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 March 31, 1995
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.)
One Park Plaza
Nashville, Tennessee 37203
(Address of principal executive offices) (Zip code)
(615) 327-9551
(Registrant's telephone number, including area code)
201 West Main Street, Louisville, Kentucky 40202
(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 April 30, 1995
Voting common stock, $.01 par value 428,818,500 shares
Nonvoting common stock, $.01 par value 14,119,000 shares
1 of 41
<TABLE>
COLUMBIA/HCA HEALTHCARE CORPORATION
FORM 10-Q
March 31, 1995
<CAPTION>
Page of
Part I: Financial Information Form 10-Q
Item 1. Financial Statements
Condensed Consolidated Statement of Income for the quarters
<S> <C> <C> <C> <S> <C> <C> <C>
ended March 31, 1995 and 1994 ................................ 3
Condensed Consolidated Balance Sheet March 31, 1995 and
December 31, 1994 ........................................... 4
Consolidated Statement of Cash Flows for the quarters ended
March 31, 1995 and 1994 ..................................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 10
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders ............ 17
Item 5. Other Information - Supplemental Financial Statements .......... 18
Supplemental Condensed Consolidated Statement of Income for
the quarters ended March 31, 1995 and 1994 ................... 19
Supplemental Condensed Consolidated Balance Sheet March 31,
1995 and December 31, 1994 ................................... 20
Supplemental Consolidated Statement of Cash Flows for the
quarters ended March 31, 1995 and 1994........................ 21
Notes to Supplemental Condensed Consolidated Financial
Statements ................................................... 22
Supplemental Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 27
Item 6. Exhibits and Reports on Form 8-K .............................. 34
2
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the quarters ended March 31, 1995 and 1994
Unaudited
(Dollars in millions, except per share amounts)
<CAPTION>
1995 1994
<S> <C> <C> <C>
Revenues ..................................................... $ 3,337 $ 2,778
Salaries, wages and benefits................................... 1,309 1,113
Supplies....................................................... 498 434
Other operating expenses ...................................... 608 492
Provision for doubtful accounts ............................... 180 150
Depreciation and amortization ................................. 177 144
Interest expense .............................................. 75 64
Investment income ............................................. (19) (14)
Non-recurring transactions .................................... - 159
2,828 2,542
Income before minority interests and income taxes ............. 509 236
Minority interests in earnings of consolidated entities ....... 23 3
Income before income taxes .................................... 486 233
Provision for income taxes .................................... 194 96
Income before extraordinary item .............................. 292 137
Extraordinary loss on extinguishment of debt, net
of income tax benefit ....................................... - (92)
Net income .............................................. $ 292 $ 45
Earnings per common and common equivalent share:
Income before extraordinary item ........................... $ .80 $ .40
Extraordinary loss on extinguishment of debt ............... - (.27)
Net income .............................................. $ .80 $ .13
Cash dividends per common share ............................... $ .03 $ .03
Shares used in earnings per common and common equivalent
share computation(000) ..................................... 365,506 341,621
See accompanying notes.
3
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited
(Dollars in millions, except per share amounts)
<CAPTION>
March 31, December 31,
1995 1994
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .............................. $ 113 $ 13
Accounts receivable less allowance for loss of
$669 March 31, 1995 and $604
December 31, 1994 ................................... 1,978 1,747
Inventories ............................................ 299 285
Other .................................................. 477 505
2,867 2,550
Property and equipment, at cost .............................. 10,140 9,573
Accumulated depreciation ..................................... (3,331) (3,190)
6,809 6,383
Investments of professional liability insurance subsidiary ... 882 888
Intangible assets ............................................ 2,354 2,269
Other ........................................................ 432 249
$ 13,344 $ 12,339
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 541 $ 503
Salaries, wages and other compensation ................. 305 277
Other accrued expenses ................................. 797 910
Income taxes ........................................... 140 -
Long-term debt due within one year ..................... 176 77
1,959 1,767
Long-term debt ............................................... 4,263 3,853
Deferred credits and other liabilities ....................... 1,434 1,439
Minority interests in equity of consolidated entities ........ 360 258
Common stockholders' equity:
Common stock, $.01 par; authorized 800,000,000 voting
shares and 25,000,000 nonvoting shares; issued and
outstanding 348,284,200 voting shares and 14,119,000
nonvoting shares March 31, 1995 and 347,849,200
voting shares and 14,119,000 nonvoting shares
December 31, 1994 ................................... 4 4
Other .................................................. 5,324 5,018
5,328 5,022
$ 13,344 $ 12,339
See accompanying notes.
4
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the quarters ended March 31, 1995 and 1994
Unaudited
(Dollars in millions)
<CAPTION>
1995 1994
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income ...................................................... $ 292 $ 45
Adjustments to reconcile net income to net cash provided
by operating activities:
Non-recurring transactions ................................... - 159
Depreciation and amortization ................................ 177 144
Deferred income taxes ........................................ (13) (64)
Change in operating assets and liabilities:
Increase in accounts receivable ........................... (147) (35)
Increase in inventories and other assets .................. (30) (53)
Increase in income taxes .................................. 198 64
Decrease in other liabilities ............................. (86) (55)
Extraordinary loss on extinguishment of debt ................. - 149
Other ........................................................ 28 13
Net cash provided by operating activities ................. 419 367
Cash flows from investing activities:
Purchase of property and equipment. ............................. (266) (214)
Acquisition of hospitals and health care facilities ............. (320) (114)
Disposition of property and equipment ........................... 9 62
Change in investments ........................................... (137) (12)
Other ........................................................... (74) (64)
Net cash used in investing activities ..................... (788) (342)
Cash flows from financing activities:
Issuance of long-term debt ...................................... 310 325
Net changes in commercial paper borrowings and lines of credit .. 203 1,461
Repayment of long-term debt ..................................... (21) (1,954)
Payment of cash dividends........................................ (10) (5)
Issuance of common stock ........................................ 3 11
Other............................................................ (16) 22
Net cash provided by (used in) financing activities ....... 469 (140)
Change in cash and cash equivalents ................................ 100 (115)
Cash and cash equivalents at beginning of period ................... 13 224
Cash and cash equivalents at end of period ......................... $ 113 $ 109
Interest payments .................................................. $ 67 $ 106
Income tax payments, net of refunds ................................ 11 38
See accompanying notes.
