-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CAWvkuqVTb17+xoT/QyMzlCkUQCseGKsgwz2oc4A/BUQBzq8JnrhZ+qy+poPntEz NhcKi870N8HuRoSdp8XCFw== 0000860730-95-000004.txt : 19950516 0000860730-95-000004.hdr.sgml : 19950516 ACCESSION NUMBER: 0000860730-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA HCA HEALTHCARE CORP/ CENTRAL INDEX KEY: 0000860730 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 752497104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11239 FILM NUMBER: 95539298 BUSINESS ADDRESS: STREET 1: 201 WEST MAIN STREET CITY: LOUISVILLE STATE: KY ZIP: 40202- BUSINESS PHONE: (502)-572- FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HEALTHCARE CORP DATE OF NAME CHANGE: 19930830 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HOSPITAL CORP DATE OF NAME CHANGE: 19930328 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-11239 COLUMBIA/HCA HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2497104 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) One Park Plaza Nashville, Tennessee 37203 (Address of principal executive offices) (Zip code) (615) 327-9551 (Registrant's telephone number, including area code) 201 West Main Street, Louisville, Kentucky 40202 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock April 30, 1995 Voting common stock, $.01 par value 428,818,500 shares Nonvoting common stock, $.01 par value 14,119,000 shares 1 of 41 COLUMBIA/HCA HEALTHCARE CORPORATION FORM 10-Q March 31, 1995
Page of Part I: Financial Information Form 10-Q Item 1. Financial Statements Condensed Consolidated Statement of Income for the quarters ended March 31, 1995 and 1994 ................................ 3 Condensed Consolidated Balance Sheet March 31, 1995 and December 31, 1994 ........................................... 4 Consolidated Statement of Cash Flows for the quarters ended March 31, 1995 and 1994 ..................................... 5 Notes to Condensed Consolidated Financial Statements........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................... 10 Part II: Other Information Item 4. Submission of Matters to a Vote of Security Holders ............ 17 Item 5. Other Information - Supplemental Financial Statements .......... 18 Supplemental Condensed Consolidated Statement of Income for the quarters ended March 31, 1995 and 1994 ................... 19 Supplemental Condensed Consolidated Balance Sheet March 31, 1995 and December 31, 1994 ................................... 20 Supplemental Consolidated Statement of Cash Flows for the quarters ended March 31, 1995 and 1994........................ 21 Notes to Supplemental Condensed Consolidated Financial Statements ................................................... 22 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations .......................... 27 Item 6. Exhibits and Reports on Form 8-K .............................. 34 2 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME For the quarters ended March 31, 1995 and 1994 Unaudited (Dollars in millions, except per share amounts) 1995 1994 Revenues ..................................................... $ 3,337 $ 2,778 Salaries, wages and benefits................................... 1,309 1,113 Supplies....................................................... 498 434 Other operating expenses ...................................... 608 492 Provision for doubtful accounts ............................... 180 150 Depreciation and amortization ................................. 177 144 Interest expense .............................................. 75 64 Investment income ............................................. (19) (14) Non-recurring transactions .................................... - 159 2,828 2,542 Income before minority interests and income taxes ............. 509 236 Minority interests in earnings of consolidated entities ....... 23 3 Income before income taxes .................................... 486 233 Provision for income taxes .................................... 194 96 Income before extraordinary item .............................. 292 137 Extraordinary loss on extinguishment of debt, net of income tax benefit ....................................... - (92) Net income .............................................. $ 292 $ 45 Earnings per common and common equivalent share: Income before extraordinary item ........................... $ .80 $ .40 Extraordinary loss on extinguishment of debt ............... - (.27) Net income .............................................. $ .80 $ .13 Cash dividends per common share ............................... $ .03 $ .03 Shares used in earnings per common and common equivalent share computation(000) ..................................... 365,506 341,621 See accompanying notes. 3 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET Unaudited (Dollars in millions, except per share amounts) March 31, December 31, 1995 1994 ASSETS Current assets: Cash and cash equivalents .............................. $ 113 $ 13 Accounts receivable less allowance for loss of $669 March 31, 1995 and $604 December 31, 1994 ................................... 1,978 1,747 Inventories ............................................ 299 285 Other .................................................. 477 505 2,867 2,550 Property and equipment, at cost .............................. 10,140 9,573 Accumulated depreciation ..................................... (3,331) (3,190) 6,809 6,383 Investments of professional liability insurance subsidiary ... 882 888 Intangible assets ............................................ 2,354 2,269 Other ........................................................ 432 249 $ 13,344 $ 12,339 LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ....................................... $ 541 $ 503 Salaries, wages and other compensation ................. 305 277 Other accrued expenses ................................. 797 910 Income taxes ........................................... 140 - Long-term debt due within one year ..................... 176 77 1,959 1,767 Long-term debt ............................................... 4,263 3,853 Deferred credits and other liabilities ....................... 1,434 1,439 Minority interests in equity of consolidated entities ........ 360 258 Common stockholders' equity: Common stock, $.01 par; authorized 800,000,000 voting shares and 25,000,000 nonvoting shares; issued and outstanding 348,284,200 voting shares and 14,119,000 nonvoting shares March 31, 1995 and 347,849,200 voting shares and 14,119,000 nonvoting shares December 31, 1994 ................................... 4 4 Other .................................................. 5,324 5,018 5,328 5,022 $ 13,344 $ 12,339 See accompanying notes. 4 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS For the quarters ended March 31, 1995 and 1994 Unaudited (Dollars in millions) 1995 1994 Cash flows from operating activities: Net income ...................................................... $ 292 $ 45 Adjustments to reconcile net income to net cash provided by operating activities: Non-recurring transactions ................................... - 159 Depreciation and amortization ................................ 177 144 Deferred income taxes ........................................ (13) (64) Change in operating assets and liabilities: Increase in accounts receivable ........................... (147) (35) Increase in inventories and other assets .................. (30) (53) Increase in income taxes .................................. 198 64 Decrease in other liabilities ............................. (86) (55) Extraordinary loss on extinguishment of debt ................. - 149 Other ........................................................ 28 13 Net cash provided by operating activities ................. 419 367 Cash flows from investing activities: Purchase of property and equipment. ............................. (266) (214) Acquisition of hospitals and health care facilities ............. (320) (114) Disposition of property and equipment ........................... 9 62 Change in investments ........................................... (137) (12) Other ........................................................... (74) (64) Net cash used in investing activities ..................... (788) (342) Cash flows from financing activities: Issuance of long-term debt ...................................... 310 325 Net changes in commercial paper borrowings and lines of credit .. 203 1,461 Repayment of long-term debt ..................................... (21) (1,954) Payment of cash dividends........................................ (10) (5) Issuance of common stock ........................................ 3 11 Other............................................................ (16) 22 Net cash provided by (used in) financing activities ....... 469 (140) Change in cash and cash equivalents ................................ 100 (115) Cash and cash equivalents at beginning of period ................... 13 224 Cash and cash equivalents at end of period ......................... $ 113 $ 109 Interest payments .................................................. $ 67 $ 106 Income tax payments, net of refunds ................................ 11 38 See accompanying notes. 5
COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 1 BASIS OF PRESENTATION Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation that operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries, (ii) joint ventures or (iii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/HCA serve as the mangaing general partner. The accompanying condensed consolidated financial statements do not include all of the disclosures normally required by generally accepted accounting principles or those normally required in annual reports filed on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of Columbia/HCA for the year ended December 31, 1994 filed on Form 10-K with the Securities and Exchange Commission. The financial information has been prepared in accordance with Columbia/HCA's customary accounting practices and has not been audited. Management believes that the financial information presented reflects all adjustments necessary for a fair statement of interim results. On September 16, 1994, Columbia/HCA completed a merger transaction with Medical Care America, Inc. ("MCA")(the "MCA Merger"). The MCA Merger and various other acquisitions and joint venture transactions have been accounted for under the purchase method. Accordingly, the accounts of these entities have been consolidated with those of Columbia/HCA since the acquisition of controlling interest. On February 10, 1994, Columbia Healthcare Corporation ("Columbia") merged with HCA Hospital Corporation of America ("HCA")(the "HCA Merger") to form Columbia/HCA. For accounting purposes, the HCA Merger has been treated as a pooling of interests. Accordingly, these condensed consolidated financial statements give retroactive effect to the merger and include the combined operations of the respective former entities for all periods presented. On April 24, 1995, Columbia/HCA consummated a merger with Healthtrust, Inc. The Hospital Company ("Healthtrust")(the "Healthtrust Merger"). Although the Healthtrust Merger will be treated as a pooling of interests for accounting purposes, the accompanying condensed consolidated financial statements do not give retroactive effect to this transaction. See Note 4 for a description of the Healthtrust Merger. NOTE 2 EARNINGS PER SHARE Earnings per common and common equivalent share are based upon the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock equivalents consisting primarily of stock options. Fully diluted earnings per common and common equivalent share are not presented because such amounts approximate earnings per common and common equivalent share. NOTE 3 PRO FORMA INFORMATION The following unaudited pro forma information reflects the combined operating results of Columbia/HCA and MCA as if the MCA Merger has occurred on January 1, 1994 (dollars in millions, except per share data): Quarter Ended March 31, 1994 Revenues ........................................... $ 2,886 Income before extraordinary item ................... 