<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 SEPTEMBER 30, 1996
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 37203
NASHVILLE, TENNESSEE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(615) 327-9551
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OF COMMON STOCK OCTOBER 31 , 1996
--------------------- ------------------
<S> <C>
Voting common stock, $.01 par value 650,319,400 shares
Nonvoting common stock, $.01 par value 21,000,000 shares
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 of 20
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
FORM 10-Q
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PAGE OF
PART I: FINANCIAL INFORMATION FORM 10-Q
- ----------------------------- ---------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations--for the quarters and
nine months ended September 30, 1996 and 1995 ...................... 3
Condensed Consolidated Balance Sheet--September 30, 1996 and December
31, 1995............................................................ 4
Condensed Consolidated Statement of Cash Flows--for the nine months
ended September 30, 1996 and 1995 .................................. 5
Notes to Condensed Consolidated Financial Statements ................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 9
<CAPTION>
PART II: OTHER INFORMATION
- --------------------------
<S> <C>
Items 1 to 6 ............................................................ 17
</TABLE>
2
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.................................. $ 4,887 $ 4,371 $14,771 $13,112
Salaries and benefits..................... 1,950 1,788 5,873 5,291
Supplies.................................. 659 629 2,020 1,907
Other operating expenses.................. 1,022 849 2,978 2,444
Provision for doubtful accounts........... 316 258 875 746
Depreciation and amortization............. 302 251 849 730
Interest expense.......................... 122 111 379 347
Equity in earnings of affiliates.......... (39) (2) (127) (9)
Merger and facility consolidation costs... - - - 387
------- ------- ------- -------
4,332 3,884 12,847 11,843
------- ------- ------- -------
Income before minority interests and in-
come taxes............................... 555 487 1,924 1,269
Minority interests in earnings of consoli-
dated entities........................... 36 30 102 80
------- ------- ------- -------
Income before income taxes and extraordi-
nary charges............................. 519 457 1,822 1,189
Provision for income taxes................ 208 183 731 479
------- ------- ------- -------
Income before extraordinary charges....... 311 274 1,091 710
Extraordinary charges on extinguishments
of debt, net of income tax benefits...... - (7) - (103)
------- ------- ------- -------
Net income............................ $ 311 $ 267 $ 1,091 $ 607
======= ======= ======= =======
Earnings per share:
Income before extraordinary charges..... $ .46 $ .40 $ 1.61 $ 1.05
Extraordinary charges on extinguishments
of debt................................ - (.01) - (.15)
------- ------- ------- -------
Net income............................ $ .46 $ .39 $ 1.61 $ .90
======= ======= ======= =======
Cash dividends per share.................. $ .02 $ .02 $ .06 $ .06
Shares used in computing earnings per
share (in thousands)..................... 677,417 674,160 677,814 672,278
</TABLE>
See accompanying notes.
