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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
MARK ONE:
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________.
COMMISSION FILE NUMBER 1-11239
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COLUMBIA/HCA HEALTHCARE CORPORATION
(FORMERLY COLUMBIA HEALTHCARE CORPORATION)
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 75-2497104
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Indentification No.)
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (502) 572-2000
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of February 28, 1994, there were outstanding 318,289,550 shares of the
Registrant's Common Stock and 18,989,999 shares of the Registrant's Nonvoting
Common Stock. As of February 28, 1994 the aggregate market value of the Common
Stock held by non-affiliates was $12,304,680,760. For purposes of the foregoing
calculation only, the Registrant's directors, executive officers, and The
Hospital Corporation of America Stock Bonus Plan have been deemed to be
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1994 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
The Exhibit Index is on page 39.
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PART I
ITEM 1. BUSINESS.
GENERAL
Columbia/HCA Healthcare Corporation (the "Company") is a health care
services company that is primarily engaged in buying, selling, owning and
operating general, acute care and specialty hospitals and related health care
facilities. As of March 28, 1994, the Company operated 196 hospitals located in
26 states and two foreign countries.
On February 10, 1994, the Company acquired HCA-Hospital Corporation of
America ("HCA") pursuant to a merger transaction accounted for as a pooling of
interests (the "HCA Merger"). HCA was one of the leading hospital management
companies in the United States. Effective September 1, 1993, the Company
acquired Galen Health Care, Inc. ("Galen") pursuant to a merger transaction
accounted for as a pooling of interests (the "Galen Merger"). Galen was a health
care services company that primarily owned and operated acute care hospitals.
Galen began operations as an independent publicly held corporation upon the
distribution of all of its common stock (the "Spinoff") by its then 100% owner,
Humana Inc. ("Humana"), on March 1, 1993. Unless otherwise noted, the historical
financial and operating data contained in this Annual Report on Form 10-K have
been restated to include the relevant data for both HCA and Galen for all
periods presented.
The Company, through various predecessor entities, began operations on July
1, 1988. The Company was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. The Company's principal executive
offices are located at 201 West Main Street, Louisville, Kentucky 40202, and its
telephone number at such address is (502) 572-2000.
BUSINESS STRATEGY
The Company's strategy is to become a significant, comprehensive provider of
quality health care services in targeted markets. The Company pursues its
strategy by acquiring the health care facilities necessary to develop a
comprehensive health care network with wide geographic presence throughout the
market. Typically, the Company enters a market by acquiring one or more mid-to
large-size general, acute care hospitals (over 150 licensed beds), which have
either desirable physical plants or ones which can be upgraded on an
economically feasible basis. The Company then upgrades equipment and facilities
and adds new services to increase the attractiveness of the hospital to local
physicians and patient populations. The Company typically develops a network by
acquiring additional health care facilities including additional general, acute
care hospitals, psychiatric hospitals and outpatient facilities such as surgery
centers, diagnostic centers, physical therapy centers and other treatment or
wellness facilities including home health care services. By developing a
comprehensive health care network in a local market, the Company achieves
greater visibility and is better able to attract physicians and patients by
offering a full range of services in the entire market area. The Company is also
able to reduce operating costs by sharing certain services among several
facilities in the same market and is better positioned to work with health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs")
and employers.
Upon acquisition of a facility, the Company hires experienced executives to
manage its operations and decentralizes operational decision making to the local
level, while providing local physicians and managers the opportunity to purchase
equity interests in the operations through a partnership or corporate structure.
The Company is currently implementing this strategy with certain of the former
Galen and HCA facilities. Management believes the Company's strategy of
co-ownership of its facilities with physicians produces significant operational
advantages. Physicians who have an ownership interest in a facility take a more
active role in recruiting other physicians and in improving efficiency by
containing costs and making more rational capital expenditure decisions, and
often are more active supporters of operations and medical staff quality
assurance activities, as they have a direct personal interest in the success and
reputation of the facility. Moreover, because the Company's facilities are co-
owned with and operated by prominent members of the local medical community,
both community
2
support for the facilities and the Company's ability to recruit physicians to
the facilities are enhanced. In addition, by giving local managers of its
facilities the opportunity to purchase equity interests in such facilities, the
Company creates incentives on the part of its local managers to operate their
facilities successfully with a long-term perspective.
HEALTH CARE FACILITIES
The Company currently operates hospitals, ambulatory surgery centers,
diagnostic centers, cardiac rehabilitation centers, physical therapy centers,
radiation oncology centers, comprehensive outpatient rehabilitation centers and
home health care agencies and programs.
The Company currently operates 168 general, acute care hospitals with 39,886
licensed beds. Most of the Company's general, acute care hospitals provides
medical and surgical services, including inpatient care, intensive and cardiac
care, diagnostic services and emergency services. The general, acute care
hospitals also provide outpatient services such as outpatient surgery,
laboratory, radiology, respiratory therapy, cardiology and physical therapy. A
local advisory board, which usually includes members of the hospital's medical
staff, generally makes recommendations concerning the medical, professional and
ethical practices at each hospital and monitors such practices. However, the
hospital is ultimately responsible for ensuring that these practices conform to
established standards. When the Company acquires a hospital, it establishes
quality assurance programs to support and monitor quality of care standards and
to meet accreditation and regulatory requirements. Patient care evaluations and
other quality of care assessment activities are monitored on a continuing basis.
Like most hospitals, the Company's hospitals do not engage in extensive
medical research and medical education programs. However, some of the Company's
hospitals have an affiliation with medical schools, including the clinical
rotation of medical students.
The Company currently operates 28 psychiatric hospitals with 3,285 licensed
beds. The Company's psychiatric hospitals provide therapeutic programs tailored
to child psychiatric, adolescent psychiatric, adult psychiatric, adolescent
alcohol or drug abuse and adult alcohol or drug abuse patients. The hospitals
use the treatment team concept whereby the admitting physician, team
psychologist, social workers, nurses, therapists and counselors coordinate each
phase of therapy. Services provided by this team include crisis intervention,
individual psychotherapy, group and family therapy, social services, chemical
dependency counseling, behavioral modification and physical medicine. Family
aftercare plans are actively promoted from the time of admission, through
hospitalization and after discharge. An aftercare plan measures each patient's
post-program progress and utilizes one or more self-help groups. Program
procedures are designed to ensure that quality standards are achieved and
maintained. Certain of the Company's general, acute care hospitals also have a
limited number of licensed psychiatric beds.
Other outpatient or related health care services operated by the Company
include ambulatory surgery centers, diagnostic centers, outpatient physical
therapy/rehabilitation centers, outpatient radiation therapy centers, cardiac
rehabilitation centers, skilled nursing services and home health/ infusion
services. These outpatient and related services are an integral component of the
Company's strategy to develop a comprehensive health care network in each of its
target markets.
In addition to providing capital resources, the Company makes available a
variety of management services to its health care facilities, most
significantly: national supply and equipment purchasing and leasing contracts;
financial policies; accounting, financial and clinical systems; governmental
reimbursement assistance; construction planning and coordination; information
systems; legal; personnel management; and internal audit.
SOURCES OF REVENUE
Hospital revenues depend upon inpatient occupancy levels, the extent to
which ancillary services and therapy programs are ordered by physicians and
provided to patients, the volume of outpatient procedures and the charges or
negotiated payment rates for such services. Charges and reimbursement rates for
inpatient routine services vary significantly depending on the type of service
(e.g.,
3
medical/surgical, intensive care or psychiatric) and the geographic location of
the hospital. The Company has experienced an increase in the percentage of
patient revenues attributable to outpatient services. This increase is primarily
the result of advances in technology, which allow more services to be provided
on an outpatient basis, acquisitions of additional outpatient facilities and
increased pressures from Medicare, Medicaid, HMOs and PPOs and insurers to
reduce hospital stays and provide services, where possible, on a less expensive
outpatient basis.
The Company receives payment for patient services from the federal
government primarily under the Medicare program, state governments under their
respective Medicaid programs, HMOs, PPOs and other private insurers and directly
from patients. The approximate percentages of patient revenues of the Company's
facilities from such sources during the periods specified below were as follows:
YEARS ENDED DECEMBER 31,
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1993 1992 1991
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Medicare........................................................... 34% 30% 29%
Medicaid........................................................... 4 4 4
Other sources...................................................... 62 66 67
--- --- ---
Total.............................................................. 100% 100% 100%
--- --- ---
--- --- ---
Medicare is a federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a federal-state program administered
by the states which provides hospital benefits to qualifying individuals who are
unable to afford care. Substantially all of the Company's hospitals are
certified as providers of Medicare and Medicaid services. Amounts received under
the Medicare and Medicaid programs are generally significantly less than the
hospital's customary charges for the services provided.
To attract additional volume, most of the Company's hospitals offer
discounts from established charges to certain large group purchasers of health
care services, including Blue Cross, other private insurance companies,
employers, HMOs, PPOs and other managed care plans. Blue Cross is a private
health care program that funds hospital benefits through independent plans that
vary in each state. These discount programs limit the Company's ability to
increase charges in response to increasing costs. See "Competition." Patients
are generally not responsible for any difference between customary hospital
charges and amounts reimbursed for such services under Medicare, Medicaid, some
Blue Cross plans and HMOs or PPOs, but are responsible to the extent of any
exclusions, deductibles or co-insurance features of their coverage. The amount
of such exclusions, deductibles and co-insurance has generally been increasing
each year. Collection of amounts due from individuals is more difficult than
from governmental or business payors.
MEDICARE
Beginning in 1983, reimbursement to hospitals under the Medicare program
changed significantly and these changes have had, and are expected to continue
to have, significant effects on the Company's hospitals and the health care
industry in general. Prior to 1983, Medicare reimbursed medical/surgical
hospitals on a cost-based system. In 1983, Medicare established a prospective
payment system under which inpatient discharges from medical/surgical hospitals
are classified into categories of treatments, known as Diagnosis Related Groups
("DRGs"), which classify illnesses according to the estimated intensity of
hospital resources necessary to furnish care for each principal diagnosis. At
December 31, 1993, there were 489 DRGs. Hospitals generally receive a fixed
amount per Medicare discharge based upon the assigned DRG (the "DRG rate")
regardless of how long the patient remains in the hospital or the volume of
ancillary services ordered by the attending physician. However, the DRG rate is
adjusted for each hospital to reflect the relative severity of diagnosis, higher
cost of certain geographical areas, disproportionate share of low income
patients and indirect medical education costs. Also, Medicare pays an additional
"outlier" payment for extraordinary Medicare
4
cases involving long hospital stays or significant amounts of costs incurred.
Under the prospective payment system, hospitals generally are encouraged to
operate with greater efficiency, since they may retain payments in excess of
costs but must absorb costs in excess of such payments.
The Secretary of the Department of Health and Human Services ("HHS") is
required to establish annual increases in the DRG rates, effective October 1 of
each year, to counter inflationary pressure after considering the
recommendations of an independent panel of experts. In each year since 1984,
however, the increases in the DRG rates have been determined by Congress as part
of the federal budget process. The index used to adjust the DRG rates gives
consideration to the inflation experienced by hospitals in purchasing the goods
and services they need to provide inpatient services (the "market basket"). For
several years the percentage increases to the DRG rates have been lower than the
percentage increases in the market basket. Substantially all of the Company's
general, acute care hospitals are classified as urban for Medicare purposes. For
federal fiscal year ("FY") 1992 the net update of the DRG rates for urban
hospitals set by Congress was 2.8% (market basket minus 1.6%); for FY 1993 the
net update of the DRG rates for urban hospitals was 2.6% (market basket minus
1.6%); and for FY 1994 the net update of the DRG rates for urban hospitals will
be 1.8% (market basket minus 2.5%). As a result of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 1993"), the net update of DRG rates for future
fiscal years is as follows: (i) FY 1995 -- urban hospitals will equal the market
basket minus 2.5%; (ii) FY 1996 -- all hospitals will equal the market basket
minus 2.0%; (iii) FY 1997 -- all hospitals will equal the market basket minus
0.5%; and (iv) FY 1998 and thereafter -- all hospitals will equal the market
basket.
Medicare payments for the majority of outpatient services generally are the
lower of 94.2% of hospital costs, customary charges or a blend of 94.2% of
hospital costs and a fee schedule (such fee schedule generally being lower than
hospital costs). OBRA 1993 extended the 94.2% provision through FY 1998. HHS has
indicated its intention to change reimbursement procedures for Medicare
outpatients to a prospective payment system. The effect of a change to a
prospective payment system or other changes to the existing payment system, if
implemented, cannot be predicted by the Company at this time. Medicare
outpatient revenues were approximately 21% of the Company's total outpatient
revenues, or approximately 6% of the Company's total operating revenues, for the
year ended December 31, 1993.
In addition to the operating payments described above, the Medicare program
provides reimbursement to hospitals for certain costs of capital (such as
depreciation, property taxes, rent and interest). Pursuant to final HHS
regulations issued in August 1991, reimbursement for capital expenditures
related to inpatient care was incorporated into the prospective payment system
and will be phased in over a ten-year period beginning October 1, 1991. The
regulations establish a standard federal rate per discharge for capital-related
inpatient hospital costs. The standard federal rate is based on the estimated FY
1992 national average Medicare inpatient capital-related cost per discharge
under cost reimbursement. The rate will be adjusted for each hospital to reflect
the relative severity of diagnosis, higher cost of certain geographic areas,
disproportionate share of low income patients, indirect medical education costs
and extremely high cost cases. As required by law, however, the standard federal
rate will be adjusted in FY 1992 through FY 1995 so that aggregate payments for
capital will not exceed 90% of the amounts that would have been payable under a
reasonable cost reimbursement basis. High capital cost-per-discharge hospitals
may qualify to continue to be paid based on a blend of old and new capital, with
old capital being paid at 85% of reasonable cost. Based upon its analysis of the
manner in which these regulations will be applied, the Company does not believe
that, in the aggregate, its hospitals were materially affected by the
regulations for the year ended December 31, 1993. Payments for future years,
however, including those related to new capital expenditures, will be affected
by annual updates in the federal payment rate. Management cannot predict the
effect of such changes on the Company's results of operations or financial
condition.
The Medicare program reimburses each hospital on a reasonable cost basis for
the Medicare program's pro rata share of the hospital's allowable capital costs
related to outpatient services. Outpatient capital reimbursement was reduced by
15% (i.e., 85% of outpatient capital costs) during
5
FY 1990 and the Omnibus Budget Reconciliation Act of 1990 (the "1990 Budget
Act") extended the 15% reduction through FY 1991. The 1990 Budget Act further
directed that outpatient capital reimbursement be reduced by only 10% beginning
in FY 1992 through FY 1995. OBRA 1993 extended the 10% reduction through FY
1998.
In December 1985, the Gramm-Rudman-Hollings Amendment ("Gramm-Rudman") was
enacted by Congress mandating progressively smaller projected federal budget
deficits for FYs between 1986 and 1991. Gramm-Rudman provides for automatic
spending cuts in governmental programs (including Medicare) if certain deficit
targets are not met. Under Gramm-Rudman, Medicare payments were reduced in each
of the FYs 1986 through 1988 and in 1990. The 1990 Budget Act restructured
Gramm-Rudman and extended its term of effectiveness. For FY 1991 through FY
1993, fixed deficit targets were eliminated, but will be applied for FY 1994 and
FY 1995 unless the President orders such targets eliminated. In addition to the
possible fixed deficit targets for FY 1994 and FY 1995, the 1990 Budget Act
created two new limitations on federal spending, the Discretionary Spending
Limits and the "Pay As You Go" requirement. Each of the three spending
limitations is enforceable by sequestration, and under the "Pay As You Go"
limitation, the maximum reduction in Medicare payments is 4%. Management is
unable to determine what effect, if any, such provisions of the 1990 Budget Act
might have on the Company if implemented.
Certain specialized hospitals, including psychiatric hospitals, are exempt
from the Medicare prospective payment system and continue to be reimbursed on a
cost-based system. Under the Tax Equity and Fiscal Responsibility Act of 1982,
base year costs per Medicare case were determined for the Company's psychiatric
hospitals in 1982. The target rate of permitted increases in cost per case is
established each year by the increase in the cost of a market basket of hospital
goods and services (the "Target Rate"). If a hospital's costs increase less than
the Target Rate, the hospital receives a bonus of 50% of the difference between
its allowed increase and its actual increase (limited to 5% of the Target Rate).
These limits apply only to operating costs and do not apply to capital costs.
The effective increase in the Target Rate per discharge was 4.3% for the year
commencing October 1, 1993 and is expected to be market basket minus 1% for FYs
1995 through 1997. Beginning in FY 1998, the update will equal the percentage
increase in the market basket. The 1990 Budget Act, however, reduces the penalty
for hospitals that incur actual operating costs in excess of the Target Rate by
reimbursing 50% of the cost in excess of the limit up to 110% of the limit,
effective for cost reporting periods beginning on or after October 1, 1991. The
1990 Budget Act directed the Secretary of HHS to develop a new prospective
payment methodology for exempt hospitals and to report to Congress on this
matter by April 1, 1992. The report had not been made as of March 28, 1994.
Considerable uncertainty surrounds the future determination of payment
levels for DRGs and for other services currently being reimbursed on a cost
basis. Congress could consider further legislation in the prospective payment
area, such as further reducing or eliminating DRG rate increases or otherwise
revising DRG rates. In addition, any automatic spending cuts mandated under
Gramm-Rudman will further reduce payments to the Company's hospitals under the
Medicare program. Also, substantial areas of the Medicare program are subject to
legislative and regulatory changes, administrative rulings, interpretations,
administrative discretion, governmental funding restrictions and requirements
for utilization review (such as second opinions for surgery and preadmission
criteria). These matters, as well as more general governmental budgetary
concerns, may significantly reduce payments made to the Company's hospitals
under such programs, and there can be no assurance that future Medicare payment
rates will be sufficient to cover cost increases in providing services to
Medicare patients.
MEDICAID
Most state Medicaid payments are made under a prospective payment system or
under programs to negotiate payment levels with individual hospitals. Medicaid
reimbursement is generally substantially less than a hospital's cost of
services. Medicaid is currently funded approximately 50% by the states and
approximately 50% by the federal government. The federal government and many
states
6
are currently considering significant reductions in the level of Medicaid
funding while at the same time expanding Medicaid benefits, which could
adversely affect future levels of Medicaid reimbursement received by the
Company's hospitals.
On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991 (the "Medicaid Amendments"), which
limit the amount of voluntary contributions and provider-specific taxes that can
be used by states to fund Medicaid and require the use of broad-based taxes for
such funding. As a result of enactment of the Medicaid Amendments, certain
states in which the Company operates have adopted broad-based provider taxes to
fund their Medicaid programs. To date, the impact upon the Company of these new
taxes has not been materially adverse. However, the Company is unable to predict
whether any additional broad-based provider taxes will be adopted by the states
in which it operates and, accordingly, is unable to assess the effect thereof on
its results of operations or financial condition.
ANNUAL COST REPORTS
The Company's annual cost reports which are required under the Medicare and
Medicaid programs are subject to audit which may result in adjustments to the
amounts ultimately determined to be due the Company under these reimbursement
programs. These audits often require several years to reach the final
determination of amounts earned under the programs. Providers also have rights
of appeal, and the Company is currently contesting certain issues raised in
audits of prior years' reports. Management believes that adequate provision has
been made in its financial statements for any material retroactive adjustments
that might result from all of such audits and that final resolution of all of
these issues will not have a material adverse effect upon the Company's results
of operations or financial position. Since the inception of the Medicare
prospective payment system in 1983, the amount of reimbursement to the Company's
general, acute care hospitals potentially affected by audit adjustments has
substantially diminished.
COMMERCIAL INSURANCE
The Company's hospitals provide services to individuals covered by private
health care insurance. Private insurance carriers either reimburse their policy
holders or make direct payments to the Company's hospitals based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy. Blue Cross is a health care financing program that
provides its subscribers with hospital benefits through independent
organizations that vary from state to state. The Company's hospitals are paid
directly by local Blue Cross organizations on the basis agreed to by each
hospital and Blue Cross by a written contract.
Recently, several commercial insurers have undertaken efforts to limit the
costs of hospital services by adopting prospective payment or DRG based systems.
To the extent such efforts are successful, and to the extent that the insurers'
systems fail to reimburse hospitals for the costs of providing services to their
beneficiaries, such efforts may have a negative impact on the Company's
hospitals.
HOSPITAL UTILIZATION
The Company believes that the two most important factors relating to the
overall utilization of a hospital are the quality and market position of the
hospital and the number and quality of physicians providing patient care within
the facility. Generally, the Company believes that the ability of a hospital to
be a market leader is determined by its breadth of services, level of
technology, emphasis on quality of care and convenience for patients and
physicians. Other factors which impact utilization include the growth in local
population, local economic conditions and market penetration of managed care
programs.
The following table sets forth certain operating statistics for hospitals
owned and operated by the Company for each of the five most recent years.
Medical/surgical hospital operations are subject to certain seasonal
fluctuations, including decreases in patient utilization during holiday periods
and
7
increases in the cold weather months. Psychiatric hospital operations are also
subject to certain seasonal fluctuations, including decreases in patient
occupancy during the summer months and holiday periods.
YEARS ENDED DECEMBER 31,
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1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Number of hospitals (1)...................... 193 200 219 221 218
Weighted average licensed beds (2)........... 41,263 40,608 42,437 42,264 41,452
Admissions (3)............................... 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300
Average length of stay (days)................ 5.9 6.1 6.5 6.6 6.8
Average daily census......................... 18,702 19,253 21,255 21,351 21,155
Occupancy rate (4)........................... 45% 47% 50% 51% 51%
Emergency room visits........................ 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900
Outpatient revenues as a % of patient
revenues.................................... 27% 26% 24% 22% 21%
<FN>
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(1) End of period.
(2) Weighted average licensed beds is defined as the number of licensed beds
after giving effect to the length of time the beds have been licensed
during the period.
(3) Admissions represent the number of patients admitted for inpatient
treatment.
(4) Occupancy rates are calculated by dividing average daily census by
weighted average licensed beds.
Beginning in 1983, hospitals began experiencing significant shifts from
inpatient to outpatient care as well as decreases in average lengths of
inpatient stay primarily as a result of hospital payment changes by Medicare,
insurance carriers and self-insured employers. These changes generally
encouraged the utilization of outpatient, rather than inpatient, services
whenever possible, and shortened lengths of stay for inpatient care. Another
factor affecting hospital utilization levels is improved treatment protocols as
a result of medical technology and pharmacological advances.
COMPETITION
Generally, other hospitals in the local markets served by most of the
Company's hospitals provide services that are offered by the Company's
hospitals. Additionally, in the past several years, the number of free-standing
outpatient surgery and diagnostic centers in the geographic areas in which the
Company operates has increased significantly. As a result, most of the Company's
hospitals operate in an increasingly competitive environment. The rates charged
by the Company's hospitals are intended to be competitive with those charged by
other local hospitals for similar services. In some cases, competing hospitals
are more established than the Company's hospitals. Also, some competing
hospitals are owned by tax-supported government agencies and many others by
tax-exempt corporations which may be supported by endowments and charitable
contributions and which are exempt from sales, property and income taxes. Such
exemptions and support are not available to the Company's hospitals. In
addition, in certain localities served by the Company there are large teaching
hospitals which provide highly specialized facilities, equipment and services
which may not be available at most of the Company's hospitals. Psychiatric
hospitals frequently attract patients from areas outside their immediate locale
and, therefore, the Company's psychiatric hospitals compete with both local and
regional hospitals, including the psychiatric units of general, acute care
hospitals.
The Company believes that its hospitals compete within local markets on the
basis of many factors, including the quality of care, ability to attract and
retain quality physicians, location, breadth of services and technology offered
and prices charged. The competition among hospitals and other health care
providers has intensified in recent years as hospital occupancy rates have
declined. The Company's strategies are designed, and management believes that
its hospitals are positioned, to be competitive under these changing
circumstances.
8
One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
operated by the Company, the Company seeks to retain physicians of varied
specialties on its hospitals' medical staffs and to attract other qualified
physicians. The Company believes that physicians refer patients to a hospital
primarily on the basis of the quality of services it renders to patients and
physicians, the quality of other physicians on the medical staff, the location
of the hospital and the quality of the hospital's facilities, equipment and
employees. Accordingly, the Company strives to maintain high ethical and
professional standards and quality facilities, equipment, employees and services
for physicians and their patients.
Another major factor in the competitive position of a hospital is its
management's ability to negotiate service contracts with purchasers of group
health care services. HMOs and PPOs attempt to direct and control the use of
hospital services through managed care programs and to obtain discounts from
hospitals' established charges. In addition, employers and traditional health
insurers are increasingly interested in containing costs through negotiations
with hospitals for managed care programs and discounts from established charges.
Generally, hospitals compete for service contracts with group health care
service purchasers on the basis of price, market reputation, geographic
location, quality and range of services, quality of the medical staff and
convenience. The importance of obtaining contracts with managed care
organizations varies from market to market depending on the market strength of
such organizations.
State certificate of need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, may also
have the effect of restricting competition. The application process for approval
of covered services, facilities, changes in operations and capital expenditures
is, therefore, highly competitive. In those states which have no CON laws or
which set relatively high levels of expenditures before they become reviewable
by state authorities, competition in the form of new services, facilities and
capital spending is more prevalent. The Company has not experienced, and does
not expect to experience, any material adverse effects from state CON
requirements or from the imposition, elimination or relaxation of such
requirements. See "Regulation and Other Factors."
REGULATION AND OTHER FACTORS
LICENSURE, CERTIFICATION AND ACCREDITATION
Health care facility construction and operation is subject to federal, state
and local regulation relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Facilities are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for licensing and
accreditation. All of the Company's health care facilities are properly licensed
under appropriate state laws. Substantially all of the Company's general, acute
care hospitals are certified under the Medicare program or are accredited by the
Joint Commission on Accreditation of Health Care Organizations ("Joint
Commission"), the effect of which is to permit the facilities to participate in
the Medicare and Medicaid programs. A few of the Company's psychiatric hospitals
do not participate in these programs. Should any facility lose its Joint
Commission accreditation, or otherwise lose its certification under the Medicare
program, the facility would be unable to receive reimbursement from the Medicare
and Medicaid programs. Management believes that the Company's facilities are in
substantial compliance with current applicable federal, state, local and
independent review body regulations and standards. The requirements for
licensure, certification and accreditation are subject to change and, in order
to remain qualified, it may be necessary for the Company to effect changes in
its facilities, equipment, personnel and services.
CERTIFICATES OF NEED
The construction of new facilities, the acquisition of existing facilities,
and the addition of new beds or services may be reviewable by state regulatory
agencies under a CON program. The Company operates hospitals in some states that
require approval under a CON program. Such laws generally
9
require appropriate state agency determination of public need and approval prior
to beds or services being added, or a related capital amount being spent.
Failure to obtain necessary state approval can result in the inability to
complete an acquisition or change of ownership, the imposition of civil or, in
some cases, criminal sanctions, the inability to receive Medicare or Medicaid
reimbursement or the revocation of a facility's license.
STATE RATE REVIEW
A few states in which the Company owns hospitals have adopted legislation
mandating rate or budget review for hospitals or have adopted taxes on hospital
revenues, assessments or licensure fees to fund indigent health care within the
state.
In Florida, a budget review process and a ceiling on net revenue increases
per admission has been in effect with respect to the Company's hospitals since
January 1, 1986. The ceiling on net revenue increases per admission limits
hospital net revenue per admission increases to an annually-determined
percentage increase in costs that Florida hospitals pay for goods and services
plus a statutory 2%, plus additional amounts to recognize the hospital's
Medicare patient days and Medicaid and uncompensated charity care days. This law
limits the ability of Florida hospitals to increase rates to maintain operating
margins. The Company owned 47 hospitals aggregating 11,596 beds in Florida as of
March 28, 1994.
In the aggregate, state rate or budget review and indigent tax provisions
have not materially adversely affected the Company's results of operations. The
Company is unable to predict whether any additional state rate or budget review
or indigent tax provisions will be adopted and, accordingly, is unable to assess
the effect thereof on its results of operations or financial condition.
UTILIZATION REVIEW
Federal law contains numerous provisions designed to ensure that services
rendered by hospitals to Medicare and Medicaid patients meet professionally
recognized standards, are medically necessary and that claims for reimbursement
are properly filed. These provisions include a requirement that a sampling of
admissions of Medicare and Medicaid patients must be reviewed by peer review
organizations ("PROs"), which review the appropriateness of Medicare and
Medicaid patient admissions and discharges, the quality of care provided, the
validity of DRG classifications and the appropriateness of cases of
extraordinary length of stay or cost. While no PROs have ever taken any material
adverse action against any of the Company's hospitals, PROs may deny payment for
services provided, assess fines and also have the authority to recommend to HHS
that a provider which is in substantial noncompliance with the standards of the
PRO be excluded from participating in the Medicare program.
