UNITED STATES
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2002 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number 1-11239
HCA Inc.
|
Delaware (State or other jurisdiction of incorporation or organization) |
75-2497104 (I.R.S. Employer Identification No.) |
|
|
One Park Plaza Nashville, Tennessee (Address of principal executive offices) |
37203 (Zip Code) |
|
(615) 344-9551
Not Applicable
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-d of the Exchange Act). YES x NO o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock of the latest practical date.
| Class of Common Stock | Outstanding at October 31, 2002 | |
|
Voting common stock, $.01 par value
|
492,192,200 shares | |
|
Nonvoting common stock, $.01 par value
|
21,000,000 shares |
HCA INC.
FORM 10-Q
| Page of | ||||||
| Form 10-Q | ||||||
|
Part I.
|
Financial Information
|
|||||
|
Item 1.
|
Financial Statements (Unaudited):
|
|||||
|
Condensed Consolidated Income
Statements — for the quarters and nine months ended
September 30, 2002 and 2001
|
3 | |||||
|
Condensed Consolidated Balance Sheets —
September 30, 2002 and December 31, 2001
|
4 | |||||
|
Condensed Consolidated Statements of Cash
Flows — for the nine months ended September 30, 2002
and 2001
|
5 | |||||
|
Notes to Condensed Consolidated Financial
Statements
|
6 | |||||
|
Item 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
16 | ||||
|
Item 3.
|
Quantitative and Qualitative Disclosure of Market
Risk
|
30 | ||||
|
Item 4.
|
Controls and Procedures
|
30 | ||||
|
Item 5. |
Other Information
|
31 | ||||
|
Part II.
|
Other Information
|
|||||
|
Item 1.
|
Legal Proceedings
|
32 | ||||
|
Item 6.
|
Exhibits and Reports on Form 8-K
|
44 | ||||
| Signatures and Certifications | 45 | |||||
2
HCA INC.
| Quarter | Nine Months | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
|
Revenues
|
$ | 4,929 | $ | 4,438 | $ | 14,705 | $ | 13,415 | ||||||||||
|
Salaries and benefits
|
1,999 | 1,808 | 5,889 | 5,412 | ||||||||||||||
|
Supplies
|
795 | 712 | 2,351 | 2,136 | ||||||||||||||
|
Other operating expenses
|
859 | 839 | 2,491 | 2,435 | ||||||||||||||
|
Provision for doubtful accounts
|
411 | 364 | 1,150 | 990 | ||||||||||||||
|
Depreciation and amortization
|
253 | 255 | 752 | 774 | ||||||||||||||
|
Interest expense
|
111 | 137 | 340 | 418 | ||||||||||||||
|
Insurance subsidiary (gains) losses on sales of
investments
|
(2 | ) | (15 | ) | 2 | (54 | ) | |||||||||||
|
Equity in earnings of affiliates
|
(50 | ) | (40 | ) | (156 | ) | (122 | ) | ||||||||||
|
Settlement with Federal government
|
— | — | — | 2 | ||||||||||||||
|
Gains on sales of facilities
|
— | (112 | ) | — | (125 | ) | ||||||||||||
|
Impairment of investment securities
|
168 | — | 168 | — | ||||||||||||||
|
Impairment of long-lived assets
|
— | 17 | 19 | 17 | ||||||||||||||
|
Investigation related costs
|
16 | 17 | 46 | 44 | ||||||||||||||
| 4,560 | 3,982 | 13,052 | 11,927 | |||||||||||||||
|
Income before minority interests and income taxes
|
369 | 456 | 1,653 | 1,488 | ||||||||||||||
|
Minority interests in earnings of consolidated
entities
|
34 | 33 | 111 | 92 | ||||||||||||||
|
Income before income taxes
|
335 | 423 | 1,542 | 1,396 | ||||||||||||||
|
Provision for income taxes
|
135 | 167 | 607 | 551 | ||||||||||||||
|
Reported net income
|
200 | 256 | 935 | 845 | ||||||||||||||
|
Goodwill amortization, net of tax
|
— | 17 | — | 52 | ||||||||||||||
|
Adjusted net income
|
$ | 200 | $ | 273 | $ | 935 | $ | 897 | ||||||||||
|
Basic earnings per share:
|
||||||||||||||||||
|
Reported net income
|
$ | 0.39 | $ | 0.50 | $ | 1.83 | $ | 1.60 | ||||||||||
|
Goodwill amortization, net of tax
|
— | 0.03 | — | 0.10 | ||||||||||||||
|
Adjusted net income
|
$ | 0.39 | $ | 0.53 | $ | 1.83 | $ | 1.70 | ||||||||||
|
Diluted earnings per share:
|
||||||||||||||||||
|
Reported net income
|
$ | 0.38 | $ | 0.48 | $ | 1.78 | $ | 1.56 | ||||||||||
|
Goodwill amortization, net of tax
|
— | 0.03 | — | 0.10 | ||||||||||||||
|
Adjusted net income
|
$ | 0.38 | $ | 0.51 | $ | 1.78 | $ | 1.66 | ||||||||||
|
Cash dividends
|
$ | 0.02 | $ | 0.02 | $ | 0.06 | $ | 0.06 | ||||||||||
|
Shares used in earnings per share calculations
(in thousands):
|
||||||||||||||||||
|
Basic
|
513,986 | 513,873 | 511,881 | 528,856 | ||||||||||||||
|
Diluted
|
527,260 | 529,491 | 525,659 | 543,274 | ||||||||||||||
See accompanying notes.