3
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 10 $ 232
Accounts receivable, less allowances for doubtful
accounts of $1,341 and $1,171.................... 2,795 2,665
Inventories....................................... 432 406
Other............................................. 847 897
------- -------
4,084 4,200
Property and equipment, at cost..................... 15,521 14,315
Accumulated depreciation............................ (5,198) (4,564)
------- -------
10,323 9,751
Investments of professional liability insurance sub-
sidiary............................................ 1,086 1,071
Investments in and advances to affiliates........... 1,129 1,021
Intangible assets................................... 3,672 3,497
Other............................................... 363 352
------- -------
$20,657 $19,892
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 679 $ 829
Accrued salaries.................................. 416 520
Other accrued expenses............................ 1,377 1,146
Long-term debt due within one year................ 201 243
------- -------
2,673 2,738
Long-term debt...................................... 6,859 7,137
Deferred taxes and other liabilities................ 2,090 2,166
Minority interests in equity of consolidated enti-
ties............................................... 820 722
Stockholders' equity:
Common stock, $.01 par; authorized 800,000,000
voting shares and 25,000,000 nonvoting shares;
issued and outstanding 650,548,800 voting shares
and 21,000,000 nonvoting shares--September 30,
1996 and 647,549,500 voting shares and 21,178,500
nonvoting shares--December 31, 1995.............. 7 7
Other............................................. 8,208 7,122
------- -------
8,215 7,129
------- -------
$20,657 $19,892
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 1,091 $ 607
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 849 730
Deferred income taxes.................................... 15 (19)
Changes in operating assets and liabilities.............. (110) (348)
Merger and facility consolidation costs.................. - 387
Extraordinary charges on extinguishments of debt......... - 170
Other.................................................... 63 (11)
------- -------
Net cash provided by operating activities.............. 1,908 1,516
------- -------
Cash flows from investing activities:
Purchase of property and equipment......................... (1,066) (1,064)
Acquisition of hospitals and health care entities.......... (656) (1,279)
Investments in and advances to affiliates.................. (37) -
Disposition of property and equipment...................... 142 241
Purchase of other investments.............................. (114) (88)
Other...................................................... (1) 55
------- -------
Net cash used in investing activities.................. (1,732) (2,135)
------- -------
Cash flows from financing activities:
Issuance of long-term debt................................. 435 1,764
Net changes in commercial paper borrowings and lines of
credit.................................................... (506) 785
Repayment of long-term debt................................ (291) (1,924)
Payment of cash dividends.................................. (40) (34)
Other...................................................... 4 35
------- -------
Net cash provided by (used in) financing activities.... (398) 626
------- -------
Change in cash and cash equivalents.......................... (222) 7
Cash and cash equivalents at beginning of period............. 232 68
------- -------
Cash and cash equivalents at end of period................... $ 10 $ 75
======= =======
Interest payments............................................ $ 337 $ 329
Income tax payments, net of refunds.......................... $ 602 $ 528
</TABLE>
See accompanying notes.
5
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1--BASIS OF PRESENTATION
Columbia/HCA Healthcare Corporation ("Columbia/HCA" or the "Company") is a
Delaware corporation that operates hospitals and ancillary health care
facilities through (i) wholly owned subsidiaries, (ii) joint ventures or (iii)
ownership of interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner. At September 30, 1996,
Columbia/HCA owned and operated 325 hospitals, 130 freestanding surgery
centers, approximately 560 home health locations and numerous other facilities
providing a variety of health care services. Columbia/HCA is also a partner in
several 50/50 joint ventures that own and operate 20 hospitals and 3
freestanding surgery centers which are accounted for using the equity method.
The above facilities are located in 37 states, England and Switzerland.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the quarter and
nine months ended September 30, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Columbia/HCA's annual report on Form 10-K for
the year ended December 31, 1995.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2--EARNINGS PER SHARE
A 3-for-2 stock split in the form of a stock dividend was distributed on
October 15, 1996, to shareholders of record as of October 1, 1996. Retroactive
recognition has been given to the stock split in the accompanying financial
statements and notes.
Earnings per share is based upon the weighted average number of shares
outstanding adjusted for the dilutive effect of common stock equivalents,
consisting primarily of stock options. Fully diluted earnings per share is not
presented because such amounts approximate earnings per share.
NOTE 3--BUSINESS COMBINATIONS
The following is a summary of hospital and other healthcare entity
acquisitions consummated during the respective nine-month periods (dollars in
millions):
<TABLE>
<CAPTION>
1996 1995
----- ------
<S> <C> <C>
Number of hospitals.............................................. 14 23
Number of licensed beds.......................................... 2,652 4,639
Purchase price information:
Hospitals:
Fair value of assets acquired................................ $ 734 $1,588
Liabilities assumed.......................................... (108) (108)
----- ------
Net assets acquired........................................ 626 1,480
Contributions from minority partners......................... (149) (330)
----- ------
477 1,150
Other healthcare entities...................................... 179 129
----- ------
Net cash used for acquisitions............................. $ 656 $1,279
===== ======
</TABLE>
6
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED
NOTE 4--INCOME TAXES
The Internal Revenue Service ("IRS") has issued statutory notices of
deficiency in connection with its examinations of HCA-Hospital Corporation of
America's ("HCA") federal income tax returns for 1981 through 1988, 1991 and
1992. Columbia/HCA is currently contesting the 1981 through 1988 claimed
deficiencies in the United States Tax Court ("Tax Court"), the 1991 claimed
deficiency in the United States Court of Federal Claims, and the 1992 claimed
deficiency in the Tax Court. The IRS has also proposed certain adjustments in
connection with its examination of HCA's 1989 and 1990 federal income tax
returns. Columbia/HCA is currently contesting the 1989 and 1990 adjustments
with the IRS.