MEDICARE REGULATIONS AND FRAUD AND ABUSE
Participation in the Medicare program is heavily regulated by federal
statute and regulation. If a hospital provider fails substantially to comply
with the numerous conditions of participation in the Medicare program or
performs certain prohibited acts (e.g., (i) making false claims to Medicare for
services not rendered or misrepresenting actual services rendered in order to
obtain higher reimbursement; (ii) paying remuneration for Medicare referrals (so
called "fraud and abuse" which is prohibited by the "anti-kickback" provisions
of the Social Security Act); (iii) failing to stabilize all individuals who come
to its emergency room who have an "emergency medical condition," whether or not
any such individual is eligible for Medicare; (iv) transferring any stabilized
patient to another health care facility before such other facility has agreed to
the transfer of such patient, while such other facility does not have sufficient
room and staff to treat the patient, without the patient's emergency department
medical records, or without appropriate life support equipment; and (v)
transferring any unstabilized patient except those transferred at the patient's
request or with physician certification that the medical risks from the transfer
are less harmful than continued treatment at the transferring facility), such
hospital's participation in the Medicare program may be terminated or civil or
criminal penalties may be imposed upon such hospital under certain provisions of
the Social Security Act.
10
Moreover, HHS and the courts have interpreted the "fraud and abuse"
anti-kickback provisions of the Social Security Act (presently codified in
Section 1128B(b) of the Social Security Act) broadly to include the intentional
offer, payment, solicitation or receipt of anything of value if one purpose of
the payment is to induce the referral of Medicare business. Health care
providers generally are concerned that many relatively innocuous, or even
beneficial, commercial arrangements with their physicians may technically
violate this strict interpretation of Section 1128B(b).
In 1976 Congress established the Office of Inspector General ("OIG") at HHS
to identify and eliminate fraud, abuse and waste in HHS programs and to promote
efficiency and economy in HHS departmental operations. The OIG carries out this
mission through a nationwide program of audits, investigations and inspections.
In order to provide guidance to health care providers on ways to engage in
legitimate business practices and avoid scrutiny under the fraud and abuse
statute, the OIG has from time to time issued "fraud alerts" identifying
features of transactions, which, if present, may indicate that the transaction
violates the fraud and abuse law. In May 1992, the OIG issued a special fraud
alert regarding hospital incentives to physicians. The alert identified the
following incentive arrangements as potential violations of the statute: (a)
payment of any sort of incentive by the hospital each time a physician refers a
patient to the hospital, (b) the use of free or significantly discounted office
space or equipment (in facilities usually located close to the hospital), (c)
provision of free or significantly discounted billing, nursing or other staff
services, (d) free training for a physician's office staff in areas such as
management techniques, CPT coding and laboratory techniques, (e) guarantees
which provide that, if the physician's income fails to reach a predetermined
level, the hospital will supplement the remainder up to a certain amount, (f)
low-interest or interest-free loans, or loans which may be forgiven if a
physician refers patients (or some number of patients) to the hospital, (g)
payment of the costs of a physician's travel and expenses for conferences, (h)
coverage on the hospital's group health insurance plans at an inappropriately
low cost to the physician and (i) payment for services (which may include
consultations at the hospital) which require few, if any, substantive duties by
the physician, or payment for services in excess of the fair market value of
services rendered. In this fraud alert the OIG encouraged persons having
information about hospitals who offer the above types of incentives to
physicians to contact any of the eleven regional OIG offices or to report
information to the OIG.
In addition, on July 29, 1991, the OIG issued final regulations outlining
certain "safe harbor" practices, which, although potentially capable of inducing
prohibited referrals of business under Medicare or state health programs, would
not be subject to enforcement action under the Social Security Act. The
practices covered by the regulations include certain physician joint venture
transactions, rental of space and equipment, personal services and management
contracts, sales of physician practices, referral services, warranties,
discounts, payments to employees, group purchasing organizations and waivers of
beneficiary deductibles and co-payments. Additional proposed safe harbors are
expected to be published in the near future by the OIG, including a safe harbor
regulation for physician recruitment. Certain of the Company's current
arrangements with physicians, including joint ventures, do not qualify for the
current safe harbor exemptions.
Although the Company exercises care in an effort to structure its
arrangements with physicians to comply in all material respects with these laws,
and although management believes that the Company is in compliance with Section
1128B(b) of the Social Security Act, there can be no assurance that (i)
government officials charged with responsibility for enforcing the prohibitions
of Section 1128B(b) of the Social Security Act will not assert that the Company
or certain transactions in which it is involved are in violation of Section
1128B(b) of the Social Security Act and (ii) such statute will ultimately be
interpreted by the courts in a manner consistent with the practices of the
Company.
The federal Medicaid regulations also prohibit fraudulent and abusive
practices and authorize the exclusion from such program of providers in
violation of such regulations.
11
STATE LEGISLATION
Some of the states in which the Company operates also have laws that
prohibit corporations and other entities from employing physicians and
practicing medicine for a profit or that prohibit certain direct and indirect
payments or fee-splitting arrangements between health care providers that are
designed to induce or encourage the referral of patients to, or the
recommendation of, particular providers for medical products and services. In
addition, some states restrict certain business relationships between physicians
and pharmacies. Possible sanctions for violation of these restrictions include
loss of licensure and civil and criminal penalties. These statutes vary from
state to state, are often vague and have seldom been interpreted by the courts
or regulatory agencies. Although the Company exercises care in an effort to
structure its arrangements with health care providers to comply with the
relevant state statutes, and although management believes that the Company is in
compliance with these laws, there can be no assurance that (i) governmental
officials charged with responsibility for enforcing these laws will not assert
that the Company or certain transactions in which it is involved are in
violation of such laws and (ii) such state laws will ultimately be interpreted
by the courts in a manner consistent with the practices of the Company.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
affect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on
hospitals, insurance market reforms to increase the availability of group health
insurance to small businesses, requirements that all businesses offer health
insurance coverage to their employees and the creation of a single government
health insurance plan that would cover all citizens. President Clinton has
stated that one of his primary objectives is to reform the nation's health care
system to insure universal coverage and address the rising costs of care. In
early 1993, President Clinton appointed Hillary Rodham Clinton to lead a health
care reform task force with the objective of developing a health care reform
proposal which could be submitted by the President. On September 22, 1993,
before a Joint Session of Congress, President Clinton outlined the basic
principles of his upcoming health care reform proposal. President Clinton's
health care reform bill, introduced as legislation on November 22, 1993,
includes certain measures that could be viewed as advancing the scope of
government regulation on the health care industry. Key elements in the
President's proposal include various insurance market reforms, the requirement
that businesses provide health insurance coverage for their full-time and
part-time employees, significant reductions in future Medicare and Medicaid
payments to providers, and stringent government cost controls that would
directly control insurance premiums and indirectly affect the fees of hospitals,
physicians and other health care providers. In addition to the President's
reform proposal, several other health care reform bills have recently been
introduced, including The Managed Competition Act of 1993, Affordable Health
Care Now Act of 1993 and Health Equity & Access Reform Today. While the Company
cannot predict whether any such proposals will be adopted, or if adopted what
effect, if any, such proposals would have on its business, the Company believes
that it is implementing measures to respond to such prospective changes by
expanding its network strategy, building integrated health care delivery
systems, negotiating with managed care providers and controlling its costs.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment.
Management does not believe that the Company will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.
INSURANCE
As is typical in the health care industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. Through two
wholly-owned insurance subsidiaries, the Company insures substantially all of
its general and professional liability risks. Subject to various
12
deductibles, the Company's hospitals are insured by these insurance subsidiaries
for losses of up to $25 million per occurrence for the former HCA hospitals and
up to $5 million per occurrence for the former Columbia Healthcare Corporation
hospitals. The Company currently carries general and professional liability
insurance from unrelated commercial carriers for losses in excess of amounts
insured by its insurance subsidiaries.
The Company and its insurance subsidiaries maintain allowances for loss for
professional and general liability risks which totalled $817 million at December
31, 1993. Management considers such allowances, which are based on actuarially
determined estimates, to be adequate for such liability risks. Any losses
incurred in excess of the established allowances for loss will be reflected as a
charge to earnings of the Company. Any losses incurred within the deductible(s)
or in excess of amounts funded and commercial excess liability insurance will be
funded from the Company's working capital. While the Company's cash flow has
been adequate to provide for alleged and unforeseen liability claims in the
past, there can be no assurance that such amounts will continue to be adequate.
If payments for general and professional liabilities exceed anticipated losses,
the results of operations and financial condition of the Company could be
adversely affected.
EMPLOYEES AND MEDICAL STAFFS
At December 31, 1993, the Company had approximately 131,600 employees,
including approximately 33,500 part-time employees. Three hospitals have
employees represented by various labor unions. The Company considers its
employee relations to be satisfactory. While the Company's hospitals experience
union organizational activity from time to time, the Company does not expect
such efforts to materially affect its future operations. The Company's
hospitals, like most hospitals, have experienced labor costs rising faster than
the general inflation rate. In recent years, the Company generally has not
experienced material difficulty in recruiting and retaining employees, including
nurses and professional staff members, primarily as a result of staff retention
programs and general economic conditions. There can be no assurance as to future
availability and cost of qualified medical personnel.
As of December 31, 1993, approximately 56,000 licensed physicians were
active members of the medical staffs of the Company's hospitals. With limited
exceptions, physicians generally are not employees of the Company's hospitals.
However, some physicians provide services in the Company's hospitals under
contracts, which generally describe a term of service, provide and establish the
duties and obligations of such physicians, require the maintenance of certain
performance criteria and fix compensation for such services. Any licensed
physician may apply to be admitted to the medical staff of any of the Company's
hospitals, but admission to the staff must be approved by the hospital's medical
staff and the appropriate governing board of the hospital in accordance with
established credentialling criteria. Members of the medical staffs of the
Company's hospitals often also serve on the medical staffs of other hospitals,
and may terminate their affiliation with a hospital at any time.
INTERNAL REVENUE SERVICE EXAMINATIONS AND TAX LITIGATION
As a result of examinations by the Internal Revenue Service (the "Service")
of HCA's federal income tax returns, HCA received statutory notices of
deficiency for the years 1981 through 1988. HCA has filed petitions in the U.S.
Tax Court opposing these claimed deficiencies. Additionally, the Service
completed its examination for the years 1989 and 1990 and has issued proposed
adjustments, which HCA has protested. The principal issues involved are:
(a) METHOD OF ACCOUNTING. For the taxable years 1981 through 1986,
most of HCA's hospital subsidiaries (the "Subsidiaries") reported taxable
income using primarily the cash method of accounting. The cash method was
prevalent within the hospital industry and the Subsidiaries applied the
method in accordance with prior agreements reached with the Service. The
Service now asserts that the accrual method of accounting should have been
used. The Tax Reform Act of 1986 (the "1986 Act") requires most large
corporate taxpayers (including the Company) to use the accrual method of
accounting beginning in 1987. Consequently, the Subsidiaries changed to the
accrual method beginning January 1, 1987. In accordance with the provisions
of the 1986 Act,
13
income that was deferred by use of the cash method at the end of 1986 is
being recognized as taxable income by the Subsidiaries in equal annual
installments over ten years (1987 through 1996). If the Service should
ultimately prevail in its claim that the Subsidiaries should have used the
accrual method for 1981 through 1986, HCA would be entitled to an offset as
a result of the prior inclusion of such installments for 1987 and
thereafter. Furthermore, the sale by HCA of numerous Subsidiaries in 1987
that had used the cash method resulted in the recognition of substantial
gain which would not have been recognized had they been using the accrual
method. Giving effect to these offsets, as of December 31, 1993, the net
effect to HCA of the Service prevailing would be $110 million in additional
income taxes plus interest of $432 million.
(b) HOSPITAL ACQUISITIONS. (i) In connection with hospitals acquired
by HCA in 1981, the Service asserts that certain assets claimed by HCA to
have an ascertainable useful life have no ascertainable useful life and are
therefore nonamortizable, and that the values assigned by HCA's independent
appraisers to certain assets acquired were excessive and that such amounts
actually constitute goodwill, a nondepreciable and nonamortizable asset. If
the Service ultimately prevails with regard to every assertion, the
additional income taxes owed through December 31, 1993 would be $55 million
plus interest of $97 million.
(ii) Similarly, in connection with assets acquired in 1985, the Service
is asserting that the relevant appraised values were excessive, with a
corresponding limitation on the resulting deductions. With regard to these
issues, the Service claims $58 million of additional income taxes and $42
million of interest through December 31, 1993.
(c) INSURANCE SUBSIDIARY. (i) Based on a Sixth Circuit Court of
Appeals decision (the Court having jurisdiction over HCA's issues), HCA has
claimed that insurance premiums paid to Parthenon Insurance Company
("Parthenon"), a wholly-owned subsidiary of HCA, are deductible, while the
Service maintains 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 December 31, 1993, HCA is seeking an income tax
refund of $51 million, plus interest of $93 million with respect to this
issue.
(ii) As an alternative to HCA's position set forth in (c)(i) above, HCA
has taken the position that in connection with its sale of hospitals to
HealthTrust, Inc. -- The Hospital Company ("HealthTrust") in 1987, premiums
paid to Parthenon by the hospitals sold, if not deductible as described in
(c)(i) above, became deductible by HCA upon the sale and HCA claimed such
deduction in its 1987 federal income tax return. The Service has disallowed
the deduction and is claiming an additional $5 million in income taxes and
$15 million in interest. A final determination that the premiums are not
deductible either when paid or upon the sale would increase HCA's taxable
basis in the hospitals sold, reducing HCA's gain realized on the sale.
(d) HEALTHTRUST SALE. (i) In its 1987 sale of certain hospitals to
HealthTrust 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 Service 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. If, however, the Service 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 the end of 1992,
HCA had sold its entire interest in the HealthTrust preferred stock and
warrants. Taking into consideration the sales, the Service is claiming
interest of $64 million through December 31, 1993.
(ii) Also in connection with the 1987 sale of certain hospitals to
HealthTrust, the Service claims that HCA's basis in the stock of the
subsidiaries owning such hospitals sold to HealthTrust should be calculated
by adjusting such basis to reflect accelerated rather than straight-line
depreciation. This would reduce HCA's basis in the stock sold, increasing
its taxable gain on the
14
sale. The Service's position is contrary to a Tax Court decision which HCA
believes to be controlling. The Service is claiming additional income taxes
of $79 million and interest of $66 million through December 31, 1993 based
on its position.
(iii) In connection with the 1987 HealthTrust transactions, the Service
further asserts that, to the extent the Subsidiaries were properly on the
cash method through 1986, and therefore were properly including deferred
income over a 10-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 10-year transition period after
the sale. Should the Service prevail, HCA would owe $11 million of
additional income taxes and $17 million of interest through December 31,
1993. This position of the Service is an alternative to its denial of the
use of the cash method of accounting as discussed in (a) above.
(e) DOUBTFUL ACCOUNTS. For 1986 the Service asserts that HCA is not
entitled to include charity care writeoffs in the formula used to calculate
its deduction for doubtful accounts. For the years 1987 and 1988, the
Service asserts that HCA is not entitled to exclude from income amounts
which are unlikely to be collected. Management believes that such exclusions
are permissible under an accrual method of accounting, and furthermore,
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 Service disagrees, asserting that HCA is engaged, at least in
part, in a "merchandising business" and that even if HCA is engaged in a
"service business," the exclusion taken by HCA is excessive under applicable
Temporary Treasury Regulations. HCA believes that the formula in the
Temporary Treasury Regulations which provides for the calculation of the
exclusion is inaccurate, in that it does not permit HCA to calculate the
exclusion in accordance with the controlling statute. If the Service
prevails, HCA would owe additional income taxes of $102 million and interest
of $48 million through December 31, 1993.
(f) LEVERAGED BUY-OUT EXPENSES. With respect to 1989 and 1990, the
Service has claimed that certain expense and amortization deductions claimed
with respect to the leveraged buy-out of HCA are not deductible. If the
Service were to prevail with respect to all of these items, additional
income taxes of $94 million would be owed, together with interest in the
amount of $24 million as of December 31, 1993.
(g) 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, such as depreciation,
investment tax credits and foreign issues, have been resolved favorably in
previous settlements and management believes the previous settlement
methodology should be followed again by the Service. The Service is claiming
an additional $44 million in income taxes and $28 million in interest
through December 31, 1993 with respect to these issues.
Management is of the opinion that HCA has properly reported its income and
paid its taxes in accordance with applicable laws and in accordance with
agreements established with the Service during previous examinations. In
management's opinion, the final outcome resulting from the Service's
examinations of prior years' income taxes will not have a material adverse
effect on the Company's results of operations, financial position or liquidity.
If all or a majority of the positions of the Service are upheld, however, the
results of operations, financial position and liquidity of the Company would be
materially adversely affected. Management believes that any cash payments
necessary as a result of such final outcome would be funded with cash from
operations and, if necessary, with amounts available under the Company's
revolving credit or other borrowing facilities.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 28, 1994, were as follows:
NAME AGE POSITION(S)
- ------------------------------ --- ----------------------------------------------------------------------------
Thomas F. Frist, Jr., M.D. 55 Chairman of the Board
Richard L. Scott 41 President and Chief Executive Officer
David T. Vandewater 43 Chief Operating Officer
Stephen T. Braun 38 Senior Vice President and General Counsel
Victor L. Campbell 47 Senior Vice President
Thomas H. Cato 51 Senior Vice President -- Information Systems
David C. Colby 40 Senior Vice President, Chief Financial Officer and Treasurer
Samuel A. Greco 42 Senior Vice President -- Financial Operations
Neil D. Hemphill 40 Senior Vice President -- Human Resources
Richard A. Lechleiter 35 Vice President and Controller
Joseph D. Moore 47 Senior Vice President -- Development
Lindy B. Richardson 47 Senior Vice President -- Marketing/Public Affairs
Russell D. Schneider 40 Senior Vice President -- Market Organization
Richard A. Schweinhart 44 Senior Vice President -- Finance
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board of the
Company since February 1994. Dr. Frist, a founder of HCA, served as Chairman of
the Board, President and Chief Executive Officer of HCA from September 1987 to
February 1994. Dr. Frist was Chairman and Chief Executive Officer of HCA from
August 1985 until September 1987. Dr. Frist is also a director of International
Business Machines Corporation.
Richard L. Scott has served as President, Chief Executive Officer and a
director of the Company since September 1993. Mr. Scott was Chairman, Chief
Executive Officer and a director of the Company or its predecessors from July
1988 to September 1993.
David T. Vandewater has served as Chief Operating Officer of the Company
since September 1993. Mr. Vandewater was President of the Company from February
1991 to September 1993 and served as its Executive Vice President from May 1990
until February 1991. From July 1988 until February 1990, Mr. Vandewater was an
Executive Vice President and Chief Operating Officer of Republic Health
Corporation (presently called OrNda Healthcorp).
Stephen T. Braun has served as Senior Vice President and General Counsel of
the Company since September 1993. Mr. Braun served as Vice President and General
Counsel of the Company from October 1991 until September 1993. From July 1987 to
October 1991, Mr. Braun practiced law with the law firm of Doherty, Rumble &
Butler, Professional Association, Saint Paul, Minnesota.
Victor L. Campbell has served as Senior Vice President of the Company since
February 1994. For more than five years prior to that time, Mr. Campbell served
as HCA's Vice President for Investor, Corporate, and Government Relations. Mr.
Campbell is currently Chairman of the Board of the Federation of American Health
Systems.
Thomas H. Cato has served as Senior Vice President -- Information Systems of
the Company since February 1994. Mr. Cato was Senior Vice President --
Information Services of HCA from April 1992 to February 1994. Mr. Cato was Vice
President -- Information Services of HCA from 1987 until April 1992.
16
David C. Colby has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since February 1994. Mr. Colby has served as Chief
Financial Officer of the Company or its predecessors since July 1988. Mr. Colby
was elected Treasurer of the Company in November 1991.
Samuel A. Greco has served as Senior Vice President -- Financial Operations
of the Company since July 1992. Mr. Greco served as Senior Vice President of
Finance -- South Florida Division of the Company from November 1990 to July
1992. Mr. Greco was Chief Financial Officer of University Hospital, Tamarac,
Florida, which is owned and operated by the Company, from January 1990 to
November 1990. From 1980 to 1989, Mr. Greco held various administrative
positions with Florida Medical Center and several diagnostic centers and
physician offices.
Neil D. Hemphill has served as Senior Vice President -- Human Resources of
the Company since February 1994. Mr. Hemphill served as Vice President -- Human
Resources of the Company from June 1992 to February 1994. Mr. Hemphill was a
Director of Human Resources of OrNda Healthcorp from January 1985 to June 1992.
Richard A. Lechleiter has served as Vice President and Controller of the
Company since September 1993. Mr. Lechleiter served in the same capacity at both
Galen and Humana from September 1990 to September 1993. From July 1988 until
September 1990, Mr. Lechleiter was the Controller of Humana.
Joseph D. Moore has served as Senior Vice President -- Development of the
Company since February 1994. Mr. Moore was Senior Vice President -- Finance and
Development of HCA from January 1993 to February 1994. Mr. Moore was Senior Vice
President -- Development of HCA from April 1992 until January 1993 and Vice
President -- Development of HCA from 1980 until April 1992.
Lindy B. Richardson has served as Senior Vice President -- Marketing/Public
Affairs of the Company since February 1994. Ms. Richardson served as Vice
President -- Marketing/Public Affairs of the Company from September 1993 to
February 1994. Ms. Richardson served as Director of Marketing/Public Affairs for
both Galen and Humana from 1988 to September 1993.
Russell D. Schneider has served as Senior Vice President -- Market
Organization of the Company since September 1993. Mr. Schneider served as
President of the Company's Southwest Division from May 1990 to September 1993,
and as President of the Company's El Paso Division from May 1988 to May 1990.
Richard A. Schweinhart has served as Senior Vice President -- Finance of the
Company since September 1993. Mr. Schweinhart served as Senior Vice President --
Finance for both Galen and Humana from November 1992 to September 1993. Mr.
Schweinhart also served as Vice President -- Finance of Humana from 1988 until
November 1992.
17
ITEM 2. PROPERTIES.
The location and name of, and the number of licensed beds in, each of the
health care facilities owned by the Company or its subsidiaries at March 28,
1994, grouped by state, are set forth in the following table:
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
- --------- ------------------------- -------------------------------------------------------- ------------- ---------
AK Anchorage Alaska Regional Hospital 238 M
AL Enterprise Medical Center Enterprise 135 M
Florence Florence Hospital 155 M
Montgomery East Montgomery Medical Center 150 M
Montgomery Montgomery Regional Medical Center 250 M
Muscle Shoals Medical Center Shoals 128 M
Russellville Northwest Medical Center 100 M
AR Little Rock Doctors Hospital (1) 341 M
AZ Phoenix Healthwest Regional Medical Center 302 M
Phoenix Paradise Valley Hospital 140 M
CA Anaheim West Anaheim Medical Center 243 M
Canoga Park West Hills Regional Medical Center 236 M
Huntington Beach Huntington Beach Medical Center 135 M
Pasadena Las Encinas Hospital 153 P
San Leandro San Leandro Hospital 136 M
Thousand Oaks Los Robles Regional Medical Center 204 M
CO Aurora Aurora Regional Medical Center 200 M
Littleton Columbine Psychiatric Center 80 P
Thornton North Suburban Medical Center 200 M
DE Newark Rockford Center 74 P
FL Aventura Aventura Hospital and Medical Center 458 M
Bradenton L.W. Blake Hospital 383 M
Brandon Brandon Hospital 250 M
Coral Springs Outpatient Surgery Center at Coral Springs -- OS
Crestview Okaloosa Cancer Care Center -- O
Dade City Dade City Hospital 120 M
Daytona Beach Daytona Medical Center 214 M
Destin Destin Hospital 50 M
Englewood Englewood Community Hospital 100 M
Ft. Myers Southwest Florida Regional Medical Center 400 M
Ft. Myers Gulf Coast Hospital 120 M
Ft. Pierce Lawnwood Regional Medical Center 335 M
Ft. Walton Beach Ft. Walton Beach Medical Center 247 M
Gainesville North Florida Regional Medical Center 267 M
Hudson Bayonet Point/Hudson Medical Center 256 M
Kissimmee Osceola Regional Hospital 169 M
Largo Medical Center Hospital 256 M
Margate Northwest Regional Hospital 150 M
Miami Cedars Medical Center 585 M
Miami Deering Hospital 260 M
Miami Grant Center of Deering 140 P
Miami Kendall Regional Medical Center (1) 412 M
Miami Kendall Therapy Center -- O
Miami Medical Park Diagnostic Center -- OD
18
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
- --------- ------------------------- -------------------------------------------------------- ------------- ---------
FL Miami Surgical Park Center -- OS
Miami Victoria Pavilion 300 M
Miami Beach Miami Heart Institute-North 273 M
Miami Beach Miami Heart Institute-South 258 M
Naples Naples Rehab Center -- R
New Port Richey New Port Richey Hospital 414 M
Niceville Twin Cities Hospital 75 M
North Miami Beach North Miami Beach Surgical Center -- OS
Ocala Marion Community Hospital 230 M
Okeechobee Raulerson Hospital 101 M
Orange Park Orange Park Medical Center 224 M
Orlando Lucerne Medical Center 267 M
Palatka Putnam Community Hospital 161 M
Panama City Gulf Coast Hospital 176 M
Pembroke Pines Pembroke Pines Hospital 301 M
Pensacola West Florida Regional Medical Center 547 M
Plantation Westside Regional Medical Center 204 M
Pompano Beach Pompano Beach Medical Center 273 M
Port Charlotte Fawcett Memorial Hospital 254 M
Port St. Lucie Medical Center of Port St. Lucie 150 M
Sanford Central Florida Regional Hospital 226 M
Sarasota Doctors Hospital of Sarasota (2) 168 M
Spring Hill Oak Hill Hospital 204 M
St. Petersburg Northside Hospital 301 M
St. Petersburg St. Petersburg General Hospital 219 M
Tallahassee Tallahassee Community Hospital 180 M
Tamarac University Hospital 269 M
Tamarac University Pavilion 60 P
West Palm Beach Palm Beaches Medical Center 250 M
Winter Park Winter Park Memorial Hospital 339 M
GA Albany Palmyra Medical Centers 248 M
Atlanta Northlake Regional Medical Center 120 M
Atlanta West Paces Medical Center (1)(3) 294 M
Augusta Augusta Oncology Center -- O
Augusta Augusta Regional Medical Center 374 M
Augusta Columbia County Ambulatory Surgery Center -- OS
Augusta West Augusta Imaging Center -- OD
Cartersville Cartersville Medical Center 80 M
Columbus Hughston Sports Medicine Hospital 100 M
Dublin Fairview Park Hospital (3) 190 M
Lithia Springs Parkway Medical Center 304 M
Macon Coliseum Medical Centers 250 M
Macon Coliseum Psychiatric Hospital 92 P
Newnan Peachtree Regional Hospital 144 M
Rome Redmond Regional Medical Center 201 M
Snellville Eastside Medical Center 122 M
IL Chicago Chicago Lakeshore Hospital 150 P
Chicago Grant Hospital 479 M
Chicago Michael Reese Hospital and Medical Center 955 M
Forest Park Riveredge Hospital 210 P
19
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
- --------- ------------------------- -------------------------------------------------------- ------------- ---------
IL Hoffman Estates Hoffman Estates Medical Center 356 M
Hoffman Estates Woodland Hospital 100 P
IN Indianapolis The Women's Hospital -- Indianapolis 182 M
KS Dodge City Western Plains Regional Hospital 100 M
Overland Park Overland Park Regional Medical Center 400 M
Wichita Wesley Medical Center 760 M
KY Bowling Green Greenview Hospital 211 M
Frankfort King's Daughters Memorial Hospital 190 M
Louisville Audubon Regional Medical Center 480 M
Louisville Southwest Hospital 150 M
Louisville Suburban Medical Center 380 M
Louisville University of Louisville Hospital (1) 404 M
Somerset Lake Cumberland Regional 227 M
LA Lafayette Cypress Hospital 116 P
Lake Charles Lake Area Medical Center 80 M
Lake Charles Surgicare of Lake Charles -- OS
Marksville Avoyelles Hospital 55 M
Monroe North Monroe Hospital 228 M
New Orleans DePaul Hospital 309 P
New Orleans Lakeland Medical Center 150 M
Oakdale Oakdale Community Hospital 60 M
Shreveport Highland Hospital 126 M
Springhill Springhill Medical Center 86 M
Ville Platte Ville Platte Medical Center 124 M
Winnfield Winn Parish Medical Center 103 M
MO Independence Independence Regional Health Center 366 M
Kansas City Research Psychiatric Center 100 P
NH Derry Parkland Medical Center 86 M
Portsmouth Portsmouth Regional Hospital (3) 144 M
Portsmouth Portsmouth Pavilion 65 P
NM Albuquerque Heights Psychiatric Hospital 92 P
Carlsbad Guadalupe Medical Center 138 M
Hobbs Lea Regional Hospital 250 M
NV Las Vegas Sunrise Hospital & Medical Center 688 M
NC Fayetteville Highsmith-Rainey Memorial Hospital (1) 150 M
Raleigh Holly Hill Hospital 108 P
Raleigh Raleigh Community Hospital 230 M
OK Enid St. Mary's Hospital (1)(3) 277 M
Oklahoma City Presbyterian Hospital 396 M
SC Aiken Aiken Regional Medical Center 225 M
Charleston Trident Regional Medical Center 281 M
Myrtle Beach Grand Strand General Hospital 172 M
Summerville Summerville Medical Center 80 M
Summerville Summerville Medical Center -- Downtown -- O
TN Athens Athens Community Hospital 118 M
Chattanooga Parkridge Medical Center 296 M
Chattanooga Valley Psychiatric Hospital 118 P
20
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
- --------- ------------------------- -------------------------------------------------------- ------------- ---------
TN East Ridge East Ridge Hospital 128 M
Jackson Regional Hospital of Jackson 166 M
Kingsport Indian Path Medical Center 295 M
Kingsport Indian Path Pavilion 61 P
Martin Volunteer General Hospital 100 M
Nashville Centennial Medical Center 656 M
Nashville Centennial Medical Center/Parthenon Pavilion 162 P
Nashville Donelson Hospital 218 M
Nashville Southern Hills Medical Center 180 M
Nashville Vanderbilt Child and Adolescent Psychiatric Hospital
(1)(3) 88 P
TX Abilene Abilene Regional Medical Center 160 M
Arlington Arlington Medical Center 287 M
Austin South Austin Medical Center 164 M
Beaumont Beaumont Neurological Hospital 131 P
Beaumont Beaumont Regional Medical Center 250 M
Bryan Brazos Valley Medical Center 100 M
Bryan Brazos Valley Surgical Center -- OS
Corpus Christi Bay Area Medical Center 144 M
Corpus Christi Bayview Hospital 68 P
Corpus Christi Doctors Regional Medical Center 271 M
Corpus Christi Rehabilitation Hospital of South Texas 80 R
Corpus Christi Surgicare Specialty Hospital of Corpus Christi -- OS
Corsicana Navarro Regional Hospital 185 M
Dallas Medical City Dallas Hospital (1) 555 M
Denton Denton Community Hospital 104 M
El Paso Columbia Back Institute -- O
El Paso Columbia Behavioral Center 125 P
El Paso Columbia Diagnostic Centers -- OD
El Paso Columbia Life Care Center -- O
El Paso Columbia Medical Center -- East 235 M
El Paso Columbia Medical Center -- West 252 M
El Paso Columbia Physical Therapy Centers -- R
El Paso Columbia Regional Oncology Center -- O
El Paso Columbia Rehabilitation Hospital 40 R
Ft. Worth Medical Plaza Hospital 338 M
Houston Bellaire General Hospital 349 M
Houston Champions Residential Treatment Center 48 P
Houston Heights Hospital 209 M
Houston Medical Center Hospital 281 M
Houston MRI Southwest -- OD
Houston Rosewood Medical Center 231 M
Houston Sam Houston Memorial Hospital 256 M
Houston Spring Branch Medical Center 365 M
Houston West Houston Medical Center 232 M
Houston Women's Hospital of Texas 198 M
Lewisville Lewisville Hospital (1) 148 M
McAllen Rio Grande Regional Hospital 220 M
North Richland Hills North Hills Medical Center 152 M
Plano Medical Center of Plano 267 M
21
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
- --------- ------------------------- -------------------------------------------------------- ------------- ---------
TX San Antonio Metropolitan Hospital 273 M
San Antonio San Antonio Regional Hospital 416 M
San Antonio Village Oaks Medical Center 112 M
San Antonio Women's and Children's Hospital 150 M
Silsbee Silsbee Doctors Hospital 69 M
Webster Clear Lake Regional Medical Center 459 M
UT Layton Davis Hospital and Medical Center 120 M
Salt Lake City St. Mark's Hospital 306 M
VA Falls Church Dominion Hospital 100 P
Hampton Peninsula Hospital 125 P
Petersburg Poplar Springs Hospital 100 P
Reston Reston Hospital Center 127 M
Richlands Clinch Valley Medical Center 200 M
Richmond Chippenham Hospital 470 M
Richmond Henrico Doctors Hospital 340 M
Richmond Johnston-Willis Hospital 292 M
Salem Lewis-Gale Hospital 406 M
Salem Lewis-Gale Psychiatric Center (1) 145 P
WV Beckley Raleigh General Hospital 275 M
Bluefield St. Luke's Hospital 79 M
Huntington River Park Hospital 165 P
Hurricane Putnam General Hospital 68 M
Ronceverte Greenbrier Valley Medical Center 122 M
INTERNATIONAL
UK London The Wellington Hospital 121 M
London The Wellington Hospital II 124 M
SZ Geneva Hopital de la Tour et Pavillon Gourgas 242 M
M -- General, Acute Care
P -- Psychiatric
OD -- Outpatient Diagnostics/Imaging
OS -- Outpatient Surgery
O -- Outpatient Care
R -- Rehabilitation/Physical Therapy
<FN>
- ------------------------
(1) Held pursuant to lease. The Company has options to purchase many of its
leased hospitals at the end of the lease terms.
