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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A-2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1993
Commission File Number 1-11239
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COLUMBIA/HCA HEALTHCARE CORPORATION
(formerly COLUMBIA HEALTHCARE CORPORATION)
(Exact Name of Registrant as Specified in its Charter)
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Delaware 75-2497104
(State of 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)
Registrant's Telephone Number, Including Area Code: (502) 572-2000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of February 28, 1994, there were outstanding 318,289,550 shares of
the Registrant's Common Stock and 18,989,999 shares of the Registrant's
Nonvoting Common Stock. As of February 28, 1994 the aggregate market value of
the Common Stock held by non-affiliates was $12,304,680,760. For purposes of the
foregoing calculation only, the Registrant's directors, executive officers, and
The Hospital Corporation of America Stock Bonus Plan have been deemed to be
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
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INTRODUCTION
This report on Form 10-K/A-2 is being filed with the Securities and
Exchange Commission to delete Item 7 of the Annual Report on Form 10-K of
Columbia/HCA Healthcare Corporation (the "Company") for the fiscal year ended
December 31, 1993 in its entirety and to insert in lieu thereof the following:
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Selected Financial Data in Item 6 set forth certain information with
respect to the financial position, results of operations and cash flows of
Columbia/HCA which should be read in conjunction with the following discussion
and analysis.
BACKGROUND INFORMATION AND BUSINESS STRATEGY
HCA Merger
As discussed in Notes 1 and 2 of the Notes to Consolidated Financial
Statements of Columbia/HCA, on October 2, 1993, Columbia entered into a
definitive agreement to merge with HCA. This transaction was completed on
February 10, 1994 and accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements and financial and operating data
included in this discussion and analysis give retroactive effect to 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. Accordingly, the accompanying 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 health care
delivery networks with physicians and other health care providers in targeted
markets, which typically involves significant health care facility acquisition
and consolidation activities.
During the past several years, hospital inpatient admission trends have
been adversely impacted by cost containment efforts initiated by federal and
state governments and various third-party payers, including HMOs, PPOs,
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 operating strategy to provide the highest quality
health care services at the lowest possible cost:
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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, Columbia 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
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
At the time of the HCA Merger, Columbia/HCA operated 195 hospitals
(43,075 licensed beds) and certain ancillary health care facilities in forty
major markets located in twenty-six states and two foreign countries. Operating
data related to the pre-HCA Merger entities follows (dollars in millions):
<TABLE>
<CAPTION>
Columbia HCA Combined
-------- ------- ---------
<S> <C> <C> <C>
Revenues:
1993 ....................................... $ 5,130 $ 5,122 $ 10,252
1992 ....................................... 4,806 5,126 9,932
1991 ....................................... 4,612 4,986 9,598
EBDITA (a):
1993 ....................................... $ 907 $ 1,097 $ 2,004
1992 ....................................... 870 1,054 1,924
1991 ....................................... 928 1,044 1,972
Income from continuing operations
before income taxes (b):
1993 ....................................... $ 471 $ 649 $ 1,120
1992 ....................................... 467 505 972
1991 ....................................... 560 282 842
Income from continuing operations (b):
1993 ....................................... $ 291 $ 382 $ 673
1992 ....................................... 297 300 597
1991 ....................................... 358 156 514
Admissions (in thousands):
1993 ....................................... 596.3 562.1 1,158.4
1992 ....................................... 586.5 574.6 1,161.1
1991 ....................................... 587.8 601.9 1,189.7
Emergency room visits (in thousands):
1993 ....................................... 1,563.2 1,576.5 3,139.7
1992 ....................................... 1,537.4 1,505.5 3,042.9
1991 ....................................... 1,519.7 1,508.9 3,028.6
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</TABLE>
(a) Income from continuing operations before non-recurring transactions,
depreciation, interest, minority interests, income taxes and amortization.
Although EBDITA is not a measure of operating performance calculated in
accordance with generally accepted accounting principles, it is commonly
used as an analytical indicator within the health care provider industry. In
addition, EBDITA also serves as a measurement of leverage capacity and debt
service ability. EBDITA should not be considered as a measure of
profitability or liquidity or as an alternative to net income, cash flows
generated by operating, investing or financing activities or other financial
statement data presented in the consolidated financial statements as an
indicator of financial performance.
(b) Excludes the effect of non-recurring transactions. See Note 5 of the Notes
to Consolidated Financial Statements for a description of these
transactions.
The following table summarizes the operating results of the combined
entity and excludes the effect of non-recurring transactions.
