<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 JULY 31 , 1996
--------------------- ------------------
<S> <C>
Voting common stock, $.01 par value 433,136,400 shares
Nonvoting common stock, $.01 par value 14,000,000 shares
</TABLE>
1 of 19
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<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
FORM 10-Q
JUNE 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
six months ended June 30, 1996 and 1995............................. 3
Condensed Consolidated Balance Sheet--June 30, 1996 and December 31,
1995................................................................ 4
Condensed Consolidated Statement of Cash Flows--for the six months
ended June 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 .............................................. 8
<CAPTION>
PART II: OTHER INFORMATION
- --------------------------
<S> <C>
Items 1 to 6............................................................. 16
</TABLE>
2
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues................................... $ 4,933 $ 4,361 $ 9,884 $ 8,741
Salaries and benefits...................... 1,965 1,765 3,923 3,503
Supplies................................... 672 643 1,361 1,278
Other operating expenses................... 1,003 801 1,956 1,595
Provision for doubtful accounts............ 288 247 559 488
Depreciation and amortization.............. 279 246 547 479
Interest expense........................... 127 121 257 236
Equity in earnings of affiliates........... (47) (4) (88) (7)
Merger and facility consolidation costs.... - 387 - 387
------- ------- ------- -------
4,287 4,206 8,515 7,959
------- ------- ------- -------
Income before minority interests and income
taxes...................................... 646 155 1,369 782
Minority interests in earnings of
consolidated entities...................... 38 25 66 50
------- ------- ------- -------
Income before income taxes and
extraordinary charges...................... 608 130 1,303 732
Provision for income taxes................. 244 52 523 296
------- ------- ------- -------
Income before extraordinary charges........ 364 78 780 436
Extraordinary charges on extinguishments of
debt, net of income tax benefits.......... - (96) - (96)
------- ------- ------- -------
Net income (loss).......................... $ 364 $ (18) $ 780 $ 340
======= ======= ======= =======
Earnings (loss) per share:
Income before extraordinary charges...... $ .81 $ .17 $ 1.73 $ .97
Extraordinary charges on extinguishments
of debt................................. - (.21) - (.21)
- -
------- ------- ------- -------
Net income (loss)........................ $ .81 $ (.04) $ 1.73 $ .76
======= ======= ======= =======
Cash dividends per share................... $ .03 $ .03 $ .06 $ .06
Shares used in computing earnings per share
(in thousands)............................ 451,983 447,670 452,008 447,558
</TABLE>
See accompanying notes.
3
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 12 $ 232
Accounts receivable, less allowances for doubtful
accounts of $1,316 and $1,171......................... 2,843 2,665
Inventories............................................ 431 406
Other.................................................. 909 897
------- -------
4,195 4,200
Property and equipment, at cost.......................... 15,254 14,315
Accumulated depreciation................................. ( 5,000) (4,564)
------- -------
10,254 9,751
Investments of professional liability insurance
subsidiary............................................... 1,014 1,071
Investments in and advances to affiliates................ 1,095 1,021
Intangible assets........................................ 3,655 3,497
Other.................................................... 388 352
------- -------
$20,601 $19,892
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 745 $ 829
Accrued salaries....................................... 470 520
Other accrued expenses................................. 1,144 1,146
Long-term debt due within one year..................... 89 243
------- -------
2,448 2,738
Long-term debt........................................... 7,334 7,137
Deferred taxes and other liabilities..................... 2,126 2,166
Minority interests in equity of consolidated entities.... 793 722
Stockholders' equity:
Common stock, $.01 par; authorized 800,000,000 voting
shares and 25,000,000 nonvoting shares; issued and
outstanding 433,192,300 voting shares and 14,000,000
nonvoting shares--June 30, 1996 and
431,699,700 voting shares and 14,119,000 nonvoting
shares--
December 31, 1995..................................... 4 4
Other.................................................. 7,896 7,125
------- -------
7,900 7,129
------- -------
$20,601 $19,892
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 780 $ 340
Adjustments to reconcile net income to net cash provided by
operating activities:
Merger and facility consolidation costs.................... - 387
Depreciation and amortization.............................. 547 479
Deferred income taxes...................................... 63 (257)
Changes in operating assets and liabilities................ (369) (252)