The IRS has also issued a statutory notice of deficiency in connection with
its examination of Healthtrust, Inc.--The Hospital Company's ("Healthtrust")
1990 and 1991 federal income tax returns. Columbia/HCA is currently contesting
the claimed 1990 and 1991 deficiencies in Tax Court.
The following is a discussion of certain disputed items:
1981-1988 Tax Litigation
Tax Court decisions are expected in 1996 regarding disputes over the
valuation of the Healthtrust preferred stock and stock purchase warrants HCA
received in connection with the sale of certain of its subsidiaries to
Healthtrust in 1987 and the depreciable lives utilized by HCA for constructed
hospital facilities. The IRS is claiming an additional $33 million in income
taxes and $128 million in interest through September 30, 1996 with respect to
these issues.
A Tax Court decision is also expected in 1996 regarding HCA's claim that
insurance premiums paid to its wholly owned insurance subsidiary, Parthenon,
are deductible. Through September 30, 1996, Columbia/HCA is seeking a refund
totaling $62 million in income taxes and $147 million in interest.
Tax Court Decisions
In September 1996, the Tax Court ruled in the IRS's favor with respect to
the formula for calculating the tax reserve for doubtful accounts and in
Columbia/HCA's favor with respect to the eligibility of certain receivables
for the reserve method. The Tax Court also ruled in the IRS's favor with
respect to the timing of the recognition of deferred income in connection with
HCA's sale of certain subsidiaries to Healthtrust in 1987. As a result of
these decisions, Columbia/HCA owed additional income taxes of $76 million and
interest of $76 million through September 30, 1996. These rulings did not have
any effect on the Company's results of operations.
Stock Option Compensation
The IRS has proposed the disallowance of certain stock option compensation
which HCA deducted in calculating taxable income for 1992. If the IRS prevails
on this issue, Columbia/HCA would owe additional income taxes of $178 million
and interest of $62 million through September 30, 1996.
Executive Compensation
The IRS has proposed the disallowance of certain executive compensation
which Healthtrust deducted in calculating taxable income for 1991. If the IRS
prevails on this issue, Columbia/HCA would owe additional income taxes of $12
million and interest of $5 million through September 30, 1996.
7
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED
NOTE 4--INCOME TAXES (CONTINUED)
Management believes that HCA and Healthtrust properly reported income and
paid 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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS STRATEGY
Columbia/HCA's business strategy centers on working with physicians and
other health care providers to develop comprehensive, integrated health care
delivery networks in targeted markets. This strategy typically involves
significant health care facility acquisition 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:
Deliver high quality services--Through the use of clinical information
systems and continuous quality enhancement programs, Columbia/HCA focuses on
patient outcomes and strives to continuously improve the quality of care and
service provided to patients.
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 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 facilities which provide health care related
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.