146 Net income ......................................... 141 Earnings per common and common equivalent share: Income before extraordinary item ................. .40 Net income ....................................... .39 6 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 4 HEALTHTRUST MERGER On October 4, 1994, Columbia/HCA entered into a definitive agreement to merge with Healthtrust. This transaction was completed on April 24, 1995. Shares of Healthtrust common stock were converted on a tax-free basis into approximately 80,411,800 shares of Columbia/HCA voting common stock (an exchange ratio of 0.88 of a share of Columbia/HCA common stock for each share of Healthtrust common stock). The accompanying condensed consolidated financial statements do not give retroactive effect to the Healthtrust Merger, which will be accounted for as a pooling of interests. See the supplemental condensed consolidated financial statements included elsewhere herein for additional information regarding the Healthtrust Merger. NOTE 5 OTHER BUSINESS COMBINATIONS The following is a summary of acquisitions and joint ventures consummated during the respective three month periods (dollars in millions): 1995 1994 Number of hospitals ............................. 7 4 Number of licensed beds ......................... 1,459 1,264 Purchase price information: Fair value of assets acquired ................ $ 463 $ 192 Liabilities assumed .......................... (48) (31) Net assets acquired ....................... 415 161 Contributions from minority partners ......... (94) (47) Net cash acquired ............................ (1) - Net cash paid for acquisitions ...... $ 320 $ 114 NOTE 6 INCOME TAXES The Internal Revenue Service (the "IRS") has issued statutory notices of deficiency in connection with its examinations of HCA's federal income tax returns for 1981 through 1988. Columbia/HCA is currently contesting these claimed deficiencies in the United States Tax Court (the "Tax Court"). In addition, the IRS has proposed certain adjustments in connection with its examinations of HCA's 1989 and 1990 federal income tax returns. The following is a discussion of the disputed items. Method of Accounting For years 1981 through 1986, most of HCA's hospital subsidiaries (the "Subsidiaries") reported taxable income primarily using the cash method of accounting. This method was prevalent within the hospital industry and the Subsidiaries applied the method in accordance with prior agreements with the IRS. The IRS now asserts that the accrual method of accounting should have been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act") requires the use of the accrual method of accounting beginning in 1987. Consequently, the Subsidiaries changed to the accrual method of accounting beginning January 1, 1987. In accordance with the provisions of the 1986 Act, income that had been deferred at the end of 1986 is being recognized as taxable income by the Subsidiaries in equal annual installments over ten years. If the IRS should ultimately prevail in its claims that the Subsidiaries should have used the accrual method for 1981 through 1986, the claim would be reduced to the extent that HCA has recognized as taxable income a portion of such deferred income taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987 that had been using the cash method resulted in the recognition of a substantial gain that would not have been recognized had the Subsidiaries been using the accrual method. If the IRS were successful with respect to this issue, Columbia/HCA would owe an additional $93 million in income taxes and $506 million in interest as of March 31, 1995. 7 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 6 - INCOME TAXES (Continued) Hospital Acquisitions In connection with hospitals acquired by HCA in 1981 and 1985, the IRS has asserted that a portion of the costs allocated to identifiable assets with ascertainable useful lives should be reclassified as nondeductible goodwill. If the IRS ultimately prevails in this regard, Columbia/HCA would owe an additional $122 million in income taxes and $185 million in interest as of March 31, 1995. Insurance Subsidiary Based on a Sixth Circuit Court of Appeals decision (the Court having jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the IRS asserts that such premiums are not deductible and that corresponding losses are only deductible at the time and to the extent that claims are actually paid. HCA has claimed the additional deductions in its Tax Court petitions. Through March 31, 1995, Columbia/HCA is seeking a refund totaling $63 million in income taxes and $123 million in interest in connection with this issue. As an alternative to its position, HCA has asserted that in connection with the sale of hospitals to Healthtrust in 1987, premiums paid to Parthenon by the sold hospitals, if not deductible as discussed above, became deductible at the time of the sale. Accordingly, HCA claimed such deduction in its 1987 federal income tax return. The IRS has disallowed the deduction and is claiming an additional $4 million in income taxes and $18 million in interest as of March 31, 1995. A final determination that the premiums are not deductible either when paid to Parthenon or upon the sale of certain hospitals to Healthtrust would increase the taxable basis in the hospitals sold, thereby reducing HCA's gain realized on the sale. Healthtrust Sale In connection with its sale of certain Subsidiaries to Healthtrust in 1987 in exchange for cash, Healthtrust preferred stock and stock purchase warrants, HCA calculated its gain based on the valuation of such stock and warrants by an independent appraiser. The IRS claims a higher aggregate valuation, based on the face amount of the preferred stock and a separate appraisal Healthtrust obtained for the stock purchase warrants. Application of the higher valuation would increase the gain recognized by HCA on the sale. However, if the IRS succeeds in its assertion, HCA's tax basis in its Healthtrust preferred stock and warrants will be increased accordingly, thereby substantially reducing the tax from the sale of such preferred stock and warrants by a corresponding amount. By December 31, 1992, HCA had sold its entire interest in the Healthtrust preferred stock and warrants. Including the effect of the sales of these securities, the IRS is claiming additional interest of $74 million through March 31, 1995. Also in connection with the 1987 sale of certain Subsidiaries to Healthtrust, the IRS claims that HCA's basis in the stock of the Subsidiaries sold to Healthtrust should be calculated by adjusting such basis to reflect accelerated rather than straight-line depreciation, which would reduce HCA's basis in the stock sold and increase the taxable gain on the sale. The IRS position is contrary to a Tax Court decision in a similar case. The IRS is claiming additional income taxes of $79 million and interest of $85 million through March 31, 1995. In connection with the 1987 Healthtrust transactions, the IRS further asserts that, to the extent the Subsidiaries were properly on the cash method through 1986, and therefore properly recognizing taxable income over the ten-year transition period, HCA should have additional income in 1987 equal to the unamortized portion of the deferred income. It is HCA's position that no additional income need be included in 1987 and that the deferred income continues to qualify for the ten-year transition period after the sale. Should the IRS prevail, Columbia/HCA would owe $9 million of additional income taxes and $23 million of interest through March 31, 1995. The position of the IRS is an alternative to its denial of the use of the cash method of accounting previously discussed. 8 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 6 INCOME TAXES (Continued) Doubtful Accounts The IRS is asserting that in 1986 HCA was not entitled to include charity care writeoffs in the formula used to calculate its deduction for doubtful accounts. For years 1987 and 1988, the IRS is asserting that HCA was not entitled to exclude from income amounts which are unlikely to be collected. Management believes that such exclusions are permissible under the accrual method of accounting, and because HCA is a "service business" and not a "merchandising business", it is entitled to a special exclusion provided to service businesses by the 1986 Act. The IRS disagrees, asserting that HCA is engaged, at least in part, in a merchandising business. Notwithstanding this assertion, the IRS contends that the exclusion taken by HCA is excessive under applicable Temporary Treasury Regulations. Columbia/HCA believes that the calculation of the exclusion proposed by the IRS is inaccurate since it does not permit the exclusion in accordance with the controlling statute. If the IRS prevails, Columbia/HCA would owe additional income taxes of $104 million and interest of $66 million through March 31, 1995. Leveraged Buy-out Expenses The IRS has asserted that no deduction is allowed for various expenses incurred in connection with HCA's leveraged buy-out transaction in 1989, including the amortization of loan costs incurred to borrow funds to acquire the stock of the former shareholders, certain fees incurred by the Special Committee of HCA's Board of Directors to evaluate the buy-out proposal, compensation payments to cancel employee stock plans, and various other costs incurred after the buy-out which have been treated as part of the transaction by the IRS. Columbia/HCA believes that all of these costs are deductible. If the IRS prevails on these issues, Columbia/HCA would owe income taxes of $95 million and interest of $38 million through March 31, 1995. Other Issues Additional federal income tax issues primarily concern disputes over the depreciable lives utilized by HCA for constructed hospital facilities, investment tax credits, vacation pay deductions and income from foreign operations. Many of these items, including depreciation, investment tax credits and foreign issues, have been resolved favorably in previous settlements. The IRS is claiming an additional $38 million in income taxes and $22 million in interest through March 31, 1995. On March 24, 1994, Columbia/HCA made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior years income taxes and related interest. This payment did not have a material effect on 1994 earnings. In September 1994, Columbia/HCA presented its case in Tax Court for all issues other than the deductibility of insurance premiums paid to Parthenon (which was presented in November 1994). A Tax Court decision is expected in 1995. Resolution of disputed income tax issues by the Tax Court will not be affected by the merger with Healthtrust. Management believes that HCA had properly reported its income and paid its taxes in accordance with applicable laws and agreements established with the IRS during previous examinations, and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of Columbia/HCA. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background Information and Business Strategy MCA Merger The MCA Merger was completed in September 1994. As discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements, the MCA Merger was accounted for by the purchase method, and accordingly, the accompanying condensed consolidated financial statements and financial and operating data included in this discussion and analysis include the operations of MCA since September 1, 1994. HCA Merger As discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements, the HCA Merger was completed in February 1994. For accounting purposes, this transaction was treated as a pooling of interests. Accordingly, the accompanying condensed consolidated financial statements and financial and operating data included in this discussion and analysis give retroactive effect to the HCA Merger and include the combined operations of Columbia and HCA for all periods presented. Healthtrust Merger On October 4, 1994, Columbia/HCA entered into a definitive agreement to merge with Healthtrust. This transaction was completed on April 24, 1995. Although the Healthtrust Merger will be treated as a pooling of interests for accounting purposes, the accompanying condensed consolidated financial statements and financial and operating data included in this discussion and analysis do not include the retroactive effect of the Healthtrust Merger. See the Supplemental Condensed Consolidated Financial Statements of Columbia/HCA (which include the retroactive effect of the Healthtrust Merger) included herein for further information. Business Strategy Columbia/HCA primarily operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries, (ii) joint ventures or (iii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/HCA serve as the managing general partner. Columbia/HCA's business strategy centers on the development of comprehensive, integrated healthcare delivery networks with physicians and other healthcare providers in targeted markets, which typically involves significant health care facility acquisitions and consolidation activities. During the past several years, hospital industry inpatient admission trends have been adversely impacted by cost containment efforts initiated by federal and state governments and various third-party payers, including health maintenance organizations, preferred provider organizations, commercial insurance companies and employer-sponsored networks. In addition, a significant number of medical procedures have shifted from inpatient to less expensive outpatient settings as a result of both cost containment pressures and advances in medical technology. In response to changes in the health care industry, Columbia/HCA has developed the following strategy to provide the highest quality health care services at the lowest possible cost: Become a significant provider of services Columbia/HCA attempts to (i) consolidate services to reduce costs and (ii) develop the geographic coverage necessary for inclusion in most managed care and employer-sponsored networks in each market. Provide a comprehensive range of services In addition to the operation of general, acute care hospitals, Columbia/HCA also operates psychiatric and rehabilitation facilities, outpatient surgery and diagnostic centers, home health agencies and other services. This strategy enables Columbia/HCA to attract business from managed care plans and major employers seeking efficient access to a wide array of health care services. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Background Information and Business Strategy (Continued) Deliver high quality services Through the use of clinical information systems and continuous quality enhancement programs, Columbia/HCA focuses on patient outcomes and strives to continuously improve the quality of care and services provided to patients. Integrate fragmented delivery systems Through its networks, Columbia/HCA focuses on coordinating pricing, contracting, information systems, economic incentives and quality assurance activities among providers in each market. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations The following is a summary of operations before extraordinary item for the quarters ended March 31, 1995 and 1994 (dollars in millions, except per share amounts).
1995 1994 Amount Ratio Amount Ratio Revenues .......................................$ 3,337 100.0 $ 2,778 100.0 Salaries, wages and benefits ................... 1,309 39.2 1,113 40.1 Supplies ....................................... 498 14.9 434 15.6 Other operating expenses ....................... 608 18.3 492 17.7 Provision for doubtful accounts ................ 180 5.4 150 5.4 Investment income .............................. (19) (0.6) (14) (0.5) 2,576 77.2 2,175 78.3 EBDITA (a)...................................... 761 22.8 603 21.7 Depreciation and amortization .................. 177 5.4 144 5.2 Interest expense ............................... 75 2.2 64 2.3 Non-recurring transactions ..................... - - 159 5.7 Income before minority interests and income taxes ........................................ 509 15.2 236 8.5 Minority interests ............................. 23 0.6 3 0.1 Income before income taxes ..................... 486 14.6 233 8.4 Provision for income taxes ..................... 194 5.9 96 3.5 Income before extraordinary item ............... $ 292 8.7 $ 137 4.9 Earnings per common and common equivalent share: Excluding non-recurring transactions ........ $ .80 $ .70 Non-recurring transactions .................. - (.30) Income before extraordinary item ............ $ .80 $ .40 % changes from prior year: Revenues .................................... 20.1 EBDITA ...................................... 26.2 Income before income taxes .................. 108.6 Income before extraordinary item ............ 113.5 Earnings per common and common equivalent share ......................... 100.0 Other information excluding the effect of non-recurring transactions: Income before income taxes .................. $ 486 14.6 $ 392 14.1 Income before extraordinary item ............ 292 8.7 239 8.6 % changes from prior year: Income before income taxes ............ 23.9 Income before extraordinary item ...... 22.0 Earnings per common and common equivalent share ................... 14.3 (a) Income from continuing operations before non-recurring transactions, depreciation, interest, minority interests, income taxes and amortization. Although EBDITA is not a measure of operating performance calculated in accordance with generally accepted accounting principles, it is commonly used as an analytical indicator within the health care provider industry. In addition, EBDITA also serves as a measurement of leverage capacity and debt service ability. EBDITA should not be considered as a measure of profitability or liquidity or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance. 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) Revenues increased 20% to $3.3 billion in the first quarter of 1995 compared to the same period last year, primarily as a result of acquisitions, growth in inpatient and outpatient volumes and price increases. On a same-hospital basis, first quarter 1995 admissions increased 5.1% and outpatient visits increased 109.5% from a year ago. The increase in outpatient visits is primarily a result of expanding home health and other outpatient ancillary services. Income before income taxes increased to $486 million in 1995 from $233 million in 1994 and pretax margins increased to 14.6% in 1995 from 8.4% in 1994. Excluding the effect of non-recurring charges in the first quarter of 1994, income before taxes increased 23.9% to $486 million in 1995 from $392 million in 1994 and pretax margins increased to 14.6% in 1995 from 14.1% in 1994. The improvement in pretax income was primarily attributable to growth in revenues. In addition, pretax margins also increased due to improvements in staffing levels and increased discounts on medical supplies. Salaries, wages and benefits increased approximately 18% and declined as a percentage of revenues to 39.2% in 1995 from 40.1% in 1994, while supply costs increased approximately 15% and declined as a percentage of revenues to 14.9% in 1995 compared to 15.6% in 1994. Income before extraordinary item increased 113% to $292 million ($.80 per share) in the first quarter of 1995 compared to $137 million ($.40 per share) in 1994. Excluding the effects of non-recurring charges, income before extraordinary item increased 22% to $292 million ($.80 per share) in 1995 compared to $239 million ($.70 per share) in 1994. During the first quarter of 1994, Columbia/HCA recorded $159 million (before income taxes) of certain non-recurring charges in connection with the HCA Merger. In addition to investment and advisory fees associated with the HCA Merger, these charges reflect management's actions to reduce overhead costs, eliminate duplicative operating facilities in certain markets and consolidate management information systems. These cost-saving measures were substantially completed during 1994. In connection with the HCA Merger, substantial amounts of high-coupon long-term debt have been refinanced to reduce future interest expense and eliminate certain restrictive covenants. In the first quarter of 1994, Columbia/HCA refinanced approximately $2 billion of long-term debt resulting in an after-tax loss of $92 million or $.27 per share. Liquidity Cash provided by continuing operations totaled $419 million for the three months ended March 31, 1995 compared to $367 million last year. Cash flows in 1994 were reduced in connection with a $75 million the payment to the IRS related to disputed prior year income taxes and interest. In both periods, cash flows in excess of Columbia/HCA's capital expenditure program were used primarily to finance acquisitions. Working capital totaled $908 million at March 31, 1995 compared to $783 million at December 31, 1994. Management believes that cash flows from operations and amounts available under Columbia/HCA's revolving credit facilities and related commercial paper programs are sufficient to meet expected future liquidity needs. A substantial portion of the non-recurring transactions recorded in the first quarter of 1994 comprises the writedown of recorded assets and, accordingly, these transactions did not have a material adverse effect on cash flows from continuing operations in 1994. Investments of Columbia/HCA's professional liability insurance subsidiaries to maintain statutory equity and pay claims totaled $997 million at March 31, 1995 and $973 million at December 31, 1994. Columbia/HCA's ratio of earnings to fixed charges was 5.92 and 3.82 for the three months ended March 31, 1995 and 1994, respectively. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Capital Resources Excluding acquisitions, capital expenditures totaled $266 million for the three months ended March 31, 1995 compared to $214 million for the same period in 1994. Planned capital expenditures in 1995 (excluding acquisitions) are expected to exceed $1 billion. Management believes that its capital expenditure program is adequate to expand, improve and equip existing health care facilities. Columbia/HCA also expended $320 million and $114 million for acquisitions and joint ventures during the respective first quarters of 1995 and 1994. See Note 5 of the Notes to Condensed Consolidated Financial Statements for a description of these activities. As part of its business strategy, Columbia/HCA intends to acquire (either through purchase or joint venture transactions) additional health care facilities in the future. Columbia/HCA intends to finance all capital expenditures with internally generated and borrowed funds. Available sources of capital include public or private debt, commercial paper, unused bank revolving credits and equity. At March 31, 1995, there were projects under construction which had an estimated additional cost to complete of approximately $316 million. As part of the Healthtrust Merger, Columbia/HCA amended its revolving credit agreement from an aggregate amount of $2.25 billion to $3.75 billion. In addition, Columbia/HCA is refinancing approximately $1 billion of Healthtrust long-term debt and all outstanding borrowings under the Healthtrust $1.2 billion bank credit agreement. Management anticipates that losses resulting from these refinancing activities will reduce Columbia/HCA's second quarter net income by approximately $70 million. Other Information As discussed in Note 6 of the Notes to Condensed Consolidated Financial Statements, Columbia/HCA is contesting certain income taxes and related interest aggregating approximately $1.5 billion at March 31, 1995 proposed by the IRS for prior years. Management believes that final resolution of these disputes will not have a material adverse effect on the financial position, results of operations or liquidity of Columbia/HCA. However, if all or a majority of the positions of the IRS are upheld, the financial position, results of operations and liquidity of Columbia/HCA would be materially adversely affected. Resolution of various other loss contingencies, including litigation pending against Columbia/HCA in the ordinary course of business, is not expected to have a material adverse effect on its financial position or results of operations. Agreements relating to long-term debt require, among other things, maintenance of certain levels of interest coverage and provide limitations on long-term debt, sales of assets, mergers, changes in ownership and certain other financing activities. Columbia/HCA was in compliance with all such covenants at March 31, 1995. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data 1995 1994 Number of hospitals in operation at: March 31 ....................................... 201 196 June 30 ........................................ 196 September 30 ................................... 195 December 31 .................................... 195 Number of free-standing outpatient surgical centers in operation at: March 31 ....................................... 111 6 June 30 ........................................ 6 September 30 ................................... 103 December 31 .................................... 104 Licensed hospital beds at: March 31 ....................................... 45,141 43,171 June 30 ........................................ 43,092 September 30 ................................... 43,669 December 31 .................................... 43,670 Weighted average hospital bed capacity: Quarter: First ....................................... 43,777 41,955 Second ...................................... 42,237 Third ....................................... 42,456 Fourth ...................................... 42,780 Year ........................................... 42,357 Average daily census: Quarter: First ....................................... 21,246 20,341 Second ...................................... 18,272 Third ....................................... 17,445 Fourth ...................................... 18,076 Year ........................................... 18,524 Admissions: Quarter: First .......................................339,600 309,800 Second ...................................... 292,300 Third ....................................... 288,400 Fourth ...................................... 298,900 Year ........................................... 1,189,400 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating Data 1995 1994 Length of stay: Quarter: First ...................................... 5.6 5.9 Second ..................................... 5.7 Third ...................................... 5.6 Fourth ..................................... 5.6 Year .......................................... 5.7 Outpatient visits: Quarter: First ...................................... 3,342,600 1,522,500 Second ..................................... 1,766,400 Third ...................................... 2,073,600 Fourth ..................................... 2,589,100 Year .......................................... 7,951,600 Surgery cases: Quarter: First ...................................... 363,900 220,700 Second ..................................... 224,700 Third ...................................... 253,000 Fourth ..................................... 329,600 Year .......................................... 1,028,000 Emergency room visits: Quarter: First ..................................... 856,400 788,300 Second .................................... 816,300 Third ..................................... 811,100 Fourth .................................... 799,800 Year ......................................... 3,215,500
16 Part II. Other Information Item 4: Submission of Matters to a Vote of Security Holders. Special meetings of the stockholders of Columbia/HCA and Healthtrust were both held on February 28, 1995 in Nashville, Tennessee. The purpose of the meetings was to approve the Healthtrust Merger and related matters. The results of the stockholder votes follows: Columbia/HCA - The agreement related to the Healthtrust Merger was approved with 285,364,028 affirmative votes, 944,499 negative votes and 375,155 abstentions. A second proposal to increase the size of the Board of Directors from 15 to 18 members to accommodate the addition of three Healthtrust nominees as directors was approved with 281,487,973 affirmative votes, 3,931,018 negative votes and 1,264,691 abstentions. Healthtrust - The agreement related to the Healthtrust Merger was approved with 53,813,484 affirmative votes, 746,505 negative votes and 494,631 abstentions. 17 Item 5: Other Information. Merger On October 4, 1994, Columbia/HCA Healthcare Corporation ("Columbia/HCA"), a wholly owned subsidiary of Columbia/HCA ("Columbia Sub") and Healthtrust, Inc. - The Hospital Company ("Healthtrust") executed an Agreement and Plan of Merger, pursuant to which, among other things,(i) Columbia Sub would be merged with and into Healthtrust (the "Healthtrust Merger") and (ii) each stockholder of Healthtrust would receive for each share of Healthtrust common stock held as of the consummation date of the Healthtrust Merger 0.88 of a share of Columbia/HCA common stock. On February 28, 1995, the stockholders of both Columbia/HCA and Healthtrust voted to approve the Healthtrust Merger. The Healthtrust Merger was consummated on April 24, 1995. For accounting purposes, the Healthtrust Merger has been treated as a pooling of interests. Accordingly, the accompanying supplemental condensed consolidated financial statements and supplemental management's discussion and analysis for the quarters ended March 31, 1995 and 1994 give retroactive effect to the Healthtrust Merger and include the combined operations of Columbia/HCA and Healthtrust for all periods presented. In addition, the historical financial information related to Healthtrust (which prior to the Healthtrust Merger was reported on a fiscal year ending August 31) has been recast to conform to Columbia/HCA's annual reporting period ending December 31. The accompanying supplmental condensed financial information does not extend through the date of consummation of the Healthtrust Merger; however, such information will become the historical consolidated financial information of Columbia/HCA after the financial statements including the date of consummation of the Healthtrust merger are issued. 18 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF INCOME For the quarters ended March 31, 1995 and 1994 Unaudited (Dollars in millions, except per share amounts)
1995 1994 Revenues ........................................ $ 4,380 $3,432 Salaries, wages and benefits .................... 1,738 1,374 Supplies ........................................ 635 525 Other operating expenses ........................ 812 612 Provision for doubtful accounts ................. 241 193 Depreciation and amortization ................... 233 178 Interest expense ................................ 115 85 Investment income ............................... (21) (16) Non-recurring transactions ...................... - 159 3,753 3,110 Income before minority interests and income taxes ......................................... 627 322 Minority interests in earnings of consolidated entities ...................................... 25 6 Income before income taxes ...................... 602 316 Provision for income taxes ...................... 244 129 Income before extraordinary item ................ 358 187 Extraordinary loss on extinguishment of debt, net of income tax benefit ..................... - (92) Net income ................................ $ 358 $ 95 Earnings per common and common equivalent share: Income before extraordinary item ............. $ .80 $ .45 Extraordinary loss on extinguishment of debt . - (.22) Net income ............................... $ .80 $ .23 Cash dividends per common share ................ $ .03 $ .03 Shares used in earnings per common and common equivalent share computation(000) ............ 447,446 416,477 See accompanying notes. 19 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET Unaudited (Dollars in millions, except per share amounts) March 31, December 31, 1995 1994 ASSETS Current assets: Cash and cash equivalents .............................$ 168 $ 68 Accounts receivable less allowance for loss of $849 March 31, 1995 and $784 December 31, 1994 ........................................... 2,592 2,346 Inventories ........................................... 391 373 Other ................................................. 573 560 3,724 3,347 Property and equipment, at cost ............................. 13,278 12,613 Accumulated depreciation .................................... (4,174) (3,987) 9,104 8,626 Investments of professional liability insurance subsidiary .. 