Extraordinary charges on extinguishments of debt........... - 157
Other...................................................... 31 11
------ ------
Net cash provided by operating activities................ 1,052 865
------ ------
Cash flows from investing activities:
Purchase of property and equipment........................... (699) (632)
Acquisition of hospitals and health care facilities.......... (473) (751)
Investments in and advances to affiliates.................... (17) -
Disposition of property and equipment........................ 77 160
Purchase of other investments................................ (50) (49)
Other........................................................ (97) (65)
------ ------
Net cash used in investing activities.................... (1,259) (1,337)
------ ------
Cash flows from financing activities:
Issuance of long-term debt................................... 234 1,265
Net changes in commercial paper borrowings and lines of
credit...................................................... 2 1,120
Repayment of long-term debt.................................. (228) (1,827)
Payment of cash dividends.................................... (27) (24)
Other........................................................ 6 ( 3)
------ ------
Net cash provided by (used in) financing activities...... (13) 531
------ ------
Change in cash and cash equivalents............................ (220) 59
Cash and cash equivalents at beginning of period............... 232 68
------ ------
Cash and cash equivalents at end of period..................... $ 12 $ 127
====== ======
Interest payments.............................................. $ 258 $ 262
Income tax payments, net of refunds............................ $ 448 $ 498
</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 June 30, 1996
Columbia/HCA owned and operated 326 hospitals, 130 freestanding surgery
centers, approximately 200 home health agencies 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 19 hospitals and 3
freestanding surgery centers which are accounted for using the equity method.
The above facilities are located in 38 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
six months ended June 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
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 acquisitions consummated during the respective
six month periods (dollars in millions):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Number of hospitals............................................. 12 15
Number of licensed beds......................................... 2,441 2,874
Purchase price information:
Fair value of assets acquired................................. $ 686 $1,179
Liabilities assumed........................................... (108) (99)
------ ------
Net assets acquired......................................... 578 1,080
Contributions from minority partners.......................... (105) (329)
------ ------
Net cash paid for acquisitions.............................. $ 473 $ 751
====== ======
</TABLE>
During 1996, the Company also entered into various agreements exchanging a
total of 5 hospitals with 548 beds for 8 hospitals with 1,017 beds.
6
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED
NOTE 4--INCOME TAXES
The Internal Revenue Service (the "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.
Columbia/HCA is currently contesting these claimed deficiencies in the United
States Tax Court (the "Tax Court"). The IRS has 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 claimed
deficiencies with the IRS. The IRS has also issued a statutory notice of
deficiency in connection with its examination of HCA's 1991 federal income tax
return. Columbia/HCA is currently contesting the 1991 claimed deficiency in
the United States Court of Federal Claims. In March 1996, the IRS issued a
statutory notice of deficiency in connection with its examination of HCA's
1992 federal income tax return. Columbia/HCA is currently contesting the
claimed 1992 deficiency in Tax Court. In May 1996, the IRS 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
A Tax Court decision is 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, HCA's method of calculating its deduction for doubtful
accounts, the depreciable lives utilized by HCA for constructed hospital
facilities, investment tax credits, vacation pay deductions and income from
foreign operations. The IRS is claiming an additional $190 million in income
taxes and $279 million in interest through June 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 June 30, 1996, Columbia/HCA is seeking a refund
totaling $63 million in income taxes and $142 million in interest.
Leveraged Buy-out Expenses/1996 Tax Legislation
The IRS proposed the capitalization of various expenses incurred in
connection with HCA's 1989 leveraged buy-out transaction, which HCA deducted
in calculating taxable income for the years 1989-1992. The Small Business Job
Protection Act of 1996 includes a provision which upholds HCA's position with
respect to these expenses. Had the IRS prevailed on these issues, Columbia/HCA
would have owed additional income taxes of $95 million and interest of $58
million through June 30, 1996.