(2) On October 1, 1990 the Company contributed this hospital to a limited
partnership (the "LP") in which it is a 35% limited partner. The LP
currently is seeking regulatory approval to build a replacement facility
for the current hospital facility. The Company receives a fixed percentage
of cash flow from the current hospital and will receive 35% of all cash
distributions from operations of the replacement hospital and any
ancillary businesses of the LP. The Company also manages the current
hospital and will manage the replacement hospital on a fixed fee basis. On
March 4, 1994, the Company entered into an agreement to purchase the
assets of the hospital from the LP.
(3) The former owner of this hospital or a successor thereto or affiliate
thereof either has a current option to purchase the hospital from the
Company at a previously agreed-upon amount or will have such option during
certain future periods.
22
The Company owns and maintains its headquarters in approximately 110,000
square feet of office space located in Louisville, Kentucky. In addition, the
Company maintains offices in approximately 400,000 square feet of office space
in four office buildings owned by the Company in Nashville, Tennessee.
The Company also operates medical office buildings in conjunction with its
hospitals. These office buildings are primarily occupied by physicians who
practice at the Company's hospitals. These office buildings are generally
operated at a loss.
The Company's headquarters, hospitals and other facilities are suitable for
their respective uses and are, in general, adequate for the Company's present
needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with,
physicians' staff privileges. In certain of these actions the claimants have
asked for punitive damages against the Company, which are usually not covered by
insurance. In the opinion of management, the ultimate resolution of any of these
pending claims and legal proceedings will not have a material adverse effect on
the Company's results of operations or financial position.
On December 10, 1992 and December 15, 1992, respectively, two virtually
identical purported class action lawsuits (BERGER V. ROGER E. MICK ET AL., 92
CIV. 8960, United States District Court, Southern District of New York and FOX
V. ROGER E. MICK ET AL., 92 CIV 9139, United States District Court, Southern
District of New York) were filed by, respectively, holders of 400 and 500 shares
of HCA's Class A Common Stock against HCA, three of its officers and/or
directors (Messrs. Thomas F. Frist, Jr., Roger E. Mick and Donald J. Israel) and
the underwriters of its February 1992 initial public offering of Class A Common
Stock, on behalf of all purchasers of HCA's Class A Common Stock from the time
of the initial public offering (February 26, 1992) until HCA issued a press
release in respect of its psychiatric division restructuring on September 18,
1992. In the lawsuits it is alleged that HCA failed to disclose material adverse
financial information regarding its psychiatric division in its February 1992
offering prospectus in respect of such initial public offering and in HCA's
subsequent Forms 10-Q for the quarters ended March 31 and June 30, 1992.
Violations of the Securities Act of 1933 and of the Securities Exchange Act of
1934 are alleged. Damages are unspecified. In June 1993 the court granted HCA's
motion to transfer both lawsuits to the United States District Court for the
Middle District of Tennessee. After such transfer, the Tennessee District Court
dismissed the FOX lawsuit and joined the plaintiff of the FOX lawsuit as a party
plaintiff to the BERGER lawsuit. HCA's motion to dismiss the BERGER lawsuit is
still pending. While the Company cannot predict with certainty the outcome of
this proceeding, the Company, based upon information currently available,
believes that this proceeding is without merit.
A class action styled MARY FORSYTH ET AL. V. HUMANA INC. ET AL., Case
#CV-S-89-249-PMP (L.R.L.), was filed on March 29, 1989, in the United States
District Court for the District of Nevada (the "Forsyth" case). On August 12,
1991, a Second Amended Complaint was filed in the Forsyth case which
significantly increased the amount of damages claimed by the plaintiffs in
previously filed complaints. The claimed damages increased from $10 million to
$84,520,143 in connection with a count which alleges a violation of the Employee
Retirement Income Security Act (the "ERISA Count"); from $10 million to
$181,034,570 (before trebling) in connection with an alleged violation of the
Sherman Anti-Trust Act (the "Anti-Trust Count"); and from $10 million to
$181,034,570 (before trebling) for an alleged violation of the Racketeer
Influenced and Corrupt Organization Act (the "RICO Count"). In late March 1992,
as part of the discovery process, the plaintiffs provided information in regard
to their calculation of damages which indicates they are seeking recovery of
$49,440,000 of damages plus approximately $15,396,000 of interest in the ERISA
Count and $103,562,165 of damages (before trebling) plus approximately
$31,800,000 of interest in the RICO Count. Specific amounts were not readily
apparent for the Anti-Trust Count but it appears the plaintiffs believe their
23
claimed damages in the Anti-Trust Count would be similar to those in the RICO
Count. The ERISA Count, which is being asserted by the Co-Payer Class, claims
that Humana Inc. ("Humana") violated a fiduciary duty in connection with (i) the
calculation of co-insurance payments required under policies issued by Humana's
insurance subsidiary ("Humana Insurance") for insureds who were treated at
Sunrise Hospital in Las Vegas (now owned by the Company), and (ii) payments to
the hospital by Humana Insurance. The Anti-Trust Count, which is being asserted
by the Premium Payer Class, alleges that Sunrise Hospital has monopolized or has
attempted to monopolize the for-profit, acute care hospital services market in
Clark County, Nevada, and that Humana Insurance engaged in predatory pricing in
connection with the sale of insurance policies to members of such class. The
plaintiffs have also indicated damages with respect to the Co-Payer Class. The
RICO Count, which is being asserted by both the Premium Payer and Co-Payer
Classes, alleges fraud in connection with (i) the sale of insurance policies to
members of the Premium Payer Class and (ii) the calculation of the co-insurance
payments. On June 22, 1992, defendants filed a Motion for Summary Judgment on
all three counts of the Complaint. On July 21, 1993, Summary Judgment was
entered in favor of defendants on all counts, although the Court allowed the
Co-Payer Class to file a Third Amended Complaint. On August 24, 1993, the
plaintiffs filed a Third Amended Complaint against Humana Insurance, seeking to
recover at least $2,000,000, plus interest, which represents the difference
between their co-insurance payments and what the payments would have been if
calculated based on the discounted payments made by Humana Insurance to Sunrise
Hospital. Pursuant to an Assumption of Liabilities and Indemnification Agreement
entered into in connection with the Spinoff, Humana assumed approximately 39%
and Galen assumed approximately 61% of all liabilities, costs and expenses
arising out of certain identified legal proceedings and claims, including the
Forsyth case.
On April 22, 1993, an alleged stockholder of Galen filed a purported
stockholder derivative action in the Court of Chancery of the State of Delaware,
County of New Castle, styled LEWIS V. AUSTEN, ET AL., Civil Action No. 12937.
The action was purportedly brought on behalf of Galen and Humana against all of
the directors of both companies at the time of the Spinoff alleging, among other
things, that the defendants had improperly amended Humana's existing stock
option plans in connection with the Spinoff. The plaintiff claims that the
amendment to the stock option plans constituted a waste of corporate assets to
the extent that employees of such company received options in the stock of the
other company. (The challenged amendment to the plans was approved by Humana's
stockholders at the 1993 Annual Meeting of Stockholders, at which time Galen was
a wholly owned subsidiary of Humana.) The plaintiff requests, among other
things, an injunction prohibiting the exercise of Humana stock options by
Company personnel and the exercise of Company stock options by Humana personnel
and an award of damages. The Company believes that the complaint is without
merit.
A purported class action has been filed against HCA, the directors of HCA,
and the Company, in the Delaware Court of Chancery entitled 7547 PARTNERS V. HCA
HOSPITAL CORP. OF AMERICA, JACK O. BOVENDER, JR., THOMAS F. FRIST, JR., CHARLES
T. HARRIS, III, CHARLES J. KANE, RICHARD E. RAINWATER, CARL E. REICHARDT, FRANK
S. ROYAL AND COLUMBIA HEALTHCARE CORPORATION, C.A. No. 13159. The complaint,
brought by a purported stockholder of HCA, alleges that the defendants breached
their fiduciary duties to plaintiff and other members of the purported class and
also alleges that the defendants aided and abetted a gross abuse of trust. The
complaint alleges that the directors of HCA wrongfully failed to hold an open
auction and encourage bona fide bids for HCA and failed to take action to
maximize value to HCA stockholders. The complaint seeks rescission of the HCA
Merger or rescissionary damages. The complaint also seeks monetary damages of an
unspecified amount and attorneys' and experts' fees. The Company believes that
the complaint is without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been primarily traded on the New York Stock
Exchange (the "NYSE") (symbol "COL") since July 14, 1993. Prior to that date,
the Company's Common Stock was traded through the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS").
The table below sets forth, for the calendar quarters indicated, the high and
low sales prices per share reported on the NYSE Composite Tape or NASDAQ/NMS for
the Company's Common Stock. The information with respect to NASDAQ/NMS
quotations was obtained from the National Association of Securities Dealers,
Inc. and reflects interdealer prices, without retail markup, markdown or
commissions and may not represent actual transactions.
HIGH LOW
--------- ---------
1992:
First Quarter.................................................................. $ 21.25 $ 16.50
Second Quarter................................................................. 22.00 16.25
Third Quarter.................................................................. 19.25 16.25
Fourth Quarter................................................................. 21.75 13.75
1993:
First Quarter.................................................................. 24.50 16.25
Second Quarter................................................................. 27.75 19.25
Third Quarter.................................................................. 31.00 25.38
Fourth Quarter................................................................. 33.88 27.00
The Company's registrar and transfer agent for its Common Stock is First
Union National Bank of North Carolina. At the close of business on February 28,
1994, there were 15,600 holders of record of the Company's Common Stock and one
holder of record of the Company's Nonvoting Common Stock.
The Company commenced the payment of a quarterly dividend of $.03 per share
in the fourth quarter of 1993. Prior to that time, the Company did not pay any
cash dividends. While it is the present intention of the Company's Board of
Directors to continue paying a quarterly dividend of $.03 per share, the
declaration and payment of future dividends by the Company will depend upon many
factors, including the Company's earnings, financial condition, business needs,
capital and surplus and regulatory considerations.
25
ITEM 6. SELECTED FINANCIAL DATA.
COLUMBIA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
SUMMARY OF OPERATIONS:
Revenues................................ $ 5,130 $ 4,806 $ 4,612 $ 4,010 $ 3,450
---------- ---------- ---------- ---------- ----------
Salaries, wages and benefits............ 2,217 2,069 2,004 1,666 1,366
Supplies................................ 842 788 720 624 513
Other operating expenses................ 916 833 717 653 600
Provision for doubtful accounts......... 282 285 277 233 203
Depreciation and amortization........... 298 276 248 220 196
Interest expense........................ 129 117 111 119 147
Investment income....................... (34) (39) (34) (34) (34)
Non-recurring transactions.............. 151 138 - - (13)
---------- ---------- ---------- ---------- ----------
4,801 4,467 4,043 3,481 2,978
---------- ---------- ---------- ---------- ----------
Income from continuing operations before
minority interests and income taxes.... 329 339 569 529 472
Minority interests in earnings of
consolidated entities.................. 9 10 9 4 4
---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes........................... 320 329 560 525 468
Provision for income taxes.............. 127 118 202 190 167
---------- ---------- ---------- ---------- ----------
Income from continuing operations....... 193 211 358 335 301
Discontinued operations:
Income (loss) from operations of
discontinued health plan segment, net
of income tax (benefit).............. 16 (108) 16 (6) (18)
Costs associated with discontinuance
of health plan segment, net of income
tax benefit.......................... - (17) - - -
Extraordinary loss on extinguishment of
debt, net of income tax benefit........ (70) - - - (9)
Cumulative effect on prior years of a
change in accounting for income
taxes.................................. - 51 - - -
---------- ---------- ---------- ---------- ----------
Net income.......................... $ 139 $ 137 $ 374 $ 329 $ 274
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings per common share (a):
Income from continuing operations..... $ 1.28 $ 1.45 $ 2.58 $ 2.51
Discontinued operations:
Income (loss) from operations of
discontinued health plan segment... .10 (.75) .11 (.04)
Costs associated with discontinuance
of health plan segment............. - (.12) - -
Extraordinary loss on extinguishment
of debt.............................. (.46) - - -
Cumulative effect on prior years of a
change in accounting for income
taxes................................ - .36 - -
---------- ---------- ---------- ----------
Net income.......................... $ .92 $ .94 $ 2.69 $ 2.47
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in earnings per common share
computations (in thousands)............ 150,017 144,897 138,936 134,128
Net cash provided by continuing
operations............................. $ 493 $ 668 $ 655 $ 552 $ 456
Cash dividends per common share......... .06 - - - -
FINANCIAL POSITION:
Assets.................................. $ 4,619 $ 4,891 $ 4,541 $ 4,100 $ 3,583
Working capital......................... 374 392 374 374 353
Net assets of discontinued operations... - 376 411 303 312
Long-term debt, including amounts due
within one year........................ 1,651 1,288 1,159 1,144 1,239
Minority interests in equity of
consolidated entities.................. 57 31 23 16 10
Common stockholders' equity............. 1,656 2,276 2,168 1,836 1,371
OPERATING DATA:
Number of hospitals at end of period.... 97 101 91 93 87
Number of licensed beds at end of
period................................. 21,742 21,922 19,992 19,393 18,254
Weighted average licensed beds.......... 21,733 21,019 20,132 19,237 18,288
Average daily census.................... 9,249 9,277 9,502 9,145 8,719
Occupancy............................... 43% 44% 47% 48% 48%
Admissions.............................. 596,300 586,500 587,800 566,200 529,800
Length of stay.......................... 5.7 5.8 5.9 5.9 6.0
Surgery cases........................... 424,200 437,300 425,900 399,000 374,000
Emergency room visits................... 1,563,200 1,537,400 1,519,700 1,432,000 1,330,900
Outpatient registrations................ 2,541,900 2,537,100 2,401,600 1,899,300 1,666,400
Outpatient revenues as a percentage of
patient revenues....................... 26% 26% 24% 23% 22%
<FN>
- ------------------------------
(a) Earnings per common share are not presented for periods prior to the
initial public offering of Columbia Hospital Corporation common stock in
May 1990.
26
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
SUMMARY OF OPERATIONS:
Revenues................................................................... $ 10,252 $ 9,932 $ 9,598 $ 8,641 $ 7,724
--------- --------- --------- --------- ---------
Salaries, wages and benefits............................................... 4,215 4,112 3,976 3,510 3,066
Supplies................................................................... 1,664 1,613 1,467 1,314 1,135
Other operating expenses................................................... 1,893 1,849 1,739 1,586 1,483
Provision for doubtful accounts............................................ 542 515 508 444 407
Depreciation and amortization.............................................. 554 541 524 499 468
Interest expense........................................................... 321 401 597 694 667
Investment income.......................................................... (66) (81) (64) (69) (103)
Non-recurring transactions................................................. 151 439 300 22 (10)
--------- --------- --------- --------- ---------
9,274 9,389 9,047 8,000 7,113
--------- --------- --------- --------- ---------
Income from continuing operations before minority interests and income
taxes..................................................................... 978 543 551 641 611
Minority interests in earnings of consolidated entities.................... 9 10 9 4 4
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes...................... 969 533 542 637 607
Provision for income taxes................................................. 394 294 189 240 223
--------- --------- --------- --------- ---------
Income from continuing operations.......................................... 575 239 353 397 384
Discontinued operations:
Income (loss) from operations of discontinued health plan segment, net of
income tax (benefit).................................................... 16 (108) 16 (6) (18)
Costs associated with discontinuance of health plan segment, net of
income tax benefit...................................................... - (17) - - -
Extraordinary loss on extinguishment of debt, net of income tax
benefit................................................................. (84) - - - (9)
Cumulative effect on prior years of a change in accounting for income
taxes................................................................... - 51 - - -
--------- --------- --------- --------- ---------
Net income............................................................. $ 507 $ 165 $ 369 $ 391 $ 357
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common and common equivalent share (a):
Income from continuing operations........................................ $ 1.70 $ .73 $ 1.20 $ 1.28
Discontinued operations:
Income (loss) from operations of discontinued health plan segment........ .04 (.33) .05 (.02)
Costs associated with discontinuance of health plan segment.............. - (.06) - -
Extraordinary loss on extinguishment of debt............................. (.24) - - -
Cumulative effect on prior years of a change in accounting for income
taxes................................................................... - .16 - -
--------- --------- --------- ---------
Net income............................................................. $ 1.50 $ .50 $ 1.25 $ 1.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in earnings per common and common equivalent share computations
(in thousands)............................................................ 339,222 328,564 279,954 262,552
Net cash provided by continuing operations................................. $ 1,298 $ 1,287 $ 1,257 $ 1,191 $ 919
FINANCIAL POSITION:
Assets................................................................... $ 10,216 $ 10,347 $ 10,843 $ 10,391 $ 10,461
Working capital.......................................................... 573 606 635 482 379
Net assets of discontinued operations.................................... - 376 411 303 312
Long-term debt, including amounts due within one year.................... 3,698 3,656 5,158 5,139 6,022
Minority interests in equity of consolidated entities.................... 57 31 23 16 10
Common stockholders' equity.............................................. 3,471 3,691 2,822 2,099 1,585
OPERATING DATA (B):
Number of hospitals at end of period..................................... 193 200 219 221 218
Number of licensed beds at end of period................................. 42,237 42,245 43,231 42,789 42,433
Weighted average licensed beds........................................... 41,263 40,608 42,437 42,264 41,452
Average daily census..................................................... 18,702 19,253 21,255 21,351 21,155
Occupancy................................................................ 45% 47% 50% 51% 51%
Admissions............................................................... 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300
Length of stay........................................................... 5.9 6.1 6.5 6.6 6.8
Emergency room visits.................................................... 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900
Outpatient revenues as a percentage of patient revenues.................. 27% 26% 24% 22% 21%
<FN>
- ------------------------------
(a) Earnings per common and common equivalent share are not presented for
periods prior to the initial public offering of Columbia Hospital
Corporation common stock in May 1990. Earnings per common and common
equivalent share include the effect of preferred stock dividend
requrements totaling $18 million in 1991 and $63 million in 1990.
(b) Operating data for 1992 exclude the twenty-two divested psychiatric
hospitals discussed in Note 5 of the Notes to Supplemental Consolidated
Financial Statements.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COLUMBIA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Selected Financial Data in Item 6 set forth certain information with
respect to the financial position, results of operations and cash flows of
Columbia Healthcare Corporation ("Columbia") which should be read in conjunction
with the following discussion and analysis.
HCA MERGER
The HCA Merger was completed on February 10, 1994. Although the HCA Merger
will be treated as a pooling of interests for accounting purposes, the
accompanying consolidated financial statements and financial and operating data
included in this discussion and analysis do not include the retroactive effect
of the HCA Merger. See Note 3 of the Notes to Consolidated Financial Statements
of Columbia and the Supplemental Consolidated Financial Statements of
Columbia/HCA Healthcare Corporation ("Columbia/HCA") included herein for further
information.
BACKGROUND INFORMATION AND BUSINESS STRATEGY
As discussed in Notes 1 and 2 of the Notes to the Consolidated Financial
Statements, Columbia began operations on September 1, 1993 as a result of a
merger involving Columbia Hospital Corporation ("CHC") and Galen Health Care,
Inc. ("Galen") (the "Galen Merger"), which was accounted for as a pooling of
interests. Accordingly, the accompanying financial statements and financial and
operating data included in this discussion and analysis give retroactive effect
to the Galen Merger and include the combined operations of CHC and Galen for all
periods presented. In addition, the historical financial information related to
Galen (which prior to the Galen Merger was reported on a fiscal year ending
August 31) has been recast to conform to Columbia's annual reporting period
ending December 31.
Prior to the merger with CHC, Galen became a publicly held corporation as a
result of a spinoff transaction by Humana Inc. ("Humana") which was completed on
March 1, 1993 (the "Spinoff"). The Spinoff separated Humana's previously
integrated hospital and managed care health plan businesses and was effected
through the distribution of Galen common stock to then current Humana common
stockholders on a one-for-one basis. For accounting purposes, because of the
relative significance of the hospital business, the pre-Spinoff financial
statements of Galen (and now those of Columbia) include the separate results of
Humana's hospital business, while the operating results and net assets of
Humana's managed care health plans have been classified as discontinued
operations.
At the time of the Galen Merger, CHC operated 22 hospitals (5,226 licensed
beds) and certain ancillary health care facilities in five major markets located
in Florida and Texas. Annualized revenues of CHC were in excess of $1 billion.
Galen operated 71 hospitals (16,251 licensed beds) located in 18 states and two
foreign countries with annualized revenues of approximately $4 billion.
Columbia primarily operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries or (ii) ownership of controlling
interests in various partnerships in which subsidiaries of Columbia serve as the
managing general partner. Columbia's business strategy centers on the
development of comprehensive, integrated health care delivery networks with
physicians and other health care providers in targeted markets, which typically
involves significant health care facility acquisition and consolidation
activities.
During the past several years, hospital inpatient admission trends have been
adversely impacted by cost containment efforts initiated by federal and state
governments and various third-party payers, including HMOs, PPOs, commercial
insurance companies and employer-sponsored networks. In addition, a significant
number of medical procedures have shifted from inpatient to less expensive
outpatient settings as a result of both cost containment pressures and advances
in medical technology.
28
In response to changes in the health care industry, Columbia has developed
the following operating strategy to provide the highest quality health care
services at the lowest possible cost:
BECOME A SIGNIFICANT PROVIDER OF SERVICES -- Columbia 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 also operates
psychiatric and rehabilitation facilities, outpatient surgery and
diagnostic centers, home health agencies and other services. This
strategy enables Columbia to attract business from managed care plans
and major employers seeking efficient access to a wide array of health
care services.
DELIVER HIGH QUALITY SERVICES -- Through the use of clinical information
systems, Columbia focuses on patient outcomes and strives to
continuously improve the quality of care and service provided to
patients.
INTEGRATE FRAGMENTED DELIVERY SYSTEMS -- Through its networks, Columbia
focuses on coordinating pricing, contracting, information systems and
quality assurance activities among providers in each market.
Management intends to implement its strategy discussed above in a
substantial number of former Galen markets as well as new markets, and further
develop the integrated health care networks in its five pre-Galen Merger
markets.
29
RESULTS OF OPERATIONS
Revenues increased 7% to $5.1 billion in 1993 and 4% to $4.8 billion in
1992. Increases in both periods resulted primarily from price increases,
acquisitions and, in 1992, growth in outpatient services.
During 1992 and 1993, Columbia acquired or constructed 21 hospitals
containing 3,474 licensed beds and sold or closed 14 hospitals containing 1,682
licensed beds. The following table summarizes percentage changes in
same-hospital admissions and outpatient registrations for each respective period
of 1993 compared to the same period of 1992, and changes in same-hospital
admissions and outpatient registrations for each period of 1992 compared to the
same period of 1991.
1993 VS. 1992 1992 VS. 1991
------------------------------------- ---------------------------------------
CHC GALEN COMBINED CHC GALEN COMBINED
--------- ----------- ------------- ----- ----------- -------------
ADMISSIONS:
Quarter:
First...................... 6.7 (2.1) (1.5) 8.4 - 0.6
Second..................... 8.9 (1.3) (0.5) 2.4 (4.8) (4.3)
Third...................... 5.9 (1.0) (0.4) 4.6 (4.1) (3.5)
Fourth..................... 5.9 1.3 1.7 4.6 (3.6) (3.0)
Year..................... 6.8 (0.8) (0.2) 5.0 (3.1) (2.5)
OUTPATIENT REGISTRATIONS:
Quarter:
First...................... 10.1 (7.2) (5.0) 54.5 4.6 8.7
Second..................... 8.0 (4.2) (2.6) 35.1 (3.6) (0.2)
Third...................... 13.3 (2.1) (0.1) 35.8 (4.4) (1.5)
Fourth..................... 6.8 (0.9) 0.2 31.9 (2.3) 0.9
Year..................... 9.5 (3.6) (1.9) 39.0 (1.5) 1.9
Since it began operations in 1988, CHC had experienced significant growth in
patient volumes, revenues and net income, primarily as a result of successful
implementation of its strategy.
The historical operating results of Galen's hospitals (which include the
hospital operations of Humana prior to the Spinoff) had been adversely impacted
as a result of such hospitals' pre-Spinoff relationship with Humana's managed
care health plan business in certain markets. Management believes that this
relationship caused some physicians to discontinue referrals of their patients
to the company's hospitals, and had precluded these hospitals from contracting
with unaffiliated insurers. In addition, Galen's volume of patients covered by
traditional insurance (who pay amounts which more closely approximate
established charges) declined significantly in 1992 due in part to increased
price consciousness of patients and physicians with respect to Galen's pricing
policies. Same-hospital volume trends at former Galen facilities have improved
in 1993 primarily as a result of increased volumes from discounted managed care
health plans other than Humana.