5
</TABLE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1 BASIS OF PRESENTATION
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware
corporation that operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries, (ii) joint ventures or
(iii) ownership of controlling interests in various partnerships in
which subsidiaries of Columbia/HCA serve as the mangaing general partner.
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, 1994 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.
On September 16, 1994, Columbia/HCA completed a merger transaction with
Medical Care America, Inc. ("MCA")(the "MCA Merger"). The MCA Merger and
various other acquisitions and joint venture transactions have been accounted
for under the purchase method. Accordingly, the accounts of these entities
have been consolidated with those of Columbia/HCA since the acquisition of
controlling interest.
On February 10, 1994, Columbia Healthcare Corporation ("Columbia") merged
with HCA Hospital Corporation of America ("HCA")(the "HCA Merger") to form
Columbia/HCA. For accounting purposes, the HCA Merger has been treated as
a pooling of interests. Accordingly, these condensed consolidated financial
statements give retroactive effect to the merger and include the combined
operations of the respective former entities for all periods presented.
On April 24, 1995, Columbia/HCA consummated a merger with Healthtrust,
Inc. The Hospital Company ("Healthtrust")(the "Healthtrust Merger").
Although the Healthtrust Merger will be treated as a pooling of interests for
accounting purposes, the accompanying condensed consolidated financial
statements do not give retroactive effect to this transaction. See Note 4 for a
description of the Healthtrust Merger.
NOTE 2 EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon the
weighted average number of 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 3 PRO FORMA INFORMATION
The following unaudited pro forma information reflects the combined
operating results of Columbia/HCA and MCA as if the MCA Merger has occurred
on January 1, 1994 (dollars in millions, except per share data):
Quarter Ended
March 31, 1994
Revenues ........................................... $ 2,886
Income before extraordinary item ................... 146
Net income ......................................... 141
Earnings per common and common equivalent share:
Income before extraordinary item ................. .40
Net income ....................................... .39
6
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 4 HEALTHTRUST MERGER
On October 4, 1994, Columbia/HCA entered into a definitive agreement
to merge with Healthtrust. This transaction was completed on April 24,
1995. Shares of Healthtrust common stock were converted on a tax-free basis
into approximately 80,411,800 shares of Columbia/HCA voting common stock (an
exchange ratio of 0.88 of a share of Columbia/HCA common stock for each
share of Healthtrust common stock).
The accompanying condensed consolidated financial statements do not
give retroactive effect to the Healthtrust Merger, which will be accounted
for as a pooling of interests. See the supplemental condensed consolidated
financial statements included elsewhere herein for additional information
regarding the Healthtrust Merger.
NOTE 5 OTHER BUSINESS COMBINATIONS
The following is a summary of acquisitions and joint ventures
consummated during the respective three month periods (dollars in
millions):
1995 1994
Number of hospitals ............................. 7 4
Number of licensed beds ......................... 1,459 1,264
Purchase price information:
Fair value of assets acquired ................ $ 463 $ 192
Liabilities assumed .......................... (48) (31)
Net assets acquired ....................... 415 161
Contributions from minority partners ......... (94) (47)
Net cash acquired ............................ (1) -
Net cash paid for acquisitions ...... $ 320 $ 114
NOTE 6 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 (the "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.
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 claims 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 respect to this issue, Columbia/HCA would owe an
additional $93 million in income taxes and $506 million in interest as of
March 31, 1995.
7
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 6 - INCOME TAXES (Continued)
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 $122 million in income taxes and $185 million in interest
as of March 31, 1995.
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 March 31, 1995, Columbia/HCA is seeking a
refund totaling $63 million in income taxes and $123 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 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 $4 million in income taxes and $18
million in interest as of March 31, 1995. 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 $74 million through March 31, 1995.
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
case. The IRS is claiming additional income taxes of $79 million and
interest of $85 million through March 31, 1995.
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 $9 million
of additional income taxes and $23 million of interest through March 31,
1995. The position of the IRS is an alternative to its denial of the use
of the cash method of accounting previously discussed.
8
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 6 INCOME TAXES (Continued)
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
proposed by the IRS 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 $104 million and interest of $66
million through March 31, 1995.
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 $95 million and interest of $38 million through March 31,
1995.
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 $38 million in income taxes
and $22 million in interest through March 31, 1995.
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 did not have a material
effect on 1994 earnings.
In September 1994, Columbia/HCA presented its case in Tax Court for
all issues other than the deductibility of insurance premiums paid to
Parthenon (which was presented in November 1994). A Tax Court decision is
expected in 1995. Resolution of disputed income tax issues by the Tax Court
will not be affected by the merger with Healthtrust.
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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background Information and Business Strategy
MCA Merger
The MCA Merger was completed in September 1994. As discussed in Note
1 of the Notes to Condensed Consolidated Financial Statements, the MCA
Merger was accounted for by the purchase method, and accordingly, the
accompanying condensed consolidated financial statements and financial and
operating data included in this discussion and analysis include the
operations of MCA since September 1, 1994.
HCA Merger
As discussed in Note 1 of the Notes to Condensed Consolidated
Financial Statements, the HCA Merger was completed in February 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.
Healthtrust Merger
On October 4, 1994, Columbia/HCA entered into a definitive agreement
to merge with Healthtrust. This transaction was completed on April 24,
1995. Although the Healthtrust Merger will be treated as a pooling of
interests for accounting purposes, the accompanying condensed consolidated
financial statements and financial and operating data included in this
discussion and analysis do not include the retroactive effect of the
Healthtrust Merger. See the Supplemental Condensed Consolidated Financial
Statements of Columbia/HCA (which include the retroactive effect of the
Healthtrust Merger) included herein for further information.
Business Strategy
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries, (ii) joint ventures
or (iii) 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:
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.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Background Information and Business Strategy (Continued)
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 services 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.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
The following is a summary of operations before extraordinary item
for the quarters ended March 31, 1995 and 1994 (dollars in millions,
except per share amounts).