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 $55 million through June 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 $4 million through June 30, 1996.
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.
7
<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.
8
<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 six months ended June 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........................................ $4,933 100.0 $4,361 100.0
Salaries and benefits........................... 1,965 39.8 1,765 40.5
Supplies........................................ 672 13.6 643 14.7
Other operating expenses........................ 1,003 20.4 801 18.4
Provision for doubtful accounts................. 288 5.8 247 5.7
Equity in earnings of affiliates................ (47) (0.9) (4) (0.1)
------ ----- ------ -----
3,881 78.7 3,452 79.2
------ ----- ------ -----
EBDITA (a)...................................... 1,052 21.3 909 20.8
Depreciation and amortization................... 279 5.6 246 5.5
Interest expense................................ 127 2.6 121 2.8
Merger and facility consolidation costs......... - - 387 8.9
------ ----- ------ -----
Income before minority interests and income
taxes........................................... 646 13.1 155 3.6
Minority interests.............................. 38 0.8 25 0.6
------ ----- ------ -----
Income before income taxes...................... 608 12.3 130 3.0
Provision for income taxes...................... 244 4.9 52 1.2
------ ----- ------ -----
Income before extraordinary charges........... $ 364 7.4 $ 78 1.8
====== ===== ====== =====
Earnings per share:
Excluding merger and facility consolidation
costs........................................ $ .81 $ .70
Merger and facility consolidation costs....... - (.53)
------ ------
Income before extraordinary charges........... $ .81 $ .17
====== ======
% changes from prior year:
Revenues...................................... 13.1
EBDITA........................................ 15.8
Income before income taxes.................... 369.5
Income before extraordinary charges........... 368.2
Earnings per share before extraordinary
charges...................................... 376.5
Other information excluding the effect of merger
and facility consolidation costs:
Income before income taxes.................... $ 608 12.3 $ 517 11.9
Income before extraordinary charges........... 364 7.4 313 7.2
% changes from prior year:
Income before income taxes.................... 17.8
Income before extraordinary charges........... 16.4
Earnings per share before extraordinary
charges...................................... 15.7
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
----------------------------
1996 1995
------------- -------------
AMOUNT RATIO AMOUNT RATIO
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenues........................................ $9,884 100.0 $8,741 100.0
Salaries and benefits........................... 3,923 39.7 3,503 40.1
Supplies........................................ 1,361 13.8 1,278 14.6
Other operating expenses........................ 1,956 19.7 1,595 18.2
Provision for doubtful accounts................. 559 5.7 488 5.6
Equity in earnings of affiliates................ (88) (0.9) (7) (0.1)
------ ----- ------ -----
7,711 78.0 6,857 78.4
------ ----- ------ -----
EBDITA (a)...................................... 2,173 22.0 1,884 21.6
Depreciation and amortization................... 547 5.6 479 5.6
Interest expense................................ 257 2.6 236 2.7
Merger and facility consolidation costs......... - - 387 4.4
------ ----- ------ -----
Income before minority interests and income
taxes........................................... 1,369 13.8 782 8.9
Minority interests.............................. 66 0.6 50 .5
------ ----- ------ -----
Income before income taxes...................... 1,303 13.2 732 8.4
Provision for income taxes...................... 523 5.3 296 3.4
------ ----- ------ -----
Income before extraordinary charges........... $ 780 7.9 $ 436 5.0
====== ===== ====== =====
Earnings per share:
Excluding merger and facility consolidation
costs........................................ $ 1.73 $ 1.50
Merger and facility consolidation costs....... - (.53)
------ ------
Income before extraordinary charges........... $ 1.73 $ .97
====== ======
% changes from prior year:
Revenues...................................... 13.1
EBDITA........................................ 15.3
Income before income taxes.................... 78.1