Income from continuing operations before non-recurring transactions,
depreciation, interest, minority interests, income taxes and amortization
("EBDITA") increased 4% to $907 million in 1993 from $870 million in 1992. The
decline in EBDITA margins to 17.7% from 18.1% resulted primarily from
deterioration in payer mix. Medicare admissions as a percentage of total
admissions increased from 35% in 1992 to 36% in 1993, while discounted and
managed care admissions grew from 44% to 45%, respectively. EBDITA declined 6%
in 1992 from 1991 due to a decline in same-hospital admissions at former Galen
facilities and deterioration in Galen's payer mix.
During the third quarter of 1993, Columbia recorded non-recurring charges of
$151 million ($98 million net of tax) of costs related to the Galen Merger.
Results of operations in 1992 include $138 million ($86 million net of tax) of
costs incurred in connection with the Spinoff. See Note 5 of the Notes to
Consolidated Financial Statements.
30
Excluding the effects of the non-recurring transactions, income from
continuing operations declined 2% to $291 million ($1.95 per share) in 1993 and
17% to $297 million ($2.05 per share) in 1992.
During the third quarter of 1993, in an effort to reduce future interest
expense and eliminate certain restrictive covenants, Columbia effected the
refinancing of $787 million of its long-term debt bearing interest at an average
rate of 8.5% primarily through the issuance of commercial paper. After-tax
losses from these refinancing activities aggregated $70 million or $.46 per
share.
DISCONTINUED OPERATIONS
Results of operations include income from discontinued operations of $16
million in 1993, a loss of $125 million in 1992 and income of $16 million in
1991. Losses from discontinued operations in 1992 include costs of $135 million
(net of tax) incurred by Humana in connection with the Spinoff.
LIQUIDITY
Cash provided by continuing operations totaled $493 million in 1993 compared
to $668 million in 1992 and $655 million in 1991. The decrease in 1993 resulted
primarily from a slower decline in the number of days of revenues in accounts
receivable, and an acceleration in the payment of income taxes and funding of
retirement plan obligations.
Working capital totaled $374 million at December 31, 1993 compared to $392
million at December 31, 1992. Management believes that cash flows from
operations and amounts available under Columbia's revolving credit facilities
and related commercial paper programs are sufficient to meet expected future
liquidity needs.
Investments of Columbia's professional liability insurance subsidiary to
maintain statutory equity and pay claims totaled $376 million and $347 million
at December 31, 1993 and 1992, respectively.
In September 1993 the Board of Directors initiated the payment of a regular
quarterly cash dividend of $.03 per common share. Management anticipates that
this dividend policy will continue after consummation of the HCA Merger.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $382 million in 1993
compared to $359 million in 1992 and $453 million in 1991. Planned capital
expenditures in 1994 (excluding acquisitions) are expected to approximate $400
million. Management believes that its capital expenditure program is adequate to
expand, improve and equip existing health care facilities.
In addition, Columbia expended $79 million, $36 million and $96 million for
acquisitions during 1993, 1992 and 1991, respectively. See Note 6 of the Notes
to Consolidated Financial Statements for a description of these activities.
As part of its business strategy, Columbia intends to acquire additional
health care facilities in the future. Since December 31, 1993, Columbia has
expended $114 million toward the purchase of four hospitals (or controlling
interests therein) containing 1,264 licensed beds. These transactions, which
will be accounted for by the purchase method, were financed through the use of
internally generated funds and issuance of long-term debt.
Columbia expects to finance all capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt, commercial paper, unused bank revolving credits and equity. At
December 31, 1993, there were projects under construction which had an estimated
additional cost to complete of approximately $149 million.
In connection with the Spinoff, common stockholders' equity was reduced by
$802 million in 1993 as a result of the following transactions with Humana: (i)
distribution of the net assets of the health plan business ($392 million) and
the net assets of a hospital facility ($25 million), (ii) payment of cash
31
($135 million) and (iii) issuance of notes ($250 million). The notes were
refinanced in September 1993. Including the pro forma effect of the Spinoff, the
ratio of debt to debt plus common stockholders' equity improved from 53% at
December 31, 1992 to 50% at December 31, 1993.
Upon consummation of the HCA Merger in February 1994, Columbia entered into
revolving credit agreements in the aggregate amount of $3 billion and refinanced
certain HCA and other long-term debt. The refinancings were effected primarily
through the issuance of commercial paper, $175 million of 6 1/2% Notes due 1999
and $150 million of 7.15% Notes due 2004. Management anticipates that losses
resulting from these refinancing activities will reduce the combined entity's
first quarter 1994 net income by approximately $80 million.
Columbia's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
Columbia was in compliance with all such covenants at December 31, 1993.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain
cases, limit Columbia's ability to increase prices. Revenues for hospital
services rendered to Medicare patients are established under the federal
government's prospective payment system. Medicare revenues approximated 33%, 31%
and 30% of revenues in 1993, 1992 and 1991, respectively.
Management believes that hospital operating margins have been, and may
continue to be, under significant pressure because of deterioration in inpatient
volumes and payer mix, and growth in operating expenses in excess of the
increase in prospective payments under the Medicare program. Columbia expects
that the average rate of increase in Medicare prospective payments will
approximate 2% in 1994. In addition, as a result of increasing regulatory and
competitive pressures, Columbia's ability to maintain operating margins through
price increases to non-Medicare patients is limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and some state legislatures that would
significantly affect health care systems in Columbia's markets. Proposals under
consideration include cost controls on hospitals, insurance market reforms that
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance to their employees and
creation of a single government health insurance plan that would cover all
citizens.
President Clinton's health care reform bill, introduced as legislation in
November 1993, includes certain measures that could significantly reduce future
payments to providers of health care services.
OTHER INFORMATION
Resolution of various loss contingencies, including litigation pending
against Columbia in the ordinary course of business, is not expected to have a
material adverse effect on its financial position or results of operations.
During 1992 Columbia adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which increased
last year's first quarter net income by $51 million or $.36 per share. See Note
7 of the Notes to Consolidated Financial Statements.
Columbia expects to incur certain expenses related to the HCA Merger, the
amounts of which have not been determined. These costs will include, among other
things, amounts for investment advisory and professional fees, expenses of
printing and distributing proxy materials, severance payments and provisions for
loss related to the consolidation of the operations of Columbia and HCA.
Management anticipates that these expenses will be recorded in the first quarter
of 1994.
32
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Supplemental Selected Financial Data in Item 6 set forth certain
information with respect to the financial position, results of operations and
cash flows of Columbia/HCA which should be read in conjunction with the
following discussion and analysis.
BACKGROUND INFORMATION AND BUSINESS STRATEGY
HCA MERGER
As discussed in Notes 1 and 2 of the Notes to Supplemental Consolidated
Financial Statements of Columbia/HCA, on October 2, 1993, Columbia entered into
a definitive agreement to merge with HCA. This transaction was completed on
February 10, 1994 and will be accounted for as a pooling of interests.
Accordingly, the accompanying supplemental consolidated financial statements and
financial and operating data included in this supplemental discussion and
analysis give retroactive effect to the combined operations of Columbia and HCA
for all periods presented.
GALEN MERGER
The Galen Merger was completed on September 1, 1993 and was also accounted
for as a pooling of interests. Accordingly, the accompanying financial
statements and financial and operating data included in this supplemental
discussion and analysis give retroactive effect to the Galen Merger and include
the combined operations of CHC and Galen for all periods presented. In addition,
the historical financial information related to Galen (which prior to the Galen
Merger was reported on a fiscal year ending August 31) has been recast to
conform to Columbia/HCA's annual reporting period ending December 31.
SPINOFF TRANSACTION
Prior to the merger with CHC, Galen became a publicly held corporation as a
result of the Spinoff which was completed on March 1, 1993. The Spinoff
separated Humana's previously integrated hospital and managed care health plan
businesses and was effected through the distribution of Galen common stock to
then current Humana common stockholders on a one-for-one basis. For accounting
purposes, because of the relative significance of the hospital business, the
pre-Spinoff financial statements of Galen (and now those of Columbia/HCA)
include the separate results of Humana's hospital business, while the operating
results and net assets of Humana's managed care health plans have been
classified as discontinued operations.
BUSINESS STRATEGY
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries or (ii) ownership of
controlling interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner. Columbia/HCA's business
strategy centers on the development of comprehensive, integrated health care
delivery networks with physicians and other health care providers in targeted
markets, which typically involves significant health care facility acquisition
and consolidation activities.
During the past several years, hospital inpatient admission trends have been
adversely impacted by cost containment efforts initiated by federal and state
governments and various third-party payers, including HMOs, PPOs, commercial
insurance companies and employer-sponsored networks. In addition, a significant
number of medical procedures have shifted from inpatient to less expensive
outpatient settings as a result of both cost containment pressures and advances
in medical technology.
In response to changes in the health care industry, Columbia/HCA has
developed the following operating strategy to provide the highest quality health
care services at the lowest posible cost:
33
BECOME A SIGNIFICANT PROVIDER OF SERVICES -- Columbia/HCA attempts to
(i) consolidate services to reduce costs and (ii) develop the geographic
coverage necessary for inclusion in most managed care and employer-sponsored
networks in each market.
PROVIDE A COMPREHENSIVE RANGE OF SERVICES -- In addition to the
operation of general, acute care hospitals, Columbia/HCA also operates
psychiatric and rehabilitation facilities, outpatient surgery and diagnostic
centers, home health agencies and other services. This strategy enables
Columbia/HCA to attract business from managed care plans and major employers
seeking efficient access to a wide array of health care services.
DELIVER HIGH QUALITY SERVICES -- Through the use of clinical
information systems, Columbia focuses on patient outcomes and strives to
continuously improve the quality of care and service provided to patients.
INTEGRATE FRAGMENTED DELIVERY SYSTEMS -- Through its networks,
Columbia/HCA focuses on coordinating pricing, contracting, information
systems and quality assurance activities among providers in each market.
Management intends to implement its strategy discussed above in a
substantial number of former Galen and HCA markets as well as new markets, and
further develop the integrated health care networks in its five pre-Galen Merger
markets.
RESULTS OF OPERATIONS
At the time of the HCA Merger, Columbia/HCA operated 195 hospitals (43,075
licensed beds) and certain ancillary health care facilities in forty major
markets located in twenty-six states and two foreign countries. Operating data
related to the pre-HCA Merger entities follows (dollars in millions):
COLUMBIA HCA COMBINED
---------- ---------- -----------
Revenues:
1993........................................................... $ 5,130 $ 5,122 $ 10,252
1992........................................................... 4,806 5,126 9,932
1991........................................................... 4,612 4,986 9,598
EBDITA (a):
1993........................................................... $ 907 $ 1,097 $ 2,004
1992........................................................... 870 1,054 1,924
1991........................................................... 928 1,044 1,972
Income from continuing operations (b):
1993........................................................... $ 291 $ 382 $ 673
1992........................................................... 297 300 597
1991........................................................... 358 156 514
Admissions (in thousands):
1993........................................................... 596.3 562.1 1,158.4
1992........................................................... 586.5 574.6 1,161.1
1991........................................................... 587.8 601.9 1,189.7
Emergency room visits (in thousands):
1993........................................................... 1,563.2 1,576.5 3,139.7
1992........................................................... 1,537.4 1,505.5 3,042.9
1991........................................................... 1,519.7 1,508.9 3,028.6
<FN>
- ------------------------
(a) Income from continuing operations before non-recurring transactions,
depreciation, interest, minority interests, income taxes and amortization.
(b) Excludes the after-tax effect of non-recurring transactions. See Note 5 of
the Notes to Supplemental Consolidated Financial Statements for a
description of these transactions.
Revenues increased 3% to $10.3 billion in 1993 and 3% to $9.9 billion in
1992. Increases in both periods resulted primarily from price increases,
acquisitions and growth in outpatient services.
34
During 1992 and 1993, Columbia/HCA completed numerous acquisitions and
divestitures of hospitals, most of which are discussed in Notes 5 and 6 of the
Notes to Supplemental Consolidated Financial Statements. The following table
summarizes percentage changes in same-hospital volumes for each respective
period of 1993 compared to the same period of 1992, and changes in same-hospital
volumes in for period of 1992 compared to the same period of 1991.
1993 VS 1992 1992 VS 1991
-------------------------------- --------------------------------
COLUMBIA COLUMBIA
------------ ------------
CHC GALEN HCA COMBINED CHC GALEN HCA COMBINED
---- ------ ----- --------- ---- ------ ----- ---------
ADMISSIONS:
Quarter:
First................ 6.7 (2.1) (1.5) (1.5) 8.4 -- 3.5 2.1
Second............... 8.9 (1.3) (2.5) (1.6) 2.4 (4.8) 1.2 (1.5)
Third................ 5.9 (1.0) (3.0) (1.8) 4.6 (4.1) (0.4) (1.9)
Fourth............... 5.9 1.3 (0.4) 0.6 4.6 (3.6) (2.2) (2.6)
Year............... 6.8 (0.8) (1.8) (1.1) 5.0 (3.1) 0.6 (1.0)
EMERGENCY ROOM VISITS:
Quarter:
First................ 19.2 4.4 9.0 7.3 6.3 2.2 0.9 1.7
Second............... 11.7 (0.1) 4.2 2.6 8.0 (1.8) -- (0.5)
Third................ 5.8 (2.2) 1.9 0.3 16.5 0.2 7.0 4.0
Fourth............... 6.9 2.4 5.7 4.3 8.9 (2.2) (0.5) (1.0)
Year............... 10.6 1.1 5.1 3.6 9.1 (0.4) 1.8 1.0
In addition to the above, same-hospital outpatient volumes for CHC
facilities increased 9.5% in 1993 and 39% in 1992, while such volumes for Galen
facilities declined 3.6% and 1.5%, respectively. Same-hospital outpatient
volumes for HCA (denominated differently than those of CHC and Galen) increased
9.6% in 1993 and 14.6% in 1992 compared to the respective prior year.
Since it began operations in 1988, CHC had experienced significant growth in
patient volumes, revenues and net income, primarily as a result of successful
implementation of its strategy.
The historical operating results of Galen's hospitals (which include the
hospital operations of Humana prior to the Spinoff) had been adversely impacted
as a result of such hospitals' pre-Spinoff relationship with Humana's managed
care health plan business in certain markets. Management believes that this
relationship caused some physicians to discontinue referrals of their patients
to the company's hospitals, and had precluded these hospitals from contracting
with unaffiliated insurers. In addition, Galen's volume of patients covered by
traditional insurance (who pay amounts which more closely approximate
established charges) declined significantly in 1992 due in part to increased
price consciousness of patients and physicians with respect to Galen's pricing
policies. Same-hospital volume trends at former Galen facilities have improved
in 1993 primarily as a result of increased volumes from discounted managed care
health plans other than Humana.
During 1993 HCA facilities experienced declines in inpatient admissions and
increases in outpatient volumes primarily as a result of the previously
discussed cost containment efforts and outpatient utilization trends. In
addition, volumes in HCA's psychiatric facilities had been adversely impacted in
both 1992 and 1993 as a result of negative publicity in the psychiatric hospital
industry.
Despite declines in same-hospital admissions and deterioration in payer mix,
EBDITA for Columbia/HCA increased 4% to $2 billion in 1993 from $1.9 billion in
1992. EBDITA margins improved slightly to 19.5% from 19.4% primarily as a result
of improvements in staffing levels and increased medical supply discounts.
Medicare admissions as a percentage of total admissions increased from 37% in
1992 to 39% in 1993, while discounted and managed care admissions grew from 32%
to 35%, respectively. EBDITA declined 3% in 1992 from 1991 due to a decline in
same-hospital admissions at former Galen facilities and deterioration in Galen's
payer mix.
35
During the third quarter of 1993, Columbia/HCA recorded non-recurring
charges of $151 million ($98 million net of tax) of costs related to the Galen
Merger.
Results of operations in 1992 include (i) $394 million ($330 million net of
tax) of losses associated with divestitures of certain hospitals, (ii) $138
million ($86 million net of tax) of costs related primarily to the Spinoff and
(iii) a gain of $93 million ($58 million net of tax) on the sale of HealthTrust
common stock.
Income from continuing operations in 1991 includes (i) a charge of $413
million ($256 million net of tax) in connection with the acceleration of vesting
of stock options under the HCA Nonqualified Stock Option Plan and the
establishment of exercise prices at levels substantially less than the then fair
value of the underlying common stock, (ii) a charge of $159 million ($99 net of
tax) primarily in connection with the anticipated loss on the disposition of
certain hospitals and other assets, (iii) a gain of $51 million ($32 million net
of tax) on the sale of a hospital, and (iv) a gain of $221 million ($162 million
net of tax) on the sale of an investment in preferred stock and warrants of
HealthTrust.
See Note 5 of the Notes to Supplemental Consolidated Financial Statements
for a discussion of non-recurring transactions.
Excluding the effects of the non-recurring transactions, income from
continuing operations increased 13% to $673 million ($1.99 per share) in 1993
and 16% to $597 million ($1.82 per share) in 1992. Improvements in both years
resulted primarily from reductions in interest expense, and in 1993, growth in
EBDITA.
During the third quarter of 1993, in an effort to reduce future interest
expense and eliminate certain restrictive covenants, Columbia/HCA effected the
refinancing of $787 million of its long-term debt (bearing interest at an
average rate of 8.5%) primarily through the issuance of commercial paper, and
renegotiated HCA's bank credit agreement (subsequently replaced upon
consummation of the HCA Merger). After-tax losses from these refinancing
activities aggregated $84 million or $.24 per share.
DISCONTINUED OPERATIONS
Results of operations include income from discontinued operations of $16
million in 1993, a loss of $125 million in 1992 and income of $16 million in
1991. Losses from discontinued operations in 1992 include costs of $135 million
(net of tax) incurred by Humana in connection with the Spinoff.
LIQUIDITY
Cash provided by continuing operations totaled $1.3 billion in each of the
last three years. Cash flows in excess of Columbia/HCA's capital expenditure
program were used primarily to reduce long-term debt. Working capital totaled
$573 million at December 31, 1993 compared to $606 million at December 31, 1992.
Management believes that cash flows from operations and amounts available under
Columbia/HCA's revolving credit facilities and related commercial paper programs
are sufficient to meet expected future liquidity needs.
Investments of the Columbia/HCA's professional liability insurance
subsidiaries to maintain statutory equity and pay claims totaled $778 million
and $709 million at December 31, 1993 and 1992, respectively.
In September 1993 the Board of Directors initiated the payment of a regular
quarterly cash dividend of $.03 per common share. Management anticipates that
this dividend policy will continue after consummation of the HCA Merger.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $836 million in 1993
compared to $668 million in 1992 and $645 million in 1991. Planned capital
expenditures in 1994 (excluding acquisitions) are expected to approximate $800
million. Management believes that its capital expenditure program is adequate to
expand, improve and equip existing health care facilities.
36
In addition, Columbia/HCA expended $79 million, $36 million and $96 million
for acquisitions during 1993, 1992 and 1991, respectively. See Note 6 of the
Notes to Supplemental Consolidated Financial Statements for a description of
these activities.
As part of its business strategy, Columbia/HCA intends to acquire additional
health care facilities in the future. Since December 31, 1993, Columbia/HCA has
expended $114 million toward the purchase of four hospitals (or a controlling
interest therein) containing 1,264 licensed beds. These transactions, which will
be accounted for by the purchase method, were financed through the use of
internally generated funds and issuance of long-term debt.
Columbia/HCA expects to finance all capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt, commercial paper, unused bank revolving credits and equity. At
December 31, 1993, there were projects under construction which had an estimated
additional cost to complete of approximately $299 million.
In connection with the Spinoff, common stockholders' equity was reduced by
$802 million in 1993 as a result of the following transactions with Humana: (i)
distribution of the net assets of the health plan business ($392 million) and
the net assets of a hospital facility ($25 million), (ii) payment of cash ($135
million) and (iii) issuance of notes ($250 million). The notes were refinanced
in September 1993. Including the pro forma effect of the Spinoff, the ratio of
debt to debt plus common stockholders' equity improved from 58% at December 31,
1992 to 52% at December 31, 1993.
Upon consummation of the HCA Merger in February 1994, Columbia/HCA entered
into revolving credit agreements in the aggregate amount of $3 billion and
refinanced certain HCA and other long-term debt. The refinancings were effected
primarily through the issuance of commercial paper, $175 million of 6 1/2% Notes
due 1999 and $150 million of 7.15% Notes due 2004. Management anticipates that
losses resulting from these refinancing activities will reduce Columbia/HCA's
first quarter 1994 net income by approximately $80 million.
Columbia's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
Columbia/HCA was in compliance with all such covenants at December 31, 1993.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain
cases, limit Columbia/ HCA's ability to increase prices. Revenues for hospital
services rendered to Medicare patients are established under the federal
government's prospective payment system. Medicare revenues approximated 34%, 30%
and 29% of revenues in 1993, 1992 and 1991, respectively.
Management believes that hospital operating margins have been, and may
continue to be, under significant pressure because of deterioration in inpatient
volumes and payer mix, and growth in operating expenses in excess of the
increase in prospective payments under the Medicare program. Columbia expects
that the average rate of increase in Medicare prospective payments will
approximate 2% in 1994. In addition, as a result of increasing regulatory and
competitive pressures, Columbia/HCA's ability to maintain operating margins
through price increases to non-Medicare patients is limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and some state legislatures that would
significantly affect health care systems in Columbia/HCA's markets. Proposals
under consideration include cost controls on hospitals, insurance market reforms
that increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance to their employees and
creation of a single government health insurance plan that would cover all
citizens.
37
President Clinton's health care reform bill, introduced as legislation in
November 1993, includes certain measures that could significantly reduce future
payments to providers of health care services.
OTHER INFORMATION
As discussed in Note 7 of the Notes to Supplemental Consolidated Financial
Statements, Columbia/HCA is contesting certain income taxes and related interest
aggregating $1.3 billion at December 31, 1993 proposed by the Internal Revenue
Service (the "Service") for prior years. Management believes that final
resolution of these disputes will not have a material adverse effect on the
financial position, results of operations or liquidity of Columbia/HCA. However,
if all or a majority of the positions of the Service are upheld, the financial
position, results of operations and liquidity of Columbia/HCA would be
materially adversely affected.
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior year income
taxes and related interest. This transaction will not have a material effect on
1994 earnings.
Resolution of various other loss contingencies, including litigation pending
against Columbia/ HCA in the ordinary course of business, is not expected to
have a material adverse effect on its financial position or results of
operations.
During 1992 Columbia/HCA adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which increased
last year's first quarter net income by $51 million or $.16 per share. See Note
7 of the Notes to Supplemental Consolidated Financial Statements.
Columbia/HCA expects to incur certain expenses related to the HCA Merger,
the amounts of which have not been determined. These costs will include, among
other things, amounts for investment advisory and professional fees, expenses of
printing and distributing proxy materials, severance payments and provisions for
loss related to the consolidation of the operations of Columbia and HCA.
Management anticipates that these expenses will be recorded in the first quarter
of 1994.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item 8 is contained in the Consolidated
Financial Statements and Financial Statement Schedules of Columbia Healthcare
Corporation and the Supplemental Consolidated Financial Statements and Financial
Statement Schedules of the Company included in the Indexes on Pages F-1 and
F-30, respectively, of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under the heading
"Election of Directors" in the definitive proxy materials of the Company to be
filed in connection with its 1994 Annual Meeting of Stockholders, except for the
information regarding executive officers of the Company, which is contained in
Item 1 of Part I of this Annual Report on Form 10-K. The information required by
this Item contained in such definitive proxy materials is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the heading
"Executive Compensation" in the definitive proxy materials of the Company to be
filed in connection with its 1994 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the heading
"Principal Stockholders" in the definitive proxy materials of the Company to be
filed in connection with its 1994 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the heading
"Certain Transactions" in the definitive proxy materials of the Company to be
filed in connection with its 1994 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. and 2.LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules of Columbia Healthcare Corporation
and Index to Supplemental Consolidated Financial Statements and
Financial Statement Schedules of the Company on Pages F-1 and
F-30, respectively, of this Annual Report on Form 10-K are
provided in response to this Item.
3. LIST OF EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Current Report on Form 8-K dated
February 11, 1994, and incorporated herein by reference).
3.2(a) By-laws of the Company (filed as Exhibit 2.2 to the Company's
Registration Statement on Form 8-A dated August 31, 1993, and
incorporated herein by reference).
3.2(b) Amendment to By-laws of the Company (filed as Exhibit 3(b).1 to the
Company's Current Report on Form 8-K dated February 11, 1994, and
incorporated herein by reference).
39
4.1 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of the Company (filed as Exhibit 4.1 to the Company's Form
SE to Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible
Note Due June 30, 1999 (filed as Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and The 1818
Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the Company and The
1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and incorporated herein by reference).
4.5 Warrant to purchase shares of Common Stock, par value $.01 per
share, of the Company (filed as Exhibit 4.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990,
and incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16, 1989, by and
among HCA-Hospital Corporation of America and the persons listed on
the signature pages thereto (filed as Exhibit (g)(24) to Amendment
No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation of
America, Hospital Corporation of America and The HCA Profit Sharing
Plan on March 22, 1989, and incorporated herein by reference).
4.7 Assignment and Assumption Agreement dated as of February 10, 1994,
between HCA-Hospital Corporation of America and the Company
relating to the Registration Rights Agreement, as amended.
4.8 Amended and Restated Rights Agreement dated February 10, 1994
between the Company and Mid-America Bank of Louisville and Trust
Company.
4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among
the Company, the Several Banks and Other Financial Institutions,
and Chemical Bank as Agent and as CAF Loan Agent.
4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among
the Company, the Several Banks and Other Financial Institutions,
and Chemical Bank as Agent and as CAF Loan Agent.
4.11 Indenture dated as of December 15, 1993 between the Company and The
First National Bank of Chicago, as Trustee.
10.1 Agreement and Plan of Merger among the Company, CHOS Acquisition
Corporation and HCA-Hospital Corporation of America dated as of
October 2, 1993 (filed as Exhibit 2 to the Company's Registration
Statement on Form S-4 (File No. 33-50735), and incorporated herein
by reference).
10.2 Agreement and Plan of Merger between Galen Health Care, Inc. and
the Company dated as of June 10, 1993 (filed as Exhibit 2 to the
Company's Registration Statement on Form S-4 (File No. 33-49773),
and incorporated herein by reference).
40
10.3 Agreement and Plan of Merger among Hospital Corporation of America,
HCA-Hospital Corporation of America and TF Acquisition, Inc. dated
November 21, 1988 PLUS a list identifying the contents of all
omitted exhibits to the Agreement and Plan of Merger PLUS an
agreement of Hospital Corporation of America to furnish
supplementally to the Securities and Exchange Commission upon
request a copy of all omitted exhibits (filed as Exhibit 2 to
Hospital Corporation of America's Current Report on Form 8-K dated
November 21, 1988, and incorporated herein by reference).
10.4 Amendment No. 1 to Agreement and Plan of Merger dated as of
February 7, 1989, among Hospital Corporation of America,
HCA-Hospital Corporation of America and TF Acquisition, Inc. (filed
as Exhibit 2(b) to Hospital Corporation of America's Annual Report
on Form 10-K for the year ended December 31, 1988, and incorporated
herein by reference).
10.5 Columbia Hospital Corporation Stock Option Plan (filed as Exhibit
10.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by
reference).*
10.6 Columbia Hospital Corporation 1992 Stock and Incentive Plan (filed
as Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (Reg. No. 33-48886), and incorporated herein by reference).*
10.7 Columbia Hospital Corporation Outside Directors Nonqualified Stock
Option Plan (filed as Exhibit 28.1 to the Company's Registration
Statement on Form S-8 (File No. 33-55272), and incorporated herein
by reference).*
10.8 HCA-Hospital Corporation of America 1989 Nonqualified Stock Option
Plan, as amended through December 16, 1991 (filed as Exhibit 10(g)
to HCA-Hospital Corporation of America's Registration Statement on
Form S-1 (File No. 33-44906), and incorporated herein by
reference).*
10.9 Form of Stock Option Agreement under the HCA-Hospital Corporation
of America 1989 Nonqualified Stock Option Plan (filed as Exhibit
10(j) to HCA-Hospital Corporation of America's Annual Report on
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference).*
10.10 HCA-Hospital Corporation of America Nonqualified Initial Option
Plan (filed as Exhibit 4.6 to the Company's Registration Statement
on Form S-3 (File No. 33-52379), and incorporated herein by
reference).*
10.11 Termination Agreement between the Company and Carl F. Pollard dated
December 16, 1993.*
10.12 Termination Agreement between the Company and James D. Bohanon
dated December 16, 1993.*
10.13 Form of Indemnity Agreement between Galen Health Care, Inc. and
certain officers and directors (filed as Exhibit 10(kk) to Galen
Health Care, Inc.'s Registration Statement on Form 10, as amended,
and incorporated herein by reference).
