HCA Reports Third Quarter 2012 Results

Source: HCA Holdings, Inc.

HCA Reports Third Quarter 2012 Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Nov. 1, 2012-- HCA Holdings, Inc. (NYSE: HCA) today announced financial and operating results for the third quarter ended September 30, 2012.

Key third quarter metrics (all percentage changes compare 3Q 2012 to 3Q 2011 unless noted):

  • Revenues increased 11.1 percent to $8.062 billion
  • Net income attributable to HCA Holdings, Inc. totaled $360 million, or $0.78 per diluted share
  • Adjusted EBITDA increased 8.6 percent to $1.533 billion
  • Cash flows from operations declined to $655 million due primarily to changes in working capital items and higher tax payments
  • Same facility equivalent admissions increased 2.6 percent while same facility admissions increased 2.1 percent
  • Same facility revenue per equivalent admission increased 0.7 percent

HCA Chairman and Chief Executive Officer, Richard M. Bracken, said, “We are pleased with the results of the third quarter. Although we remain in a challenging economic environment, we remain focused on clinical and operational initiatives that position the Company for future changes in the healthcare industry.”

Revenues in the third quarter totaled $8.062 billion, compared to $7.258 billion in the third quarter of 2011. Third quarter revenue growth was primarily driven by increased volume and the consolidation of our HealthONE venture, which was accounted for under the equity method for periods prior to November 2011. Equivalent admissions increased 8.3 percent, while admissions increased 7.0 percent.

Same facility equivalent admissions increased 2.6 percent in the third quarter of 2012 compared to the prior year period, while same facility admissions increased 2.1 percent. Same facility emergency room visits increased 7.4 percent in the third quarter of 2012 compared to the prior year period.

Revenue per equivalent admission increased 2.5 percent in the third quarter of 2012, primarily reflecting a continuing shift in service and payer mix. The Company’s operating expense per equivalent admission increased 3.1 percent from the prior year’s third quarter (2.0 percent on a same facility basis). During the third quarter of 2012, salaries and benefits, supplies and other operating expenses totaled $6.666 billion, or 82.7 percent of revenues, compared to $5.965 billion, or 82.1 percent of revenues, in the third quarter of 2011.

Adjusted EBITDA for the third quarter of 2012 increased 8.6 percent to $1.533 billion compared to $1.412 billion in the prior year period. Adjusted EBITDA is a non-GAAP financial measure. A table providing supplemental information on Adjusted EBITDA and reconciling net income attributable to HCA Holdings, Inc. to Adjusted EBITDA is included in this release.

Net income attributable to HCA Holdings, Inc. totaled $360 million, or $0.78 per diluted share, compared to $61 million, or $0.11 per diluted share, in the third quarter of 2011. Results for the third quarter of 2011 include pretax losses on retirement of debt of $406 million, or $0.49 per diluted share. The effective tax rate for the third quarter of 2011 was favorably impacted by the finalization of settlements for the 1997 through 2001 tax years. These settlements resulted in a reduction to interest expense related to taxing authority examinations of $66 million pretax, or $0.08 per diluted share. (All “per diluted share” disclosures are based upon amounts net of the applicable income taxes.)

Nine Months Ended September 30, 2012

Revenues for the nine months ended September 30, 2012 totaled $24.579 billion compared to $21.913 billion in the same period of 2011. Net income attributable to HCA Holdings, Inc. was $1.291 billion, or $2.81 per diluted share, compared to $530 million, or $1.04 per diluted share, for the first nine months of 2011. Results for the nine months ended September 30, 2011 include pretax losses on retirement of debt of $481 million, or $0.60 per diluted share, and a pretax charge for the termination of a management agreement of $181 million, or $0.29 per diluted share.