Income before extraordinary charges........... 79.0
Earnings per share before extraordinary
charges...................................... 78.4
Other information excluding the effect of merger
and facility consolidation costs:
Income before income taxes.................... $1,303 13.2 $1,119 12.8
Income before extraordinary charges........... 780 7.9 671 7.7
% changes from prior year:
Income before income taxes.................... 16.5
Income before extraordinary charges........... 16.2
Earnings per share before extraordinary
charges...................................... 15.3
</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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Quarters Ended June 30, 1996 and 1995
Revenues increased 13.1% 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
10.0%, admissions increased 3.7% and adjusted admissions (adjusted to reflect
outpatient activity) increased 7.4% 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 $608
million in 1996 from $130 million in 1995 and pretax margins increased to
12.3% in 1996 from 3.0% in 1995. Excluding the effect of the merger and
facility consolidation costs incurred in 1995, income before taxes and
extraordinary charges increased 17.8% to $608 million in 1996 from $517
million in 1995 and pretax margins increased to 12.3% in 1996 from 11.9% 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 13.6% in 1996 from 14.7% in 1995 and salaries and benefits also
declined as a percentage of revenues to 39.8% in 1996 from 40.5% in 1995. The
improvement in pretax margins was partially offset by an increase in other
operating expenses as a percentage of revenues to 20.4% in 1996 from 18.4% in
1995. This was due, in part, to the outsourcing of certain services and an
increase in costs incurred for information system conversions and
enhancements.
Equity in earnings of affiliates increased as a percentage of revenues to
.9% in 1996 compared to .1% in 1995. Equity in earnings of affiliates
represents Columbia/HCA's portion of earnings from its nonconsolidated
subsidiaries and totaled $47 million in 1996 and $4 million in 1995. The
increase was primarily due to acquisitions.
Income before extraordinary charges increased 368% to $364 million ($.81 per
share) in 1996 compared to $78 million ($.17 per share) in 1995. Excluding the
effects of the merger and facility consolidation costs incurred in 1995,
income before extraordinary charges increased 16.4% to $364 million ($.81 per
share) in 1996 compared to $313 million ($.70 per share) in 1995.
Six Months Ended June 30, 1996 and 1995
Revenues increased 13.1% to approximately $9.9 billion in 1996 compared to
1995 as a result of acquisitions and growth in both inpatient and outpatient
volumes. On a same hospital basis, 1996 revenues increased 9.2%, admissions
increased 3.1% and adjusted admissions (adjusted to reflect outpatient
activity) increased 7.0% 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 $1.3 billion in
1996 from $732 million in 1995 and pretax margins increased to 13.2% in 1996
from 8.4% in 1995. Excluding the effect of the merger and facility
consolidation costs incurred in 1995, income before taxes and extraordinary
charges increased 16.5% to $1.3 billion from $1.1 billion in 1995 and pretax
margins increased to 13.2% in 1996 from 12.8% 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 13.8% in
1996 from 14.6% in 1995 and salaries and benefits declined as a percentage of
revenues to 39.7% from 40.1% in 1995. The improvement in pretax margins was
partially offset by an increase in other operating expenses as a percentage of
revenues to 19.7% in 1996 from 18.2% in 1995. This was due, in part, to the
outsourcing of certain services and an increase in costs incurred for
information system conversions and enhancements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Six Months Ended June 30, 1996 and 1995 (Continued)
Equity in earnings of affiliates increased as a percentage of revenues to
.9% in 1996 compared to .1% in 1995. Equity in earnings of affiliates totaled
$88 million in 1996 and $7 million in 1995. The increase was primarily due to
acquisitions.
Income before extraordinary charges increased 79% to $780 million ($1.73 per
share) in 1996 compared to $436 million ($.97 per share) in 1995. Excluding
the effects of the merger and facility consolidation costs incurred in 1995,
income before extraordinary charges increased 16.2% to $780 million ($1.73 per
share) in 1996 compared to $671 million ($1.50 per share) in 1995.