882 888 Intangible assets ........................................... 3,107 3,058 Other ....................................................... 570 359 $ 17,387 $ 16,278 LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ..................................... $ 670 $ 609 Salaries, wages and other compensation ............... 452 391 Other accrued expenses ............................... 954 1,131 Income taxes ......................................... 180 - Long-term debt due within one year ................... 226 124 2,482 2,255 Long-term debt ............................................. 5,952 5,548 Deferred credits and other liabilities ..................... 2,102 2,107 Minority interests in equity of consolidated entities ...... 380 278 Common stockholders' equity: Common stock, $.01 par; authorized 800,000,000 voting shares and 25,000,000 nonvoting shares; issued and outstanding 428,644,800 voting shares and 14,119,000 nonvoting shares March 31, 1995 and 427,837,300 voting shares and 14,119,000 nonvoting shares December 31, 1994 ................. 4 4 Other ................................................. 6,467 6,086 6,471 6,090 $ 17,387 $ 16,278 See accompanying notes. 20 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS For the quarters ended March 31, 1995 and 1994 Unaudited (Dollars in millions) 1995 1994 Cash flows from operating activities: Net income ................................................$ 358 $ 95 Adjustments to reconcile net income to net cash provided by operating activities: Non-recurring transactions ............................. - 159 Depreciation and amortization .......................... 233 178 Deferred income taxes .................................. (13) (48) Change in operating assets and liabilities: Increase in accounts receivable ..................... (165) (23) Increase in inventories and other assets ............ (28) (56) Increase in income taxes ............................ 195 52 Decrease in other liabilities ....................... (87) (21) Extraordinary loss on extinguishment of debt ........... - 149 Other .................................................. 30 19 Net cash provided by operating activities ........... 523 504 Cash flows from investing activities: Purchase of property and equipment ........................ (346) (261) Acquisition of hospitals and health care facilities ....... (335) (114) Disposition of property and equipment ..................... 10 63 Change in investments ..................................... (137) (12) Other ..................................................... (74) (63) Net cash used in investing activities ............... (882) (387) Cash flows from financing activities: Issuance of long-term debt ................................ 310 377 Net changes in commercial paper borrowings and lines of credit ................................................ 203 1,461 Repayment of long-term debt ............................... (31) (1,971) Payment of cash dividends ................................. (10) (5) Issuance of common stock .................................. 4 12 Other ..................................................... (17) 21 Net cash provided by (used) in financing activities . 459 (105) Change in cash and cash equivalents .......................... 100 12 Cash and cash equivalents at beginning of period ............. 68 348 Cash and cash equivalents at end of period ................... $ 168 $ 360 Interest payments ............................................ $ 96 $ 123 Income tax payments, net of refunds .......................... 65 52 See accompanying notes. 21
COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Unaudited NOTE 1 BASIS OF PRESENTATION Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation that operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries, (ii) joint ventures or (iii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/HCA serve as the managing general parnter. The accompanying supplemental condensed consolidated financial statements do not include all of the disclosures normally required by generally accepted accounting principles or those normally required in annual reports. Accordingly, these financial statements should be read in conjunction with the audited supplemental consolidated financial statements of Columbia/HCA for the year ended December 31, 1994 filed on Form 8-K with the Securities and Exchange Commission. The financial information has been prepared in accordance with Columbia/HCA's customary accounting practices and has not been audited. Management believes that the financial information presented reflects all adjustments necessary for a fair statement of interim results. On April 24, 1995, Columbia/HCA consummated a merger with Healthtrust, Inc. The Hospital Company ("Healthtrust")(the "Healthtrust Merger"). See Note 3 for a description of the Healthtrust Merger. On September 16, 1994, Columbia/HCA completed a merger transaction with Medical Care America, Inc. ("MCA")(the "MCA Merger") and on May 5, 1994, Columbia/HCA completed a merger transaction with EPIC Holdings, Inc. ("EPIC")(the "EPIC Merger"). The MCA and EPIC Mergers and various other acquisitions and joint venture transactions have been accounted for under the purchase method. Accordingly, the accounts of these entities have been consolidated with those of Columbia/HCA since the acquisition of controlling interest. On February 10, 1994, Columbia Healthcare Corporation ("Columbia") merged with HCA Hospital Corporation of America ("HCA")(the "HCA Merger") to form Columbia/HCA. For accounting purposes, the HCA and Healthtrust Mergers have been treated as a pooling of interests. Accordingly, the accompanying supplemental condensed consolidated financial statements give retroactive effect to these transactions and include the combined operations of the respective former entities for all periods presented. In addition, the historical financial information related to Healthtrust (which prior to the Healthtrust Merger was reported on a fiscal year ending August 31) has been recast to conform to Columbia/HCA's annual reporting period ending December 31. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of- interests method in financial statements that do not include the date of consummation. The supplemental condensed consolidated financial statements do not extend through the consummation date of the Healthtrust Merger; however, they will become the historical consolidated financial statements of Columbia/HCA after the financial statements including the consummation date of the Healthtrust Merger are issued. NOTE 2 EARNINGS PER SHARE Earnings per common and common equivalent share are based upon the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock equivalents consisting primarily of stock options. Fully diluted earnings per common and common equivalent share are not presented because such amounts approximate earnings per common and common equivalent share. 22 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 3 HEALTHTRUST MERGER On October 4, 1994, Columbia/HCA entered into a definitive agreement to merge with Healthtrust. This transaction was approved by the stockholders of both companies on February 28, 1995 and was consummated on April 24, 1995. Shares of Healthtrust common stock were converted on a tax-free basis into approximately 80,411,800 shares of Columbia/HCA voting common stock (an exchange ratio of 0.88 of a share of Columbia/HCA common stock for each share of Healthtrust common stock). The Healthtrust Merger has been accounted for as a pooling of interests, and accordingly, the supplemental condensed consolidated financial statements give retroactive effect to the Healthtrust Merger and include the combined operations of Columbia/HCA and Healthtrust for all periods presented. The following is a summary of the results of operations of the separate entities for the periods prior to the Healthtrust Merger (dollars in millions):
Columbia/HCA Healthtrust Combined Three months ended March 31, 1995: Revenues ........................... $ 3,337 $1,043 $4,380 Net income ......................... 292 66 358 Three months ended March 31, 1994: Revenues ........................... $ 2,778 $659 $3,432(a) Net income 45 50 95
(a) Includes $5 million pooling adjustment to eliminate data center fees charged by Columbia/HCA to Healthtrust. NOTE 4 OTHER BUSINESS COMBINATIONS The following is a summary of acquisitions and joint ventures consummated during the respective three month periods (dollars in millions): 1995 1994 Number of hospitals ................................. 8 4 Number of licensed beds ............................. 1,654 1,264 Purchase price information: Fair value of assets acquired ..................... $ 488 $ 192 Liabilities assumed ............................... (58) (31) Net assets acquired ............................ 430 161 Contributions from minority partners .............. (94) (47) Net cash acquired ................................. (1) - Net cash paid for acquisitions ........... $ 335 $ 114 NOTE 5 PRO FORMA INFORMATION The following unaudited pro forma information reflects the combined operating results of Columbia/HCA, MCA and EPIC as if the MCA and EPIC Mergers occurred on January 1, 1994 (dollars in millions, except per share data): Quarter Ended March 31, 1994 Revenues .............................................. $ 3,827 Income before extraordinary item ...................... 199 Net income ............................................ 194 Earnings per common and common equivalent share: Income before extraordinary item ................... .45 Net income ......................................... .44 23 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 6 INCOME TAXES The Internal Revenue Service (the "IRS") has issued statutory notices of deficiency in connection with its examinations of HCA's federal income tax returns for 1981 through 1988. Columbia/HCA is currently contesting these claimed deficiencies in the United States Tax Court (the "Tax Court"). In addition, the IRS has proposed certain adjustments in connection with its examinations of HCA's 1989 and 1990 federal income tax returns. The following is a discussion of the disputed items. Method of Accounting For years 1981 through 1986, most of HCA's hospital subsidiaries (the "Subsidiaries") reported taxable income primarily using the cash method of accounting. This method was prevalent within the hospital industry and the Subsidiaries applied the method in accordance with prior agreements with the IRS. The IRS now asserts that the accrual method of accounting should have been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act") requires the use of the accrual method of accounting beginning in 1987. Consequently, the Subsidiaries changed to the accrual method of accounting beginning January 1, 1987. In accordance with the provisions of the 1986 Act, income that had been deferred at the end of 1986 is being recognized as taxable income by the Subsidiaries in equal annual installments over ten years. If the IRS should ultimately prevail in its claims that the Subsidiaries should have used the accrual method for 1981 through 1986, the claim would be reduced to the extent that HCA has recognized as taxable income