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- -------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues .................. $10,252 100.0% $9,932 100.0% $9,598 100.0%
------- ----- ------ ----- ------ -----
Salaries, wages and benefits 4,215 41.1 4,112 41.4 3,976 41.4
Supplies ................... 1,664 16.2 1,613 16.2 1,467 15.3
Other operating expenses ... 1,893 18.5 1,849 18.6 1,739 18.1
Provision for doubtful
accounts ................. 542 5.3 515 5.2 508 5.3
Investment income .......... (66) (0.6) (81) (0.8) (64) (0.7)
------- ----- ------ ----- ------ -----
8,248 80.5 8,008 80.6 7,626 79.4
------- ----- ------ ----- ------ -----
EBDITA ..................... 2,004 19.5 1,924 19.4 1,972 20.6
Depreciation and amortization 554 5.4 541 5.5 524 5.5
Interest expense ............ 321 3.1 401 4.0 597 6.2
Minority interests in
earnings of consolidated
entities .................. 9 0.1 10 0.1 9 0.1
------ ----- ------ ----- ------ -----
Income from continuing
operations before income
taxes ...................... 1,120 10.9 972 9.8 842 8.8
Provision for income taxes ... 447 4.3 375 3.8 328 3.4
------ ----- ------ ----- ------ -----
Income from continuing
operations ................. $ 673 6.6% $ 597 6.0% $ 514 5.4%
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</TABLE>
Revenues increased 3% to $10.3 billion in 1993 and 3% to $9.9 billion in
1992. Increases in both periods resulted primarily from price increases,
acquisitions and growth in outpatient services.
2
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During 1992 and 1993, Columbia/HCA completed numerous acquisitions and
divestitures of hospitals, most of which are discussed in Notes 5 and 6 of the
Notes to Consolidated Financial Statements. The following table summarizes
percentage changes in same-hospital volumes for each respective period of 1993
compared to the same period of 1992, and changes in same-hospital volumes in for
period of 1992 compared to the same period of 1991.
<TABLE>
<CAPTION>
1993 vs 1992 1992 vs 1991
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Columbia Columbia
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CHC Galen HCA Combined CHC Galen HCA Combined
--- ----- --- -------- --- ----- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Admissions:
Quarter:
First ................ 6.7 (2.1) (1.5) (1.5) 8.4 - 3.5 2.1
Second ............... 8.9 (1.3) (2.5) (1.6) 2.4 (4.8) 1.2 (1.5)
Third ................ 5.9 (1.0) (3.0) (1.8) 4.6 (4.1) (0.4) (1.9)
Fourth ............... 5.9 1.3 (0.4) 0.6 4.6 (3.6) (2.2) (2.6)
Year ................ 6.8 (0.8) (1.8) (1.1) 5.0 (3.1) 0.6 (1.0)
Emergency Room Visits:
Quarter:
First ................ 19.2 4.4 9.0 7.3 6.3 2.2 0.9 1.7
Second ............... 11.7 (0.1) 4.2 2.6 8.0 (1.8) - (0.5)
Third ................ 5.8 (2.2) 1.9 0.3 16.5 0.2 7.0 4.0
Fourth ............... 6.9 2.4 5.7 4.3 8.9 (2.2) (0.5) (1.0)
Year ................ 10.6 1.1 5.1 3.6 9.1 (0.4) 1.8 1.0
</TABLE>
In addition to the above, same-hospital outpatient volumes for CHC
facilities increased 9.5% in 1993 and 39% in 1992, while such volumes for Galen
facilities declined 3.6% and 1.5% respectively. Same-hospital outpatient volumes
for HCA (denominated differently than those of CHC and Galen) increased 9.6% in
1993 and 14.6% in 1992 compared to the respective prior year.
Since it began operations in 1988, CHC had experienced significant growth
in patient volumes, revenues and net income, primarily as a result of successful
implementation of its strategy.
The historical operating results of Galen's hospitals (which include the
hospital operations of Humana prior to the Spinoff) had been adversely impacted
as a result of such hospitals' pre-Spinoff relationship with Humana's managed
care health plan business in certain markets. Management believes that this
relationship caused some physicians to discontinue referrals of their patients
to the company's hospitals, and had precluded these hospitals from contracting
with unaffiliated insurers. In addition, Galen's volume of patients covered by
traditional insurance (who pay amounts which more closely approximate
established charges) declined significantly in 1992 due in part to increased
price consciousness of patients and physicians with respect to Galen's pricing
policies. Same-hospital volume trends at former Galen facilities have improved
in 1993 primarily as a result of increased volumes from discounted managed care
health plans other than Humana.
