquisitions. Subsequent to June 30, 1994,
the Company issued $500 million of fixed and floating rate medium term notes,
the proceeds from which were used primarily to repay commercial paper and
bank borrowings.
Other Information
As discussed in Note 9 of the Notes to Condensed Consolidated Financial
Statements, Columbia/HCA is contesting certain income taxes and related
interest aggregating $1.3 billion at June 30, 1994 proposed by the IRS for
prior years. Management believes that final resolution of these disputes
will not have a material adverse effect on the financial position, results
of operations or liquidity of Columbia/HCA. However, if all or a majority
of the positions of the IRS are upheld, the financial position, results of
operations and liquidity of Columbia/HCA would be materially adversely
affected.
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior year
income taxes and related interest. This payment will not have a material
effect on 1994 earnings.
Resolution of various other loss contingencies, including litigation pending
against Columbia/HCA in the ordinary course of business, is not expected to
have a material adverse effect on its financial position or results of
operations.
Agreements relating to long-term debt require, among other things,
maintenance of certain levels of interest coverage and provide limitations
on long-term debt, sales of assets, mergers, changes in ownership and certain
other financing activities. Columbia/HCA was in compliance with all such
covenants at June 30, 1994.
<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
<CAPTION>
Operating Data
1994 1993
Number of hospitals in operation at:
<S> <C> <C> <C>
March 31 ...................................... 196 197
June 30 ....................................... 196 195
September 30 .................................. 191
December 31 ................................... 193
Licensed beds at:
March 31 ...................................... 43,171 42,786
June 30 ....................................... 43,092 42,576
September 30 .................................. 42,170
December 31 ................................... 42,237
Weighted average licensed beds:
Quarter:
First ........................................ 41,955 41,525
Second ....................................... 42,237 41,824
Third ........................................ 41,149
Fourth ....................................... 41,221
Year .......................................... 41,263
Average daily census:
Quarter:
First ........................................ 20,341 20,880
Second ....................................... 18,272 18,634
Third ........................................ 17,425
Fourth ....................................... 17,917
Year .......................................... 18,702
Admissions:
Quarter:
First ........................................ 309,800 306,200
Second ....................................... 292,300 286,500
Third ........................................ 278,600
Fourth ....................................... 287,100
Year .......................................... 1,158,400
Length of stay:
Quarter:
First ........................................ 5.9 6.1
Second ....................................... 5.7 5.9
Third ........................................ 5.8
Fourth ....................................... 5.7
Year .......................................... 5.9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data
1994 1993
Outpatient visits:
Quarter:
First ........................................ 1,522,500 (a) 1,378,500
Second ....................................... 1,766,400 1,411,800
Third ........................................ 1,311,600
Fourth ....................................... 1,389,000
Year .......................................... 5,490,900
Emergency room visits:
Quarter:
First ........................................ 788,300 791,900
Second ....................................... 816,300 792,600
Third ........................................ 778,500
Fourth ....................................... 776,700
Year .......................................... 3,139,700
</TABLE>
(a) Restated to reflect visits related to the acquisition of a home health
agency.
Part II: Other Information
Item 1:Legal Proceedings.
On December 10, 1992 and December 15, 1992, respectively, two virtually
identical purported class action lawsuits (Berger v. Roger E. Mick et
al., 92 CIV 8960, United States District Court, Southern District of
New York and Fox v. Roger E. Mick et al., 92 CIV 9139, United States
District Court, Southern District of New York) were filed by,
respectively, holders of 400 and 500 shares of HCA's Class A Common
Stock against HCA, three of its officers and/or directors (Messrs.
Thomas F. Frist, Jr., Roger E. Mick and Donald J. Israel) and the
underwriters of its February 1992 initial public offering of Class A
Common Stock, on behalf of all purchasers of HCA's Class A Common Stock
from the time of the initial public offering (February 26, 1992) until
HCA issued a press release in respect of its psychiatric division
restructuring on September 18, 1992. In the lawsuits it was alleged
that HCA failed to disclose material adverse financial information
regarding its psychiatric division in its February 1992 offering
prospectus in respect of such initial public offering and in HCA's
subsequent Forms 10-Q for the quarters ended March 31 and June 30,
1992. Violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934 were alleged. Columbia/HCA settled these lawsuits
in the second quarter of 1994 by agreeing to pay $25,000 in costs
incurred by the plaintiffs and donate $200,000 to charities designated
by the plaintiffs.
Item 4: Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held May 12, 1994.
Matters voted on at the meeting included the following:
1) The stockholders approved amendments to the Columbia Hospital
Corporation 1992 Stock and Incentive Plan which, among other
things, increased the number of authorized shares thereunder
from 2,000,000 to 20,000,000 with 189,373,917 affirmative
votes, 55,438,227 negative votes and 1,498,813 abstentions.
2) The stockholders approved the adoption of the Columbia/HCA
Healthcare Corporation Annual Incentive Plan with 269,261,897
affirmative votes, 10,719,152 negative votes and 1,651,507
abstentions.
Item 5: Other Information.
Columbia/HCA's ratio of earnings to fixed charges was 5.39 and 3.56 for
the three months ended June 30, 1994 and 1993, respectively, and 4.58
and 3.86 for the six months ended June 30, 1994 and 1993, respectively.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Statement re Computation of Earnings Per Common and Common
Equivalent Share.