<TABLE>
<CAPTION>
1995 1994
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C>
Revenues .......................................$ 3,337 100.0 $ 2,778 100.0
Salaries, wages and benefits ................... 1,309 39.2 1,113 40.1
Supplies ....................................... 498 14.9 434 15.6
Other operating expenses ....................... 608 18.3 492 17.7
Provision for doubtful accounts ................ 180 5.4 150 5.4
Investment income .............................. (19) (0.6) (14) (0.5)
2,576 77.2 2,175 78.3
EBDITA (a)...................................... 761 22.8 603 21.7
Depreciation and amortization .................. 177 5.4 144 5.2
Interest expense ............................... 75 2.2 64 2.3
Non-recurring transactions ..................... - - 159 5.7
Income before minority interests and income
taxes ........................................ 509 15.2 236 8.5
Minority interests ............................. 23 0.6 3 0.1
Income before income taxes ..................... 486 14.6 233 8.4
Provision for income taxes ..................... 194 5.9 96 3.5
Income before extraordinary item ............... $ 292 8.7 $ 137 4.9
Earnings per common and common equivalent share:
Excluding non-recurring transactions ........ $ .80 $ .70
Non-recurring transactions .................. - (.30)
Income before extraordinary item ............ $ .80 $ .40
% changes from prior year:
Revenues .................................... 20.1
EBDITA ...................................... 26.2
Income before income taxes .................. 108.6
Income before extraordinary item ............ 113.5
Earnings per common and common
equivalent share ......................... 100.0
Other information excluding the effect of
non-recurring transactions:
Income before income taxes .................. $ 486 14.6 $ 392 14.1
Income before extraordinary item ............ 292 8.7 239 8.6
% changes from prior year:
Income before income taxes ............ 23.9
Income before extraordinary item ...... 22.0
Earnings per common and common
equivalent share ................... 14.3
(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.
12
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenues increased 20% to $3.3 billion in the first quarter of 1995
compared to the same period last year, primarily as a result of
acquisitions, growth in inpatient and outpatient volumes and price
increases. On a same-hospital basis, first quarter 1995 admissions
increased 5.1% and outpatient visits increased 109.5% from a year ago. The
increase in outpatient visits is primarily a result of expanding home health
and other outpatient ancillary services.
Income before income taxes increased to $486 million in 1995 from $233
million in 1994 and pretax margins increased to 14.6% in 1995 from 8.4% in
1994. Excluding the effect of non-recurring charges in the first quarter of
1994, income before taxes increased 23.9% to $486 million in 1995 from
$392 million in 1994 and pretax margins increased to 14.6% in 1995 from
14.1% in 1994. The improvement in pretax income was primarily attributable
to growth in revenues. In addition, pretax margins also increased due to
improvements in staffing levels and increased discounts on medical supplies.
Salaries, wages and benefits increased approximately 18% and declined as a
percentage of revenues to 39.2% in 1995 from 40.1% in 1994, while supply costs
increased approximately 15% and declined as a percentage of revenues to
14.9% in 1995 compared to 15.6% in 1994.
Income before extraordinary item increased 113% to $292 million ($.80
per share) in the first quarter of 1995 compared to $137 million ($.40 per
share) in 1994. Excluding the effects of non-recurring charges, income
before extraordinary item increased 22% to $292 million ($.80 per share) in
1995 compared to $239 million ($.70 per share) in 1994.
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 were substantially completed during 1994.
In connection with the HCA Merger, substantial amounts of high-coupon
long-term debt have been refinanced to reduce future interest expense and
eliminate certain restrictive covenants. In the first quarter of 1994,
Columbia/HCA refinanced approximately $2 billion of long-term debt resulting
in an after-tax loss of $92 million or $.27 per share.
Liquidity
Cash provided by continuing operations totaled $419 million for the
three months ended March 31, 1995 compared to $367 million last year. Cash
flows in 1994 were reduced in connection with a $75 million
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 finance acquisitions.
Working capital totaled $908 million at March 31, 1995
compared to $783 million at December 31, 1994. 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, these transactions did not 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 $997
million at March 31, 1995 and $973 million at December 31, 1994.
Columbia/HCA's ratio of earnings to fixed charges was 5.92 and 3.82 for
the three months ended March 31, 1995 and 1994, respectively.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources
Excluding acquisitions, capital expenditures totaled $266 million for
the three months ended March 31, 1995 compared to $214 million for the same
period in 1994. Planned capital expenditures in 1995 (excluding
acquisitions) are expected to exceed $1 billion. Management believes that
its capital expenditure program is adequate to expand, improve and equip
existing health care facilities.
Columbia/HCA also expended $320 million and $114 million for
acquisitions and joint ventures during the respective first quarters of 1995
and 1994. See Note 5 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 (either through purchase or joint
venture transactions) 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 March 31, 1995, there were projects under construction which had an
estimated additional cost to complete of approximately $316 million.
As part of the Healthtrust Merger, Columbia/HCA amended its revolving
credit agreement from an aggregate amount of $2.25 billion to $3.75 billion.
In addition, Columbia/HCA is refinancing approximately $1 billion of
Healthtrust long-term debt and all outstanding borrowings under the
Healthtrust $1.2 billion bank credit agreement. Management anticipates that
losses resulting from these refinancing activities will reduce
Columbia/HCA's second quarter net income by approximately $70 million.
Other Information
As discussed in Note 6 of the Notes to Condensed Consolidated Financial
Statements, Columbia/HCA is contesting certain income taxes and related
interest aggregating approximately $1.5 billion at March 31, 1995 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.
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 March 31, 1995.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
Operating Data
1995 1994
Number of hospitals in operation at:
<S> <C> <C> <C>
March 31 ....................................... 201 196
June 30 ........................................ 196
September 30 ................................... 195
December 31 .................................... 195
Number of free-standing outpatient surgical centers
in operation at:
March 31 ....................................... 111 6
June 30 ........................................ 6
September 30 ................................... 103
December 31 .................................... 104
Licensed hospital beds at:
March 31 ....................................... 45,141 43,171
June 30 ........................................ 43,092
September 30 ................................... 43,669
December 31 .................................... 43,670
Weighted average hospital bed capacity:
Quarter:
First ....................................... 43,777 41,955
Second ...................................... 42,237
Third ....................................... 42,456
Fourth ...................................... 42,780
Year ........................................... 42,357
Average daily census:
Quarter:
First ....................................... 21,246 20,341
Second ...................................... 18,272
Third ....................................... 17,445
Fourth ...................................... 18,076
Year ........................................... 18,524
Admissions:
Quarter:
First .......................................339,600 309,800
Second ...................................... 292,300
Third ....................................... 288,400
Fourth ...................................... 298,900
Year ........................................... 1,189,400
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
<CAPTION>
Operating Data
1995 1994
Length of stay:
Quarter:
<S> <C> <C> <C>
First ...................................... 5.6 5.9
Second ..................................... 5.7
Third ...................................... 5.6
Fourth ..................................... 5.6
Year .......................................... 5.7
Outpatient visits:
Quarter:
First ...................................... 3,342,600 1,522,500
Second ..................................... 1,766,400
Third ...................................... 2,073,600
Fourth ..................................... 2,589,100
Year .......................................... 7,951,600
Surgery cases:
Quarter:
First ...................................... 363,900 220,700
Second ..................................... 224,700
Third ...................................... 253,000
Fourth ..................................... 329,600
Year .......................................... 1,028,000
Emergency room visits:
Quarter:
First ..................................... 856,400 788,300
Second .................................... 816,300
Third ..................................... 811,100
Fourth .................................... 799,800
Year ......................................... 3,215,500
</TABLE>
16
Part II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders.