Balance Sheet and Cash Flow

As of September 30, 2012, HCA Holdings, Inc.’s balance sheet reflected cash and cash equivalents of $472 million, total debt of $26.933 billion, and total assets of $27.302 billion. During the third quarter of 2012, capital expenditures totaled $484 million, excluding acquisitions. Net cash provided by operating activities in the third quarter of 2012 totaled $655 million compared to $880 million in the prior year’s third quarter. The reduction in cash flows from operating activities was primarily due to reductions of $145 million from changes in working capital items and $107 million from higher income taxes.

Special Cash Dividend

On October 23, 2012, the Board of Directors approved a special cash dividend of $2.50 per share to be paid to stockholders of record as of November 2, 2012 with a payment date of November 16, 2012. The dividend is expected to be funded through borrowings under the Company’s credit facilities.

As of September 30, 2012, HCA operated 162 hospitals and 112 freestanding surgery centers.

Earnings Conference Call

HCA will host a conference call for investors at 9:00 a.m. Central Daylight Time today. All interested investors are invited to access a live audio broadcast of the call via webcast. The broadcast also will be available on a replay basis beginning this afternoon. The webcast can be accessed at: https://event.webcasts.com/starthere.jsp?ei=1009838 or through the Company’s Investor Relations web page at www.hcahealthcare.com.

Cautionary Statement about Preliminary Results and Other Forward-Looking Information

This press release contains forward-looking statements based on current management expectations. Those forward-looking statements include all statements other than those made solely with respect to historical fact. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in any forward-looking statements. These factors include, but are not limited to, (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the effects related to the enactment and implementation of the Budget Control Act of 2011 and the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Health Reform Law”), the possible enactment of additional federal or state health care reforms and possible changes to the Health Reform Law and other federal, state or local laws or regulations affecting the health care industry, (3) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (4) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (5) possible changes in the Medicare, Medicaid and other state programs, including Medicaid upper payment limit programs or Waiver Programs, that may impact reimbursements to health care providers and insurers, (6) the highly competitive nature of the health care business, (7) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under managed care agreements, the ability to enter into and renew managed care provider agreements on acceptable terms and the impact of consumer driven health plans and physician utilization trends and practices, (8) the efforts of insurers, health care providers and others to contain health care costs, (9) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (10) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (11) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (12) changes in accounting practices, (13) changes in general economic conditions nationally and regionally in our markets, (14) future divestitures which may result in charges and possible impairments of long-lived assets, (15) changes in business strategy or development plans, (16) delays in receiving payments for services provided, (17) the outcome of pending and any future tax audits, appeals and litigation associated with our tax positions, (18) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (19) our ongoing ability to demonstrate meaningful use of certified electronic health record technology and recognize income for the related Medicare or Medicaid incentive payments, and (20) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2011 and our other filings with the Securities and Exchange Commission. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

All references to “Company” and “HCA” as used throughout this release refer to HCA Holdings, Inc. and its affiliates.

HCA Holdings, Inc.
Condensed Consolidated Comprehensive Income Statements
Third Quarter
(Dollars in millions, except per share amounts)
                   
                   
                   
      2012     2011  
      Amount Ratio     Amount Ratio  
                   
Revenues before provision for doubtful accounts   $8,893       $7,998    
Provision for doubtful accounts   831       740    
Revenues   8,062 100.0 %   7,258 100.0 %
                   
Salaries and benefits   3,781 46.9     3,333 45.9  
Supplies   1,375 17.1     1,263 17.4  
Other operating expenses   1,510 18.7     1,369 18.8  
Electronic health record incentive income   (131) (1.6)     (51) (0.7)  
Equity in earnings of affiliates   (6) (0.1)     (68) (0.9)  
Depreciation and amortization   417 5.2     362 5.0  
Interest expense   446 5.5     519 7.2  
Losses (gains) on sales of facilities   (7) (0.1)     2 -  
Losses on retirement of debt   - -     406 5.6  
                   
      7,385 91.6     7,135 98.3  
                   
Income before income taxes   677 8.4     123 1.7  
                   
Provision (benefit) for income taxes   222 2.8     (23) (0.3)  
                   