a portion of such deferred income taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987 that had been using the cash method resulted in the recognition of a substantial gain that would not have been recognized had the Subsidiaries been using the accrual method. If the IRS were successful with respect to this issue, Columbia/HCA would owe an additional $68 million in income taxes and $495 million in interest as of March 31, 1995. Hospital Acquisitions In connection with hospitals acquired by HCA in 1981 and 1985, the IRS has asserted that a portion of the costs allocated to identifiable assets with ascertainable useful lives should be reclassified as nondeductible goodwill. If the IRS ultimately prevails in this regard, Columbia/HCA would owe an additional $122 million in income taxes and $185 million in interest as of March 31, 1995. Insurance Subsidiary Based on a Sixth Circuit Court of Appeals decision (the Court having jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the IRS asserts that such premiums are not deductible and that corresponding losses are only deductible at the time and to the extent that claims are actually paid. HCA has claimed the additional deductions in its Tax Court petitions. Through March 31, 1995, Columbia/HCA is seeking a refund totaling $63 million in income taxes and $123 million in interest in connection with this issue. As an alternative to its position, HCA has asserted that in connection with the sale of hospitals to Healthtrust in 1987, premiums paid to Parthenon by the sold hospitals, if not deductible as discussed above, became deductible at the time of the sale. Accordingly, HCA claimed such deduction in its 1987 federal income tax return. The IRS has disallowed the deduction and is claiming an additional $4 million in income taxes and $18 million in interest as of March 31, 1995. A final determination that the premiums are not deductible either when paid to Parthenon or upon the sale of certain hospitals to Healthtrust would increase the taxable basis in the hospitals sold, thereby reducing HCA's gain realized on the sale. 24 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 6 INCOME TAXES (Continued) Healthtrust Sale In connection with its sale of certain Subsidiaries to Healthtrust in 1987 in exchange for cash, Healthtrust preferred stock and stock purchase warrants, HCA calculated its gain based on the valuation of such stock and warrants by an independent appraiser. The IRS claims a higher aggregate valuation, based on the face amount of the preferred stock and a separate appraisal Healthtrust obtained for the stock purchase warrants. Application of the higher valuation would increase the gain recognized by HCA on the sale. However, if the IRS succeeds in its assertion, HCA's tax basis in its Healthtrust preferred stock and warrants will be increased accordingly, thereby substantially reducing the tax from the sale of such preferred stock and warrants by a corresponding amount. By December 31, 1992, HCA had sold its entire interest in the Healthtrust preferred stock and warrants. Including the effect of the sales of these securities, the IRS is claiming additional interest of $74 million through March 31, 1995. Also in connection with the 1987 sale of certain Subsidiaries to Healthtrust, the IRS claims that HCA's basis in the stock of the Subsidiaries sold to Healthtrust should be calculated by adjusting such basis to reflect accelerated rather than straight-line depreciation, which would reduce HCA's basis in the stock sold and increase the taxable gain on the sale. The IRS position is contrary to a Tax Court decision in a similar case. The IRS is claiming additional income taxes of $79 million and interest of $85 million through March 31, 1995. In connection with the 1987 Healthtrust transactions, the IRS further asserts that, to the extent the Subsidiaries were properly on the cash method through 1986, and therefore properly recognizing taxable income over the ten-year transition period, HCA should have additional income in 1987 equal to the unamortized portion of the deferred income. It is HCA's position that no additional income need be included in 1987 and that the deferred income continues to qualify for the ten-year transition period after the sale. Should the IRS prevail, Columbia/HCA would owe $9 million of additional income taxes and $23 million of interest through March 31, 1995. The position of the IRS is an alternative to its denial of the use of the cash method of accounting previously discussed. Doubtful Accounts The IRS is asserting that in 1986 HCA was not entitled to include charity care writeoffs in the formula used to calculate its deduction for doubtful accounts. For years 1987 and 1988, the IRS is asserting that HCA was not entitled to exclude from income amounts which are unlikely to be collected. Management believes that such exclusions are permissible under the accrual method of accounting, and because HCA is a "service business" and not a "merchandising business", it is entitled to a special exclusion provided to service businesses by the 1986 Act. The IRS disagrees, asserting that HCA is engaged, at least in part, in a merchandising business. Notwithstanding this assertion, the IRS contends that the exclusion taken by HCA is excessive under applicable Temporary Treasury Regulations. Columbia/HCA believes that the calculation of the exclusion proposed by the IRS is inaccurate since it does not permit the exclusion in accordance with the controlling statute. If the IRS prevails, Columbia/HCA would owe additional income taxes of $137 million and interest of $78 million through March 31, 1995. Leveraged Buy-out Expenses The IRS has asserted that no deduction is allowed for various expenses incurred in connection with HCA's leveraged buy-out transaction in 1989, including the amortization of loan costs incurred to borrow funds to acquire the stock of the former shareholders, certain fees incurred by the Special Committee of HCA's Board of Directors to evaluate the buy-out proposal, compensation payments to cancel employee stock plans, and various other costs incurred after the buy-out which have been treated as part of the transaction by the IRS. Columbia/HCA believes that all of these costs are deductible. If the IRS prevails on these issues, Columbia/HCA would owe income taxes of $95 million and interest of $38 million through March 31, 1995. 25 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Unaudited NOTE 6 INCOME TAXES (Continued) Other Issues Additional federal income tax issues primarily concern disputes over the depreciable lives utilized by HCA for constructed hospital facilities, investment tax credits, vacation pay deductions and income from foreign operations. Many of these items, including depreciation, investment tax credits and foreign issues, have been resolved favorably in previous settlements. The IRS is claiming an additional $38 million in income taxes and $22 million in interest through March 31, 1995. On March 24, 1994, Columbia/HCA made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior years income taxes and related interest. This payment did not have a material effect on 1994 earnings. In September 1994, Columbia/HCA presented its case in Tax Court for all issues other than the deductibility of insurance premiums paid to Parthenon (which was presented in November 1994). A Tax Court decision is expected in 1995. Resolution of disputed income tax issues by the Tax Court will not be affected by the merger with Healthtrust. Management believes that HCA had properly reported its income and paid its taxes in accordance with applicable laws and agreements established with the IRS during previous examinations, and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of Columbia/HCA. 26 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background Information and Business Strategy Healthtrust Merger As discussed in Note 3 of the Notes to Supplemental Condensed Consolidated Financial Statements of Columbia/HCA, on October 4, 1994 Columbia entered into a definitive agreement to merge with Healthtrust. This transaction was completed on April 24, 1995. For accounting purposes, the Healthtrust Merger was treated as a pooling of interests. Accordingly, the accompanying supplemental condensed consolidated financial statements and operating data included in this discussion and analysis give retroactive effect to the Healthtrust Merger and include the combined operations of Columbia/HCA and Healthtrust for all periods presented. MCA and EPIC Mergers The MCA Merger was completed in September 1994, and the EPIC Merger was completed on May 5, 1994. As discussed in Note 1 of the Notes to Supplemental Condensed Consolidated Financial Statements, the MCA and EPIC Mergers were accounted for by the purchase method, and accordingly, the accompanying supplemental condensed consolidated financial statements and financial and operating data included in this discussion and analysis include the operations of MCA and EPIC since the respective dates of acquisition. HCA Merger As discussed in Note 1 of the Notes to Supplemental Condensed Consolidated Financial Statements, the HCA Merger was completed in February 1994. For accounting purposes, this transaction was treated as a pooling of interests. Accordingly, the accompanying supplemental condensed consolidated financial statements and financial and operating data included in this discussion and analysis give retroactive effect to the HCA Merger and include the combined operations of Columbia and HCA for all periods presented. Business Strategy Columbia/HCA primarily operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries, (ii) joint ventures or (iii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/HCA serve as the managing general partner. Columbia/HCA's business strategy centers on the development of comprehensive, integrated healthcare delivery networks with physicians and other healthcare providers in targeted markets, which typically involves significant health care facility acquisitions and consolidation activities. During the past several years, hospital industry inpatient admission trends have been adversely impacted by cost containment efforts initiated by federal and state governments and various third-party payers, including health maintenance organizations, preferred provider organizations, commercial insurance companies and employer-sponsored networks. In addition, a significant number of medical procedures have shifted from inpatient to less expensive outpatient settings as a result of both cost containment pressures and advances in medical technology. In response to changes in the health care industry, Columbia/HCA has developed the following strategy to provide the highest quality health care services at the lowest possible cost: Become a significant provider of services Columbia/HCA attempts to (i) consolidate services to reduce costs and (ii) develop the geographic coverage necessary for inclusion in most managed care and employer- sponsored networks in each market. Provide a comprehensive range of services In addition to the operation of general, acute care hospitals, Columbia/HCA also operates psychiatric and rehabilitation facilities, outpatient surgery and diagnostic centers, home health agencies and other services. This strategy enables Columbia/HCA to attract business from managed care plans and major employers seeking efficient access to a wide array of health care services. 