10.14 Form of Severance Pay Agreement between Galen Health Care, Inc. and
certain executives (filed as Exhibit 10(jj) to Galen Health Care,
Inc.'s Registration Statement on Form 10, as amended, and
incorporated herein by reference).*
10.15 Form of Severance Agreement between HCA-Hospital Corporation of
America and certain executives dated as of November 1, 1993.*
10.16 Assumption Agreement among the Company, CHOS Acquisition
Corporation and HCA-Hospital Corporation of America dated as of
February 10, 1994, relating to the Severance Agreements.*
41
10.17 Form of Severance Pay Agreement between the Company and certain
executives dated as of June 10, 1993.*
10.18 Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed as
Exhibit 4.15 to the Company's Registration Statement on Form S-8
(File No. 33-50147), and incorporated herein by reference).*
10.19 Columbia/HCA Healthcare Corporation Annual Incentive Plan.*
10.20 Columbia/HCA Healthcare Corporation Directors' Retirement Policy.*
10.21 Baxter Supply Agreement dated as of December 1, 1989, among
Hospital Corporation of America, Baxter Healthcare Corporation,
HealthTrust, Inc. -- The Hospital Company and Healthcare Management
Corporation (filed as Exhibit 10(u) filed with Hospital Corporation
of America's Annual Report on Form 10-K, for the year ended
December 31, 1989, and incorporated herein by reference).
10.22 HCA-Hospital Corporation of America 1992 Stock Compensation Plan
(filed as Exhibit 10(t) to HCA-Hospital Corporation of America's
Registration Statement on Form S-1 (File No. 33-44906), and
incorporated herein by reference).*
11 Supplemental Statement re Computation of Earnings Per Common and
Common Equivalent Share.
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
12.2 Supplemental Statement re Computation of Ratio of Earnings to Fixed
Charges.
21 List of Subsidiaries.
23 Consent of Coopers & Lybrand.
<FN>
- ------------------------
* Management compensatory plan or arrangement.
(b) Reports on Form 8-K.
DATE OF CURRENT REPORT ITEM(S) REPORTED
- ----------------------- -----------------------------------------------------------------------------------
October 4, 1993 Announced approval by the Board of Directors of the HCA Merger
November 5, 1993 Earnings release for the quarter and nine months ended September 30, 1993 and 1992
November 10, 1993 Consolidated financial statements of HCA for the years ended December 31, 1993,
1992 and for the six months ended June 30, 1993 and 1992
November 15, 1993 Consolidated financial statements of the Company for the quarter and nine months
ended September 30, 1993 and 1992
December 15, 1993 Underwriting Agreement in connection with the Company's 6 1/8% Notes due December
15, 2000 and the Company's 7 1/2% Debentures due December 15, 2023
February 11, 1994 Announced completion of the HCA Merger, the composition of the Company's Board of
Directors and a Bylaw amendment
February 21, 1994 Supplemental pro forma consolidated financial statements of the Company for the
three years ended December 31, 1992, 1991 and 1990, and for the nine months ended
September 30, 1993 and 1992
March 1, 1994 Earnings release for the quarter and year ended December 31, 1993 and 1992
March 14, 1994 Underwriting Agreement in connection with the Company's 6 1/2% Notes due March 15,
1999
March 18, 1994 Underwriting Agreement in connection with the Company's 7.15% Notes due March 30,
2004
March 22, 1994 Assumption of HCA long-term debt
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 31, 1994
COLUMBIA/HCA HEALTHCARE CORPORATION
By: _______/s/_RICHARD L. SCOTT_______
Richard L. Scott
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
/s/ THOMAS F. FRIST, JR., M.D.
------------------------------------------- Chairman of the Board March 31, 1994
Thomas F. Frist, Jr., M.D.
/s/ RICHARD L. SCOTT
------------------------------------------- President, Chief Executive March 31, 1994
Richard L. Scott Officer and Director
/s/ DAVID C. COLBY Senior Vice President, Chief
------------------------------------------- Financial Officer and Treasurer March 31, 1994
David C. Colby (Principal Financial Officer)
/s/ RICHARD A. LECHLEITER Vice President and Controller
------------------------------------------- (Principal Accounting March 31, 1994
Richard A. Lechleiter Officer)
/s/ MAGDALENA AVERHOFF, M.D.
------------------------------------------- Director March 31, 1994
Magdalena Averhoff, M.D.
/s/ J. DAVID GRISSOM
------------------------------------------- Director March 31, 1994
J. David Grissom
/s/ ETHAN JACKSON
------------------------------------------- Director March 31, 1994
Ethan Jackson
43
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
/s/ CHARLES J. KANE
------------------------------------------- Director March 31, 1994
Charles J. Kane
/s/ JOHN W. LANDRUM
------------------------------------------- Director March 31, 1994
John W. Landrum
/s/ T. MICHAEL LONG
------------------------------------------- Director March 31, 1994
T. Michael Long
/s/ DARLA D. MOORE
------------------------------------------- Director March 31, 1994
Darla D. Moore
/s/ RODMAN W. MOORHEAD III
------------------------------------------- Director March 31, 1994
Rodman W. Moorhead III
/s/ CARL F. POLLARD
------------------------------------------- Director March 31, 1994
Carl F. Pollard
/s/ CARL E. REICHARDT
------------------------------------------- Director March 31, 1994
Carl E. Reichardt
/s/ FRANK S. ROYAL, M.D.
------------------------------------------- Director March 31, 1994
Frank S. Royal, M.D.
/s/ ROBERT D. WALTER
------------------------------------------- Director March 31, 1994
Robert D. Walter
/s/ WILLIAM T. YOUNG
------------------------------------------- Director March 31, 1994
William T. Young
44
COLUMBIA HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
---------
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements:
Consolidated Statement of Income for the years ended
December 31, 1993, 1992 and 1991........................................................................ F-3
Consolidated Balance Sheet, December 31, 1993 and 1992................................................... F-4
Consolidated Statement of Common Stockholders' Equity for the years ended December 31, 1993, 1992 and
1991.................................................................................................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1993, 1992 and 1991........................................................................ F-6
Notes to Consolidated Financial Statements............................................................... F-7
Quarterly Consolidated Financial Information (Unaudited)................................................. F-21
Financial Statement Schedules (a):
Schedule I -- Marketable Securities -- Other Security Investments, December 31, 1993..................... F-22
Schedule II -- Amounts Receivable From Related Parties and Underwriters, Promoters and Employees Other
Than Related Parties for the years ended December 31, 1993, 1992 and 1991............................... F-23
Schedule V -- Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991......... F-26
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for
the years ended December 31, 1993, 1992 and 1991........................................................ F-27
Schedule VIII -- Valuation and Qualifying Accounts for the years ended December 31, 1993, 1992 and
1991.................................................................................................... F-28
Schedule X -- Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and
1991.................................................................................................... F-29
<FN>
- ------------------------
(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation
We have audited the consolidated financial statements and financial
statement schedules of Columbia Healthcare Corporation listed in the index on
page F-1 of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Columbia
Healthcare Corporation as of December 31, 1993 and 1992, and the consolidated
results of operations and cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
COOPERS & LYBRAND
Louisville, Kentucky
February 28, 1994
F-2
COLUMBIA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991
--------- --------- ---------
Revenues........................................................................... $ 5,130 $ 4,806 $ 4,612
--------- --------- ---------
Salaries, wages and benefits....................................................... 2,217 2,069 2,004
Supplies........................................................................... 842 788 720
Other operating expenses........................................................... 916 833 717
Provision for doubtful accounts.................................................... 282 285 277
Depreciation and amortization...................................................... 298 276 248
Interest expense................................................................... 129 117 111
Investment income.................................................................. (34) (39) (34)
Non-recurring transactions......................................................... 151 138 -
--------- --------- ---------
4,801 4,467 4,043
--------- --------- ---------
Income from continuing operations before minority interests and income taxes....... 329 339 569
Minority interests in earnings of consolidated entities............................ 9 10 9
--------- --------- ---------
Income from continuing operations before income taxes.............................. 320 329 560
Provision for income taxes......................................................... 127 118 202
--------- --------- ---------
Income from continuing operations.................................................. 193 211 358
Discontinued operations:
Income (loss) from operations of discontinued health plan segment, net of income
tax (benefit) of $9 in 1993, ($46) in 1992 and $9 in 1991....................... 16 (108) 16
Costs associated with discontinuance of health plan segment,
net of income tax benefit of $2................................................. - (17) -
Extraordinary loss on extinguishment of debt, net of income tax benefit of $42..... (70) - -
Cumulative effect on prior years of a change in accounting for
income taxes...................................................................... - 51 -
--------- --------- ---------
Net income................................................................... $ 139 $ 137 $ 374
--------- --------- ---------
--------- --------- ---------
Earnings per common share:
Income from continuing operations................................................ $ 1.28 $ 1.45 $ 2.58
Discontinued operations:
Income (loss) from operations of discontinued health plan
segment....................................................................... .10 (.75) .11
Costs associated with discontinuance of health plan segment.................... - (.12) -
Extraordinary loss on extinguishment of debt..................................... (.46) - -
Cumulative effect on prior years of a change in accounting for income taxes...... - .36 -
--------- --------- ---------
Net income................................................................... $ .92 $ .94 $ 2.69
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of
the consolidated financial statements.
F-3
COLUMBIA HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ASSETS
1993 1992
--------- ---------
Current assets:
Cash and cash equivalents................................................................. $ 72 $ 95
Accounts receivable less allowance for loss of $160 -- 1993 and
$166 -- 1992............................................................................. 787 827
Inventories............................................................................... 139 138
Other..................................................................................... 217 204
--------- ---------
1,215 1,264
Property and equipment, at cost:
Land...................................................................................... 273 268
Buildings................................................................................. 2,402 2,269
Equipment................................................................................. 1,785 1,663
Construction in progress (estimated cost to complete and equip after December 31, 1993 --
$149).................................................................................... 121 109
--------- ---------
4,581 4,309
Accumulated depreciation.................................................................. (1,792) (1,651)
--------- ---------
2,789 2,658
Net assets of discontinued operations....................................................... - 376
Investments of professional liability insurance subsidiary.................................. 318 302
Intangible assets........................................................................... 225 195
Other....................................................................................... 72 96
--------- ---------
$ 4,619 $ 4,891
--------- ---------
--------- ---------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 232 $ 199
Salaries, wages and other compensation.................................................... 141 124
Other accrued expenses.................................................................... 375 425
Income taxes.............................................................................. 22 92
Long-term debt due within one year........................................................ 71 32
--------- ---------
841 872
Long-term debt.............................................................................. 1,580 1,256
Deferred credits and other liabilities...................................................... 485 456
Minority interests in equity of consolidated entities....................................... 57 31
Contingencies
Common stockholders' equity:
Common stock $.01 par; authorized 400,000,000 shares; issued and outstanding 151,060,400
shares -- 1993 and 148,927,400 shares -- 1992............................................ 2 1
Capital in excess of par value............................................................ 784 740
Other..................................................................................... (2) (9)
Retained earnings......................................................................... 872 1,544
--------- ---------
1,656 2,276
--------- ---------
$ 4,619 $ 4,891
--------- ---------
--------- ---------
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
COLUMBIA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
-------------- CAPITAL IN
SHARES PAR EXCESS OF RETAINED
(000) VALUE PAR VALUE OTHER EARNINGS TOTAL
------- ----- ---------- ----- -------- ------
Balances, December 31, 1990........................... 136,122 $ 1 $ 523 $ (2) $ 1,314 $1,836
Net income.......................................... 374 374
Cash dividends (Galen Health Care, Inc.)............ (138) (138)
Issuance of common stock............................ 4,310 61 61
Stock options exercised and related tax
benefits, net of 224,000 shares
tendered in partial payment therefor............... 797 24 24
Other............................................... 24 2 9 11
------- ----- ----- ----- -------- ------
Balances, December 31, 1991........................... 141,253 1 610 7 1,550 2,168
Net income.......................................... 137 137
Cash dividends (Galen Health Care, Inc.)............ (143) (143)
Issuance of common stock............................ 7,227 119 119
Stock options exercised and related tax
benefits, net of 30,000 shares
tendered in partial payment therefor............... 430 9 9
Other............................................... 17 2 (16) (14)
------- ----- ----- ----- -------- ------
Balances, December 31, 1992........................... 148,927 1 740 (9) 1,544 2,276
Net income.......................................... 139 139
Cash dividends (Columbia Healthcare Corporation --
$.06 per share).................................... (9) (9)
Stock options exercised and related tax
benefits, net of 81,000 shares
tendered in partial payment therefor............... 1,728 1 30 31
Spinoff transaction with Humana Inc.:
Cash payment to Humana Inc........................ (135) (135)
Noncash transactions:
Issuance of notes payable....................... (250) (250)
Distribution of net investment in
discontinued health plan operations............ (392) (392)
Transfer of a hospital facility................. (25) (25)
Net unrealized gains on investment securities....... 9 9
Other............................................... 405 14 (2) 12
------- ----- ----- ----- -------- ------
Balances, December 31, 1993........................... 151,060 $ 2 $ 784 $ (2) $ 872 $1,656
------- ----- ----- ----- -------- ------
------- ----- ----- ----- -------- ------
The accompanying notes are an integral part of
the consolidated financial statements.
F-5
COLUMBIA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
1993 1992 1991
--------- --------- ---------
Cash flows from continuing operations:
Net income.......................................................................... $ 139 $ 137 $ 374
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations........................................................... (16) 127 (16)
Minority interests in earnings of consolidated entities........................... 9 10 9
Non-recurring transactions........................................................ 151 138 -
Depreciation and amortization..................................................... 298 276 248
Deferred income taxes............................................................. (51) (41) 27
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable...................................... 9 115 (17)
(Increase) decrease in inventories and other assets............................. 1 (49) (28)
Decrease in income taxes........................................................ (50) (12) (15)
Increase (decrease) in other liabilities........................................ (99) 36 82
Change in accounting for income taxes............................................. - (51) -
Extraordinary loss on extinguishment of debt...................................... 112 - -
Other............................................................................. (10) (18) (9)
--------- --------- ---------
Net cash provided by continuing operations...................................... 493 668 655
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................................................. (382) (359) (453)
Acquisition of hospitals and health care facilities................................. (79) (36) (96)
Sale of assets...................................................................... 130 53 116
Investment in discontinued operations............................................... - (71) (76)
Change in investments............................................................... 33 3 (35)
Other............................................................................... (22) (2) (6)
--------- --------- ---------
Net cash used in investing activities........................................... (320) (412) (550)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt.......................................................... 400 239 194
Net change in commercial paper borrowings and lines of credit....................... 342 (143) 161
Repayment of long-term debt......................................................... (779) (150) (354)
Payment to Humana Inc. in spinoff transaction....................................... (135) - -
Payment of cash dividends........................................................... (40) (143) (134)
Issuance of common stock............................................................ 30 7 71
Other............................................................................... (14) (13) (6)
--------- --------- ---------
Net cash used in financing activities........................................... (196) (203) (68)
--------- --------- ---------
Change in cash and cash equivalents................................................... (23) 53 37
Cash and cash equivalents at beginning of period...................................... 95 42 5
--------- --------- ---------
Cash and cash equivalents at end of period............................................ $ 72 $ 95 $ 42
--------- --------- ---------
--------- --------- ---------
Interest payments..................................................................... $ 122 $ 111 $ 114
Income tax payments, net of refunds................................................... 186 169 190
The accompanying notes are an integral part of
the consolidated financial statements.
F-6
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Columbia Healthcare Corporation ("Columbia") is a Delaware corporation which
began operations on September 1, 1993 as a result of a merger involving Columbia
Hospital Corporation ("CHC") and Galen Health Care, Inc. ("Galen") (the "Galen
Merger"). See Note 2 for a description of the specific terms of the Galen
Merger. Columbia primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries or (ii) ownership of
controlling interests in various partnerships in which subsidiaries of Columbia
serve as the managing general partner.
BASIS OF PRESENTATION
The consolidated financial statements include all subsidiaries and
partnerships controlled by Columbia as the managing general partner. Significant
intercompany transactions have been eliminated.
For accounting purposes, the Galen Merger has been treated as a pooling of
interests. Accordingly, the consolidated financial statements included herein
give retroactive effect to the transaction and include the combined operations
of CHC and Galen for all periods presented. In addition, the historical
financial information related to Galen (which prior to the Galen Merger was
reported on a fiscal year ending August 31) has been recast to conform to
Columbia's annual reporting period ending December 31.
On February 10, 1994, Columbia consummated a merger with HCA -- Hospital
Corporation of America ("HCA") (the "HCA Merger"). Although the HCA Merger will
be treated as a pooling of interests for accounting purposes, the accompanying
consolidated financial statements do not give retroactive effect to this
transaction. See Note 3 for a description of the HCA Merger.
REVENUES
Columbia's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which Columbia is paid based upon established charges, cost of providing
services, predetermined rates by diagnosis, fixed per diem rates or discounts
from established charges.
Revenues are recorded at estimated amounts due from patients and third-party
payers for health care services provided, including anticipated settlements
under reimbursement agreements with third-party payers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation expense, computed by the straight-line method, was $279 million
in 1993, $264 million in 1992 and $241 million in 1991. Columbia uses component
depreciation for buildings. Depreciation rates for buildings are equivalent to
useful lives ranging generally from 20 to 25 years. Estimated useful lives of
equipment vary from 3 to 10 years.
F-7
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
On December 31, 1993, Columbia adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which requires that investments in
debt and equity securities be classified according to certain criteria.
INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method over periods ranging from 10 to 40 years. Noncompete
agreement and debt issuance costs are amortized based upon the lives of the
respective contracts or loans.
PROFESSIONAL LIABILITY INSURANCE CLAIMS
Provisions for loss for professional liability risks are based upon
actuarially determined estimates. To the extent that subsequent claims
information varies from management's estimates, earnings are charged or
credited.
MINORITY INTERESTS IN CONSOLIDATED ENTITIES
The consolidated financial statements include all assets, liabilities and
earnings of Columbia's partnerships, certain partnership interests of which are
not owned by Columbia. Accordingly, management has recorded minority interests
in the earnings and equity of such partnerships.
EARNINGS PER COMMON SHARE
Earnings per common share are based upon the weighted average number of
common shares outstanding, retroactively adjusted for the exchange of common
shares in connection with the Galen Merger.
Shares used in computing earnings per common share in 1993 were 150,017,000.
The following is a summary of shares used in the computation for periods prior
to the Galen Merger (amounts in thousands):
1992 1991
--------- ---------
CHC weighted average shares outstanding.......................................... 21,967 16,540
--------- ---------
Galen weighted average shares outstanding........................................ 158,620 157,931
Merger exchange ratio............................................................ 0.775 0.775
--------- ---------
Adjusted Galen weighted average shares outstanding............................. 122,930 122,396
--------- ---------
Shares used in computation of earnings per common share.......................... 144,897 138,936
--------- ---------
--------- ---------
NOTE 2 -- GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the
Galen Merger, effective as of September 1, 1993. In connection with the Galen
Merger, CHC, a Nevada corporation, was merged into Columbia. Each CHC share of
common stock was converted on a tax-free basis into one share of Columbia common
stock. Immediately subsequent thereto, a wholly owned subsidiary of Columbia was
merged into Galen, at which time Galen became a wholly owned subsidiary of
Columbia. In connection with this transaction, Columbia issued approximately
123,830,000 shares of common stock in a tax-free exchange for all of the
outstanding common shares of Galen (an exchange ratio of 0.775 of a share of
Columbia common stock for each share of Galen common stock).
F-8
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- GALEN MERGER (CONTINUED)
The Galen Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the combined operations of CHC and Galen for all periods presented. The
following is a summary of the results of operations of the separate entities for
periods prior to the Galen Merger (dollars in millions):
CHC GALEN COMBINED
--------- --------- -----------
Eight months ended August 31, 1993 (unaudited):
Revenues...................................................... $ 823 $ 2,600 $ 3,423
Income from continuing operations............................. 17 176 193
Net income.................................................... 17 192 209
1992:
Revenues...................................................... $ 819 $ 3,987 $ 4,806
Income from continuing operations............................. 26 185 211
Net income.................................................... 26 111 137
1991:
Revenues...................................................... $ 499 $ 4,113 $ 4,612
Income from continuing operations............................. 15 343 358
Net income.................................................... 15 359 374
NOTE 3 -- HCA MERGER
On October 2, 1993, Columbia entered into a definitive agreement to merge
with HCA. This transaction was completed on February 10, 1994. In connection
with the HCA Merger, Columbia stockholders approved an amendment to Columbia's
Certificate of Incorporation changing the name of the corporation to
Columbia/HCA Healthcare Corporation ("Columbia/HCA"). HCA was then merged into a
wholly owned subsidiary of Columbia/HCA. Shares of HCA Class A voting common
stock and Class B nonvoting common stock were converted on a tax-free basis into
approximately 166,846,000 shares of Columbia/HCA voting common stock and
approximately 18,990,000 shares of Columbia/HCA nonvoting common stock,
respectively (an exchange ratio of 1.05 shares of Columbia/ HCA common stock for
each share of HCA voting and nonvoting common stock).
These financial statements do not give retroactive effect to the HCA Merger,
which will be accounted for as a pooling of interests. See the Supplemental
Consolidated Financial Statements of Columbia/HCA Healthcare Corporation
included elsewhere herein for additional information regarding the HCA Merger.
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS
Prior to the Galen Merger, Galen began operating its hospital business as an
independent publicly held corporation on March 1, 1993 as a result of a tax-free
spinoff transaction (the "Spinoff") by Humana Inc. ("Humana"), which retained
its managed care health plan business. The Spinoff separated Humana's previously
integrated hospital and managed care health plan businesses and was effected
through the distribution of Galen common stock to then current Humana common
stockholders on a one-for-one basis.
For accounting purposes, because of the relative significance of the
hospital business, the pre-Spinoff consolidated financial statements of Galen
(and now those of Columbia) include the separate results of Humana's hospital
business, while the operations and net assets of Humana's managed care health
plans have been classified as discontinued operations.
F-9
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED)
In connection with the Spinoff, Galen entered into various agreements with
Humana which were intended to facilitate orderly changes for both the hospital
and managed care health plan businesses in a way which would be minimally
disruptive to each entity. Principal contracts are summarized below:
OPERATIONS -- Certain former Galen hospitals will provide medical services
to insureds of Humana for three years subsequent to the Spinoff. The contract
includes, among other things, established payment rates for various inpatient
and outpatient services and annual increases therein, and hospital utilization
guarantees and related penalties.
LIABILITIES AND INDEMNIFICATION -- Each entity assumed liability for
specified claims. The entities will also share risks with respect to certain
litigation and other contingencies, both identified and unknown.
INCOME TAXES -- Each entity entered into risk-sharing arrangements in
connection with the ultimate resolution of various income tax disputes.
FINANCING -- In January 1993 certain subsidiaries issued $250 million of
notes payable to Humana, and paid to Humana $135 million in cash on March 1,
1993 which was financed principally through the issuance of commercial paper.
The $250 million of notes were repaid in September 1993 in connection with the
refinancing of certain long-term debt.
ADMINISTRATION -- These arrangements relate to leasing of certain
administrative facilities, division of information systems, employee benefit and
stock option plans, and various administrative service arrangements.
Revenues of the discontinued managed care health plan business (included in
discontinued operations in the accompanying consolidated statement of income)
were $523 million in 1993, $2.9 billion in 1992 and $2.5 billion in 1991.
NOTE 5 -- NON-RECURRING TRANSACTIONS
In September 1993 Columbia recorded the following charges in connection with
the Galen Merger (dollars in millions):
Investment advisory and professional fees, and employee benefit plan costs... $ 62
Writedown of assets in connection with the consolidation of the combined
entity's operations......................................................... 63
Administrative facility asset writedowns and conversion costs associated with
the transaction............................................................. 16
Provision for loss on planned sales of assets................................ 10
---------
$ 151
---------
---------
Income from continuing operations in 1992 includes $138 million of charges
incurred primarily in connection with the Spinoff, including a provision for
loss on the planned sale of hospitals, writedowns of assets in markets with
significant declines in operations, administrative facility asset writedowns and
certain other costs associated with the separation of the hospital and health
plan businesses. Costs aggregating $171 million (before income taxes) incurred
by Humana primarily in connection with the Spinoff are included in discontinued
operations in 1992.
Continuing operations in 1991 include a gain of $51 million on the sale of a
hospital, a provision for loss of $46 million primarily in connection with the
planned disposition of certain hospitals, and charitable contributions of $5
million.
F-10
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- OTHER BUSINESS COMBINATIONS
During the past three years, Columbia has acquired various hospitals and
related ancillary health care facilities (or controlling interests in such
facilities), all of which have been accounted for by the purchase method.
Accordingly, the aggregate purchase price of these transactions has been
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based upon their respective fair values. The consolidated
financial statements include the operations of acquired entities since the
respective acquisition dates.
The following is a summary of acquisitions consummated during the last three
years (dollars in millions):
1993 1992 1991
--------- --------- ---------
Number of hospitals.................................................... 3 15 2
Number of licensed beds................................................ 903 2,345 1,420
Purchase price information:
Fair value of assets acquired........................................ $ 164 $ 490 $ 165
Liabilities assumed.................................................. (76) (279) (48)
--------- --------- ---------
Net assets acquired................................................ 88 211 117
--------- --------- ---------
Issuance of common stock............................................. - 119 1
Cash acquired........................................................ 9 15 15
Cash received from sale of certain acquired assets................... - 40 -
Other................................................................ - 1 5
--------- --------- ---------
9 175 21
--------- --------- ---------
Net cash paid for acquisitions..................................... $ 79 $ 36 $ 96
--------- --------- ---------
--------- --------- ---------
In July 1992 Columbia acquired Basic American Medical, Inc. ("BAMI")
(included in the table above) through a merger into a wholly owned subsidiary.
The assets of BAMI included eight hospitals containing 1,203 licensed beds and
certain other health care businesses. The transaction was financed through the
assumption of approximately $140 million of long-term debt, issuance of
6,995,000 shares of common stock and payment of $38 million in cash to BAMI
stockholders.
The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $7 million in 1993, $97 million in 1992
and $19 million in 1991.
The pro forma effect of Columbia's acquisitions on its results of operations
was not significant.
NOTE 7 -- INCOME TAXES
Provision for income taxes consists of the following (dollars in millions):
1993 1992 1991
--------- --------- ---------
Current:
Federal.............................................................. $ 153 $ 135 $ 151
State................................................................ 25 24 24
--------- --------- ---------
178 159 175
--------- --------- ---------
Deferred:
Federal.............................................................. (47) (36) 19
State................................................................ (4) (5) 8
--------- --------- ---------
(51) (41) 27
--------- --------- ---------
$ 127 $ 118 $ 202
--------- --------- ---------
--------- --------- ---------
F-11
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Reconciliation of federal statutory rate to effective income tax rate
follows:
1993 1992 1991
--------- --------- ---------
Federal statutory rate................................................... 35.0% 34.0% 34.0%
State income taxes, net of federal income
tax benefit............................................................. 3.5 2.9 2.8
Merger costs............................................................. 1.8 - -
Tax exempt investment income............................................. (1.3) (1.4) (0.6)
Other items, net......................................................... 0.6 0.3 (0.2)
--------- --------- ---------
Effective income tax rate................................................ 39.6% 35.8% 36.0%
--------- --------- ---------
--------- --------- ---------
In August 1993 Congress enacted the Omnibus Budget Reconciliation Act of
1993 which included, among other things, an increase in corporate income tax
rates retroactive to January 1, 1993. This legislation had no material effect on
1993 net income.
Effective January 1, 1992, Columbia adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires, among other things, recognition of deferred income taxes using
statutory rates at which temporary differences in the tax and book bases of
assets and liabilities are expected to affect taxable income in future years.
The cumulative effect of this change as of the beginning of the year increased
1992 net income by $51 million.
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31, 1993 and 1992 follows (dollars in millions):
1993 1992
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
Depreciation.................................................. $ - $ 316 $ - $ 297
Professional liability risks.................................. 99 - 109 -
Doubtful accounts............................................. 30 - 32 -
Property losses............................................... 63 - 48 -
Cash basis.................................................... - 5 - 18
Compensation.................................................. 24 - 18 -
Capitalized leases............................................ 11 - 12 -
Other......................................................... 57 7 32 2
--------- ----- --------- -----
$ 284 $ 328 $ 251 $ 317
--------- ----- --------- -----
--------- ----- --------- -----
Management believes that the deferred tax assets in the table above will
ultimately be realized. Management's conclusion is based primarily on its
expectation of future taxable income and the existence of sufficient taxable
income within the allowable carryback periods to realize the tax benefits of
deductible temporary differences recorded at December 31, 1993.
Deferred income taxes totaling $119 million and $96 million at December 31,
1993 and 1992, respectively, are included in other current assets. Noncurrent
deferred income taxes, included in deferred credits and other liabilities,
totaled $163 million and $162 million at December 31, 1993 and 1992,
respectively.
F-12
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS
Columbia insures a substantial portion of its professional liability risks
through a wholly owned insurance subsidiary. Provisions for such risks
underwritten by the subsidiary and deductibles at certain hospitals, including
expenses incident to claim settlements, were $64 million for 1993 and $58
million for both 1992 and 1991. Amounts approximating the provision for loss are
funded annually.
Allowances for professional liability risks, included principally in
deferred credits and other liabilities, were $327 million and $290 million at
December 31, 1993 and 1992, respectively.