During 1993 HCA facilities experienced declines in inpatient admissions and
increases in outpatient volumes primarily as a result of the previously
discussed cost containment efforts and outpatient utilization trends. In
addition, volumes in HCA's psychiatric facilities had been adversely impacted in
both 1992 and 1993 as a result of negative publicity in the psychiatric hospital
industry.
During the past three years, Columbia/HCA has experienced an increase in
discounted business. Medicare admissions as a percentage of total admissions
increased from 37% in 1992 to 39% in 1993, while discounted and managed care
admissions grew from 32% to 35%, respectively.
3
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Despite declines in same-hospital admissions and increases in discounted
business, pre-tax income from continuing operations (excluding the effect of
non-recurring transactions) increased 15% to $1.1 billion in 1993 from $972
million in 1992 and pre-tax margins increased to 10.9% in 1993 from 9.8% in
1992. The improvement was attributable primarily to reductions in interest
expense resulting from refinancing activities in both 1992 and 1993. In
addition, pre-tax margins also increased due to improvements in staffing levels.
Salaries, wages and benefits increased approximately 2% in 1993 and declined as
a percentage of revenues to 41.1% in 1993 from 41.4% in 1992.
Pre-tax income from continuing operations (excluding the effect of non-
recurring transactions) increased 15% to $972 million in 1992 from $842 million
in 1991 primarily due to a decline of $196 million in interest expense.
Excluding interest expense, operating results in 1992 deteriorated due to a
decline in same-hospital admissions at former Galen facilities and significant
increases in Galen's discounted business.
During the third quarter of 1993, Columbia/HCA recorded non-recurring
charges of $151 million ($98 million net of tax) of costs related to the Galen
Merger.
Results of operations in 1992 include (i) $394 million ($330 million net
of tax) of losses associated with divestitures of certain hospitals, (ii) $138
million ($86 million net of tax) of costs related primarily to the Spinoff and
(iii) a gain of $93 million ($58 million net of tax) on the sale of HealthTrust
common stock.
Income from continuing operations in 1991 includes (i) a charge of $413
million ($256 million net of tax) in connection with the acceleration of vesting
of stock options under the HCA Nonqualified Stock Option Plan and the
establishment of exercise prices at levels substantially less than the then fair
value of the underlying common stock, (ii) a charge of $159 million ($99 net of
tax) primarily in connection with the anticipated loss on the disposition of
certain hospitals and other assets, (iii) a gain of $51 million ($32 million net
of tax) on the sale of a hospital, and (iv) a gain of $221 million ($162 million
net of tax) on the sale of an investment in preferred stock and warrants of
HealthTrust.
See Note 5 of the Notes to Consolidated Financial Statements for a
discussion of non-recurring transactions.
Excluding the effects of the non-recurring transactions, income from
continuing operations increased 13% to $673 million ($1.99 per share) in 1993
and 16% to $597 million ($1.82 per share) in 1992.
During the third quarter of 1993, in an effort to reduce future interest
expense and eliminate certain restrictive covenants, Columbia/HCA effected the
refinancing of $787 million of its long-term debt (bearing interest at an
average rate of 8.5%) primarily through the issuance of commercial paper, and
renegotiated HCA's bank credit agreement (subsequently replaced upon
consummation of the HCA Merger). After-tax losses from these refinancing
activities aggregated $84 million or $.24 per share.
DISCONTINUED OPERATIONS
Results of operations include income from discontinued operations of $16
million in 1993, a loss of $125 million in 1992 and income of $16 million in
1991. Losses from discontinued operations in 1992 include costs of $135 million
(net of tax) incurred by Humana in connection with the Spinoff.
LIQUIDITY
Cash provided by continuing operations totaled $1.3 billion in each of the
last three years. Cash flows in excess of Columbia/HCA's capital expenditure
program were used primarily to reduce long-term debt. Working capital totaled
$573 million at December 31, 1993 compared to $606 million at December 31, 1992.
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.
Investments of Columbia/HCA's professional liability insurance
subsidiaries to maintain statutory equity and pay claims totaled $778 million
and $709 million at December 31, 1993 and 1992, respectively.