9
<PAGE>
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 charges for
the quarters and nine months ended September 30, 1996 and 1995 (dollars in
millions, except per share amounts):
<TABLE>
<CAPTION>
QUARTER
----------------------------
1996 1995
------------- -------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenues........................................ $4,887 100.0% $4,371 100.0%
Salaries and benefits........................... 1,950 39.9 1,788 40.9
Supplies........................................ 659 13.5 629 14.4
Other operating expenses........................ 1,022 20.9 849 19.4
Provision for doubtful accounts................. 316 6.5 258 5.9
Equity in earnings of affiliates................ (39) (0.8) (2) -
------ ----- ------ -----
3,908 80.0 3,522 80.6
------ ----- ------ -----
EBDITA(a)....................................... 979 20.0 849 19.4
Depreciation and amortization................... 302 6.1 251 5.8
Interest expense................................ 122 2.5 111 2.5
------ ----- ------ -----
Income before minority interests and income tax-
es............................................. 555 11.4 487 11.1
Minority interests.............................. 36 0.8 30 0.6
------ ----- ------ -----
Income before income taxes...................... 519 10.6 457 10.5
Provision for income taxes...................... 208 4.2 183 4.2
------ ----- ------ -----
Income before extraordinary charges............. $ 311 6.4 $ 274 6.3
====== ===== ====== =====
Earnings per share before extraordinary
charges...................................... $ .46 $ .40
====== ======
% changes from prior year:
Revenues...................................... 11.8%
EBDITA........................................ 15.3
Income before income taxes.................... 13.5
Income before extraordinary charges........... 13.2
Earnings per share before extraordinary
charges...................................... 15.0
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
------------------------------
1996 1995
-------------- --------------
AMOUNT RATIO AMOUNT RATIO
------- ----- ------- -----
<S> <C> <C> <C> <C>
Revenues...................................... $14,771 100.0% $13,112 100.0%
Salaries and benefits......................... 5,873 39.8 5,291 40.4
Supplies...................................... 2,020 13.7 1,907 14.5
Other operating expenses...................... 2,978 20.2 2,444 18.7
Provision for doubtful accounts............... 875 5.9 746 5.7
Equity in earnings of affiliates.............. (127) (0.9) (9) (0.1)
------- ----- ------- -----
11,619 78.7 10,379 79.2
------- ----- ------- -----
EBDITA(a)..................................... 3,152 21.3 2,733 20.8
Depreciation and amortization................. 849 5.7 730 5.5
Interest expense.............................. 379 2.6 347 2.6
Merger and facility consolidation costs....... - - 387 3.0
------- ----- ------- -----
Income before minority interests and income
taxes........................................ 1,924 13.0 1,269 9.7
Minority interests............................ 102 0.7 80 0.6
------- ----- ------- -----
Income before income taxes.................... 1,822 12.3 1,189 9.1
Provision for income taxes.................... 731 4.9 479 3.7
------- ----- ------- -----
Income before extraordinary charges......... $ 1,091 7.4 $ 710 5.4
======= ===== ======= =====
Earnings per share:
Excluding merger and facility consolidation
costs...................................... $ 1.61 $ 1.40
Merger and facility consolidation costs..... - (.35)
------- -------
Income before extraordinary charges......... $ 1.61 $ 1.05
======= =======
% changes from prior year:
Revenues.................................... 12.7%
EBDITA...................................... 15.3
Income before income taxes.................. 53.2
Income before extraordinary charges......... 53.6
Earnings per share before extraordinary
charges.................................... 53.3
Other information excluding the effect of
merger and facility consolidation costs:
Income before income taxes.................. $ 1,822 12.3% $ 1,576 12.1%
Income before extraordinary charges......... 1,091 7.4 945 7.2
% changes from prior year:
Income before income taxes................ 15.6%
Income before extraordinary charges....... 15.4
Earnings per share before extraordinary
charges.................................. 15.0
</TABLE>
- --------
(a) Income before merger and facility consolidation costs, depreciation,
interest, minority interests, income taxes and amortization ("EBDITA").
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 condensed consolidated financial
statements as an indicator of financial performance.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Quarters Ended September 30, 1996 and 1995
Revenues increased 11.8% to approximately $4.9 billion in 1996 compared to
the same period last year, primarily as a result of growth in both inpatient
and outpatient volumes. On a same-hospital basis, 1996 revenues increased
10.6%, admissions increased 4.0% and adjusted admissions (adjusted to reflect
outpatient activity) increased 7.8% from a year ago. The increase in
outpatient activity is primarily a result of expanding home health and other
outpatient ancillary services.