Special meetings of the stockholders of Columbia/HCA and Healthtrust
were both held on February 28, 1995 in Nashville, Tennessee. The purpose
of the meetings was to approve the Healthtrust Merger and related matters.
The results of the stockholder votes follows:
Columbia/HCA - The agreement related to the Healthtrust Merger was
approved with 285,364,028 affirmative votes, 944,499 negative votes and
375,155 abstentions. A second proposal to increase the size of the Board
of Directors from 15 to 18 members to accommodate the addition of three
Healthtrust nominees as directors was approved with 281,487,973 affirmative
votes, 3,931,018 negative votes and 1,264,691 abstentions.
Healthtrust - The agreement related to the Healthtrust Merger was
approved with 53,813,484 affirmative votes, 746,505 negative votes and
494,631 abstentions.
17
Item 5: Other Information.
Merger
On October 4, 1994, Columbia/HCA Healthcare Corporation ("Columbia/HCA"),
a wholly owned subsidiary of Columbia/HCA ("Columbia Sub") and Healthtrust,
Inc. - The Hospital Company ("Healthtrust") executed an Agreement and Plan
of Merger, pursuant to which, among other things,(i) Columbia Sub would be
merged with and into Healthtrust (the "Healthtrust Merger") and (ii) each
stockholder of Healthtrust would receive for each share of Healthtrust common
stock held as of the consummation date of the Healthtrust Merger 0.88 of a
share of Columbia/HCA common stock. On February 28, 1995, the stockholders of
both Columbia/HCA and Healthtrust voted to approve the Healthtrust Merger.
The Healthtrust Merger was consummated on April 24, 1995.
For accounting purposes, the Healthtrust Merger has been treated as a
pooling of interests. Accordingly, the accompanying supplemental condensed
consolidated financial statements and supplemental management's discussion and
analysis for the quarters ended March 31, 1995 and 1994 give retroactive
effect to the Healthtrust Merger and include the combined operations of
Columbia/HCA and Healthtrust for all periods presented. In addition, the
historical financial information related to Healthtrust (which prior to the
Healthtrust 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.
The accompanying supplmental condensed financial information does not
extend through the date of consummation of the Healthtrust Merger; however,
such information will become the historical consolidated financial information
of Columbia/HCA after the financial statements including the date of
consummation of the Healthtrust merger are issued.
18
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the quarters ended March 31, 1995 and 1994
Unaudited
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Revenues ........................................ $ 4,380 $3,432
Salaries, wages and benefits .................... 1,738 1,374
Supplies ........................................ 635 525
Other operating expenses ........................ 812 612
Provision for doubtful accounts ................. 241 193
Depreciation and amortization ................... 233 178
Interest expense ................................ 115 85
Investment income ............................... (21) (16)
Non-recurring transactions ...................... - 159
3,753 3,110
Income before minority interests and income
taxes ......................................... 627 322
Minority interests in earnings of consolidated
entities ...................................... 25 6
Income before income taxes ...................... 602 316
Provision for income taxes ...................... 244 129
Income before extraordinary item ................ 358 187
Extraordinary loss on extinguishment of debt,
net of income tax benefit ..................... - (92)
Net income ................................ $ 358 $ 95
Earnings per common and common equivalent share:
Income before extraordinary item ............. $ .80 $ .45
Extraordinary loss on extinguishment of debt . - (.22)
Net income ............................... $ .80 $ .23
Cash dividends per common share ................ $ .03 $ .03
Shares used in earnings per common and common
equivalent share computation(000) ............ 447,446 416,477
See accompanying notes.
19
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited
(Dollars in millions, except per share amounts)
<CAPTION>
March 31, December 31,
1995 1994
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents .............................$ 168 $ 68
Accounts receivable less allowance for loss of
$849 March 31, 1995 and $784 December
31, 1994 ........................................... 2,592 2,346
Inventories ........................................... 391 373
Other ................................................. 573 560
3,724 3,347
Property and equipment, at cost ............................. 13,278 12,613
Accumulated depreciation .................................... (4,174) (3,987)
9,104 8,626
Investments of professional liability insurance subsidiary .. 882 888
Intangible assets ........................................... 3,107 3,058
Other ....................................................... 570 359
$ 17,387 $ 16,278
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 670 $ 609
Salaries, wages and other compensation ............... 452 391
Other accrued expenses ............................... 954 1,131
Income taxes ......................................... 180 -
Long-term debt due within one year ................... 226 124
2,482 2,255
Long-term debt ............................................. 5,952 5,548
Deferred credits and other liabilities ..................... 2,102 2,107
Minority interests in equity of consolidated entities ...... 380 278
Common stockholders' equity:
Common stock, $.01 par; authorized 800,000,000
voting shares and 25,000,000 nonvoting shares;
issued and outstanding 428,644,800 voting shares
and 14,119,000 nonvoting shares March 31, 1995
and 427,837,300 voting shares and 14,119,000
nonvoting shares December 31, 1994 ................. 4 4
Other ................................................. 6,467 6,086
6,471 6,090
$ 17,387 $ 16,278
See accompanying notes.