As discussed in Note 1, Columbia adopted the provisions of SFAS 115 on
December 31, 1993. Accordingly, common stockholders' equity was increased by $9
million (net of deferred income taxes) to reflect the net unrealized gain on
investments classified as available for sale. Prior to the adoption of SFAS 115,
debt securities were recorded at amortized cost (which approximated fair value),
while equity securities were recorded at the lower of aggregate cost or fair
value. The adoption of SFAS 115 had no effect on earnings in 1993.
The provisions of SFAS 115 require that investments in debt and equity
securities be classified according to the following criteria:
TRADING ACCOUNT -- Assets held for resale in anticipation of short-term
changes in market conditions are recorded at fair value and gains and losses,
both realized and unrealized, are included in income. Columbia does not maintain
a trading account portfolio.
HELD TO MATURITY -- Certain debt securities of Columbia's professional
liability insurance subsidiary are expected to be held to maturity as a result
of management's intent and ability to do so. These investments are carried at
amortized cost.
AVAILABLE FOR SALE -- Debt and equity securities not classified as either
trading securities or held to maturity are classified as available for sale and
recorded at fair value. Unrealized gains and losses are excluded from income and
recorded as a separate component of common stockholders' equity.
F-13
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The following is a summary of the insurance subsidiary's investments at
December 31, 1993 and 1992 (dollars in millions):
DECEMBER 31, 1993
------------------------------------------
UNREALIZED AMOUNTS
-------------------- FAIR
COST GAINS LOSSES VALUE
--------- --------- --------- ---------
Held to maturity:
United States Government obligations.............................. $ 44 $ - $ - $ 44
--------- --------- --------- ---------
Available for sale:
Bonds:
United States Government........................................ 16 1 - 17
States and municipalities....................................... 143 4 - 147
Mortgage-backed securities...................................... 47 1 - 48
Corporate and other............................................. 23 1 - 24
Redeemable preferred stocks....................................... 17 1 - 18
--------- --------- --------- ---------
246 8 - 254
--------- --------- --------- ---------
Equity securities:
Adjustable rate preferred stocks................................ 13 1 - 14
Common stocks................................................... 59 6 (1) 64
--------- --------- --------- ---------
72 7 (1) 78
--------- --------- --------- ---------
$ 362 $ 15 $ (1) 376
--------- --------- ---------
--------- --------- ---------
Amounts classified as current assets................................ (58)
---------
Investment carrying value........................................... $ 318
---------
---------
F-14
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
DECEMBER 31, 1992
------------------------------------------
UNREALIZED AMOUNTS
-------------------- FAIR
COST GAINS LOSSES VALUE
--------- --------- --------- ---------
Held to maturity:
United States Government obligations.............................. $ 19 $ - $ - $ 19
Certificates of deposit........................................... 20 - - 20
--------- --------- --------- ---------
39 - - 39
--------- --------- --------- ---------
Available for sale:
Bonds:
United States Government........................................ 22 1 - 23
States and municipalities....................................... 102 2 - 104
Mortgage-backed securities...................................... 55 - - 55
Corporate and other............................................. 25 2 - 27
Redeemable preferred stocks....................................... 18 - - 18
--------- --------- --------- ---------
222 5 - 227
--------- --------- --------- ---------
Equity securities:
Adjustable rate preferred stocks................................ 20 1 - 21
Common stocks................................................... 66 6 (4) 68
--------- --------- --------- ---------
86 7 (4) 89
--------- --------- --------- ---------
347 $ 12 $ (4) $ 355
--------- --------- ---------
--------- --------- ---------
Amounts classified as current assets................................ (45)
---------
Investment carrying value........................................... $ 302
---------
---------
The cost and estimated fair value of debt and equity securities at December
31, 1993 by contractual maturity are shown below (dollars in millions). Expected
and contractual maturities will differ because the issuers of certain securities
may have the right to prepay or otherwise redeem such obligations without
penalty.
FAIR
COST VALUE
----------- ---------
Held to maturity:
Due in one year or less......................................................... $ 44 $ 44
----- ---------
Available for sale:
Due in one year or less......................................................... 14 14
Due after one year through five years........................................... 45 47
Due after five years through ten years.......................................... 78 81
Due after ten years............................................................. 109 112
----- ---------
246 254
Equity securities............................................................... 72 78
----- ---------
318 332
----- ---------
$ 362 $ 376
----- ---------
----- ---------
The fair value of the subsidiary's investments is based generally on quoted
market prices.
F-15
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The average life of the above investments (excluding common stocks)
approximated four years at December 31, 1993 and three years at December 31,
1992, and the tax equivalent yield on such investments averaged 9% for the last
three years. Tax equivalent yield is the rate earned on invested assets,
excluding unrealized gains and losses, adjusted for the benefit of nontaxable
investment income.
Sales of securities for the year ended December 31, 1993 are summarized
below (dollars in millions):
TYPE OF SECURITY
------------------------
DEBT EQUITY
----------- -----------
Cash proceeds..................................................................... $ 70 $ 67
Gross realized gains.............................................................. 2 8
Gross realized losses............................................................. - 7
NOTE 9 -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in millions):
1993 1992
--------- ---------
Senior collateralized debt, 5% to 13.8% (rates generally fixed) payable in periodic
installments through 2034......................................................... $ 136 $ 338
6 1/8% Notes due 2000.............................................................. 149 -
7 1/2% Notes due 2023.............................................................. 147 -
10 7/8% Senior Subordinated Notes due 2002......................................... 2 99
11 1/2% Senior Subordinated Notes due 2002......................................... 1 134
Other senior debt, 8% to 13.3% (rates generally fixed) payable in periodic
installments through 1998......................................................... 194 132
Commercial paper (rates fixed under interest rate agreements averaging four years
at 7.9%).......................................................................... 380 380
Commercial paper (floating rates averaging 3.4%)................................... 495 153
Bank line of credit (floating rates averaging 3.6%)................................ 100 -
9% Subordinated Mandatory Convertible Note due 1999................................ 40 40
Other subordinated debt, 10% to 15% (rates generally fixed) payable
in periodic installments through 2000............................................. 7 12
--------- ---------
Total debt, average life of five years (rates averaging 5.3%)...................... 1,651 1,288
Amounts due within one year........................................................ 71 32
--------- ---------
Long-term debt..................................................................... $ 1,580 $ 1,256
--------- ---------
--------- ---------
Borrowings under the commercial paper programs are classified as long-term
debt due to the credit available under the revolving credit agreements discussed
below and management's intention to refinance these borrowings on a long-term
basis.
Maturities of long-term debt (including maturities of short-term debt
supported by the revolving credit agreements) in years 1995 through 1998 are $73
million, $13 million, $32 million and $1.1 billion, respectively. Approximately
10% of Columbia's property and equipment is pledged on senior collateralized
debt.
During the past three years Columbia has reduced interest costs and
eliminated certain restrictive covenants by refinancing or prepaying high
interest rate debt, primarily through the use of
F-16
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
existing cash and cash equivalents and issuance of long-term debt and commercial
paper. Amounts refinanced or prepaid totaled $787 million in 1993, $116 million
in 1992 and $275 million in 1991. After-tax losses from refinancing activities
in 1993 aggregated $70 million or $.46 per share.
In February 1994 Columbia entered into revolving credit agreements (the
"Credit Facilities") in the aggregate amount of $3 billion. The Credit
Facilities comprise a four-year $1 billion revolving credit agreement and a
364-day $2 billion revolving credit agreement. The Credit Facilities were
established to support Columbia's commercial paper programs and replace $3.2
billion of prior revolving credit agreements associated with HCA ($1.6 billion)
and Columbia ($1.6 billion). Interest is payable generally at either LIBOR plus
1/4% to 1/2% (depending on Columbia's credit rating), or the higher of prime,
the bank certificate of deposit rate plus 1% or the Federal Funds rate plus
1/2%.
In December 1993 Columbia issued $150 million of 6 1/8% Notes due 2000 and
$150 million of 7 1/2% Notes due 2023.
During 1992 Columbia sold $100 million face amount of 10 7/8% Senior
Subordinated Notes due 2002 and $135 million face amount of 11 1/2% Senior
Subordinated Notes due 2002. In September 1993 Columbia retired $232 million
face amount of these notes through the completion of a tender offer.
In connection with the acquisition of BAMI in 1992, Columbia assumed
approximately $140 million of long-term debt, including approximately $64
million of senior collateralized notes payable in quarterly installments through
1998 at interest rates ranging from 10.7% to 11.7%. In September 1993 Columbia
effected the defeasance of these notes.
In 1991 one of Columbia's partnerships issued $95 million of 11.45% Senior
Secured Notes due 2001. Proceeds from the issuance were used to repay $66
million of bank debt and finance expansion. These notes were retired in
connection with Columbia's refinancing of debt in September 1993. Columbia also
issued in 1991 a $40 million face amount 9% Subordinated Mandatory Convertible
Note due 1999. The note is convertible at the option of the holder into Columbia
common stock at a price of $18.50 per share (adjusted for stock splits,
recapitalizations and reorganizations). The note will be automatically converted
into common stock if the average per share market price for four months
preceding the July 1 anniversary exceeds a specified amount ranging from $27.00
in 1994 to $34.00 in 1996.
Columbia's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
The estimated fair value of Columbia's long-term debt was $1.7 billion and
$1.46 billion at December 31, 1993 and 1992, respectively, compared to carrying
amounts aggregating $1.65 billion and $1.29 billion. Certain subsidiaries of
Columbia have entered into agreements which reduce the impact of changes in
interest rates on $380 million of floating rate long-term debt. At December 31,
1993 and 1992, the fair value of Columbia's net payable position under these
agreements (included in the aggregate fair value amounts above) totaled $34
million and $29 million, respectively. The estimate of fair value is based upon
the quoted market prices for the same or similar issues of long-term debt, or on
rates available to Columbia as a result of the Galen Merger for debt of the same
remaining maturities.
As discussed in Note 4, in connection with the Spinoff, certain subsidiaries
issued notes payable ($250 million) and paid cash ($135 million financed
primarily through the issuance of commercial paper) to Humana in 1993. If the
Spinoff had occurred on December 31, 1992, Columbia's ratio of debt to debt plus
common stockholders' equity would have increased from 36% to 53%.
F-17
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- LEASES
Columbia leases real estate and equipment under cancelable and
non-cancelable arrangements. Future minimum payments under non-cancelable
operating leases are as follows (dollars in millions):
1994......................................................................... $ 50
1995......................................................................... 43
1996......................................................................... 34
1997......................................................................... 31
1998......................................................................... 21
Thereafter................................................................... 127
Rent expense aggregated $79 million, $82 million and $72 million for the
years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 11 -- CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for loss have been provided to the
extent necessary and that its assessment of contingencies is reasonable.
Management believes that resolution of contingencies will not materially affect
Columbia's financial position or results of operations.
Principal contingencies are described below:
REVENUES -- Certain third-party payments are subject to examination by
agencies administering the programs. Columbia is contesting certain issues
raised in audits of prior year cost reports.
PROFESSIONAL LIABILITY RISKS -- Columbia has provided for loss for
professional liability risks based upon actuarially determined estimates. Actual
settlements and expenses incident thereto may differ from the provisions for
loss.
INTEREST RATE AGREEMENTS -- Certain subsidiaries of Columbia are parties to
agreements which reduce the impact of changes in interest rates on its floating
rate long-term debt. In the event of nonperformance by other parties to these
agreements, Columbia may incur a loss on the difference between market rates and
contract rates.
INCOME TAXES -- Columbia is contesting adjustments proposed by the Internal
Revenue Service for years 1987 through 1989.
SPINOFF -- Certain subsidiaries of Columbia are parties to risk-sharing
arrangements with Humana.
LITIGATION -- Various suits and claims arising in the ordinary course of
business are pending against Columbia.
F-18
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL STOCK
The following shares of common stock were reserved at December 31, 1993
(amounts in thousands):
Stock option plans......................................................... 4,139
Retirement and savings plans............................................... 5,285
Other...................................................................... 2,853
---------
12,277
---------
---------
Columbia has plans under which options to purchase common stock may be
granted to officers, employees and directors. Options have been granted at not
less than market price on the date of grant. Exercise provisions vary, but most
options are exercisable in whole or in part beginning one to four years after
grant and ending four to ten years after grant. Activity in the plans is
summarized below (share amounts in thousands):
SHARES
UNDER OPTION PRICE
OPTION PER SHARE
--------- --------------------
Balances, December 31, 1990............................................. 3,631 $7.21 to $37.00
Granted............................................................... 1,188 11.75 to 25.24
Exercised............................................................. (1,021) 7.21 to 23.37
Cancelled or lapsed................................................... (51) 8.50 to 37.00
---------
Balances, December 31, 1991............................................. 3,747 8.23 to 25.71
Granted............................................................... 758 15.00 to 22.62
Conversion of BAMI stock options...................................... 466 3.18 to 11.59
Exercised............................................................. (460) 3.18 to 17.25
Cancelled or lapsed................................................... (74) 8.50 to 23.37
---------
Balances, December 31, 1992............................................. 4,437 3.18 to 25.71
Granted............................................................... 982 19.50 to 33.38
Exercised............................................................. (1,835) 3.18 to 23.37
Cancelled or lapsed................................................... (152) 3.18 to 25.71
---------
Balances, December 31, 1993............................................. 3,432 $3.18 to $33.38
---------
---------
At December 31, 1993, options for 2,028,900 shares were exercisable. Shares
of common stock available for future grants were 707,300 at December 31, 1993
and 2,721,000 at December 31, 1992.
In connection with the Galen Merger, Columbia redeemed certain preferred
stock purchase rights previously issued to Galen common stockholders. The cost
of this transaction was not significant. In addition, Columbia adopted a
stockholder rights plan (similar to that of Galen) upon consummation of the
Galen Merger under which common stockholders have the right to purchase Series A
Preferred Stock in the event of accumulation of or tender offer for certain
percentages of Columbia's common stock. The rights will expire in 2003 unless
redeemed earlier by Columbia.
In September 1993 the Board of Directors initiated a regular quarterly cash
dividend on common stock of $.03 per share.
In connection with the HCA Merger, Columbia stockholders voted to increase
the aggregate number of authorized voting shares of common stock from 400
million to 800 million, and the number of authorized nonvoting shares of common
stock was established at 25 million. In addition, authorized shares of preferred
stock (none of which are outstanding) were increased from 10 million to 25
million.
F-19
COLUMBIA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- EMPLOYEE BENEFIT PLANS
Certain subsidiaries of Columbia maintain a noncontributory defined
contribution retirement plan covering substantially all Columbia employees.
Benefits are determined as a percentage of a participant's earned income and are
vested annually. Retirement plan expense was $40 million for 1993, $37 million
for 1992 and $34 million for 1991. Amounts equal to retirement plan expense are
funded annually.
Columbia maintains various contributory savings plans which are available to
employees who meet certain minimum requirements. The plans require that Columbia
match an amount ranging from 50% to 60% of a participant's contribution up to
certain maximum levels. The cost of these plans totaled $20 million for 1993,
$19 million for 1992 and $15 million for 1991. Columbia contributions are funded
periodically during the year.
NOTE 14 -- ACCRUED EXPENSES
The following is a summary of other accrued expenses at December 31 (dollars
in millions):
1993 1992
--------- ---------
Workers' compensation................................................................... $ 82 $ 70
Taxes other than income................................................................. 73 51
Professional liability risks............................................................ 54 45
Retirement plan......................................................................... 15 48
Dividends............................................................................... 5 36
Interest................................................................................ 33 37
Other................................................................................... 113 138
--------- ---------
$ 375 $ 425
--------- ---------
--------- ---------
F-20
COLUMBIA HEALTHCARE CORPORATION
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993
----------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
Revenues................................................... $1,329 $1,262 $1,238 $1,301
Net income (loss):
Continuing operations (a)................................ 90 70 (45) 78
Discontinued operations.................................. 16 - - -
Extraordinary loss on extinguishment of debt............. - - (70) -
Net income (loss).................................... 106 70 (115) 78
Per common share:
Earnings (loss):
Continuing operations (a).............................. .61 .46 (.31) .52
Discontinued operations................................ .10 - - -
Extraordinary loss on extinguishment of debt........... - - (.46) -
Net income (loss).................................... .71 .46 (.77) .52
Market prices (b):
High................................................... 24 1/2 27 3/4 31 33 7/8
Low.................................................... 16 1/4 19 1/4 25 3/8 27
1992
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
Revenues................................................... $ 1,227 $ 1,163 $ 1,182 $ 1,234
Net income (loss):
Continuing operations.................................... 97 73 (32) 73
Discontinued operations.................................. 3 (2) (132) 6
Change in accounting for income taxes.................... 51 - - -
Net income (loss) (c)................................ 151 71 (164) 79
Per common share:
Earnings (loss):
Continuing operations.................................. .69 .51 (.24) .49
Discontinued operations................................ .02 (.01) (.93) .05
Change in accounting for income taxes.................. .36 - - -
Net income (loss) (c)................................ 1.07 .50 (1.17) .54
Market prices (b):
High................................................... 21 1/4 22 19 1/4 21 3/4
Low.................................................... 16 1/2 16 1/4 16 1/4 13 3/4
<FN>
- ------------------------
(a) Third quarter loss includes $98 million ($.67 per share) of costs related
to the Galen Merger. See Note 5 of the Notes to Consolidated Financial
Statements.
(b) Represents high and low sales prices of CHC common stock for periods prior
to the Galen Merger. Columbia common stock is traded on the New York Stock
Exchange (ticker symbol -- COL).
(c) Third quarter net loss includes $221 million ($1.54 per share) related
primarily to the Spinoff, of which $86 million ($.60 per share) is
included in continuing operations and $135 million ($.94 per share) is
included in discontinued operations. See Note 5 of the Notes to
Consolidated Financial Statements.
F-21
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER SECURITY INVESTMENTS
DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
AMOUNT AT WHICH
EACH PORTFOLIO OF
NUMBER OF SHARES EQUITY SECURITY
OR UNITS -- MARKET VALUE OF ISSUE AND EACH
PRINCIPAL AMOUNT EACH ISSUE AT OTHER SECURITY
OF BONDS AND COST OF EACH BALANCE SHEET ISSUE CARRIED IN
NAME OF ISSUER AND TITLE OF EACH ISSUE NOTES ISSUE DATE THE BALANCE SHEET
- -------------------------------------------------- ----------------- ------------- --------------- -------------------
Short-term investments of professional liability
insurance subsidiary (a):
United States Government and government agency
obligations.................................... $ 44 $ 44 $ 44 $ 44
State and municipal obligations................. $ 14 14 14 14
----- ----- -----
$ 58 $ 58 $ 58
----- ----- -----
----- ----- -----
Long-term investments:
United States Government and government agency
bonds.......................................... $ 17 $ 16 $ 17 $ 17
State and municipal bonds....................... $ 139 129 133 133
Mortgage-backed securities...................... $ 46 47 48 48
Corporate and other bonds....................... $ 22 23 24 24
Redeemable preferred stocks..................... 17 18 18
Adjustable rate preferred stocks................ 13 14 14
Common stocks................................... 59 64 64
----- ----- -----
Investments of professional liability
insurance subsidiary......................... $ 304 $ 318 $ 318
----- ----- -----
----- ----- -----
<FN>
- ------------------------
(a) Included in current assets.
F-22
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT END
OF PERIOD
BALANCE AT ----------------------
BEGINNING AMOUNTS NOT
OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT
----------- ----------- ----------- ----------- ---------
Year ended December 31, 1991:
Mark Aanonson............................................ $ 46 $ (46)
James Bohanon............................................ 200 (200)
James Bohanon............................................ 16 (16)
Daniel Brothman.......................................... 135 $ 135
Craig Cooper............................................. 170 (120) 50
William Heburn........................................... $ 558 $ 558
Gary Hill................................................ 50 (50)
Samuel Holtzman.......................................... 120 20 100
Ronald Hytoff............................................ 106 (4) 102
Ira Korman............................................... 50 (50)
Ira Korman............................................... 30 (30)
Ruben Perez.............................................. 884 (144) 740
Doris Porth.............................................. 135 135
George Schneider......................................... 148 (1) 1 146
George Schneider......................................... 550 550
George Schneider......................................... 150 150
Russell Schneider........................................ 764 3 (158) 609
Donald Stewart........................................... 100 (100)
Donald Stewart........................................... 3 3
Charles Stokes........................................... 75 75
Charles Stokes........................................... 40 (1) 39
Charles Stokes........................................... 100 100
----------- ----- ----------- ----- ---------
$ 3,502 $ 931 $ (920) $ 579 $ 2,934
----------- ----- ----------- ----- ---------
----------- ----- ----------- ----- ---------
F-23
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT
BALANCE AT END OF PERIOD
BEGINNING AMOUNTS ------------------------
OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
----------- ----------- --------- ----------- -----------
Year ended December 31, 1992:
Daniel Brothman........................................... $ 135 $ 135
Craig Cooper.............................................. 50 $ (50)
William Heburn............................................ 558 (558)
Gary Hill................................................. $ 127 $ 127
Samuel Holtzman........................................... 120 (20) 100
Ronald Hytoff............................................. 102 (102)
Ruben Perez............................................... 740 (740)
Doris Porth............................................... 135 135
George Schneider.......................................... 147 (147)
George Schneider.......................................... 550 (550)
George Schneider.......................................... 150 (150)
Russell Schneider......................................... 609 (609)
Donald Stewart............................................ 100 100
Donald Stewart............................................ 3 (3)
Charles Stokes............................................ 75 (75)
Charles Stokes............................................ 39 (39)
Charles Stokes............................................ 100 (100)
----------- ----- --------- ----- -----
$ 3,513 $ 227 $ (3,143) $ 127 $ 470
----------- ----- --------- ----- -----
----------- ----- --------- ----- -----
F-24
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT
BALANCE AT END OF PERIOD
BEGINNING AMOUNTS -------------------------
OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
----------- ----------- ----------- ----------- ------------
Year ended December 31, 1993:
Daniel Brothman......................................... $ 135 $ 135(a)
Gary Hill............................................... 127 $ (127)
Samuel Holtzman......................................... 100 100(a)
Doris Porth............................................. 135 135(a)
Donald Stewart.......................................... 100 100(a)
----- ----------- ----------- ----------- -----
$ 597 $ - $ (127) $ - $ 470
----- ----------- ----------- ----------- -----
----- ----------- ----------- ----------- -----
<FN>
- ------------------------
(a) Noninterest bearing; generally collateralized by deed of trust on personal
residence; payable either in periodic installments or upon termination of
employment, sale of residence or default on any collateralized instrument
having priority over Columbia's deed of trust.
F-25
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
BALANCE AT BALANCE
BEGINNING ADDITIONS RETIREMENTS TRANSLATION AT END
OF PERIOD AT COST OR SALES ADJUSTMENTS OTHER OF PERIOD
----------- ----------- ------------- ------------- ------------- -----------
Year ended December 31, 1991:
Land..................................... $ 221 $ 25 $ (8) $ - $ - $ 238
Buildings................................ 1,973 220 (56) (3) (31)(a) 2,103
Equipment................................ 1,333 262 (68) (2) - 1,525
Construction in progress................. 86 37 (1) - - 122
----------- ----- ------ ------ ------ -----------
$ 3,613 $ 544 $ (133) $ (5) $ (31) $ 3,988
----------- ----- ------ ------ ------ -----------
----------- ----- ------ ------ ------ -----------
Year ended December 31, 1992:
Land..................................... $ 238 $ 37 $ (5) $ (1) $ (1)(b) $ 268
Buildings................................ 2,103 301 (24) (13) (98)(b) 2,269
Equipment................................ 1,525 238 (67) (6) (27)(b) 1,663
Construction in progress................. 122 (12) (1) - - 109
----------- ----- ------ ------ ------ -----------
$ 3,988 $ 564 $ (97) $ (20) $ (126) $ 4,309
----------- ----- ------ ------ ------ -----------
----------- ----- ------ ------ ------ -----------
Year ended December 31, 1993:
Land..................................... $ 268 $ 14 $ (9) $ - $ - $ 273
Buildings................................ 2,269 300 (133) (1) (33)(c) 2,402
Equipment................................ 1,663 263 (119) (1) (21)(c) 1,785
Construction in progress................. 109 15 (2) - (1)(c) 121
----------- ----- ------ ------ ------ -----------
$ 4,309 $ 592 $ (263) $ (2) $ (55) $ 4,581
----------- ----- ------ ------ ------ -----------
----------- ----- ------ ------ ------ -----------
<FN>
- ------------------------
(a) During the third quarter of 1991, Columbia provided for the estimated
costs and expenses associated with the planned disposition of certain
hospitals.
(b) During the third quarter of 1992, Columbia provided for the estimated
costs and expenses associated with the planned disposition of certain
hospitals, recorded writedowns of assets in markets with significant
declines in operations and wrote off assets destroyed by Hurricane Andrew.
(c) During the third quarter of 1993, Columbia recorded provisions for loss in
connection with the Galen Merger, including writedowns of assets in
connection with the consolidation of operations and expected losses on the
sale of certain assets.
F-26
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND RETIREMENTS TRANSLATION AT END
OF PERIOD EXPENSES OR SALES ADJUSTMENTS OF PERIOD
----------- ------------- ------------- ------------- -----------
Year ended December 31, 1991:
Buildings........................................ $ 603 $ 96 $ (25) $ (1) $ 673
Equipment........................................ 691 145 (48) (1) 787
----------- ----- ------ ----- -----------
$ 1,294 $ 241 $ (73) $ (2) $ 1,460
----------- ----- ------ ----- -----------
----------- ----- ------ ----- -----------
Year ended December 31, 1992:
Buildings........................................ $ 673 $ 103 $ (14) $ (4) $ 758
Equipment........................................ 787 161 (52) (3) 893
----------- ----- ------ ----- -----------
$ 1,460 $ 264 $ (66) $ (7) $ 1,651
----------- ----- ------ ----- -----------
----------- ----- ------ ----- -----------
Year ended December 31, 1993:
Buildings........................................ $ 758 $ 110 $ (56) $ (1) $ 811
Equipment........................................ 893 169 (81) - 981
----------- ----- ------ ----- -----------
$ 1,651 $ 279 $ (137) $ (1) $ 1,792
----------- ----- ------ ----- -----------
----------- ----- ------ ----- -----------
F-27
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
OF PERIOD EXPENSES OR PAYMENTS OF PERIOD
----------- ------------- ------------- -----------
Allowances for loss on accounts receivable:
Year ended December 31, 1991................................... $ 215 $ 277 $ (340) $ 152
Year ended December 31, 1992................................... 152 285 (271) 166
Year ended December 31, 1993................................... 166 282 (288) 160
F-28
COLUMBIA HEALTHCARE CORPORATION
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
1993 1992 1991
--------- --------- ---------
Maintenance and repairs.................................................................. $ 116 $ 105 $ 95
Taxes other than payroll and income taxes................................................ 121 106 91
F-29
COLUMBIA/HCA HEALTHCARE CORPORATION
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
---------
Report of Independent Accountants......................................................................... F-31
Supplemental Consolidated Financial Statements:
Supplemental Consolidated Statement of Income for the years ended December 31, 1993, 1992 and 1991...... F-32
Supplemental Consolidated Balance Sheet, December 31, 1993 and 1992..................................... F-33
Supplemental Consolidated Statement of Common Stockholders' Equity for the years ended December 31,
1993, 1992 and 1991.................................................................................... F-34
Supplemental Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and
1991................................................................................................... F-35
Notes to Supplemental Consolidated Financial Statements................................................. F-36
Supplemental Quarterly Consolidated Financial Information (Unaudited)................................... F-54
Supplemental Financial Statement Schedules (a):
Schedule I -- Marketable Securities -- Other Security Investments,
December 31, 1993...................................................................................... F-55
Schedule II -- Amounts Receivable From Related Parties and Underwriters, Promoters and Employees Other
Than Related Parties for the years ended December 31, 1993, 1992 and 1991.............................. F-56
Schedule V -- Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991........ F-59
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for
the years ended December 31, 1993, 1992 and 1991....................................................... F-60
Schedule VIII -- Valuation and Qualifying Accounts for the years ended December 31, 1993, 1992 and
1991................................................................................................... F-61
Schedule X -- Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and
1991................................................................................................... F-62
<FN>
- ------------------------
(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
F-30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation
We have audited the supplemental consolidated financial statements and
financial statement schedules of Columbia/HCA Healthcare Corporation listed in
the index on page F-30 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements and financial statement
schedules give retroactive effect to the merger of Columbia Healthcare
Corporation and HCA -- Hospital Corporation of America on February 10, 1994,
which will be accounted for as a pooling of interests as described in Notes 1
and 2 to the supplemental consolidated financial statements. 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. These financial
statements and financial statement schedules do not extend through the date of
consummation; however, they will become the historical consolidated financial
statements and financial statement schedules of Columbia/HCA Healthcare
Corporation after financial statements and financial statement schedules
covering the date of consummation of the merger are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Columbia/HCA
Healthcare Corporation as of December 31, 1993 and 1992, and the consolidated
results of operations and cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles applicable after financial statements are issued for the period which
includes the date of consummation of the merger. In addition, in our opinion,
the financial statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 7 to the supplemental consolidated financial
statements, effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
COOPERS & LYBRAND
Louisville, Kentucky
February 28, 1994,
except for Note 15,
as to which the date
is March 24, 1994
F-31
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991
--------- --------- ---------
Revenues.......................................................................... $ 10,252 $ 9,932 $ 9,598
--------- --------- ---------
Salaries, wages and benefits...................................................... 4,215 4,112 3,976
Supplies.......................................................................... 1,664 1,613 1,467
Other operating expenses.......................................................... 1,893 1,849 1,739
Provision for doubtful accounts................................................... 542 515 508
Depreciation and amortization..................................................... 554 541 524
Interest expense.................................................................. 321 401 597
Investment income................................................................. (66) (81) (64)
Non-recurring transactions........................................................ 151 439 300
--------- --------- ---------
9,274 9,389 9,047
--------- --------- ---------
Income from continuing operations before minority interests and income taxes...... 978 543 551
Minority interests in earnings of consolidated entities........................... 9 10 9
--------- --------- ---------
Income from continuing operations before income taxes............................. 969 533 542
Provision for income taxes........................................................ 394 294 189
--------- --------- ---------
Income from continuing operations................................................. 575 239 353
Discontinued operations:
Income (loss) from operations of discontinued health plan segment, net of income
tax (benefit) of $9 in 1993, ($46) in 1992 and $9 in 1991...................... 16 (108) 16
Costs associated with discontinuance of health plan segment, net
of income tax benefit of $2.................................................... - (17) -
Extraordinary loss on extinguishment of debt, net of income tax benefit of $51.... (84) - -
Cumulative effect on prior years of a change in accounting for income taxes....... - 51 -
--------- --------- ---------
Net income.................................................................... $ 507 $ 165 $ 369
--------- --------- ---------
--------- --------- ---------
Earnings per common and common equivalent share:
Income from continuing operations............................................... $ 1.70 $ .73 $ 1.20
Discontinued operations:
Income (loss) from operations of discontinued health plan segment............. .04 (.33) .05
Costs associated with discontinuance of health plan segment................... - (.06) -
Extraordinary loss on extinguishment of debt.................................... (.24) - -
Cumulative effect on prior years of a change in accounting for income taxes..... - .16 -
--------- --------- ---------
Net income.................................................................. $ 1.50 $ .50 $ 1.25
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of
the supplemental consolidated financial statements.