3
HCA INC.
| September 30, | December 31, | ||||||||
| 2002 | 2001 | ||||||||
| ASSETS | |||||||||
|
Current assets:
|
|||||||||
|
Cash and cash equivalents
|
$ | 138 | $ | 85 | |||||
|
Accounts receivable, less allowance for doubtful
accounts of $1,975 and $1,812
|
2,685 | 2,420 | |||||||
|
Inventories
|
438 | 423 | |||||||
|
Income taxes receivable
|
34 | 93 | |||||||
|
Other
|
1,214 | 1,120 | |||||||
| 4,509 | 4,141 | ||||||||
|
Property and equipment, at cost
|
16,456 | 15,222 | |||||||
|
Accumulated depreciation
|
(6,930 | ) | (6,303 | ) | |||||
| 9,526 | 8,919 | ||||||||
|
Investments of insurance subsidiary
|
1,384 | 1,453 | |||||||
|
Investments in and advances to affiliates
|
667 | 680 | |||||||
|
Goodwill
|
2,001 | 1,984 | |||||||
|
Deferred loan costs
|
69 | 67 | |||||||
|
Other
|
371 | 486 | |||||||
| $ | 18,527 | $ | 17,730 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
|
Current liabilities:
|
|||||||||
|
Accounts payable
|
$ | 742 | $ | 755 | |||||
|
Accrued salaries
|
423 | 386 | |||||||
|
Other accrued expenses
|
1,042 | 986 | |||||||
|
Government settlement accrual
|
250 | 250 | |||||||
|
Long-term debt due within one year
|
427 | 807 | |||||||
| 2,884 | 3,184 | ||||||||
|
Long-term debt
|
6,933 | 6,553 | |||||||
|
Professional liability risks, deferred taxes and
other liabilities
|
2,375 | 2,268 | |||||||
|
Minority interests in equity of consolidated
entities
|
598 | 563 | |||||||
|
Company-obligated mandatorily redeemable
securities of affiliate holding solely Company securities
|
— | 400 | |||||||
|
Stockholders’ equity:
|
|||||||||
|
Common stock $.01 par; authorized
1,650,000,000 shares; outstanding 512,526,400 shares
in 2002 and 509,297,200 shares in 2001
|
5 | 5 | |||||||
|
Capital in excess of par value
|
37 | — | |||||||
|
Other
|
6 | 7 | |||||||
|
Accumulated other comprehensive income
|
51 | 18 | |||||||
|
Retained earnings
|
5,638 | 4,732 | |||||||
| 5,737 | 4,762 | ||||||||
| $ | 18,527 | $ | 17,730 | ||||||
See accompanying notes.