Income before income taxes and extraordinary charges increased to $519
million in 1996 from $457 million in 1995 and pretax margins increased to
10.6% in 1996 from 10.5% in 1995. The improvement in pretax income was
attributable to the combination of growth in revenues and improvement in the
margin. Pretax margins increased primarily due to increased participation in
the Company's standard purchase contracts for medical supplies, improvements
in productivity and an increase in equity in earnings of affiliates. Supply
costs declined as a percentage of revenues to 13.5% in 1996 from 14.4% in 1995
and salaries and benefits also declined as a percentage of revenues from 40.9%
in 1995 to 39.9% in 1996. The improvement in pretax margins was partially
offset by an increase in other operating expenses as a percentage of revenues
from 19.4% in 1995 to 20.9% in 1996. This was due, in part, to the outsourcing
of certain services.
Equity in earnings of affiliates increased as a percentage of revenues to
0.8% in 1996 compared to less than 0.1% in 1995. Equity in earnings of
affiliates represents Columbia/HCA's portion of earnings from its
nonconsolidated subsidiaries and totaled $39 million in 1996 and $2 million in
1995. The increase was primarily due to more of the Company's development
activities being structured as non-consolidated joint ventures.
Income before extraordinary charges increased 13.2% to $311 million ($.46
per share) in 1996 compared to $274 million ($.40 per share) in 1995.
Nine Months Ended September 30, 1996 and 1995
Revenues increased 12.7% to approximately $14.8 billion in 1996 compared to
1995 as a result of acquisitions and growth in inpatient and outpatient
volumes. On a same hospital basis, 1996 revenues increased 9.7%, admissions
increased 3.4% and adjusted admissions (adjusted to reflect outpatient
activity) increased 7.4% from 1995. The increase in outpatient activity is
primarily a result of expanding home health and other outpatient ancillary
services.
Income before taxes and extraordinary charges increased to $1.8 billion in
1996 from $1.2 billion in 1995 and pretax margins increased to 12.3% in 1996
from 9.1% in 1995. Excluding the effect of the merger and facility
consolidation costs incurred in 1995, income before taxes and extraordinary
charges increased 15.6% to $1.8 billion from $1.6 billion in 1995 and pretax
margins increased to 12.3% in 1996 from 12.1% in 1995. The improvement in
pretax income was attributable to the combination of growth in revenues and
improvement in the margin. Pretax margins increased primarily due to increased
participation in the Company's standard purchase contracts for medical
supplies, improvements in productivity and an increase in equity in earnings
of affiliates. Supply costs declined as a percentage of revenues to 13.7% in
1996 from 14.5% in 1995 and salaries and benefits declined as a percentage of
revenues to 39.8% from 40.4% in 1995. The improvement in pretax margins was
partially offset by an increase in other operating expenses as a percentage of
revenues from 18.7% in 1995 to 20.2% in 1996. This was due, in part, to the
outsourcing of certain services.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended September 30, 1996 and 1995 (continued)
Equity in earnings of affiliates increased as a percentage of revenues to
0.9% in 1996 compared to 0.1% in 1995. Equity in earnings of affiliates
totaled $127 million in 1996 and $9 million in 1995. The increase was
primarily due to more of the Company's development activities being structured
as non-consolidated joint ventures.
Income before extraordinary charges increased 53.6% to $1.1 billion ($1.61
per share) in 1996 compared to $710 million ($1.05 per share) in 1995.
Excluding the effects of the merger and facility consolidation costs charged
in 1995, income before extraordinary charges increased 15.4% to $1.1 billion
($1.61 per share) in 1996 compared to $945 million ($1.40 per share) in 1995.
LIQUIDITY
Cash provided by operating activities totaled approximately $1.9 billion for
the nine months ended September 30, 1996 compared to $1.5 billion for the
first nine months of 1995. During 1996, cash flows from operating activities
have exceeded the funds utilized for Columbia/HCA's capital expenditure
program and acquisitions. Capital expenditures and acquisitions in 1995
exceeded cash provided by operating activities by $827 million and was funded
by the issuance of long-term debt and commercial paper borrowings.