F-32
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ASSETS
1993 1992
--------- ---------
Current assets:
Cash and cash equivalents...................................................................... $ 224 $ 217
Accounts receivable less allowance for loss of $513 -- 1993 and $475 -- 1992................... 1,566 1,624
Inventories.................................................................................... 245 238
Other.......................................................................................... 453 496
--------- ---------
2,488 2,575
Property and equipment, at cost:
Land........................................................................................... 568 553
Buildings...................................................................................... 4,049 3,741
Equipment...................................................................................... 3,442 3,133
Construction in progress (estimated cost to complete and equip after December 31, 1993 --
$299)......................................................................................... 333 258
--------- ---------
8,392 7,685
Accumulated depreciation....................................................................... (2,792) (2,437)
--------- ---------
5,600 5,248
Net assets of discontinued operations............................................................ - 376
Investments of professional liability insurance subsidiaries..................................... 700 644
Intangible assets net of accumulated amortization of $178 -- 1993
and $233 -- 1992................................................................................ 1,232 1,247
Other............................................................................................ 196 257
--------- ---------
$ 10,216 $ 10,347
--------- ---------
--------- ---------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................... $ 445 $ 410
Salaries, wages and other compensation......................................................... 232 211
Other accrued expenses......................................................................... 853 903
Income taxes................................................................................... 22 92
Long-term debt due within one year............................................................. 363 353
--------- ---------
1,915 1,969
Long-term debt................................................................................... 3,335 3,303
Deferred credits and other liabilities........................................................... 1,438 1,353
Minority interests in equity of consolidated entities............................................ 57 31
Contingencies
Common stockholders' equity:
Common stock $.01 par; authorized 800,000,000 voting shares and 25,000,000 nonvoting shares;
issued and outstanding 317,686,800 voting shares and 18,990,000 nonvoting shares -- 1993 and
308,252,100 voting shares and 23,421,700 nonvoting shares -- 1992............................. 3 3
Capital in excess of par value................................................................. 2,164 2,070
Other.......................................................................................... 59 69
Retained earnings.............................................................................. 1,245 1,549
--------- ---------
3,471 3,691
--------- ---------
$ 10,216 $ 10,347
--------- ---------
--------- ---------
The accompanying notes are an integral part of
the supplemental consolidated financial statements.
F-33
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COMMON STOCK
-------------- CAPITAL IN
SHARES PAR EXCESS OF RETAINED
(000) VALUE PAR VALUE OTHER EARNINGS TOTAL
------- ----- ---------- ----- -------- ------
Balances, December 31, 1990......................... 255,276 $ 3 $ 734 $ 48 $ 1,314 $2,099
Net income........................................ 369 369
Cash dividends (Galen Health Care, Inc.).......... (138) (138)
Paid-in-kind dividend on cumulative exchangeable
preferred stock.................................. (18) (18)
Issuance of common stock.......................... 4,310 61 61
Stock options exercised and related tax benefits,
net of 224,000 shares tendered in partial payment
therefor......................................... 797 24 24
Accumulated credit under stock option contract.... 413 413
Other............................................. 24 2 10 12
------- ----- ---------- ----- -------- ------
Balances, December 31, 1991......................... 260,407 3 821 471 1,527 2,822
Net income........................................ 165 165
Cash dividends (Galen Health Care, Inc.).......... (143) (143)
Issuance of common stock.......................... 48,282 916 916
Stock options exercised and related tax benefits,
net of 30,000 shares tendered in partial payment
therefor......................................... 22,967 331 (386) (55)
Other............................................. 18 2 (16) (14)
------- ----- ---------- ----- -------- ------
Balances, December 31, 1992......................... 331,674 3 2,070 69 1,549 3,691
Net income........................................ 507 507
Cash dividends (Columbia Healthcare
Corporation)..................................... (9) (9)
Stock options exercised and related tax benefits,
net of 81,000 shares tendered in partial payment
therefor......................................... 4,000 71 (35) 36
Spinoff transaction with Humana Inc.:
Cash payment to Humana Inc...................... (135) (135)
Noncash transactions:
Issuance of notes payable..................... (250) (250)
Distribution of net investment in discontinued
health plan operations....................... (392) (392)
Transfer of a hospital facility............... (25) (25)
Net unrealized gains on investment securities..... 27 27
Other............................................. 1,003 23 (2) 21
------- ----- ---------- ----- -------- ------
Balances, December 31, 1993......................... 336,677 $ 3 $ 2,164 $ 59 $ 1,245 $3,471
------- ----- ---------- ----- -------- ------
------- ----- ---------- ----- -------- ------
The accompanying notes are an integral part of
the supplemental consolidated financial statements.
F-34
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
1993 1992 1991
--------- --------- ---------
Cash flows from continuing operations:
Net income........................................................................ $ 507 $ 165 $ 369
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations......................................................... (16) 127 (16)
Minority interests in earnings of consolidated entities......................... 9 10 9
Non-recurring transactions...................................................... 151 439 300
Depreciation and amortization................................................... 554 541 524
Amortization of debt discounts and loan costs................................... 45 78 116
Noncash interest on exchange debentures......................................... - 4 57
Deferred income taxes........................................................... (28) 34 (210)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable.................................... 19 98 (53)
Increase in inventories and other assets...................................... (7) (58) (42)
Increase (decrease) in income taxes........................................... 19 (160) 53
Increase (decrease) in other liabilities...................................... (87) 83 164
Change in accounting for income taxes........................................... - (51) -
Extraordinary loss on extinguishment of debt.................................... 135 - -
Other........................................................................... (3) (23) (14)
--------- --------- ---------
Net cash provided by continuing operations.................................... 1,298 1,287 1,257
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment................................................ (836) (668) (645)
Acquisition of hospitals and health care facilities............................... (79) (36) (96)
Sale of assets.................................................................... 191 225 860
Investment in discontinued operations............................................. - (71) (76)
Change in investments............................................................. 21 (35) (33)
Other............................................................................. (34) (8) (25)
--------- --------- ---------
Net cash used in investing activities......................................... (737) (593) (15)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt........................................................ 1,586 240 216
Net change in commercial paper borrowings and lines of credit..................... 342 (176) 124
Repayment of long-term debt....................................................... (2,325) (1,799) (890)
Payment to Humana Inc. in spinoff transaction..................................... (135) - -
Payment of cash dividends......................................................... (40) (143) (134)
Issuance of common stock.......................................................... 43 741 71
Other............................................................................. (25) (15) (6)
--------- --------- ---------
Net cash used in financing activities......................................... (554) (1,152) (619)
--------- --------- ---------
Change in cash and cash equivalents................................................. 7 (458) 623
Cash and cash equivalents at beginning of period.................................... 217 675 52
--------- --------- ---------
Cash and cash equivalents at end of period.......................................... $ 224 $ 217 $ 675
--------- --------- ---------
--------- --------- ---------
Interest payments................................................................... $ 278 $ 319 $ 469
Income tax payments, net of refunds................................................. 347 360 385
The accompanying notes are an integral part of
the supplemental consolidated financial statements.
F-35
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware
corporation which began operations on February 10, 1994 as a result of a merger
involving Columbia Healthcare Corporation ("Columbia") and HCA -- Hospital
Corporation of America ("HCA") (the "HCA Merger"). See Note 2 for a description
of the specific terms of the HCA Merger.
Prior to the HCA Merger, Columbia began operations on September 1, 1993 as a
result of a merger involving Columbia Hospital Corporation ("CHC") and Galen
Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 3 for a description
of the specific terms of the Galen Merger.
Columbia/HCA primarily operates hospitals and ancillary health care
facilities through either (i) wholly owned subsidiaries or (ii) ownership of
controlling interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner.
BASIS OF PRESENTATION
The supplemental consolidated financial statements include substantially all
subsidiaries and partnerships controlled by Columbia/HCA as the managing general
partner. Significant intercompany transactions have been eliminated.
The HCA Merger and the Galen Merger have been accounted for by the
pooling-of-interests method. Accordingly, the supplemental consolidated
financial statements included herein give retroactive effect to these
transactions and include the combined operations of CHC, Galen and HCA for all
periods presented. In addition, the historical financial information related to
Galen (which prior to the Galen Merger was reported on a fiscal year ending
August 31) has been recast to conform to Columbia'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.
These financial statements do not extend through the date of consummation of the
HCA Merger; however, they will become the historical consolidated financial
statements of Columbia/HCA after the financial statements including the date of
consummation of the HCA Merger are issued.
REVENUES
Columbia/HCA's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which Columbia/HCA is paid based upon established charges, cost of
providing services, predetermined rates by diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and third-party
payers for health care services provided, including anticipated settlements
under reimbursement agreements with third-party payers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
F-36
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation expense, computed by the straight-line method, was $504 million
in 1993, $493 million in 1992 and $478 million in 1991. Columbia/HCA uses
component depreciation for buildings. Depreciation rates for buildings are
equivalent to useful lives ranging generally from 20 to 25 years. Estimated
useful lives of equipment vary generally from 3 to 10 years.
INVESTMENTS
On December 31, 1993, Columbia/HCA adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which requires that investments in
debt and equity securities be classified according to certain criteria.
INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method over periods ranging from 10 to 40 years. Noncompete and
debt issuance costs are amortized based upon the lives of the respective
contracts or loans.
PROFESSIONAL LIABILITY INSURANCE CLAIMS
Provisions for loss for professional liability risks are based upon
actuarially determined estimates. To the extent that subsequent claims
information varies from management's estimates, earnings are charged or
credited.
MINORITY INTERESTS IN CONSOLIDATED ENTITIES
The supplemental consolidated financial statements include all assets,
liabilities and earnings of Columbia/HCA's partnerships, certain partnership
interests of which are not owned by Columbia/ HCA. Accordingly, management has
recorded minority interests in the earnings and equity of such partnerships.
EARNINGS PER COMMON AND COMMON EQUIVALENT 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. The computation
also gives retroactive effect to the exchange of common shares in connection
with the HCA Merger.
F-37
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
The following is a summary of shares used in the computation of earnings per
common and common equivalent share (amounts in thousands):
1993 1992 1991
--------- --------- ---------
Columbia:
Weighted average shares outstanding................................ 150,017 144,897 138,936
Common stock equivalents........................................... 966 718 750
--------- --------- ---------
Columbia common and common equivalent shares....................... 150,983 145,615 139,686
--------- --------- ---------
HCA:
Weighted average shares outstanding................................ 175,374 149,547 113,480
Common stock equivalents........................................... 3,901 24,690 20,109
--------- --------- ---------
HCA common and common equivalent shares............................ 179,275 174,237 133,589
Merger exchange ratio.............................................. 1.05 1.05 1.05
--------- --------- ---------
Adjusted HCA common and common equivalent shares................... 188,239 182,949 140,268
--------- --------- ---------
Shares used in computation of earnings per common and common
equivalent share.................................................. 339,222 328,564 279,954
--------- --------- ---------
--------- --------- ---------
Fully diluted earnings per common and common equivalent share is not
presented because it approximates earnings per common and common equivalent
share.
NOTE 2 -- HCA MERGER
On October 2, 1993, Columbia entered into a definitive agreement to merge
with HCA. This transaction was completed on February 10, 1994. In connection
with the HCA Merger, Columbia stockholders approved an amendment to Columbia's
Certificate of Incorporation changing the name of the corporation to
Columbia/HCA Healthcare Corporation. HCA was then merged into a wholly owned
subsidiary of Columbia/HCA. Shares of HCA Class A voting common stock and Class
B nonvoting common stock were converted on a tax-free basis into approximately
166,846,000 shares of Columbia/HCA voting common stock and approximately
18,990,000 shares of Columbia/HCA nonvoting common stock, respectively (an
exchange ratio of 1.05 shares of Columbia/HCA common stock for each share of HCA
voting and nonvoting common stock).
F-38
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- HCA MERGER (CONTINUED)
The HCA Merger has been accounted for as a pooling of interests, and
accordingly, the supplemental consolidated financial statements give retroactive
effect to the combined operations of Columbia and HCA for all periods presented.
The following is a summary of the results of operations of the separate entities
for periods prior to the HCA Merger (dollars in millions):
COLUMBIA HCA COMBINED
----------- --------- ---------
1993:
Revenues............................................................. $ 5,130 $ 5,122 $ 10,252
Income from continuing operations.................................... 193 382 575
Net income........................................................... 139 368 507
1992:
Revenues............................................................. $ 4,806 $ 5,126 $ 9,932
Income from continuing operations.................................... 211 28 239
Net income........................................................... 137 28 165
1991:
Revenues............................................................. $ 4,612 $ 4,986 $ 9,598
Income (loss) from continuing operations............................. 358 (5) 353
Net income (loss).................................................... 374 (5) 369
NOTE 3 -- GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the
Galen Merger, effective as of September 1, 1993. In connection with the Galen
Merger, CHC, a Nevada corporation, was merged into Columbia. Each CHC share of
common stock was converted on a tax-free basis into one share of Columbia common
stock. Immediately subsequent thereto, a wholly owned subsidiary of Columbia was
merged into Galen, at which time Galen became a wholly owned subsidiary of
Columbia. In connection with this transaction, Columbia issued approximately
123,830,000 shares of common stock in a tax-free exchange for all of the
outstanding common shares of Galen (an exchange ratio of 0.775 of a share of
Columbia common stock for each share of Galen common stock).
The Galen Merger has been accounted for as a pooling of interests, and
accordingly, the supplemental consolidated financial statements give retroactive
effect to the combined operations of CHC and Galen for all periods presented.
The following is a summary of the results of operations of the separate entities
for periods prior to the Galen Merger (dollars in millions):
CHC GALEN COMBINED
--------- --------- -----------
Eight months ended August 31, 1993 (unaudited):
Revenues................................................................ $ 823 $ 2,600 $ 3,423
Income from continuing operations....................................... 17 176 193
Net income.............................................................. 17 192 209
1992:
Revenues................................................................ $ 819 $ 3,987 $ 4,806
Income from continuing operations....................................... 26 185 211
Net income.............................................................. 26 111 137
1991:
Revenues................................................................ $ 499 $ 4,113 $ 4,612
Income from continuing operations....................................... 15 343 358
Net income.............................................................. 15 359 374
F-39
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS
Prior to the Galen Merger, Galen began operating its hospital business as an
independent publicly held corporation on March 1, 1993 as a result of a tax-free
spinoff transaction (the "Spinoff") by Humana Inc. ("Humana"), which retained
its managed care health plan business. The Spinoff separated Humana's previously
integrated hospital and managed care health plan businesses and was effected
through the distribution of Galen common stock to then current Humana common
stockholders on a one-for-one basis.
For accounting purposes, because of the relative significance of the
hospital business, the pre-Spinoff consolidated financial statements of Galen
(and now those of Columbia/HCA) include the separate results of Humana's
hospital business, while the operations and net assets of Humana's managed care
health plans have been classified as discontinued operations.
In connection with the Spinoff, Galen entered into various agreements with
Humana which were intended to facilitate orderly changes for both the hospital
and managed care health plan businesses in a way which would be minimally
disruptive to each entity. Principal contracts are summarized below:
OPERATIONS -- Certain former Galen hospitals will provide medical services
to insureds of Humana for three years subsequent to the Spinoff. The contract
includes, among other things, established payment rates for various inpatient
and outpatient services and annual increases therein, and hospital utilization
guarantees and related penalties.
LIABILITIES AND INDEMNIFICATION -- Each entity assumed liability for
specified claims. The entities will also share risks with respect to certain
litigation and other contingencies, both identified and unknown.
INCOME TAXES -- Each entity entered into risk-sharing arrangements in
connection with the ultimate resolution of various income tax disputes.
FINANCING -- In January 1993 certain subsidiaries issued $250 million of
notes payable to Humana, and paid to Humana $135 million in cash on March 1,
1993 which was financed principally through the issuance of commercial paper.
The $250 million of notes were repaid in September 1993 in connection with the
refinancing of certain long-term debt.
ADMINISTRATION -- These arrangements relate to leasing of certain
administrative facilities, division of information systems, employee benefit and
stock option plans, and various administrative service arrangements.
Revenues of the discontinued managed care health plan business (included in
discontinued operations in the accompanying supplemental consolidated statement
of income) were $523 million in 1993, $2.9 billion in 1992 and $2.5 billion in
1991.
F-40
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- NON-RECURRING TRANSACTIONS
1993
In September 1993 the following charges were recorded in connection with the
Galen Merger (dollars in millions):
Investment advisory and professional fees, and employee benefit plan
costs............................................................... $ 62
Writedown of assets in connection with the consolidation of the
combined entity's operations........................................ 63
Administrative facility asset writedowns and conversion costs
associated with the transaction..................................... 16
Provision for loss on planned sales of assets........................ 10
---------
$ 151
---------
---------
1992
In September 1992 a pretax charge of $394 million was recorded in connection
with the planned divestiture of twenty-two psychiatric hospitals and the
unrelated sale of two other facilities. The charge included the writedown to
estimated net realizable value of the hospitals to be sold, a $231 million
writeoff of permanently impaired cost in excess of net assets acquired, and the
costs associated with the replacement of certain credit agreements.
Income from continuing operations in 1992 also includes a gain of $93
million on the sale of an investment in common stock of HealthTrust, Inc. -- The
Hospital Company ("HealthTrust").
Income from continuing operations in 1992 includes $138 million of charges
incurred primarily in connection with the Spinoff, including a provision for
loss on the planned sale of hospitals, writedowns of assets in markets with
significant declines in operations, administrative facility asset writedowns and
certain other costs associated with the separation of the hospital and health
plan businesses. Costs aggregating $171 million (before income taxes) incurred
by Humana primarily in connection with the Spinoff are included in discontinued
operations in 1992.
1991
Income from continuing operations in 1991 includes (i) a charge of $413
million in connection with the acceleration of vesting of stock options under
the HCA Nonqualified Stock Option Plan and the establishment of exercise prices
at levels substantially less than the then fair value of the underlying common
stock, (ii) a charge of $159 million primarily in connection with the
anticipated loss on the disposition of certain hospitals and other assets, (iii)
a gain of $51 million on the sale of a hospital, and (iv) a gain of $221 million
on the sale of an investment in preferred stock and warrants of HealthTrust.
NOTE 6 -- OTHER BUSINESS COMBINATIONS
During the past three years, Columbia/HCA has acquired various hospitals and
related ancillary health care facilities (or controlling interests in such
facilities), all of which have been accounted for by the purchase method.
Accordingly, the aggregate purchase price of these transactions has been
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based upon their respective fair values. The supplemental
consolidated financial statements include the operations of acquired entities
since the respective acquisition dates.
F-41
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- OTHER BUSINESS COMBINATIONS (CONTINUED)
The following is a summary of acquisitions consummated during the last three
years (dollars in millions):
1993 1992 1991
--------- --------- ---------
Number of hospitals........................................................ 3 15 2
Number of licensed beds.................................................... 903 2,345 1,420
Purchase price information:
Fair value of assets acquired............................................ $ 164 $ 490 $ 165
Liabilities assumed...................................................... (76) (279) (48)
--------- --------- ---------
Net assets acquired.................................................... 88 211 117
--------- --------- ---------
Issuance of common stock................................................. - 119 1
Cash acquired............................................................ 9 15 15
Cash received from sale of certain acquired assets....................... - 40 -
Other.................................................................... - 1 5
--------- --------- ---------
9 175 21
--------- --------- ---------
Net cash paid for acquisitions......................................... $ 79 $ 36 $ 96
--------- --------- ---------
--------- --------- ---------
In July 1992 Columbia/HCA acquired Basic American Medical, Inc. ("BAMI")
(included in the table above) through a merger into a wholly owned subsidiary.
The assets of BAMI included eight hospitals containing 1,203 licensed beds and
certain other health care businesses. The transaction was financed through the
assumption of approximately $140 million of long-term debt, issuance of
6,995,000 shares of common stock and payment of $38 million in cash to BAMI
stockholders.
The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $7 million in 1993, $97 million in 1992
and $19 million in 1991.
The pro forma effect of these acquisitions on Columbia/HCA's results of
operations was not significant.
NOTE 7 -- INCOME TAXES
Provision for income taxes consists of the following (dollars in millions):
1993 1992 1991
--------- --------- ---------
Current:
Federal..................................................................... $ 357 $ 232 $ 375
State....................................................................... 69 34 64
--------- --------- ---------
426 266 439
--------- --------- ---------
Deferred:
Federal..................................................................... (36) 22 (218)
State....................................................................... 4 6 (32)
--------- --------- ---------
(32) 28 (250)
--------- --------- ---------
$ 394 $ 294 $ 189
--------- --------- ---------
--------- --------- ---------
F-42
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Reconciliation of federal statutory rate to effective income tax rate
follows:
1993 1992 1991
--------- --------- ---------
Federal statutory rate..................................................... 35.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit...................... 4.6 4.4 2.9
Gain on sale of HealthTrust investments.................................... - - (3.5)
Merger costs............................................................... 0.6 - -
Costs in excess of net assets acquired..................................... 1.2 16.6 2.3
Tax exempt investment income............................................... (0.9) (1.7) (1.5)
Other items, net........................................................... 0.1 1.8 0.7
--- --- ---
Effective income tax rate.................................................. 40.6% 55.1% 34.9%
--- --- ---
--- --- ---
In August 1993 Congress enacted the Omnibus Budget Reconciliation Act of
1993 which included, among other things, an increase in corporate income tax
rates retroactive to January 1, 1993. This legislation had no material effect on
1993 net income.
Columbia/HCA adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1,
1992, the effect of which increased 1992 net income by $51 million. The
provisions of SFAS 109 require, among other things, recognition of deferred
income taxes using statutory rates at which temporary differences in the tax and
book bases of assets and liabilities are expected to affect taxable income in
future years.
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31, 1993 and 1992 follows (dollars in millions):
1993 1992
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
Depreciation................................................ $ - $ 766 $ - $ 748
Long-term debt.............................................. - 26 - 71
Professional liability risk................................. 329 - 336 -
Doubtful accounts........................................... 91 - 85 -
Property losses............................................. 87 - 111 -
Cash basis.................................................. - 60 - 89
Compensation................................................ 24 - 18 -
Capitalized leases.......................................... 11 - 12 -
Other....................................................... 215 167 202 106
--------- ----------- --------- -----------
$ 757 $ 1,019 $ 764 $ 1,014
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Management believes that the deferred tax assets in the table above will
ultimately be realized. Management's conclusion is based primarily on its
expectation of future taxable income and the existence of sufficient taxable
income within the allowable carryback periods to realize the tax benefits of
deductible temporary differences recorded at December 31, 1993.
Deferred income taxes totaling $295 million and $257 million at December 31,
1993 and 1992, respectively, are included in other current assets. Noncurrent
deferred income taxes, included in deferred credits and other liabilities,
totaled $557 million and $507 million at December 31, 1993 and 1992,
respectively.
The Internal Revenue Service (the "Service") 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. In addition, the
F-43
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Service 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 with respect to these years.
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
Service. The Service 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 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 Service should
ultimately prevail in its claim 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 Service were successful with respect to this issue,
Columbia/HCA would owe an additional $110 million in income taxes and $432
million in interest as of December 31, 1993.
HOSPITAL ACQUISITIONS
In connection with hospitals acquired by HCA in 1981 and 1985, the Service
has asserted that a portion of the costs allocated to identifiable assets with
ascertainable useful lives should be reclassified as nondeductible goodwill. If
the Service ultimately prevails in this regard, Columbia/HCA would owe an
additional $113 million in income taxes and $139 million in interest as of
December 31, 1993.
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
Service 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 December 31, 1993, Columbia/HCA is seeking a refund totaling
$51 million in income taxes and $93 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 Service has disallowed the deduction and is claiming an
additional $5 million in income taxes and $15 million in interest. 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 Service claims a higher
F-44
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
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 Service 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 Service is claiming additional
interest of $64 million through December 31, 1993.
Also in connection with the 1987 sale of certain Subsidiaries to
HealthTrust, the Service 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
Service position is contrary to a Tax Court decision in a similar case. The
Service is claiming additional income taxes of $79 million and interest of $66
million through December 31, 1993.
In connection with the 1987 HealthTrust transactions, the Service 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 Service prevail, Columbia/HCA would owe $11 million of additional income
taxes and $17 million of interest through December 31, 1993. The position of the
Service 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 Service 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 an 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 Service disagrees, asserting that HCA is engaged, at least
in part, in a merchandising business. Notwithstanding this assertion, the
Service contends that the exclusion taken by HCA is excessive under applicable
Temporary Treasury Regulations. Columbia/HCA believes that the calculation of
the exclusion is inaccurate since it does not permit the exclusion in accordance
with the controlling statute. If the Service prevails, Columbia/HCA would owe
additional income taxes of $102 million and interest of $48 million through
December 31, 1993.
LEVERAGED BUY-OUT EXPENSES
The Service 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 Service.
Columbia/HCA believes that all of these costs are deductible. If the Service
prevails on these issues, Columbia/HCA would owe income taxes of $94 million and
interest of $24 million through December 31, 1993.
F-45
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- 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
Service is claiming an additional $44 million in income taxes and $28 million in
interest through December 31, 1993 with respect to these issues.
Management believes that HCA had properly reported its income and paid its
taxes in accordance with applicable laws and agreements established with the
Service 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.
NOTE 8 -- PROFESSIONAL LIABILITY RISKS
Columbia/HCA insures a substantial portion of its professional liability
risks through wholly owned insurance subsidiaries. Provisions for such risks
underwritten by the subsidiaries and deductibles at certain hospitals, including
expenses incident to claim settlements, were $96 million for 1993, $102 million
for 1992 and $111 million for 1991. Amounts funded to the insurance subsidiaries
were $62 million for 1993, $55 million for 1992 and $56 million for 1991.
Allowances for professional liability risks, included principally in
deferred credits and other liabilities, were $817 million and $791 million at
December 31, 1993 and 1992, respectively.
As discussed in Note 1, Columbia/HCA adopted the provisions of SFAS 115 on
December 31, 1993. Accordingly, common stockholders' equity was increased by $27
million (net of deferred income taxes) to reflect the net unrealized gain on
investments classified as available for sale. Prior to the adoption of SFAS 115,
debt securities were recorded at amortized cost (which approximated fair value),
while equity securities were recorded at the lower of aggregate cost or fair
value. The adoption of SFAS 115 had no effect on earnings in 1993.
The provisions of SFAS 115 require that investments in debt and equity
securities be classified according to the following criteria:
TRADING ACCOUNT -- Assets held for resale in anticipation of short-term
changes in market conditions are recorded at fair value and gains and losses,
both realized and unrealized, are included in income. Columbia/HCA does not
maintain a trading account portfolio.
HELD TO MATURITY -- Certain debt securities of Columbia/HCA's professional
liability insurance subsidiaries are expected to be held to maturity as a result
of management's intent and ability to do so. These investments are carried at
amortized cost.
AVAILABLE FOR SALE -- Debt and equity securities not classified as either
trading securities or held to maturity are classified as available for sale and
recorded at fair value. Unrealized gains and losses are excluded from income and
recorded as a separate component of common stockholders' equity.