In September 1993 the Board of Directors initiated the payment of a
regular quarterly cash dividend of $.03 per common share. Management anticipates
that this dividend policy will continue after consummation of the HCA Merger.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $836 million in 1993
compared to $668 million in 1992 and $645 million in 1991. Planned capital
expenditures in 1994 (excluding acquisitions) are expected to approximate $800
million. Management believes that its capital expenditure program is adequate to
expand, improve and equip existing health care facilities.
4
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In addition, Columbia/HCA expended $79 million, $36 million and $96
million for acquisitions during 1993, 1992 and 1991, respectively. See Note
6 of the Notes to 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. Since December 31, 1993,
Columbia/HCA has expended $114 million towards the purchase of four hospitals
(or a controlling interest therein) containing 1,264 licensed beds. These
transactions, which will be accounted for by the purchase method, were financed
through the use of internally generated funds and issuance of long-term debt.
Columbia/HCA expects 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
December 31, 1993, there were projects under construction which had an estimated
additional cost to complete of approximately $299 million.
In connection with the Spinoff, common stockholders' equity was reduced by
$802 million in 1993 as a result of the following transactions with Humana: (i)
distribution of the net assets of the health plan business ($392 million) and
the net assets of a hospital facility ($25 million), (ii) payment of cash ($135
million) and (iii) issuance of notes ($250 million). The notes were refinanced
in September 1993. Including the pro forma effect of the Spinoff, the ratio of
debt to debt plus common stockholders' equity improved from 58% at December 31,
1992 to 52% at December 31, 1993.
Upon consummation of the HCA Merger in February 1994, Columbia/HCA entered
into revolving credit agreements in the aggregate amount of $3 billion and
refinanced certain HCA and other long-term debt. The refinancings were effected
primarily through the issuance of commercial paper, $175 million of 6.5% Notes
due 1999 and $150 million of 7.15% Notes due 2004. Management anticipates that
losses resulting from these refinancing activities will reduce Columbia/HCA's
first quarter 1994 net income by approximately $80 million.
Columbia's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
Columbia/HCA was in compliance with all such covenants at December 31, 1993.
At December 31, 1993, Columbia/HCA was a party to certain interest rate
agreements covering $380 million of commercial paper classified as long-term
debt. These transactions were consummated in connection with the refinancing of
high-coupon debt with an average interest rate approximating 13% and provided a
cost-effective source of fixed rate financing averaging 7.9%. At December 31,
1993, the fair value of Columbia/HCA's net payable position under these
agreements totaled $34 million.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain
cases, limit Columbia/HCA's ability to increase prices. Revenues for hospital
services rendered to Medicare patients are established under the federal
government's prospective payment system. Medicare revenues approximated 34%, 30%
and 29% of revenues in 1993, 1992 and 1991, respectively.
Management believes that hospital operating margins have been, and may
continue to be, under significant pressure because of deterioration in inpatient
volumes and payer mix, and growth in operating expenses in excess of the
increase in prospective payments under the Medicare program. Columbia expects
that the average rate of increase in Medicare prospective payments will
approximate 2% in 1994. In addition, as a result of increasing regulatory and
competitive pressures, Columbia/HCA's ability to maintain operating margins
through price increases to non-Medicare patients is limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and some state legislatures that would
significantly affect health care systems in Columbia/HCA's markets.
Proposals under consideration include cost controls on hospitals, insurance
market reforms that increase the availability of group health insurance to small
businesses, requirements that all businesses offer health insurance to their
employees and creation of a single government health insurance plan that would
cover all citizens.
5
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President Clinton's health care reform bill, introduced as legislation in
November 1993, includes certain measures that could significantly reduce future
payments to providers of health care services.
OTHER INFORMATION
As discussed in Note 7 of the Notes to Consolidated Financial Statements,
Columbia/HCA is contesting certain income taxes and related interest aggregating
$1.3 billion at December 31, 1993 proposed by the Internal Revenue Service (the
"Service") 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 Service 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 transaction 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.
During 1992 Columbia/HCA adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which increased
last year's first quarter net income by $51 million or $.16 per share. See Note
7 of the Notes to Consolidated Financial Statements.
Columbia/HCA expects to incur certain expenses related to the HCA Merger,
the amounts of which have not been determined. These costs will include, among
other things, amounts for investment advisory and professional fees, expenses of
printing and distributing proxy materials, severance payments and provisions for
loss related to the consolidation of the operations of Columbia and HCA.
Management anticipates that these expenses will be recorded in the first
quarter of 1994.
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: December 13, 1994 /s/ Richard A. Lechleiter
----------------------------------------
Vice President and Controller
(Principal Accounting Officer)
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