20
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
For the quarters ended March 31, 1995 and 1994
Unaudited
(Dollars in millions)
<CAPTION>
1995 1994
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income ................................................$ 358 $ 95
Adjustments to reconcile net income to net cash provided
by operating activities:
Non-recurring transactions ............................. - 159
Depreciation and amortization .......................... 233 178
Deferred income taxes .................................. (13) (48)
Change in operating assets and liabilities:
Increase in accounts receivable ..................... (165) (23)
Increase in inventories and other assets ............ (28) (56)
Increase in income taxes ............................ 195 52
Decrease in other liabilities ....................... (87) (21)
Extraordinary loss on extinguishment of debt ........... - 149
Other .................................................. 30 19
Net cash provided by operating activities ........... 523 504
Cash flows from investing activities:
Purchase of property and equipment ........................ (346) (261)
Acquisition of hospitals and health care facilities ....... (335) (114)
Disposition of property and equipment ..................... 10 63
Change in investments ..................................... (137) (12)
Other ..................................................... (74) (63)
Net cash used in investing activities ............... (882) (387)
Cash flows from financing activities:
Issuance of long-term debt ................................ 310 377
Net changes in commercial paper borrowings and lines
of credit ................................................ 203 1,461
Repayment of long-term debt ............................... (31) (1,971)
Payment of cash dividends ................................. (10) (5)
Issuance of common stock .................................. 4 12
Other ..................................................... (17) 21
Net cash provided by (used) in financing activities . 459 (105)
Change in cash and cash equivalents .......................... 100 12
Cash and cash equivalents at beginning of period ............. 68 348
Cash and cash equivalents at end of period ................... $ 168 $ 360
Interest payments ............................................ $ 96 $ 123
Income tax payments, net of refunds .......................... 65 52
See accompanying notes.
21
</TABLE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Unaudited
NOTE 1 BASIS OF PRESENTATION
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware
corporation that operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries, (ii) joint ventures or (iii)
ownership of controlling interests in various partnerships in which
subsidiaries of Columbia/HCA serve as the managing general parnter.
The accompanying supplemental 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. Accordingly, these financial statements should be read
in conjunction with the audited supplemental consolidated financial
statements of Columbia/HCA for the year ended December 31, 1994 filed on
Form 8-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.
On April 24, 1995, Columbia/HCA consummated a merger with
Healthtrust, Inc. The Hospital Company ("Healthtrust")(the "Healthtrust
Merger"). See Note 3 for a description of the Healthtrust Merger.
On September 16, 1994, Columbia/HCA completed a merger transaction with
Medical Care America, Inc. ("MCA")(the "MCA Merger") and on May 5, 1994,
Columbia/HCA completed a merger transaction with EPIC Holdings, Inc.
("EPIC")(the "EPIC Merger"). The MCA and EPIC Mergers and various other
acquisitions and joint venture transactions have been accounted for under
the purchase method. Accordingly, the accounts of these entities have
been consolidated with those of Columbia/HCA since the acquisition of
controlling interest.
On February 10, 1994, Columbia Healthcare Corporation ("Columbia")
merged with HCA Hospital Corporation of America ("HCA")(the "HCA Merger")
to form Columbia/HCA.
For accounting purposes, the HCA and Healthtrust Mergers have been
treated as a pooling of interests. Accordingly, the accompanying
supplemental condensed consolidated financial statements give retroactive
effect to these transactions and include the combined operations of the
respective former entities for all periods presented. In addition, the
historical financial information related to Healthtrust (which prior to
the Healthtrust 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.
Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling-of-
interests method in financial statements that do not include the date of
consummation. The supplemental condensed consolidated financial statements
do not extend through the consummation date of the Healthtrust Merger;
however, they will become the historical consolidated financial statements of
Columbia/HCA after the financial statements including the consummation date of
the Healthtrust Merger are issued.
NOTE 2 EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon the
weighted average number of 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.
22
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 3 HEALTHTRUST MERGER
On October 4, 1994, Columbia/HCA entered into a definitive
agreement to merge with Healthtrust. This transaction was approved by
the stockholders of both companies on February 28, 1995 and was
consummated on April 24, 1995. Shares of Healthtrust common stock were
converted on a tax-free basis into approximately 80,411,800 shares of
Columbia/HCA voting common stock (an exchange ratio of 0.88 of a share of
Columbia/HCA common stock for each share of Healthtrust common stock).
The Healthtrust Merger has been accounted for as a pooling of
interests, and accordingly, the supplemental condensed consolidated
financial statements give retroactive effect to the Healthtrust Merger
and include the combined operations of Columbia/HCA and Healthtrust for
all periods presented. The following is a summary of the results of
operations of the separate entities for the periods prior to the
Healthtrust Merger (dollars in millions):
<TABLE>
<CAPTION>
Columbia/HCA Healthtrust Combined
Three months ended March 31, 1995:
<S> <C> <C> <C> <C>
Revenues ........................... $ 3,337 $1,043 $4,380
Net income ......................... 292 66 358
Three months ended March 31, 1994:
Revenues ........................... $ 2,778 $659 $3,432(a)
Net income 45 50 95
</TABLE>
(a) Includes $5 million pooling adjustment to eliminate data center fees
charged by Columbia/HCA to Healthtrust.
NOTE 4 OTHER BUSINESS COMBINATIONS
The following is a summary of acquisitions and joint ventures
consummated during the respective three month periods (dollars in
millions):
1995 1994
Number of hospitals ................................. 8 4
Number of licensed beds ............................. 1,654 1,264
Purchase price information:
Fair value of assets acquired ..................... $ 488 $ 192
Liabilities assumed ............................... (58) (31)
Net assets acquired ............................ 430 161
Contributions from minority partners .............. (94) (47)
Net cash acquired ................................. (1) -
Net cash paid for acquisitions ........... $ 335 $ 114
NOTE 5 PRO FORMA INFORMATION
The following unaudited pro forma information reflects the combined
operating results of Columbia/HCA, MCA and EPIC as if the MCA and EPIC
Mergers occurred on January 1, 1994 (dollars in millions, except per share
data):
Quarter Ended
March 31, 1994
Revenues .............................................. $ 3,827
Income before extraordinary item ...................... 199
Net income ............................................ 194
Earnings per common and common equivalent share:
Income before extraordinary item ................... .45
Net income ......................................... .44
23
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 6 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 (the "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.
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
claims 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 respect to this issue,
Columbia/HCA would owe an additional $68 million in income taxes and $495
million in interest as of March 31, 1995.
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 $122 million in income taxes and $185 million in
interest as of March 31, 1995.