Net income   455 5.6     146 2.0  
                   
Net income attributable to noncontrolling interests   95 1.1     85 1.2  
                   
Net income attributable to HCA Holdings, Inc.   $360 4.5     $61 0.8  
                   
Diluted earnings per share   $0.78       $0.11    
                   
Shares used in computing diluted earnings per share (000)   459,515       527,515    
                   
Comprehensive income (loss) attributable to HCA Holdings, Inc.   $369       ($24)    
HCA Holdings, Inc.
Condensed Consolidated Comprehensive Income Statements
For the Nine Months Ended September 30, 2012 and 2011
(Dollars in millions, except per share amounts)
                 
                 
                 
      2012     2011    
      Amount Ratio   Amount Ratio  
                 
Revenues before provision for doubtful accounts   $ 27,245       $ 24,077      
Provision for doubtful accounts     2,666         2,164      
Revenues     24,579   100.0   %   21,913   100.0   %
                 
Salaries and benefits     11,224   45.7       9,948   45.4    
Supplies     4,216   17.2       3,833   17.5    
Other operating expenses     4,496   18.2       4,017   18.3    
Electronic health record incentive income     (256 ) (1.0 )     (90 ) (0.4 )  
Equity in earnings of affiliates     (26 ) (0.1 )     (217 ) (1.0 )  
Depreciation and amortization     1,254   5.1       1,078   4.9    
Interest expense     1,336   5.4       1,572   7.2    
Losses (gains) on sales of facilities     (4 ) -       3   -    
Losses on retirement of debt     -   -       481   2.2    
Termination of management agreement     -   -       181   0.8    
                 
        22,240   90.5       20,806   94.9    
                 
Income before income taxes     2,339   9.5       1,107   5.1    
                 
Provision for income taxes     760   3.1       307   1.5    
                 
Net income     1,579   6.4       800   3.6    
                 
Net income attributable to noncontrolling interests     288   1.1       270   1.2    
                 
Net income attributable to HCA Holdings, Inc.   $ 1,291   5.3     $ 530   2.4    
                 
Diluted earnings per share   $ 2.81       $ 1.04      
                 
Shares used in computing diluted earnings per share (000)     458,822         509,583      
                 
Comprehensive income attributable to HCA Holdings, Inc.   $ 1,291       $ 534      
HCA Holdings, Inc.
Supplemental Non-GAAP Disclosures
Operating Results Summary
(Dollars in millions, except per share amounts)
                 
                 
            For the Nine Months
    Third Quarter   Ended September 30,
      2012       2011     2012       2011
                 
Revenues   $ 8,062     $ 7,258    

24,579

    $ 21,913
                 
Net income attributable to HCA Holdings, Inc.   $ 360     $ 61   $ 1,291     $ 530
Losses (gains) on sales of facilities (net of tax)     (5 )     1     (3 )     4
Losses on retirement of debt (net of tax)     -       256     -       303
Termination of management agreement (net of tax)     -       -     -       149

Net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement (a)

    355       318     1,288       986
Depreciation and amortization     417       362     1,254       1,078
Interest expense     446       519     1,336       1,572
Provision for income taxes     220       128     759       516
Net income attributable to noncontrolling interests     95       85     288       270
                 
Adjusted EBITDA (a)   $ 1,533     $ 1,412   $ 4,925     $ 4,422
                 
Diluted earnings per share:                
Net income attributable to HCA Holdings, Inc.   $ 0.78     $ 0.11   $ 2.81     $ 1.04
Losses (gains) on sales of facilities     (0.01 )     -     -       0.01
Losses on retirement of debt     -       0.49     -       0.60
Termination of management agreement     -       -     -       0.29

Net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement (a)

  $ 0.77     $ 0.60   $ 2.81     $ 1.94
                 
Shares used in computing diluted earnings per share (000)    

459,515

      527,515    

458,822

      509,583
                 
                 
                 

(a) Net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA should not be considered as measures of financial performance under generally accepted accounting principles ("GAAP"). We believe net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA are important measures that supplement discussions and analysis of our results of operations. We believe it is useful to investors to provide disclosures of our results of operations on the same basis used by management. Management relies upon net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA as the primary measures to review and assess operating performance of its hospital facilities and their management teams.