LIQUIDITY
Cash provided by operating activities totaled approximately $1.1 billion for
the six months ended June 30, 1996 compared to $865 million for the first six
months of 1995. Capital expenditures (including acquisitions and investments
in and advances to affiliates) exceeded cash provided by operating activities
by approximately $140 million in 1996 and by approximately $520 million in
1995. Additional sources of cash used to fund the capital expenditures include
the issuance of long-term debt and commercial paper borrowings. As of July 31,
1996, Columbia/HCA had approximately $1.5 billion of credit available under
the revolving credit agreements. Working capital totaled approximately $1.7
billion at June 30, 1996 and approximately $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 $1.1 billion at June 30,
1996 and $1.2 billion at 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 of
all negotiated joint ventures is approximately $900 million.
Columbia/HCA's ratio of earnings to fixed charges was 4.87 and 1.88 for the
quarters ended June 30, 1996 and 1995, respectively, and 5.01 and 3.43 for the
six months ended June 30, 1996 and 1995, respectively. These ratios were
negatively impacted in the 1995 periods by the $387 million pretax charge
incurred related to the merger and facility consolidation costs.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $699 million for the
six months ended June 30, 1996 compared to $632 million for the same period in
1995. At June 30, 1996, there were projects under construction which had an
estimated additional cost to complete of approximately $780 million. Planned
capital expenditures in 1996 (excluding acquisitions) are expected to
approximate $1.7 billion. Management believes that its capital expenditure
program is adequate to expand, improve and equip existing health care
facilities.
Columbia/HCA also expended $473 million and $751 million for acquisitions
during the respective six months ended June 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
to affiliates of $17 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 credits and equity.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
OTHER INFORMATION
As discussed in Note 4 of the Notes to Condensed Consolidated Financial
Statements, at June 30, 1996 Columbia/HCA is contesting income taxes and
related interest aggregating approximately $870 million 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 could 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.
Columbia/HCA's credit facilities contain customary covenants which include
(i) certain 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 June 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.
13
<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.............................................. 319
December 31............................................... 319
Number of freestanding outpatient surgical centers in opera-
tion at:
March 31.................................................. 127 111
June 30................................................... 130 115
September 30.............................................. 118
December 31............................................... 134
Licensed hospital beds at:
March 31.................................................. 62,197 61,261
June 30................................................... 63,217 61,885
September 30.............................................. 61,255
December 31............................................... 61,347
Weighted average licensed beds:
Quarter:
First..................................................... 62,330 60,960
Second.................................................... 62,937 61,801
Third..................................................... 62,211
Fourth.................................................... 61,485
Year....................................................... 61,617
Average daily census:
Quarter:
First..................................................... 28,428 27,713
Second.................................................... 26,193 25,384
Third..................................................... 24,176
Fourth.................................................... 26,429
Year....................................................... 25,917
Admissions:
Quarter:
First..................................................... 490,800 454,500
Second.................................................... 463,100 435,100
Third..................................................... 430,400
Fourth.................................................... 454,800
Year....................................................... 1,774,800
Length of stay:
Quarter:
First..................................................... 5.3 5.5
Second.................................................... 5.1 5.3
Third..................................................... 5.2
Fourth.................................................... 5.4
Year....................................................... 5.3
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
OPERATING DATA
<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............................................... 4
December 31................................................ 19
Number of freestanding outpatient surgical centers in
operation at:
March 31................................................... 3 -
June 30.................................................... 3 -
September 30............................................... -
December 31................................................ 3
Licensed hospital beds at:
March 31................................................... 4,815 362
June 30.................................................... 4,677 362
September 30............................................... 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.
15
<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. (S)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,
attorneys' 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. The defendant's
Motion to Dismiss the Second Amended Complaint was granted by the court on
July 22, 1996.
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 May 20, 1996, Columbia/HCA filed a report on Form 8-K which included
exhibits related to the issuance of fixed rate notes.