27 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Background Information and Business Strategy (Continued) Deliver high quality services Through the use of clinical information systems and continuous quality enhancement programs, Columbia/HCA focuses on patient outcomes and strives to continuously improve the quality of care and services provided to patients. Integrate fragmented delivery systems Through its networks, Columbia/HCA focuses on coordinating pricing, contracting, information systems, economic incentives and quality assurance activities among providers in each market. 28 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations The following is a summary of operations before extraordinary item for the quarters ended March 31, 1995 and 1994 (dollars in millions, except per share amounts). 1995 1994 Amount Ratio Amount Ratio Revenues ................................$4,380 100.0 $ 3,432 100.0 Salaries, wages and benefits ............ 1,738 39.7 1,374 40.0 Supplies ................................ 635 14.5 525 15.3 Other operating expenses ................ 812 18.5 612 17.9 Provision for doubtful accounts ......... 241 5.5 193 5.6 Investment income ....................... (21) (0.5) (16) (0.5) 3,405 77.7 2,688 78.3 EBDITA (a) .............................. 975 22.3 744 21.7 Depreciation and amortization ........... 233 5.4 178 5.2 Interest expense ........................ 115 2.6 85 2.4 Non-recurring transactions .............. - - 159 4.7 Income before minority interests and income taxes ...................... 627 14.3 322 9.4 Minority interests ...................... 25 0.6 6 0.2 Income before income taxes .............. 602 13.7 316 9.2 Provision for income taxes .............. 244 5.5 129 3.8 Income before extraordinary item ........$ 358 8.2 $ 187 5.4 Earnings per common and common equivalent share: Excluding non-recurring transactions .$ .80 $ .69 Non-recurring transactions ........... - (.24) Income before extraordinary item .....$ .80 $ .45 % changes from prior year: Revenues ............................. 27.6 EBDITA ............................... 31.0 Income before income taxes ........... 90.5 Income before extraordinary item ..... 92.0 Earnings per common and common equivalent share .................. 77.8 Other information excluding the effect of non-recurring transactions: Income before income taxes ...........$ 602 13.7 $ 475 13.9 Income before extraordinary item ..... 358 8.2 289 8.4 % changes from prior year: Income before income taxes ....... 26.6 Income before extraordinary item . 23.9 Earnings per common and common equivalent share ............... 15.9 (a) Income from continuing operations before non-recurring transactions, depreciation, interest, minority interests, income taxes and amortization. Although EBDITA is not a measure of operating performance calculated in accordance with generally accepted accounting principles, it is commonly used as an analytical indicator within the health care provider industry. In addition, EBDITA also serves as a measurement of leverage capacity and debt service ability. EBDITA should not be considered as a measure of profitability or liquidity or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance. 29 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) Revenues increased 27.6% to $4.4 billion in the first quarter of 1995 compared to the same period last year, primarily as a result of acquisitions, growth in inpatient and outpatient volumes and price increases. On a same- hospital basis, first quarter 1995 admissions increased 5.2% and outpatient visits increased 82.1% from a year ago. The increase in outpatient visits is primarily a result of expanding home health and other outpatient ancillary services. Income before income taxes increased to $602 million in 1995 from $316 million in 1994 and pretax margins increased to 13.7% in 1995 from 9.2% in 1994. Excluding the effect of non-recurring charges in the first quarter of 1994, income before taxes increased 26.6% to $602 million in 1995 from $475 million in 1994 and pretax margins decreased to 13.7% in 1995 from 13.9% in 1994. The improvement in pretax income was primarily attributable to growth in revenues. In addition, pretax margins also increased due to improvements in staffing levels and increased discounts on medical supplies. Salaries, wages and benefits increased approximately 27% and declined as a percentage of revenues to 39.7% in 1995 from 40% in 1994, while supply costs increased approximately 21% and declined as a percentage of revenues to 14.5% in 1995 compared to 15.3% in 1994. Income before extraordinary item increased 92% to $358 million ($.80 per share) in the first quarter of 1995 compared to $187 million ($.45 per share) in 1994. Excluding the effects of non-recurring charges, income before extraordinary item increased 24% to $358 million ($.80 per share) in 1995 compared to $289 million ($.69 per share) in 1994. During the first quarter of 1994, Columbia/HCA recorded $159 million (before income taxes) of certain non-recurring charges in connection with the HCA Merger. In addition to investment and advisory fees associated with the HCA Merger, these charges reflect management's actions to reduce overhead costs, eliminate duplicative operating facilities in certain markets and consolidate management information systems. These cost-saving measures were substantially completed during 1994. The acute care facilities acquired in connection with the EPIC Merger in May 1994 increased revenues in the first quarter of 1995 by $288 million, while the free-standing surgical center business acquired in connection with the MCA Merger in September 1994 increased revenues by $120 million. See Note 5 of the Notes to Supplemental Condensed Consolidated Financial Statements for certain pro forma information related to the EPIC Merger and MCA Merger. In connection with the HCA Merger, substantial amounts of high-coupon long-term debt have been refinanced to reduce future interest expense and eliminate certain restrictive covenants. In the first quarter of 1994, Columbia/HCA refinanced approximately $2 billion of long-term debt resulting in an after-tax loss of $92 million or $.22 per share. Liquidity Cash provided by continuing operations totaled $523 million for the three months ended March 31, 1995 compared to $504 million last year. Cash flows in 1994 were reduced in connection with a $75 million payment to the IRS related to disputed prior year income taxes and interest. In both periods, cash flows in excess of Columbia/HCA's capital expenditure program were used primarily to finance acquisitions. Working capital totaled $1.2 billion at March 31, 1995 compared to $1.1 billion at December 31, 1994. Management believes that cash flows from operations and amounts available under Columbia/HCA's revolving credit facilities and related commercial paper programs are sufficient to meet expected future liquidity needs. A substantial portion of the non-recurring transactions recorded in the first quarter of 1994 comprises the writedown of recorded assets and, accordingly, these transactions did not have a material adverse effect on cash flows from continuing operations in 1994. 30 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity (Continued) Investments of Columbia/HCA's professional liability insurance subsidiaries to maintain statutory equity and pay claims totaled $997 million at March 31, 1995 and $973 million at December 31, 1994. Columbia/HCA's supplemental ratio of earnings to fixed charges was 5.19 and 3.78 for the three months ended March 31, 1995 and 1994, respectively. Capital Resources Excluding acquisitions, capital expenditures totaled $346 million for the three months ended March 31, 1995 compared to $261 million for the same period in 1994. Planned capital expenditures in 1995 (excluding acquisitions) are expected to approximate $1.3 billion. Management believes that its capital expenditure program is adequate to expand, improve and equip existing health care facilities. Columbia/HCA also expended $335 million and $114 million for acquisitions and joint ventures during the respective first quarters of 1995 and 1994. See Note 4 of the Notes to Supplemental Condensed Consolidated Financial Statements for a description of these activities. As part of its business strategy, Columbia/HCA intends to acquire (either through purchase or joint venture transactions) additional health care facilities in the future. Columbia/HCA intends to finance all capital expenditures with internally generated and borrowed funds. Available sources of capital include public or private debt, commercial paper, unused bank revolving credits and equity. At March 31, 1995, there were projects under construction which had an estimated additional cost to complete of approximately $434 million. As part of the Healthtrust Merger, Columbia/HCA amended its revolving credit agreement from an aggregate amount of $2.25 billion to $3.75 billion. In addition, Columbia/HCA is refinancing approximately $1 billion of Healthtrust long-term debt and all outstanding borrowings under the Healthtrust $1.2 billion bank credit agreement. Management anticipates that losses resulting from these refinancing activities will reduce Columbia/HCA's second quarter net income by approximately $70 million. Other Information As discussed in Note 6 of the Notes to Supplemental Condensed Consolidated Financial Statements, Columbia/HCA is contesting certain income taxes and related interest aggregating $1.5 billion at March 31, 1995 proposed by the IRS for prior years. Management believes that final resolution of these disputes will not have a material adverse effect on the financial position, results of operations or liquidity of Columbia/HCA. However, if all or a majority of the positions of the IRS are upheld, the financial position, results of operations and liquidity of Columbia/HCA would be materially adversely affected. On March 24, 1994, Columbia/HCA made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior year income taxes and related interest. This payment did not have a material effect on 1994 earnings. Resolution of various other loss contingencies, including litigation pending against Columbia/HCA in the ordinary course of business, is not expected to have a material adverse effect on its financial position or results of operations. Agreements relating to long-term debt require, among other things, maintenance of certain levels of interest coverage and provide limitations on long-term debt, sales of assets, mergers, changes in ownership and certain other financing activities. Columbia/HCA was in compliance with all such covenants at March 31, 1995. 31 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data 1995 1994 Number of hospitals in operation at: March 31 .................................... 318 277 June 30 ..................................... 312 September 30 ................................ 311 December 31 ................................. 