As of October 31, 1996, Columbia/HCA had approximately $1.7 billion of
credit available under its revolving credit agreements. Working capital
totaled $1.4 billion at September 30, 1996 and $1.5 billion at December 31,
1995. Management believes that cash flows from operations and amounts
available under Columbia/HCA's revolving credit facilities and related
commercial paper programs are sufficient to meet expected future liquidity
needs.
Investments of Columbia/HCA's professional liability insurance subsidiaries
to maintain statutory equity and pay claims totaled $1.2 billion at September
30, 1996 and December 31, 1995.
The Company has entered into various joint venture agreements whereby the
partners have an option to sell or "put" their interest in the joint ventures
back to Columbia/HCA at prices based on fair value. The combined put price at
November 1, 1996 was approximately $1.0 billion.
Columbia/HCA's ratio of earnings to fixed charges was 4.34 and 4.20 for the
quarters ended September 30, 1996 and 1995, respectively, and 4.79 and 3.71
for the nine months ended September 30, 1996 and 1995, respectively. The ratio
for the nine months ended September 30, 1995 was negatively impacted by the
$387 million pretax charge incurred related to the merger and facility
consolidation costs.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $1.1 billion for both
the nine months ended September 30, 1996 and 1995. At September 30, 1996,
there were projects under construction which had an estimated additional cost
to complete of approximately $993 million. Planned capital expenditures in
1996 (excluding acquisitions) are expected to approximate $1.5 billion.
Management believes that its capital expenditure program is adequate to
expand, improve and equip existing health care facilities.
Columbia/HCA also expended $656 million and $1.3 billion for acquisitions
during the respective nine months ended September 30, 1996 and 1995. See Note
3 of the Notes to Condensed Consolidated Financial Statements for a
description of these activities. In addition, Columbia/HCA made investments in
and advances
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
CAPITAL RESOURCES (CONTINUED)
to affiliates of $37 million in 1996. 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 expects to finance all capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt, commercial paper, unused bank revolving credit facilities and
equity.
OTHER INFORMATION
Resolution of various loss contingencies, including litigation pending
against Columbia/HCA in the ordinary course of business, is not expected to
have a material adverse effect on financial position or results of operations.
Columbia/HCA's credit facilities contain customary covenants which include
(i) limitations on additional debt, (ii) certain limitations on sales of
assets, mergers and changes of ownership and (iii) maintenance of certain
interest coverage ratios. Columbia/HCA was in compliance with all such
covenants at September 30, 1996.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
significantly affect health care systems in Columbia/HCA's markets. The cost
of certain proposals would be funded in significant part by reductions in
payments by government programs, including Medicare and Medicaid, to health
care providers such as hospitals. While the Company is unable to predict
which, if any, proposals for health care reform will be adopted, there can be
no assurance that proposals adverse to the business of Columbia/HCA will not
be adopted.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
OPERATING DATA
<TABLE>
<CAPTION>
1996 1995
CONSOLIDATED ------- ---------
<S> <C> <C>
Number of hospitals in operation at:
March 31.................................................. 320 318
June 30................................................... 326 321
September 30.............................................. 325 319
December 31............................................... 319
Number of freestanding outpatient surgical centers in opera-
tion at:
March 31.................................................. 127 111
June 30................................................... 130 115
September 30.............................................. 130 118
December 31............................................... 134
Licensed hospital beds at:
March 31.................................................. 62,197 61,261
June 30................................................... 63,217 61,885
September 30.............................................. 63,063 61,255
December 31............................................... 61,347
Weighted average licensed beds:
Quarter:
First..................................................... 62,330 60,960
Second.................................................... 62,937 61,801
Third..................................................... 63,179 62,211
Fourth.................................................... 61,485
Year....................................................... 61,617
Average daily census:
Quarter:
First..................................................... 28,428 27,713
Second.................................................... 26,193 25,384
Third..................................................... 25,111 24,176
Fourth.................................................... 26,429
Year....................................................... 25,917
Admissions:
Quarter:
First..................................................... 490,800 454,500
Second.................................................... 463,100 435,100
Third..................................................... 462,400 430,400
Fourth.................................................... 454,800
Year....................................................... 1,774,800
Length of stay:
Quarter:
First..................................................... 5.3 5.5
Second.................................................... 5.1 5.3
Third..................................................... 5.0 5.2
Fourth.................................................... 5.4
Year....................................................... 5.3
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
OPERATING DATA (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
NON-CONSOLIDATED (A) ----- -----
<S> <C> <C>
Number of hospitals in operation at:
March 31....................................................... 20 2
June 30........................................................ 19 2
September 30................................................... 20 4
December 31.................................................... 19
Number of freestanding outpatient surgical centers in operation
at:
March 31....................................................... 3 -
June 30........................................................ 3 -
September 30................................................... 3 -
December 31.................................................... 3
Licensed hospital beds at:
March 31....................................................... 4,815 362
June 30........................................................ 4,677 362
September 30................................................... 5,052 608
December 31.................................................... 4,455
</TABLE>
- --------
(a) The non-consolidated facilities include facilities operated through 50/50
joint ventures which are not controlled by Columbia/HCA. They are
accounted for using the equity method of accounting and are, therefore,
not included on a fully consolidated basis in the condensed consolidated
financial statements.
16
<PAGE>
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
A lawsuit captioned United States of America ex rel. James Thompson v.
Columbia/HCA Healthcare Corporation et al., was filed on March 10, 1995 in the
United States District Court for the Southern District of Texas, Corpus
Christi Division (Civil Action No. C-95-110). The lawsuit is a qui tam action
brought by a private party (or "relator") on behalf of the United States of
America. The relator claims that the defendants (the Company and certain
subsidiaries and affiliated partnerships) engaged in a widespread strategy to
pay physicians money for referrals and engaged in other conduct to induce
referrals, such as: (i) offering physicians equity interests in hospitals;
(ii) offering loans to physicians; (iii) paying money under the guise of
"consultation fees" to physicians to guarantee their capital investment; (iv)
paying consultation fees, rent or other monies to physicians; (v) providing
free or reduced rate rents for office space; (vi) providing free or reduced-
rate vacations and trips; (viii) providing income guarantees; and (ix)
granting physicians exclusive rights to perform procedures in particular
fields of practice. The lawsuit is premised on alleged violations of the False
Claims Act, 31 U.S.C. Section 3729 et seq. The complaint seeks damages of
three times the amount of all Medicare claims (involving false claims)
presented by the defendants to the federal government, a civil penalty of not
less than $5,000 nor more than $10,000 for each such Medicare or Medicaid
claim, attorney's fees and costs. Although expressly permitted to do so, the
United States has thus far declined to intervene in the case and assume
prosecution of the claims asserted by the relator. The defendants filed a
Motion to Dismiss the Second Amended Complaint on November 29, 1995, which was
granted by the court on July 22, 1996. On August 20, 1996, the relator filed a
notice of its intention to appeal the dismissal to the Fifth Circuit Court of
Appeals.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a)Exhibits:
Exhibit 11--Statement re Computation of Earnings Per Share.
Exhibit 12--Statement re 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 July 2, 1996, Columbia/HCA filed a report on Form 8-K related to its
medium term note program.
On July 5, 1996, Columbia/HCA filed a report on Form 8-K which included
the terms and conditions related to the issuance of $200 million in
notes and debentures.