16
<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: August 9, 1996 /s/ Kenneth C. Donahey
_____________________________________
KENNETH C. DONAHEY
SENIOR VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
17
<PAGE>
EXHIBIT 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
----------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings (loss):
Income before extraordinary charges..... $ 364 $ 78 $ 780 $ 436
Extraordinary charges on extinguishments
of debt, net of income tax benefits.... - (96) - (96)
-------- -------- -------- --------
Net income (loss).................... $ 364 $ (18) $ 780 $ 340
======== ======== ======== ========
Shares used in the computation (000):
Weighted average shares outstanding..... 447,564 442,768 447,246 442,628
Dilutive effect of common stock
equivalents............................ 4,419 4,902 4,762 4,930
-------- -------- -------- --------
Shares used in computing earnings per
share................................ 451,983 447,670 452,008 447,558
======== ======== ======== ========
Primary earnings per share:
Income before extraordinary charges..... $ .81 $ .17 $ 1.73 $ .97
Extraordinary charges on extinguishments
of debt................................ - (.21) - (.21)
-------- -------- -------- --------
Net income (loss).................... $ .81 $ (.04) $ 1.73 $ .76
======== ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Earnings (loss):
Income before extraordinary charges..... $ 364 $ 78 $ 780 $ 436
Extraordinary charges on extinguishments
of debt, net of income tax benefits.... - (96) - (96)
-------- -------- -------- --------
Net income (loss).................... $ 364 $ (18) $ 780 $ 340
======== ======== ======== ========
Shares used in the computation (000):
Weighted average shares outstanding..... 447,564 442,768 447,246 442,628
Dilutive effect of common stock
equivalents............................ 4,512 5,159 4,945 5,416
-------- -------- -------- --------
Shares used in computing earnings per
share ............................... 452,076 447,927 452,191 448,044
======== ======== ======== ========
Fully diluted earnings per share:
Income before extraordinary charges..... $ .81 $ .17 $ 1.73 $ .97
Extraordinary charges on extinguishments
of debt................................ - (.21) - (.21)
-------- -------- -------- --------
Net income (loss).................... $ .81 $ (.04) $ 1.73 $ .76
======== ======== ======== ========
</TABLE>
18
<PAGE>
EXHIBIT 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
---------- -------------
1996 1995 1996 1995
----- ---- ------ ------
<S> <C> <C> <C> <C>
EARNINGS:
Income before minority interests and income taxes..... $ 646 $155 $1,369 $ 782
Fixed charges, exclusive of capitalized interest...... 159 160 324 303
----- ---- ------ ------
$ 805 $315 $1,693 $1,085
===== ==== ====== ======
FIXED CHARGES:
Interest charged to expense........................... $ 127 $121 $ 257 $ 236
Interest portion of rental expense and amortization of
deferred loan costs................................... 32 39 67 67
----- ---- ------ ------
Fixed charges, exclusive of capitalized interest...... 159 160 324 303
Capitalized interest.................................. 6 8 14 13
----- ---- ------ ------
$ 165 $168 $ 338 $ 316
===== ==== ====== ======
Ratio of earnings to fixed charges.................... 4.87 1.88 5.01 3.43
===== ==== ====== ======
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 4,159
<ALLOWANCES> 1,316
<INVENTORY> 431
<CURRENT-ASSETS> 4,195
<PP&E> 15,254
<DEPRECIATION> 5,000
<TOTAL-ASSETS> 20,601
<CURRENT-LIABILITIES> 2,448
<BONDS> 7,334
0
0
<COMMON> 4
<OTHER-SE> 7,896
<TOTAL-LIABILITY-AND-EQUITY> 20,601
<SALES> 0
<TOTAL-REVENUES> 9,884
<CGS> 0
<TOTAL-COSTS> 5,284
<OTHER-EXPENSES> 1,956
<LOSS-PROVISION> 559
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 1,303
<INCOME-TAX> 523
<INCOME-CONTINUING> 780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