311 Number of free-standing outpatient surgical centers in operation at: March 31 .................................... 111 6 June 30 ..................................... 6 September 30 ................................ 103 December 31 ................................. 104 Licensed hospital beds at: March 31 .................................... 61,261 54,179 June 30 ..................................... 58,888 September 30 ................................ 59,594 December 31 ................................. 59,595 Weighted average licensed beds: Quarter: First .................................... 60,960 53,909 Second ................................... 57,263 Third .................................... 59,260 Fourth ................................... 59,576 Year ........................................ 57,517 Average daily census: Quarter: First .................................... 27,713 24,905 Second ................................... 23,540 Third .................................... 23,066 Fourth ................................... 23,874 Year ........................................ 23,841 Admissions: Quarter: First .................................... 454,500 387,100 Second ................................... 384,200 Third .................................... 390,200 Fourth ................................... 404,000 Year ........................................ 1,565,500 32 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operating Data 1995 1994 Length of stay: Quarter: First .................................... 5.5 5.8 Second ................................... 5.6 Third .................................... 5.4 Fourth ................................... 5.4 Year ........................................ 5.6 Outpatient visits: Quarter: First .................................... 4,933,300 2,199,200 Second ................................... 2,871,500 Third .................................... 3,441,000 Fourth ................................... 4,046,500 Year ........................................ 12,558,200 Surgery cases: Quarter: First .................................... 443,700 271,400 Second ................................... 295,700 Third .................................... 331,800 Fourth ................................... 409,700 Year ........................................ 1,308,600 Emergency room visits: Quarter: First .................................... 1,258,900 1,060,000 Second ................................... 1,188,300 Third .................................... 1,216,600 Fourth ................................... 1,186,100 Year ........................................ 4,651,000 33
Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 11 - Statement re Computation of Earnings Per Common and Common Equivalent Share. Exhibit 11.1 - Statement re Supplemental Computation of Earnings Per Common and Common Equivalent Share. Exhibit 12 - Statement re Computation of Ratio of Earnings to Fixed Charges. Exhibit 12.1 - Statement re Supplemental Computation of Ratio of Earnings to Fixed Charges. Exhibit 27 - Financial Data Schedule (included only in filings under the Electronic Data, Gathering, Analysis, and Retrieval system) (b) Reports on Form 8-K: On February 21, 1995, Columbia/HCA reported on Form 8-K its consolidated earnings for the year ended December 31, 1994. A copy of the press release issued by Columbia/HCA on February 17, 1995 was included in the report. 34 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBIA/HCA HEALTHCARE CORPORATION Date: May 15, 1995 /s/ Kenneth C. Donahey Kenneth C. Donahey Senior Vice President and Controller (Principal Accounting Officer) 35 EX-11 2 Exhibit 11 COLUMBIA/HCA HEALTHCARE CORPORATION COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE For the quarters ended March 31, 1995 and 1994 (Dollars in millions, except per share amounts)
1995 1994 Primary Earnings per Common and Common Equivalent Share: Earnings: Income before extraordinary item ................... $ 292 $ 137 Extraordinary loss on extinguishment of debt, net of income tax benefit ....................... - (92) Net income .................................... $ 292 $ 45 Shares used in the computation (000): Weighted average common shares outstanding ......... 362,169 337,222 Dilutive effect of common stock equivalents ........ 3,337 4,399 Shares used in earnings per common and common equivalent share computation .................. 365,506 341,621 Primary earnings per common and common equivalent share: Income before extraordinary item ................... $ .80 $ .40 Extraordinary loss on extinguishment of debt ....... - (.27) Net income .................................... $ .80 $ .13 36 Exhibit 11 COLUMBIA/HCA HEALTHCARE CORPORATION COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE For the quarters ended March 31, 1995 and 1994 (Dollars in millions, except per share amounts) 1995 1994 Fully Diluted Earnings per Common and Common Equivalent Share: Earnings: Income before extraordinary item ......................$ 292 $ 137 Interest addback on convertible securities, net of income taxes ........................................ 2 - Income applicable to common stock ..................... 294 137 Extraordinary loss on extinguishment of debt, net of income tax benefit ........................... - (92) Net income ......................................$ 294 $ 45 Shares used in the computation (000): Weighted average common shares outstanding ............362,169 337,222 Dilutive effect of common stock equivalents and other dilutive securities ........................... 6,056 4,399 Shares used in earnings per common and common equivalent share computation ..................368,225 341,621 Fully diluted earnings per common and common equivalent share: Income before extraordinary item .......................$ .80 $ .40 Extraordinary loss on extinguishment of debt ........... - (.27) Net income ......................................$ .80 $ .13 37 Exhibit 11.1 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE For the quarters ended March 31, 1995 and 1994 (Dollars in millions, except per share amounts) 1995 1994 Primary Earnings per Common and Common Equivalent Share: Earnings: Income before extraordinary item ....................... $ 358 $ 187 Extraordinary loss on extinguishment of debt, net of income tax benefit ............................ - (92) Net income .......................................... $ 358 $ 95 Shares used in the computation (000): Columbia/HCA (prior to Healthtrust Merger): Weighted average common shares outstanding ......... 362,169 337,222 Dilutive effect of common stock equivalents ........ 3,337 4,399 Columbia/HCA common and common equivalent shares ... 365,506 341,621 Healthtrust: Weighted average common shares outstanding ......... 91,271 81,206 Dilutive effect of common stock equivalents ........ 1,842 3,858 Healthtrust common and common equivalent shares .... 93,113 85,064 Merger exchange ratio .............................. 0.88 0.88 Adjusted Healthtrust common and common equivalent shares ........................................... 81,940 74,856 Shares used in earnings per common and common equivalent share computations ............. 447,446 416,477 Primary earnings per common and common equivalent share: Income before extraordinary item ..................... $ .80 $ .45 Extraordinary loss on extinguishment of debt ......... - (.22) Net income ..................................... $ .80 .23 38 Exhibit 11.1 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE For the quarters ended March 31, 1995 and 1994 (Dollars in millions, except per share amounts) 1995 1994 Fully Diluted Earnings per Common and Common Equivalent Share: Earnings: Income before extraordinary item ....................... $ 358 $ 187 Interest addback on convertible securities, net of income taxes ........................................ 2 - Income applicable to common stock ...................... 360 187 Extraordinary loss on extinguishment of debt, net of income tax benefit ........................... - (92) Net income ....................................... $ 360 $ 95 Shares used in the computation (000): Columbia/HCA (prior to Healthtrust Merger): Weighted average common shares outstanding .......... 362,169 337,222 Dilutive effect of common stock equivalents and other dilutive securities ..................... 6,056 4,399 Columbia/HCA common and common equivalent shares . 368,225 341,621 Healthtrust: Weighted average common shares outstanding .......... 91,271 81,206 Dilutive effect of common stock equivalents and other dilutive securities ....................... 1,960 4,266 Healthtrust common and common equivalent shares ..... 93,231 85,472 Merger exchange ratio ............................... 0.88 0.88 Adjusted Healthtrust common and common equivalent shares ............................................ 82,044 75,216 Shares used in earnings per common and common equivalent share computations ............. 450,269 416,837 Fully diluted earnings per common and common equivalent share: Income before extraordinary item ....................... $ .80 $ .45 Extraordinary loss on extinguishment of debt ........... - (.22) Net income ....................................... $ .80 $ .23
39 EX-12 3 Exhibit 12 COLUMBIA/HCA HEALTHCARE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the quarters ended March 31, 1995 and 1994 (Dollars in millions)
1995 1994 Earnings: Income before minority interests and income taxes ..........$ 509 $ 236 Fixed charges, exclusive of capitalized interest ........... 98 80 $ 607 $ 316 Fixed Charges: Interest charged to expense ................................$ 75 $ 64 One-third of rent expense and amortization of deferred loan costs (a) ........................................... 23 16 Fixed charges, exclusive of capitalized interest ........... 98 80 Capitalized interest ....................................... 4 3 $ 102 $ 83 Ratio of earnings to fixed charges ............................ 5.92 3.82 (a) One-third of rent expense is considered representative of the underlying interest. 40 Exhibit 12.1 COLUMBIA/HCA HEALTHCARE CORPORATION SUPPLEMENTAL COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the quarters ended March 31, 1995 and 1994 (Dollars in millions) 1995 1994 Earnings: Income before minority interests and income taxes ......... $ 627 $ 322 Fixed charges, exclusive of capitalized interest .......... 143 108 $ 770 $ 430 Fixed Charges: Interest charged to expense ............................... $ 115 $ 85 One-third of rent expense and amortization of deferred loan costs (a) .......................................... 28 23 Fixed charges, exclusive of capitalized interest .......... 143 108 Capitalized interest ...................................... 5 6 $ 148 $ 114 Ratio of earnings to fixed charges ........................... 5.19 3.78 (a) One-third of rent expense is considered representative of the underlying interest.
41 EX-27 4
5 This schedule contains summary financial information extracted from the statemen of income and balance sheet and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1995 MAR-31-1995 113 0 1,978 669 299 2,867 10,140 3,331 13,344 1,959 4,263 4 0 0 5,324 13,344 0 3,337 0 1,807 608 180 75 486 194 292 0 0 0 292 .80 .80
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