Exhibit 12 - Statement re Computation of Ratio of Earnings to Fixed
Charges.
(b) Reports on Form 8-K:
On May 12, 1994, Columbia/HCA filed a report on Form 8-K which
disclosed the selection of Ernst & Young as principal independent
auditors and the termination of such relationship with Coopers &
Lybrand.
Item 6:Exhibits and Reports on Form 8-K (Continued)
On May 24, 1994, Columbia/HCA filed a report on Form 8-K announcing the
execution of a definitive agreement between Columbia/HCA and Medical
Care America, Inc. to merge in a tax-free stock-for-stock transaction.
A copy of the press release issued by Columbia/HCA on May 23, 1994 was
included in the report.
On July 11, 1994, Columbia/HCA filed a report on Form 8-K which
included the Distribution Agreement and the Form of the Notes in
connection with its $1,525,000,000 medium term note program.
On July 21, 1994, Columbia/HCA filed a report on Form 8-K in connection
with the issuance of floating rate notes.
On July 28, 1994, Columbia/HCA reported on Form 8-K its consolidated
earnings for the second quarter ended June 30, 1994. A copy of the
press release issued by Columbia/HCA on July 28, 1994 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.
COLUMBIA/HCA HEALTHCARE
CORPORATION
Date: August 12, 1994 /s/ David C. Colby
David C. Colby
Senior Vice President,
Chief Financial
Officer and Treasurer
(Principal Financial
Officer)
Date: August 12, 1994 /s/ Richard A. Lechleiter
Richard A. Lechleiter
Vice President and
Controller
(Principal Accounting
Officer)
<TABLE>
Exhibit 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the quarters and six months ended June 30, 1994 and 1993
(Dollars in millions, except per share amounts)
<CAPTION>
Quarter Six Months
1994 1993 1994 1993
Primary Earnings per Common and Common Equivalent
Share:
Earnings:
<S> <C> <C> <C> <C> <C>
Income from continuing operations .................. $ 205 $ 166 $ 342 $ 371
Income from operations of discontinued health
plan segment, net of income taxes ............... - - - 16
Extraordinary loss on extinguishment of debt, net
of income tax benefit ........................... - - (92) -
Net income .................................... $ 205 $ 166 $ 250 $ 387
Shares used in the computation (000):
Weighted average common shares outstanding ......... 338,175 333,298 337,699 332,723
Dilutive effect of common stock equivalents ........ 3,928 5,246 4,163 5,442
Shares used in earnings per common and
common equivalent share computation ......... 342,103 338,544 341,862 338,165
Primary earnings per common and common equivalent
share:
Income from continuing operations .................. $ .60 $ .49 $ 1.00 $ 1.10
Income from operations of discontinued health
plan segment .................................... - - - .04
Extraordinary loss on extinguishment of debt ....... - - (.27) -
Net income .................................... $ .60 $ .49 $ .73 $ 1.14
Exhibit 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the quarters and six months ended June 30, 1994 and 1993
(Dollars in millions, except per share amounts)
Quarter Six Months
1994 1993 1994 1993
Fully Diluted Earnings per Common and Common
Equivalent Share:
Earnings:
Income from continuing operations ................. $ 205 $ 166 $ 342 $ 371
Interest addback on convertible securities, net
of income taxes ................................. 1 - 1 1
Income applicable to common stock ................. 206 166 343 372
Income from operations of discontinued health
plan segment, net of income taxes ............... - - - 16
Extraordinary loss on extinguishment of debt, net
of income tax benefit ........................... - - (92) -
Net income ................................... $ 206 $ 166 $ 251 $ 388
Shares used in the computation (000):
Weighted average common shares outstanding ........ 338,175 333,298 337,699 332,723
Dilutive effect of common stock equivalents
and other dilutive securities ................... 6,022 7,685 5,210 7,958
Shares used in earnings per common and
common equivalent share computation ........ 344,197 340,983 342,909 340,681
Fully diluted earnings per common and common
equivalent share:
Income from continuing operations ................. $ .60 $ .49 $ 1.00 $ 1.09
Income from operations of discontinued health
plan segment .................................... - - - .04
Extraordinary loss on extinguishment of debt ...... - - (.27) -
Net income ................................... $ .60 $ .49 $ .73 $ 1.13
</TABLE>
<TABLE>
Exhibit 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the quarters and six months ended June 30, 1994 and 1993
(Dollars in millions)
<CAPTION>
Quarter Six Months
1994 1993 1994 1993
Earnings:
Income from continuing operations
<S> <C> <C> <C> <C> <C>
before minority interests and income taxes .... $ 343 $ 273 $ 579 $ 609
Fixed charges, exclusive of capitalized
interest ...................................... 74 102 154 205
$ 417 $ 375 $ 733 $ 814
Fixed Charges:
Interest charged to expense ..................... $ 56 $ 85 $ 120 $ 170
One-third of rent expense and amortization
of deferred loan costs (a) .................... 18 17 34 35
Fixed charges, exclusive of capitalized
interest ...................................... 74 102 154 205
Capitalized interest ............................ 3 4 6 6
$ 77 $ 106 $ 160 $ 211
Ratio of earnings to fixed charges .............. 5.39 3.56 4.58 3.86
(a) One-third of rent expense is considered representative of the underlying interest.
</TABLE>