4
HCA INC.
| 2002 | 2001 | ||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net income
|
$ | 935 | $ | 845 | |||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|||||||||||
|
Provision for doubtful accounts
|
1,150 | 990 | |||||||||
|
Depreciation and amortization
|
752 | 774 | |||||||||
|
Income taxes
|
46 | 336 | |||||||||
|
Gains on sales of facilities
|
— | (125 | ) | ||||||||
|
Impairment of investment securities
|
168 | — | |||||||||
|
Impairment of long-lived assets
|
19 | 17 | |||||||||
|
Changes in operating assets and liabilities
|
(1,195 | ) | (1,165 | ) | |||||||
|
Payment to Federal government
|
— | (840 | ) | ||||||||
|
Other
|
89 | (11 | ) | ||||||||
|
Net cash provided by operating activities
|
1,964 | 821 | |||||||||
|
Cash flows from investing activities:
|
|||||||||||
|
Purchase of property and equipment
|
(1,240 | ) | (962 | ) | |||||||
|
Acquisition of hospitals and other health care
entities
|
(118 | ) | (94 | ) | |||||||
|
Investment in and advances to affiliates
|
— | (24 | ) | ||||||||
|
Disposition of property and equipment
|
77 | 443 | |||||||||
|
Change in investments
|
(65 | ) | (124 | ) | |||||||
|
Other
|
(21 | ) | (17 | ) | |||||||
|
Net cash used in investing activities
|
(1,367 | ) | (778 | ) | |||||||
|
Cash flows from financing activities:
|
|||||||||||
|
Issuance of long-term debt
|
1,005 | 1,750 | |||||||||
|
Net change in revolving bank credit
|
(255 | ) | (15 | ) | |||||||
|
Repayment of long-term debt
|
(790 | ) | (1,380 | ) | |||||||
|
Issuance of mandatorily redeemable securities of
affiliate
|
— | 500 | |||||||||
|
Repurchases of common stock
|
(682 | ) | (1,256 | ) | |||||||
|
Issuances of common stock
|
221 | 187 | |||||||||
|
Payment of cash dividends
|
(30 | ) | (32 | ) | |||||||
|
Other
|
(13 | ) | (37 | ) | |||||||
|
Net cash used in financing activities
|
(544 | ) | (283 | ) | |||||||
|
Change in cash and cash equivalents
|
53 | (240 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
85 | 314 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 138 | $ | 74 | |||||||
|
Interest payments
|
$ | 308 | $ | 420 | |||||||
|
Income tax payments
|
$ | 561 | $ | 215 | |||||||
See accompanying notes.
5
HCA INC.
NOTE 1 — BASIS OF PRESENTATION
HCA Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2002, these affiliates owned and operated 175 hospitals, 74 freestanding surgery centers and provided extensive outpatient and ancillary services. Affiliates of HCA Inc. are also partners in 50/50 joint ventures that own and operate six hospitals and four freestanding surgery centers which are accounted for using the equity method. The Company’s facilities are located in 22 states, England and Switzerland. The terms “HCA” or the “Company” as used in this Quarterly Report on Form 10-Q refer to HCA Inc. and its affiliates unless otherwise stated or indicated by context.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended September 30, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2 — INVESTIGATIONS AND SETTLEMENT OF CERTAIN GOVERNMENT CLAIMS
HCA continues to be the subject of governmental investigations and litigation relating to its business practices. Additionally, HCA is a defendant in several qui tam actions brought by private parties on behalf of the United States of America.
In December 2000, HCA entered into a Plea Agreement with the Criminal Division of the Department of Justice and various U.S. Attorneys’ Offices (the “Plea Agreement”) and a Civil and Administrative Settlement Agreement with the Civil Division of the Department of Justice (the “Civil Agreement”). The agreements resolved all Federal criminal issues outstanding against HCA and certain issues involving Federal civil claims by or on behalf of the government against HCA relating to DRG coding, outpatient laboratory billing and home health issues. The civil issues that are not covered by the Civil Agreement and remain outstanding include claims related to cost reports and physician relations issues. The Civil Agreement was approved by the Federal District Court of the District of Columbia in August 2001. HCA paid the government $95 million, as provided by the Plea Agreement, during the first quarter of 2001 and paid $745 million (plus $60 million of accrued interest), as provided by the Civil Agreement, during the third quarter of 2001. HCA also entered into a Corporate Integrity Agreement (“CIA”) with the Office of Inspector General of the Department of Health and Human Services.
Under the Civil Agreement, HCA’s existing Letter of Credit Agreement with the Department of Justice was reduced from $1 billion to $250 million at the time of the settlement payment. Any future civil settlement or court ordered payments related to cost report or physician relations issues will reduce the remaining amount of the letter of credit dollar for dollar. The amount of any such future settlement or court ordered payments is not related to the remaining amount of the letter of credit.
HCA remains the subject of a formal order of investigation by the Securities and Exchange Commission (the “SEC”). HCA understands that the investigation i