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 March 31, 1995, Columbia/HCA is seeking a
refund totaling $63 million in income taxes and $123 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 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 $4 million in income taxes and
$18 million in interest as of March 31, 1995. 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.
24
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 6 INCOME TAXES (Continued)
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 $74 million through March 31, 1995.
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 case. The IRS is claiming additional income taxes of $79 million
and interest of $85 million through March 31, 1995.
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 $9 million
of additional income taxes and $23 million of interest through March 31,
1995. 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
proposed by the IRS 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 $137 million and interest
of $78 million through March 31, 1995.
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 $95 million and interest of $38 million through March
31, 1995.
25
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Unaudited
NOTE 6 INCOME TAXES (Continued)
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 $38 million in income taxes
and $22 million in interest through March 31, 1995.
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 did not have a material
effect on 1994 earnings.
In September 1994, Columbia/HCA presented its case in Tax Court for
all issues other than the deductibility of insurance premiums paid to
Parthenon (which was presented in November 1994). A Tax Court decision is
expected in 1995. Resolution of disputed income tax issues by the Tax
Court will not be affected by the merger with Healthtrust.
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.
26
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background Information and Business Strategy
Healthtrust Merger
As discussed in Note 3 of the Notes to Supplemental Condensed
Consolidated Financial Statements of Columbia/HCA, on October 4, 1994
Columbia entered into a definitive agreement to merge with Healthtrust.
This transaction was completed on April 24, 1995. For accounting purposes,
the Healthtrust Merger was treated as a pooling of interests. Accordingly,
the accompanying supplemental condensed consolidated financial statements
and operating data included in this discussion and analysis give
retroactive effect to the Healthtrust Merger and include the combined
operations of Columbia/HCA and Healthtrust for all periods presented.
MCA and EPIC Mergers
The MCA Merger was completed in September 1994, and the EPIC Merger
was completed on May 5, 1994. As discussed in Note 1 of the Notes to
Supplemental Condensed Consolidated Financial Statements, the MCA and EPIC
Mergers were accounted for by the purchase method, and accordingly,
the accompanying supplemental condensed consolidated financial statements and
financial and operating data included in this discussion and analysis include
the operations of MCA and EPIC since the respective dates of acquisition.
HCA Merger
As discussed in Note 1 of the Notes to Supplemental Condensed
Consolidated Financial Statements, the HCA Merger was completed in February
1994. For accounting purposes, this transaction was treated as a
pooling of interests. Accordingly, the accompanying supplemental 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.
Business Strategy
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries, (ii) joint
ventures or (iii) 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:
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.
27
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Background Information and Business Strategy (Continued)
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 services 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.
28
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
The following is a summary of operations before extraordinary item for
the quarters ended March 31, 1995 and 1994 (dollars in millions, except per
share amounts).
1995 1994
Amount Ratio Amount Ratio
Revenues ................................$4,380 100.0 $ 3,432 100.0
Salaries, wages and benefits ............ 1,738 39.7 1,374 40.0
Supplies ................................ 635 14.5 525 15.3
Other operating expenses ................ 812 18.5 612 17.9
Provision for doubtful accounts ......... 241 5.5 193 5.6
Investment income ....................... (21) (0.5) (16) (0.5)
3,405 77.7 2,688 78.3
EBDITA (a) .............................. 975 22.3 744 21.7
Depreciation and amortization ........... 233 5.4 178 5.2
Interest expense ........................ 115 2.6 85 2.4
Non-recurring transactions .............. - - 159 4.7
Income before minority interests
and income taxes ...................... 627 14.3 322 9.4
Minority interests ...................... 25 0.6 6 0.2
Income before income taxes .............. 602 13.7 316 9.2
Provision for income taxes .............. 244 5.5 129 3.8
Income before extraordinary item ........$ 358 8.2 $ 187 5.4
Earnings per common and common
equivalent share:
Excluding non-recurring transactions .$ .80 $ .69
Non-recurring transactions ........... - (.24)
Income before extraordinary item .....$ .80 $ .45
% changes from prior year:
Revenues ............................. 27.6
EBDITA ............................... 31.0
Income before income taxes ........... 90.5
Income before extraordinary item ..... 92.0
Earnings per common and common
equivalent share .................. 77.8
Other information excluding the effect of
non-recurring transactions:
Income before income taxes ...........$ 602 13.7 $ 475 13.9
Income before extraordinary item ..... 358 8.2 289 8.4
% changes from prior year:
Income before income taxes ....... 26.6
Income before extraordinary item . 23.9
Earnings per common and common
equivalent share ............... 15.9
(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.
29
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Revenues increased 27.6% to $4.4 billion in the first quarter of 1995
compared to the same period last year, primarily as a result of acquisitions,
growth in inpatient and outpatient volumes and price increases. On a same-
hospital basis, first quarter 1995 admissions increased 5.2% and outpatient
visits increased 82.1% from a year ago. The increase in outpatient visits is
primarily a result of expanding home health and other outpatient ancillary
services.
Income before income taxes increased to $602 million in 1995 from $316
million in 1994 and pretax margins increased to 13.7% in 1995 from 9.2% in
1994. Excluding the effect of non-recurring charges in the first quarter of
1994, income before taxes increased 26.6% to $602 million in 1995 from
$475 million in 1994 and pretax margins decreased to 13.7% in 1995 from 13.9%
in 1994. The improvement in pretax income was primarily attributable to
growth in revenues. In addition, pretax margins also increased due to
improvements in staffing levels and increased discounts on medical supplies.
Salaries, wages and benefits increased approximately 27% and declined as a
percentage of revenues to 39.7% in 1995 from 40% in 1994, while supply costs
increased approximately 21% and declined as a percentage of revenues to 14.5%
in 1995 compared to 15.3% in 1994.
Income before extraordinary item increased 92% to $358 million ($.80 per
share) in the first quarter of 1995 compared to $187 million ($.45 per share)
in 1994. Excluding the effects of non-recurring charges, income before
extraordinary item increased 24% to $358 million ($.80 per share) in 1995
compared to $289 million ($.69 per share) in 1994.
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 were
substantially completed during 1994.
The acute care facilities acquired in connection with the EPIC Merger in
May 1994 increased revenues in the first quarter of 1995 by $288 million,
while the free-standing surgical center business acquired in connection with
the MCA Merger in September 1994 increased revenues by $120 million. See Note
5 of the Notes to Supplemental Condensed Consolidated Financial Statements
for certain pro forma information related to the EPIC Merger and MCA Merger.