 
Management and investors review both the overall performance (including; net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and GAAP net income attributable to HCA Holdings, Inc.) and operating performance (Adjusted EBITDA) of our health care facilities. Adjusted EBITDA and the Adjusted EBITDA margin (Adjusted EBITDA divided by revenues) are utilized by management and investors to compare our current operating results with the corresponding periods during the previous year and to compare our operating results with other companies in the health care industry. It is reasonable to expect that losses (gains) on sales of facilities and losses on retirement of debt will occur in future periods, but the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our health care facilities and complicate period comparisons of our results of operations and operations comparisons with other health care companies.
 
Net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA are not measures of financial performance under GAAP, and should not be considered as alternatives to net income attributable to HCA Holdings, Inc. as a measure of operating performance or cash flows from operating, investing and financing activities as a measure of liquidity. Because net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA are not measurements determined in accordance with GAAP and are susceptible to varying calculations, net income attributable to HCA Holdings, Inc., excluding losses (gains) on sales of facilities, losses on retirement of debt and termination of management agreement and Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures presented by other companies.
HCA Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions)
                                   
                                   
                                   
                         

September 30,

  June 30,   December 31,
                            2012       2012       2011  
                                   
ASSETS                                  
Current assets:                                
Cash and cash equivalents         $ 472     $ 518     $ 373  
Accounts receivable, net           4,598       4,485       4,533  
Inventories           1,052       1,055       1,054  
Deferred income taxes           322       323       594  
Other           828       756       679  
Total current assets           7,272       7,137       7,233  
                                   
Property and equipment, at cost           29,145       28,742       28,075  
Accumulated depreciation           (16,185 )     (15,896 )     (15,241 )
                            12,960       12,846       12,834  
                                   
Investments of insurance subsidiaries           473       495       548  
Investments in and advances to affiliates           103       102       101  
Goodwill and other intangible assets           5,460       5,431       5,251  
Deferred loan costs           266       281       290  
Other           768       840       641  
                                   
                          $ 27,302     $ 27,132     $ 26,898  
                                   
                                   
                                   
LIABILITIES AND STOCKHOLDERS' DEFICIT                  
Current liabilities:                  
Accounts payable         $ 1,585     $ 1,517     $ 1,597  
Accrued salaries           1,027       970       965  
Other accrued expenses           1,498       1,651       1,585  
Long-term debt due within one year           1,751       1,309       1,407  
Total current liabilities           5,861       5,447       5,554  
                                   
Long-term debt           25,182       25,732       25,645  
Professional liability risks           962       1,039       993  
Income taxes and other liabilities           1,860       1,857       1,720  
                                   
EQUITY (DEFICIT)                              
Stockholders' deficit attributable to HCA Holdings, Inc.           (7,859 )     (8,243 )     (8,258 )
Noncontrolling interests           1,296       1,300       1,244  
Total deficit           (6,563 )     (6,943 )     (7,014 )
                          $ 27,302     $ 27,132     $ 26,898  
HCA Holdings, Inc.    
Condensed Consolidated Statements of Cash Flows    
For the Nine Months Ended September 30, 2012 and 2011    
(Dollars in millions)    
         
         
         
      2012       2011  
         
Cash flows from operating activities:        
Net income   $ 1,579     $ 800  
Adjustments to reconcile net income to net cash provided by operating activities:        
Changes in operating assets and liabilities     (2,923 )     (2,336 )
Provision for doubtful accounts     2,666       2,164  
Depreciation and amortization     1,254       1,078  
Income taxes     250       348  
Losses (gains) sales of facilities     (4 )     3  
Losses on retirement of debt     -       481  
Amortization of deferred loan costs     44       56  
Share-based compensation     39       24  
Pay-in-kind interest     -       (78 )
Other     7       6  
         