F-46
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The following is a summary of the insurance subsidiaries' investments at
December 31, 1993 and 1992 (dollars in millions):
DECEMBER 31, 1993
----------------------------
UNREALIZED
AMOUNTS
-------------- FAIR
COST GAINS LOSSES VALUE
---- ----- ------- -----
Held to maturity:
United States Government obligations................................. $ 44 $ - $ - $ 44
---- ----- ------- -----
Available for sale:
Bonds:
United States Government........................................... 19 1 - 20
States and municipalities.......................................... 372 16 - 388
Mortgage-backed securities......................................... 54 1 - 55
Corporate and other................................................ 51 2 (1) 52
Money market funds................................................... 31 - - 31
Redeemable preferred stocks.......................................... 17 1 - 18
---- ----- ------- -----
544 21 (1) 564
---- ----- ------- -----
Equity securities:
Adjustable rate preferred stocks................................... 13 1 - 14
Common stocks...................................................... 133 27 (4) 156
---- ----- ------- -----
146 28 (4) 170
---- ----- ------- -----
$734 $ 49 $ (5) 778
---- ----- -------
---- ----- -------
Amounts classified as current assets................................... (78)
-----
Investment carrying value.............................................. $ 700
-----
-----
F-47
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
DECEMBER 31, 1992
----------------------------
UNREALIZED
AMOUNTS
--------------
FAIR
COST GAINS LOSSES VALUE
---- ----- ------- -----
Held to maturity:
United States Government obligations................................. $ 19 $ - $ - $ 19
Certificates of deposit.............................................. 20 - - 20
---- ----- ------- -----
39 - - 39
---- ----- ------- -----
Available for sale:
Bonds:
United States Government........................................... 22 1 - 23
States and municipalities.......................................... 312 9 - 321
Mortgage-backed securities......................................... 55 - - 55
Corporate and other................................................ 39 2 - 41
Money market funds................................................... 68 - - 68
Redeemable preferred stocks.......................................... 18 - - 18
---- ----- ------- -----
514 12 - 526
---- ----- ------- -----
Equity securities:
Adjustable rate preferred stocks................................... 20 1 - 21
Common stocks...................................................... 136 21 (9) 148
---- ----- ------- -----
156 22 (9) 169
---- ----- ------- -----
709 $ 34 $ (9) $ 734
----- ------- -----
----- ------- -----
Amounts classified as current assets................................... (65)
----
Investment carrying value.............................................. $644
----
----
The cost and estimated fair value of debt and equity securities at December
31, 1993 by contractual maturity are shown below (dollars in millions). Expected
and contractual maturities will differ because the issuers of certain securities
may have the right to prepay or otherwise redeem such obligations without
penalty.
FAIR
COST VALUE
--------- ---------
Held to maturity:
Due in one year or less..................................................... $ 44 $ 44
--------- ---------
Available for sale:
Due in one year or less..................................................... 34 34
Due after one year through five years....................................... 134 136
Due after five years through ten years...................................... 131 137
Due after ten years......................................................... 245 257
--------- ---------
544 564
Equity securities........................................................... 146 170
--------- ---------
690 734
--------- ---------
$ 734 $ 778
--------- ---------
--------- ---------
The fair value of the subsidiaries' investments is based generally on quoted
market prices.
F-48
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The average life of the above investments (excluding common stocks)
approximated five years at December 31, 1993 and four years at December 31,
1992, and the tax equivalent yield on such investments averaged 10% for the last
three years. Tax equivalent yield is the rate earned on invested assets,
excluding unrealized gains and losses, adjusted for the benefit of nontaxable
investment income.
Sales of securities for the year ended December 31, 1993 are summarized
below (dollars in millions):
TYPE OF SECURITY
----------------------
DEBT EQUITY
--------- -----------
Cash proceeds....................................................................... $ 185 $ 106
Gross realized gains................................................................ 4 19
Gross realized losses............................................................... - 10
NOTE 9 -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in millions):
1993 1992
--------- ---------
Senior collateralized debt, 5% to 13.8% (rates generally fixed) payable in periodic
installments through 2034......................................................... $ 211 $ 401
Senior debt, 8% to 13.3% (rates generally fixed) payable in periodic installments
through 2023...................................................................... 1,158 1,166
Fixed rate note agreement (13% rate)............................................... 100 100
Commercial paper (rates fixed under interest rate agreements averaging four years
at 7.9%).......................................................................... 380 380
Commercial paper (floating rates averaging 3.4%)................................... 495 153
Bank credit agreement (floating rates averaging 4.4%).............................. 1,172 1,067
Bank line of credit (floating rates averaging 3.6%)................................ 100 -
Subordinated credit agreement (floating rates averaging 5.9%)...................... - 300
Subordinated debt, 8.5% to 15% (rates generally fixed) payable in periodic
installments through 2008......................................................... 82 89
--------- ---------
Total debt, average life of six years (rates averaging 6.7%)....................... 3,698 3,656
Amounts due within one year........................................................ 363 353
--------- ---------
Long-term debt..................................................................... $ 3,335 $ 3,303
--------- ---------
--------- ---------
Borrowings under the commercial paper programs are classified as long-term
debt due to the credit available under the revolving credit agreements discussed
below and management's intention to refinance these borrowings on a long-term
basis.
Maturities of long-term debt in years 1995 through 1998 are $1.1 billion,
$161 million, $64 million and $1.1 billion, respectively. Such amounts reflect
maturities of debt issued for refinancings through March 24, 1994 and, as to
short-term debt classified as long-term, are based upon maturities of the
revolving credit agreements. Approximately 8% of Columbia/HCA's property and
equipment is pledged on senior collateralized debt.
During the past three years Columbia/HCA has reduced interest costs and
eliminated certain restrictive covenants by refinancing or prepaying high
interest rate debt, primarily through the use of existing cash and cash
equivalents and issuance of long-term debt, commercial paper and equity. Amounts
refinanced or prepaid totaled $787 million in 1993, $1 billion in 1992 and $275
million in 1991. After-tax losses from refinancing activities in 1993 aggregated
$84 million or $.24 per share.
F-49
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
In February 1994 Columbia/HCA entered into revolving credit agreements (the
"Credit Facilities") in the aggregate amount of $3 billion. The Credit
Facilities comprise a four-year $1 billion revolving credit agreement and a
364-day $2 billion revolving credit agreement. The Credit Facilities were
established to support Columbia/HCA's commercial paper programs and replace $3.2
billion of prior revolving credit agreements associated with HCA ($1.6 billion)
and Columbia ($1.6 billion). Interest is payable generally at either LIBOR plus
1/4% to 1/2% (depending on Columbia/HCA's credit rating), or the higher of
prime, the bank certificate of deposit rate plus 1% or the Federal Funds rate
plus 1/2%.
In December 1993 Columbia/HCA issued $150 million of 6 1/8% Notes due 2000
and $150 million of 7 1/2% Notes due 2023.
During 1992 Columbia/HCA sold $100 million face amount of 10 7/8% Senior
Subordinated Notes due 2002 and $135 million face amount of 11 1/2% Senior
Subordinated Notes due 2002. In September 1993 $232 million face amount of these
notes were retired through the completion of a tender offer.
Proceeds from the public offering of 41,055,000 shares of voting common
stock in 1992 were used to repay $352 million of debt outstanding under a bank
credit agreement and redeem the 15 3/4% Subordinated Discount Debentures and
related interest aggregating $444 million.
In connection with the acquisition of BAMI in 1992, Columbia/HCA assumed
approximately $140 million of long-term debt, including approximately $64
million of senior collateralized notes payable in quarterly installments through
1998 at interest rates ranging from 10.7% to 11.7%. In September 1993
Columbia/HCA effected the defeasance of these notes.
In 1991 one of Columbia/HCA's partnerships issued $95 million of 11.45%
Senior Secured Notes due 2001. Proceeds from the issuance were used to repay $66
million of bank debt and finance expansion. These notes were retired in
connection with the refinancing of debt in September 1993. Columbia/HCA also
issued in 1991 a $40 million face amount 9% Subordinated Mandatory Convertible
Note due 1999. The note is convertible at the option of the holder into
Columbia/HCA voting common stock at a price of $18.50 per share (adjusted for
stock splits, recapitalizations and reorganizations). The note will be
automatically converted into common stock if the average per share market price
for four months preceding the July 1 anniversary exceeds a specified amount
ranging from $27.00 in 1994 to $34.00 in 1996.
In 1991 Columbia/HCA exchanged its Cumulative Exchangeable Preferred Stock
for 17 1/2% Junior Subordinated Exchangeable Debentures due 2005. These
debentures were redeemed in 1992 from proceeds on the 1991 sale of HealthTrust
preferred stock and warrants.
Columbia/HCA's credit facilities contain customary covenants which include
(i) limitations on additional debt, (ii) limitations on sales of assets, mergers
and changes of ownership and (iii) maintenance of certain interest coverage
ratios.
The estimated fair value of Columbia/HCA's long-term debt was $4.1 billion
at both December 31, 1993 and 1992, compared to carrying amounts aggregating
$3.7 billion at the end of each year. Certain subsidiaries of Columbia/HCA have
entered into agreements which reduce the impact of changes in interest rates on
$380 million of floating rate long-term debt. At December 31, 1993 and 1992, the
fair value of Columbia/HCA's net payable position under these agreements
(included in the aggregate fair value amounts above) totaled $34 million and $29
million, respectively. The estimate of fair value is based upon the quoted
market prices for the same or similar issues of long-term debt, or on rates
available to Columbia/HCA as a result of the HCA Merger for debt of the same
remaining maturities.
F-50
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
As discussed in Note 4, in connection with the Spinoff, certain subsidiaries
issued notes payable ($250 million) and paid cash ($135 million financed
primarily through the issuance of commercial paper) to Humana in 1993. If the
Spinoff had occurred on December 31, 1992, Columbia/HCA's ratio of debt to debt
plus common stockholders' equity would have increased from 50% to 58%.
NOTE 10 -- LEASES
Columbia/HCA leases real estate and equipment under cancelable and
non-cancelable arrangements. Future minimum payments under non-cancelable
operating leases are as follows (dollars in millions):
1994................................................................. $ 123
1995................................................................. 102
1996................................................................. 78
1997................................................................. 63
1998................................................................. 43
Thereafter........................................................... 242
Rent expense aggregated $196 million, $190 million and $170 million for the
years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 11 -- CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for loss have been provided to the
extent necessary and that its assessment of contingencies is reasonable.
Management believes that resolution of contingencies will not materially affect
Columbia/HCA's financial position or results of operations.
Principal contingencies are described below:
REVENUES -- Certain third-party payments are subject to examination by
agencies administering the programs. Columbia/HCA is contesting certain
issues raised in audits of prior year cost reports.
PROFESSIONAL LIABILITY RISKS -- Columbia/HCA has provided for loss for
professional liability risks based upon actuarially determined estimates.
Actual settlements and expenses incident thereto may differ from the
provisions for loss.
INTEREST RATE AGREEMENTS -- Certain subsidiaries of Columbia/HCA are
parties to agreements which reduce the impact of changes in interest rates
on its floating rate long-term debt. In the event of nonperformance by other
parties to these agreements, Columbia/HCA may incur a loss on the difference
between market rates and contract rates.
INCOME TAXES -- Columbia/HCA is contesting adjustments proposed by the
IRS.
SPINOFF -- Certain subsidiaries of Columbia/HCA are parties to
risk-sharing arrangements with Humana.
REGULATORY REVIEW -- Federal regulators are investigating certain
financial arrangements with physicians at two psychiatric hospitals.
LITIGATION -- Various suits and claims arising in the ordinary course of
business are pending against Columbia/HCA.
F-51
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL STOCK
The terms and conditions associated with each class of Columbia/HCA common
stock are substantially identical except for voting rights. All nonvoting common
stockholders may convert their shares on a one-for-one basis into voting common
stock, subject to certain limitations. In addition, certain voting common
stockholders may convert their shares on a one-for-one basis into nonvoting
common stock.
The following shares of common stock were reserved at December 31, 1993
(amounts in thousands):
Stock option plans......................................................... 20,118
Retirement and savings plans............................................... 8,887
Other...................................................................... 2,853
---------
31,858
---------
---------
Columbia/HCA has plans under which options to purchase common stock may be
granted to officers, employees and directors. Except for those discussed in Note
5, options have been granted at not less than market price on the date of grant.
Exercise provisions vary, but most options are exercisable in whole or in part
beginning one to four years after grant and ending four to fifteen years after
grant. Activity in the plans is summarized below (share amounts in thousands):
SHARES
UNDER OPTION PRICE
OPTION PER SHARE
--------- ------------------
Balances, December 31, 1990.......................................... 37,163 $ 0.22 to $37.00
Granted............................................................ 4,078 0.60 to 25.24
Exercised.......................................................... (1,021) 7.21 to 23.37
Cancelled or lapsed................................................ (1,142) 0.60 to 37.00
---------
Balances, December 31, 1991.......................................... 39,078 0.22 to 25.71
Granted............................................................ 3,950 0.60 to 22.62
Conversion of BAMI stock options................................... 466 3.18 to 11.59
Exercised.......................................................... (22,998) 0.22 to 17.25
Cancelled or lapsed................................................ (7,399) 0.22 to 23.37
---------
Balances, December 31, 1992.......................................... 13,097 0.22 to 25.71
Granted............................................................ 1,660 0.60 to 33.38
Exercised.......................................................... (4,018) 0.22 to 23.37
Cancelled or lapsed................................................ (709) 0.22 to 25.71
---------
Balances, December 31, 1993.......................................... 10,030 $ 0.22 to $33.38
---------
---------
At December 31, 1993, options for 4,026,700 shares were exercisable. Shares
of common stock available for future grants were 10,088,000 at December 31, 1993
and 11,442,900 at December 31, 1992.
In connection with the Galen Merger, certain preferred stock purchase rights
were redeemed which were previously issued to Galen common stockholders. The
cost of this transaction was not significant. In addition, a stockholder rights
plan was adopted upon consummation of the Galen Merger (similar to that of
Galen) under which common stockholders have the right to purchase Series A
Preferred Stock in the event of accumulation of or tender offer for certain
percentages of Columbia/HCA's common stock. The rights will expire in 2003
unless redeemed earlier by Columbia/ HCA.
F-52
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL STOCK (CONTINUED)
In September 1993 the Board of Directors initiated a regular quarterly cash
dividend on common stock of $.03 per share.
In March 1992 Columbia/HCA issued 41,055,000 shares of voting common stock,
the net proceeds from which ($796 million) were used to reduce long-term debt.
Assuming that these shares were issued and the proceeds therefrom were used to
reduce long-term debt at the beginning of the year, earnings per common and
common equivalent share would have been $.53 in 1992.
In connection with the HCA Merger, Columbia/HCA stockholders voted to
increase the aggregate number of authorized voting shares of common stock from
400 million to 800 million, and the number of authorized nonvoting common shares
was established at 25 million. In addition, authorized shares of preferred stock
(none of which are outstanding) were increased from 10 million to 25 million.
NOTE 13 -- EMPLOYEE BENEFIT PLANS
Columbia/HCA maintains noncontributory defined contribution retirement plans
covering substantially all employees. Benefits are determined as a percentage of
a participant's earned income and are vested over specified periods of employee
service. Retirement plan expense was $97 million for 1993, $102 million for 1992
and $86 million for 1991. Amounts equal to retirement plan expense are funded
annually.
Columbia/HCA maintains various contributory savings plans which are
available to employees who meet certain minimum requirements. Certain of the
plans require that Columbia/HCA match an amount ranging from 50% to 60% of a
participant's contribution up to certain maximum levels. The cost of these plans
totaled $20 million for 1993, $19 million for 1992 and $15 million for 1991.
Columbia/HCA contributions are funded periodically during the year.
NOTE 14 -- ACCRUED EXPENSES
The following is a summary of other accrued expenses at December 31 (dollars
in millions):
1993 1992
--------- ---------
Workers' compensation................................................................ $ 102 $ 90
Taxes other than income.............................................................. 143 118
Professional liability risks......................................................... 89 80
Employee benefit plans............................................................... 158 197
Interest............................................................................. 181 167
Other................................................................................ 180 251
--------- ---------
$ 853 $ 903
--------- ---------
--------- ---------
NOTE 15 -- SUBSEQUENT EVENTS
INCOME TAXES
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior year income
taxes and related interest. This transaction will not have a material effect on
1994 earnings.
LONG-TERM DEBT
Since completion of the HCA Merger, certain HCA and other long-term debt has
been refinanced in an effort to reduce future interest expense. These
transactions were financed primarily through the issuance of commercial paper,
$175 million of 6 1/2% Notes due 1999 and $150 million of 7.15% Notes due 2004.
Management anticipates that losses resulting from these refinancing activities
will reduce Columbia/HCA's first quarter 1994 net income by approximately $80
million.
F-53
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1993
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
Revenues................................................... $ 2,654 $ 2,536 $ 2,491 $ 2,571
Net income (loss):
Continuing operations (a)................................ 205 166 28 176
Discontinued operations.................................. 16 - - -
Extraordinary loss on extinguishment of
debt.................................................... - - (84) -
Net income (loss)...................................... 221 166 (56) 176
Per common share:
Earnings (loss):
Continuing operations (a).............................. .61 .49 .08 .52
Discontinued operations................................ .04 - - -
Extraordinary loss on extinguishment of
debt.................................................. - - (.24) -
Net income (loss).................................... .65 .49 (.16) .52
Market prices (b):
High................................................... 24 1/2 27 3/4 31 33 7/8
Low.................................................... 16 1/4 19 1/4 25 3/8 27
1992
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
Revenues................................................... $ 2,559 $ 2,450 $ 2,451 $ 2,472
Net income (loss):
Continuing operations (c)(d)............................. 174 158 (300) 207
Discontinued operations (c).............................. 3 (2) (132) 6
Change in accounting for income taxes.................... 51 - - -
Net income (loss)...................................... 228 156 (432) 213
Per common share:
Earnings (loss):
Continuing operations (c)(d)........................... .57 .48 (.89) .61
Discontinued operations (c)............................ .02 (.02) (.39) .02
Change in accounting for income taxes.................. .16 - - -
Net income (loss).................................... .75 .46 (1.28) .63
Market prices (b):
High................................................... 21 1/4 22 19 1/4 21 3/4
Low.................................................... 16 1/2 16 1/4 16 1/4 13 3/4
<FN>
- ------------------------
(a) Third quarter loss includes $98 million ($.29 per share) of costs related
to the Galen Merger. See Note 5 of the Notes to Supplemental Consolidated
Financial Statements.
(b) Represents high and low sales prices of CHC common stock for periods prior
to the Galen Merger and Columbia common stock prior to the HCA Merger.
Columbia/HCA common stock is traded on the New York Stock Exchange (ticker
symbol -- COL).
(c) Third quarter net loss includes charges of $221 million ($.65 per share)
related primarily to the Spinoff, of which $86 million ($.25 per share) is
included in continuing operations and $135 million ($.40 per share) is
included in discontinued operations. The loss also includes $330 million
($.98 per share) associated with divestitures of certain assets. See Note
5 of the Notes to Supplemental Consolidated Financial Statements.
(d) Fourth quarter net income includes a gain of $58 million ($.17 per share)
on the sale of HealthTrust common stock. See Note 5 of the Notes to
Supplemental Consolidated Financial Statements.
F-54
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE I -- MARKETABLE SECURITIES -- OTHER SECURITY INVESTMENTS
DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
AMOUNT AT WHICH
EACH PORTFOLIO OF
NUMBER OF SHARES EQUITY SECURITY
OR UNITS - MARKET VALUE ISSUE AND EACH
PRINCIPAL AMOUNT OF EACH ISSUE OTHER SECURITY
OF BONDS AND COST OF AT BALANCE ISSUE CARRIED IN
NAME OF ISSUER AND TITLE OF EACH ISSUE NOTES EACH ISSUE SHEET DATE THE BALANCE SHEET
- -------------------------------------------------------- ----------------- ----------- ------------- -----------------
Short-term investments of professional liability
insurance subsidiaries (a):
United States Government and government agency
obligations.......................................... $ 44 $ 44 $ 44 $ 44
State and municipal obligations....................... $ 14 14 14 14
Money market funds.................................... 20 20 20
----------- ------------- -------
$ 78 $ 78 $ 78
----------- ------------- -------
----------- ------------- -------
Long-term investments:
United States Government and government agency
bonds................................................ $ 20 $ 19 $ 20 $ 20
State and municipal bonds............................. $ 365 358 374 374
Mortgage-backed securities............................ $ 52 54 55 55
Corporate and other bonds............................. $ 49 51 52 52
Money market funds.................................... 11 11 11
Redeemable preferred stocks........................... 17 18 18
Adjustable rate preferred stocks...................... 13 14 14
Common stocks......................................... 133 156 156
----------- ------------- -------
Investments of professional liability insurance
subsidiaries....................................... $ 656 $ 700 $ 700
----------- ------------- -------
----------- ------------- -------
<FN>
- ------------------------
(a) Included in current assets.
F-55
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT
END OF PERIOD
BALANCE AT ----------------------
BEGINNING AMOUNTS NOT
OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT
----------- ----------- ----------- ----------- ---------
Year ended December 31, 1991:
Mark Aanonson.................................................. $ 46 $ (46)
James Bohanon.................................................. 200 (200)
James Bohanon.................................................. 16 (16)
Daniel Brothman................................................ 135 $ 135
Craig Cooper................................................... 170 (120) 50
William Heburn................................................. $ 558 $ 558
Gary Hill...................................................... 50 (50)
Samuel Holtzman................................................ 120 20 100
Ronald Hytoff.................................................. 106 (4) 102
Ira Korman..................................................... 50 (50)
Ira Korman..................................................... 30 (30)
Ruben Perez.................................................... 884 (144) 740
Doris Porth.................................................... 135 135
George Schneider............................................... 148 (1) 1 146
George Schneider............................................... 550 550
George Schneider............................................... 150 150
Russell Schneider.............................................. 764 3 (158) 609
Donald Stewart................................................. 100 (100)
Donald Stewart................................................. 3 3
Charles Stokes................................................. 75 75
Charles Stokes................................................. 40 (1) 39
Charles Stokes................................................. 100 100
----------- ----- ----------- ----- ---------
$ 3,502 $ 931 $ (920) $ 579 $ 2,934
----------- ----- ----------- ----- ---------
----------- ----- ----------- ----- ---------
F-56
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT
BALANCE AT END OF PERIOD
BEGINNING AMOUNTS ------------------------
OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
----------- ----------- --------- ----------- -----------
Year ended December 31, 1992:
Daniel Brothman................................................. $ 135 $ 135
Craig Cooper.................................................... 50 $ (50)
William Heburn.................................................. 558 (558)
Gary Hill....................................................... $ 127 $ 127
Samuel Holtzman................................................. 120 (20) 100
Ronald Hytoff................................................... 102 (102)
Ruben Perez..................................................... 740 (740)
Doris Porth..................................................... 135 135
George Schneider................................................ 147 (147)
George Schneider................................................ 550 (550)
George Schneider................................................ 150 (150)
Russell Schneider............................................... 609 (609)
Donald Stewart.................................................. 100 100
Donald Stewart.................................................. 3 (3)
Charles Stokes.................................................. 75 (75)
Charles Stokes.................................................. 39 (39)
Charles Stokes.................................................. 100 (100)
----------- ----- --------- ----- -----
$ 3,513 $ 227 $ (3,143) $ 127 $ 470
----------- ----- --------- ----- -----
----------- ----- --------- ----- -----
F-57
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
BALANCE AT
BALANCE AT END OF PERIOD
BEGINNING AMOUNTS ------------------------
OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
----------- ----------- ----------- ----------- -----------
Year ended December 31, 1993:
Daniel Brothman........................................... $ 135 $ 135(a)
Gary Hill................................................. 127 $ (127)
Samuel Holtzman........................................... 100 100(a)
Doris Porth............................................... 135 135(a)
Donald Stewart............................................ 100 100(a)
----- --- ----------- --- -----
$ 597 $ - $ (127) $ - $ 470
----- --- ----------- --- -----
----- --- ----------- --- -----
<FN>
- ------------------------
(a) Noninterest bearing; generally collateralized by deed of trust on personal
residence; payable either in periodic installments or upon termination of
employment, sale of residence or default on any collateralized instrument
having priority over Columbia/HCA's deed of trust.
F-58
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
BALANCE
AT BALANCE
BEGINNING ADDITIONS RETIREMENTS TRANSLATION AT END
OF PERIOD AT COST OR SALES ADJUSTMENTS OTHER OF PERIOD
--------- -------- ----------- ----------- ----- ---------
Year ended December 31, 1991:
Land.................................. $ 525 $ 29 $ (10) $ - $ - $ 544
Buildings............................. 3,563 269 (96) (3) (85)(a) 3,648
Equipment............................. 2,690 396 (129) (2) - 2,955
Construction in progress.............. 130 40 (1) - - 169
--------- -------- ----------- --- ----- ---------
$ 6,908 $ 734 $ (236) $ (5) $ (85) $ 7,316
--------- -------- ----------- --- ----- ---------
--------- -------- ----------- --- ----- ---------
Year ended December 31, 1992:
Land.................................. $ 544 $ 48 $ (11) $ (1) $ (27)(b) $ 553
Buildings............................. 3,648 365 (48) (13) (211)(b) 3,741
Equipment............................. 2,955 384 (94) (6) (106)(b) 3,133
Construction in progress.............. 169 94 (4) - (1) 258
--------- -------- ----------- --- ----- ---------
$ 7,316 $ 891 $ (157) $ (20) $(345) $ 7,685
--------- -------- ----------- --- ----- ---------
--------- -------- ----------- --- ----- ---------
Year ended December 31, 1993:
Land.................................. $ 553 $ 24 $ (9) $ - $ - $ 568
Buildings............................. 3,741 476 (134) (1) (33)(c) 4,049
Equipment............................. 3,133 464 (133) (1) (21)(c) 3,442
Construction in progress.............. 258 78 (2) - (1)(c) 333
--------- -------- ----------- --- ----- ---------
$ 7,685 $ 1,042 $ (278) $ (2) $ (55) $ 8,392
--------- -------- ----------- --- ----- ---------
--------- -------- ----------- --- ----- ---------
<FN>
- ------------------------
(a) During the third and fourth quarters of 1991, Columbia/HCA provided for
the estimated costs and expenses associated with the disposition of
certain hospitals and other assets.
(b) During the third quarter of 1992, Columbia/HCA provided for the estimated
costs and expenses associated with the disposition of certain hospitals,
recorded writedowns of assets in markets with significant declines in
operations and wrote off assets destroyed by Hurricane Andrew.
(c) During the third quarter of 1993, Columbia/HCA recorded provisions for
loss in connection with the Galen Merger, including writedowns of assets
in connection with the consolidation of operations and expected losses on
the sale of certain assets.
F-59
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
ADDITIONS
CHARGED
BALANCE TO
AT COSTS BALANCE
BEGINNING AND RETIREMENTS TRANSLATION AT END
OF PERIOD EXPENSES OR SALES ADJUSTMENTS OTHER OF PERIOD
--------- -------- ----------- ----------- -------- ---------
Year ended December 31, 1991:
Buildings........................... $ 719 $ 162 $ (29) $ (1) $ - $ 851
Equipment........................... 983 316 (65) (1) - 1,233
--------- -------- ----------- --- --- ---------
$ 1,702 $ 478 $ (94) $ (2) $ - $ 2,084
--------- -------- ----------- --- --- ---------
--------- -------- ----------- --- --- ---------
Year ended December 31, 1992:
Buildings........................... $ 851 $ 168 $ (19) $ (4) $(21)(a) $ 975
Equipment........................... 1,233 325 (67) (3) (26)(a) 1,462
--------- -------- ----------- --- --- ---------
$ 2,084 $ 493 $ (86) $ (7) $(47) $ 2,437
--------- -------- ----------- --- --- ---------
--------- -------- ----------- --- --- ---------
Year ended December 31, 1993:
Buildings........................... $ 975 $ 173 $ (56) $ (1) $ - $ 1,091
Equipment........................... 1,462 331 (92) - - 1,701
--------- -------- ----------- --- --- ---------
$ 2,437 $ 504 $ (148) $ (1) $ - $ 2,792
--------- -------- ----------- --- --- ---------
--------- -------- ----------- --- --- ---------
<FN>
- ------------------------
(a) During the third quarter of 1992, Columbia/HCA provided for the estimated
costs and expenses associated with the disposition of certain hospitals,
recorded writedowns of assets in markets with significant declines in
operations and wrote off assets destroyed by Hurricane Andrew.
F-60
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
OF PERIOD EXPENSES OR PAYMENTS OF PERIOD
----------- ------------- ------------- -----------
Allowances for loss on accounts receivable:
Year ended December 31, 1991................................... $ 499 $ 508 $ (560) $ 447
Year ended December 31, 1992................................... 447 515 (487) 475
Year ended December 31, 1993................................... 475 542 (504) 513
F-61
COLUMBIA/HCA HEALTHCARE CORPORATION
SUPPLEMENTAL SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
1993 1992 1991
--------- --------- ---------
Maintenance and repairs.................................................................. $ 220 $ 205 $ 188
Taxes other than payroll and income taxes................................................ 217 185 155
F-62