In connection with the HCA Merger, substantial amounts of high-coupon
long-term debt have been refinanced to reduce future interest expense and
eliminate certain restrictive covenants. In the first quarter of 1994,
Columbia/HCA refinanced approximately $2 billion of long-term debt resulting
in an after-tax loss of $92 million or $.22 per share.
Liquidity
Cash provided by continuing operations totaled $523 million for the three
months ended March 31, 1995 compared to $504 million last year. Cash flows
in 1994 were reduced in connection with a $75 million 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 finance acquisitions. Working capital totaled $1.2 billion at
March 31, 1995 compared to $1.1 billion at December 31, 1994. 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, these transactions did not have a material adverse effect on
cash flows from continuing operations in 1994.
30
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity (Continued)
Investments of Columbia/HCA's professional liability insurance
subsidiaries to maintain statutory equity and pay claims totaled $997 million
at March 31, 1995 and $973 million at December 31, 1994.
Columbia/HCA's supplemental ratio of earnings to fixed charges was 5.19
and 3.78 for the three months ended March 31, 1995 and 1994, respectively.
Capital Resources
Excluding acquisitions, capital expenditures totaled $346 million for the
three months ended March 31, 1995 compared to $261 million for the same
period in 1994. Planned capital expenditures in 1995 (excluding
acquisitions) are expected to approximate $1.3 billion. Management believes
that its capital expenditure program is adequate to expand, improve and equip
existing health care facilities.
Columbia/HCA also expended $335 million and $114 million for acquisitions
and joint ventures during the respective first quarters of 1995 and 1994. See
Note 4 of the Notes to Supplemental Condensed Consolidated Financial
Statements for a description of these activities. As part of its business
strategy, Columbia/HCA intends to acquire (either through purchase or joint
venture transactions) 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
March 31, 1995, there were projects under construction which had an estimated
additional cost to complete of approximately $434 million.
As part of the Healthtrust Merger, Columbia/HCA amended its revolving
credit agreement from an aggregate amount of $2.25 billion to $3.75 billion.
In addition, Columbia/HCA is refinancing approximately $1 billion of
Healthtrust long-term debt and all outstanding borrowings under the
Healthtrust $1.2 billion bank credit agreement. Management anticipates that
losses resulting from these refinancing activities will reduce Columbia/HCA's
second quarter net income by approximately $70 million.
Other Information
As discussed in Note 6 of the Notes to Supplemental Condensed Consolidated
Financial Statements, Columbia/HCA is contesting certain income taxes and
related interest aggregating $1.5 billion at March 31, 1995 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 did 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 March 31, 1995.
31
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
Operating Data
1995 1994
Number of hospitals in operation at:
<S> <C> <C> <C>
March 31 .................................... 318 277
June 30 ..................................... 312
September 30 ................................ 311
December 31 ................................. 311
Number of free-standing outpatient surgical
centers in operation at:
March 31 .................................... 111 6
June 30 ..................................... 6
September 30 ................................ 103
December 31 ................................. 104
Licensed hospital beds at:
March 31 .................................... 61,261 54,179
June 30 ..................................... 58,888
September 30 ................................ 59,594
December 31 ................................. 59,595
Weighted average licensed beds:
Quarter:
First .................................... 60,960 53,909
Second ................................... 57,263
Third .................................... 59,260
Fourth ................................... 59,576
Year ........................................ 57,517
Average daily census:
Quarter:
First .................................... 27,713 24,905
Second ................................... 23,540
Third .................................... 23,066
Fourth ................................... 23,874
Year ........................................ 23,841
Admissions:
Quarter:
First .................................... 454,500 387,100
Second ................................... 384,200
Third .................................... 390,200
Fourth ................................... 404,000
Year ........................................ 1,565,500
32
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
<CAPTION>
Operating Data
1995 1994
Length of stay:
Quarter:
<S> <C> <C> <C>
First .................................... 5.5 5.8
Second ................................... 5.6
Third .................................... 5.4
Fourth ................................... 5.4
Year ........................................ 5.6
Outpatient visits:
Quarter:
First .................................... 4,933,300 2,199,200
Second ................................... 2,871,500
Third .................................... 3,441,000
Fourth ................................... 4,046,500
Year ........................................ 12,558,200
Surgery cases:
Quarter:
First .................................... 443,700 271,400
Second ................................... 295,700
Third .................................... 331,800
Fourth ................................... 409,700
Year ........................................ 1,308,600
Emergency room visits:
Quarter:
First .................................... 1,258,900 1,060,000
Second ................................... 1,188,300
Third .................................... 1,216,600
Fourth ................................... 1,186,100
Year ........................................ 4,651,000
33
</TABLE>
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 11.1 - Statement re Supplemental Computation of Earnings Per
Common and Common Equivalent Share.
Exhibit 12 - Statement re Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 12.1 - Statement re Supplemental Computation of Ratio of
Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule (included only in filings under
the Electronic Data, Gathering, Analysis, and Retrieval
system)
(b) Reports on Form 8-K:
On February 21, 1995, Columbia/HCA reported on Form 8-K its
consolidated earnings for the year ended December 31, 1994. A copy of the
press release issued by Columbia/HCA on February 17, 1995 was included in
the report.