On September 25, 1996, Columbia/HCA filed a report on Form 8-K regarding
the announcement of a 3-for-2 stock split in the form of a stock
dividend, which was distributed October 15, 1996. A copy of the release
issued by Columbia/HCA on September 12, 1996 was included in the report.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Columbia/HCA Healthcare Corporation
Date: November 12, 1996 /s/ Kenneth C. Donahey
_____________________________________
KENNETH C. DONAHEY
SENIOR VICE PRESIDENT AND
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
18
<PAGE>
EXHIBIT 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
----------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings:
Income before extraordinary charges..... $ 311 $ 274 $ 1,091 $ 710
Extraordinary charges on extinguishments
of debt, net of income tax benefits.... - (7) - (103)
-------- -------- -------- --------
Net income........................... $ 311 $ 267 $ 1,091 $ 607
======== ======== ======== ========
Shares used in the computation (000):
Weighted average shares outstanding..... 670,938 665,911 670,892 664,598
Dilutive effect of common stock
equivalents............................ 6,479 8,249 6,922 7,680
-------- -------- -------- --------
Shares used in computing earnings per
share................................ 677,417 674,160 677,814 672,278
======== ======== ======== ========
Primary earnings per share:
Income before extraordinary charges..... $ .46 $ .40 $ 1.61 $ 1.05
Extraordinary charges on extinguishments
of debt................................ - (.01) - (.15)
-------- -------- -------- --------
Net income........................... $ .46 $ .39 $ 1.61 $ .90
======== ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Earnings:
Income before extraordinary charges..... $ 311 $ 274 $ 1,091 $ 710
Extraordinary charges on extinguishments
of debt, net of income tax benefits.... - (7) - (103)
-------- -------- -------- --------
Net income........................... $ 311 $ 267 $ 1,091 $ 607
======== ======== ======== ========
Shares used in the computation (000):
Weighted average shares outstanding..... 670,938 665,911 670,892 664,598
Dilutive effect of common stock
equivalents............................ 6,831 8,515 7,222 8,255
-------- -------- -------- --------
Shares used in computing earnings per
share................................ 677,769 674,426 678,114 672,853
======== ======== ======== ========
Fully diluted earnings per share:
Income before extraordinary charges..... $ .46 $ .40 $ 1.61 $ 1.05
Extraordinary charges on extinguishments
of debt................................ - (.01) - (.15)
-------- -------- -------- --------
Net income........................... $ .46 $ .39 $ 1.61 $ .90
======== ======== ======== ========
</TABLE>
19
<PAGE>
EXHIBIT 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
--------- -------------
1996 1995 1996 1995
---- ---- ------ ------
<S> <C> <C> <C> <C>
EARNINGS:
Income before minority interests and income taxes..... $555 $487 $1,924 $1,269
Fixed charges, exclusive of capitalized interest...... 157 143 481 442
---- ---- ------ ------
$712 $630 $2,405 $1,711
==== ==== ====== ======
FIXED CHARGES:
Interest charged to expense........................... $122 $111 $ 379 $ 347
Interest portion of rental expense and amortization of
deferred loan costs.................................. 35 32 102 95
---- ---- ------ ------
Fixed charges, exclusive of capitalized interest...... 157 143 481 442
Capitalized interest.................................. 7 7 21 20
---- ---- ------ ------
$164 $150 $ 502 $ 462
==== ==== ====== ======
Ratio of earnings to fixed charges.................... 4.34 4.20 4.79 3.71
==== ==== ====== ======
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 4,136
<ALLOWANCES> 1,341
<INVENTORY> 432
<CURRENT-ASSETS> 4,084
<PP&E> 15,521
<DEPRECIATION> 5,198
<TOTAL-ASSETS> 20,657
<CURRENT-LIABILITIES> 2,673
<BONDS> 6,859
0
0
<COMMON> 7
<OTHER-SE> 8,208
<TOTAL-LIABILITY-AND-EQUITY> 20,657
<SALES> 0
<TOTAL-REVENUES> 14,771
<CGS> 0
<TOTAL-COSTS> 7,893
<OTHER-EXPENSES> 2,978
<LOSS-PROVISION> 875
<INTEREST-EXPENSE> 379
<INCOME-PRETAX> 1,822
<INCOME-TAX> 731
<INCOME-CONTINUING> 1,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,091
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