34
Signature
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: May 15, 1995 /s/ Kenneth C. Donahey
Kenneth C. Donahey
Senior Vice President and
Controller
(Principal Accounting Officer)
35
<TABLE>
Exhibit 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the quarters ended March 31, 1995 and 1994
(Dollars in millions, except per share amounts)
<CAPTION>
1995 1994
Primary Earnings per Common and Common Equivalent Share:
Earnings:
<S> <C> <C> <C> <C> <C>
Income before extraordinary item ................... $ 292 $ 137
Extraordinary loss on extinguishment of debt,
net of income tax benefit ....................... - (92)
Net income .................................... $ 292 $ 45
Shares used in the computation (000):
Weighted average common shares outstanding ......... 362,169 337,222
Dilutive effect of common stock equivalents ........ 3,337 4,399
Shares used in earnings per common and common
equivalent share computation .................. 365,506 341,621
Primary earnings per common and common equivalent share:
Income before extraordinary item ................... $ .80 $ .40
Extraordinary loss on extinguishment of debt ....... - (.27)
Net income .................................... $ .80 $ .13
36
Exhibit 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the quarters ended March 31, 1995 and 1994
(Dollars in millions, except per share amounts)
1995 1994
Fully Diluted Earnings per Common and Common
Equivalent Share:
Earnings:
Income before extraordinary item ......................$ 292 $ 137
Interest addback on convertible securities, net of
income taxes ........................................ 2 -
Income applicable to common stock ..................... 294 137
Extraordinary loss on extinguishment of debt,
net of income tax benefit ........................... - (92)
Net income ......................................$ 294 $ 45
Shares used in the computation (000):
Weighted average common shares outstanding ............362,169 337,222
Dilutive effect of common stock equivalents and
other dilutive securities ........................... 6,056 4,399
Shares used in earnings per common and common
equivalent share computation ..................368,225 341,621
Fully diluted earnings per common and common
equivalent share:
Income before extraordinary item .......................$ .80 $ .40
Extraordinary loss on extinguishment of debt ........... - (.27)
Net income ......................................$ .80 $ .13
37
Exhibit 11.1
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
For the quarters ended March 31, 1995 and 1994
(Dollars in millions, except per share amounts)
<CAPTION>
1995 1994
Primary Earnings per Common and Common Equivalent Share:
Earnings:
<S> <C> <C> <C> <C>
Income before extraordinary item ....................... $ 358 $ 187
Extraordinary loss on extinguishment of debt,
net of income tax benefit ............................ - (92)
Net income .......................................... $ 358 $ 95
Shares used in the computation (000):
Columbia/HCA (prior to Healthtrust Merger):
Weighted average common shares outstanding ......... 362,169 337,222
Dilutive effect of common stock equivalents ........ 3,337 4,399
Columbia/HCA common and common equivalent shares ... 365,506 341,621
Healthtrust:
Weighted average common shares outstanding ......... 91,271 81,206
Dilutive effect of common stock equivalents ........ 1,842 3,858
Healthtrust common and common equivalent shares .... 93,113 85,064
Merger exchange ratio .............................. 0.88 0.88
Adjusted Healthtrust common and common equivalent
shares ........................................... 81,940 74,856
Shares used in earnings per common and common
equivalent share computations ............. 447,446 416,477
Primary earnings per common and common equivalent share:
Income before extraordinary item ..................... $ .80 $ .45
Extraordinary loss on extinguishment of debt ......... - (.22)
Net income ..................................... $ .80 .23
38
Exhibit 11.1
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
For the quarters ended March 31, 1995 and 1994
(Dollars in millions, except per share amounts)
1995 1994
Fully Diluted Earnings per Common and Common
Equivalent Share:
Earnings:
Income before extraordinary item ....................... $ 358 $ 187
Interest addback on convertible securities, net of
income taxes ........................................ 2 -
Income applicable to common stock ...................... 360 187
Extraordinary loss on extinguishment of debt,
net of income tax benefit ........................... - (92)
Net income ....................................... $ 360 $ 95
Shares used in the computation (000):
Columbia/HCA (prior to Healthtrust Merger):
Weighted average common shares outstanding .......... 362,169 337,222
Dilutive effect of common stock equivalents and
other dilutive securities ..................... 6,056 4,399
Columbia/HCA common and common equivalent shares . 368,225 341,621
Healthtrust:
Weighted average common shares outstanding .......... 91,271 81,206
Dilutive effect of common stock equivalents and
other dilutive securities ....................... 1,960 4,266
Healthtrust common and common equivalent shares ..... 93,231 85,472
Merger exchange ratio ............................... 0.88 0.88
Adjusted Healthtrust common and common equivalent
shares ............................................ 82,044 75,216
Shares used in earnings per common and common
equivalent share computations ............. 450,269 416,837
Fully diluted earnings per common and common equivalent
share:
Income before extraordinary item ....................... $ .80 $ .45
Extraordinary loss on extinguishment of debt ........... - (.22)
Net income ....................................... $ .80 $ .23
</TABLE>
39
<TABLE>
Exhibit 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the quarters ended March 31, 1995 and 1994
(Dollars in millions)
<CAPTION>
1995 1994
Earnings:
<S> <C> <C> <C> <C>
Income before minority interests and income taxes ..........$ 509 $ 236
Fixed charges, exclusive of capitalized interest ........... 98 80
$ 607 $ 316
Fixed Charges:
Interest charged to expense ................................$ 75 $ 64
One-third of rent expense and amortization of deferred
loan costs (a) ........................................... 23 16
Fixed charges, exclusive of capitalized interest ........... 98 80
Capitalized interest ....................................... 4 3
$ 102 $ 83
Ratio of earnings to fixed charges ............................ 5.92 3.82
(a) One-third of rent expense is considered representative of the underlying
interest.
40
Exhibit 12.1
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the quarters ended March 31, 1995 and 1994
(Dollars in millions)
<CAPTION>
1995 1994
Earnings:
<S> <C> <C> <C> <C> <C>
Income before minority interests and income taxes ......... $ 627 $ 322
Fixed charges, exclusive of capitalized interest .......... 143 108
$ 770 $ 430
Fixed Charges:
Interest charged to expense ............................... $ 115 $ 85
One-third of rent expense and amortization of deferred
loan costs (a) .......................................... 28 23
Fixed charges, exclusive of capitalized interest .......... 143 108
Capitalized interest ...................................... 5 6
$ 148 $ 114
Ratio of earnings to fixed charges ........................... 5.19 3.78
(a) One-third of rent expense is considered representative of the underlying
interest.
</TABLE>
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the statemen
of income and balance sheet and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 1,978
<ALLOWANCES> 669
<INVENTORY> 299
<CURRENT-ASSETS> 2,867
<PP&E> 10,140
<DEPRECIATION> 3,331
<TOTAL-ASSETS> 13,344
<CURRENT-LIABILITIES> 1,959
<BONDS> 4,263
<COMMON> 4
0
0
<OTHER-SE> 5,324
<TOTAL-LIABILITY-AND-EQUITY> 13,344
<SALES> 0
<TOTAL-REVENUES> 3,337
<CGS> 0
<TOTAL-COSTS> 1,807
<OTHER-EXPENSES> 608
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 486
<INCOME-TAX> 194
<INCOME-CONTINUING> 292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