Net cash provided by operating activities     2,912       2,546  
         
         
Cash flows from investing activities:        
Purchase of property and equipment     (1,268 )     (1,170 )
Acquisition of hospitals and health care entities     (167 )     (209 )
Disposition of hospitals and health care entities     17       55  
Change in investments     73       80  
Other     5       4  
         
Net cash used in investing activities     (1,340 )     (1,240 )
         
         
Cash flows from financing activities:        
Issuance of long-term debt     1,350       5,000  
Net change in revolving credit facilities     (875 )     (414 )
Repayment of long-term debt     (689 )     (6,583 )
Distributions to noncontrolling interests     (303 )     (281 )
Payment of debt issuance costs     (20 )     (84 )
Issuance of common stock     -       2,506  
Distributions to stockholders     (983 )     (31 )
Repurchase of common stock     -       (1,503 )
Income tax benefits     82       54  
Other     (35 )     (22 )
         
Net cash used in financing activities     (1,473 )     (1,358 )
         
         
Change in cash and cash equivalents     99       (52 )
Cash and cash equivalents at beginning of period     373       411  
         
         
Cash and cash equivalents at end of period   $ 472     $ 359  
         
         
Interest payments   $ 1,404     $ 1,635  
Income tax payments (refunds), net   $ 428     $ (95 )
HCA Holdings, Inc.
Operating Statistics
                 
                 
            For the Nine Months
    Third Quarter   Ended September 30,
      2012       2011       2012       2011  
                 
Operations:                
Number of Hospitals     162       157       162       157  
Number of Freestanding Outpatient Surgery Centers     112       98       112       98  
Licensed Beds at End of Period     41,884       39,526       41,884       39,526  
Weighted Average Licensed Beds     41,873       39,509       41,801       39,310  
                 
Reported:                
Admissions     430,500       402,300       1,302,000       1,206,700  

      % Change

    7.0 %         7.9 %    
Equivalent Admissions     705,200       650,900       2,117,100       1,928,200  

      % Change

    8.3 %         9.8 %    
Revenue per Equivalent Admission   $ 11,432     $ 11,151     $ 11,610     $ 11,364  

      % Change

    2.5 %         2.2 %    
Inpatient Revenue per Admission   $ 11,296     $ 11,085     $ 11,477     $ 11,268  

      % Change

    1.9 %         1.9 %    
                 
Patient Days     2,035,200       1,888,500       6,166,400       5,758,300  

      % Change

    7.8 %         7.1 %    
Equivalent Patient Days     3,334,000       3,056,600       10,026,500       9,201,800  

      % Change

    9.1 %         9.0 %    
                 
Inpatient Surgery Cases     124,700       121,100       379,700       361,000  

      % Change

    3.0 %         5.2 %    
Outpatient Surgery Cases     212,300       194,300       649,600       586,400  

      % Change

    9.3 %         10.8 %    
                 
Emergency Room Visits     1,724,000       1,539,500       5,126,600       4,579,100  

      % Change

    12.0 %         12.0 %    
                 

Outpatient Revenues as a Percentage of Patient Revenues

    38.4 %     37.4 %     38.0 %     36.8 %
                 
Average Length of Stay     4.7       4.7       4.7       4.8  
                 
Occupancy     52.8 %     52.0 %     53.8 %     53.7 %
Equivalent Occupancy     86.4 %     84.1 %     87.5 %     85.8 %
                 
Same Facility:                
Admissions     405,800       397,300       1,228,400       1,197,100  

      % Change

    2.1 %         2.6 %    
Equivalent Admissions     658,600       642,100       1,981,400       1,909,300  

      % Change

    2.6 %         3.8 %    
Revenue per Equivalent Admission   $ 11,210     $ 11,130     $ 11,385     $ 11,351  

      % Change

    0.7 %         0.3 %    
Inpatient Revenue per Admission   $ 11,148     $ 11,106     $ 11,325     $ 11,278  

      % Change

    0.4 %         0.4 %    
                 
Inpatient Surgery Cases     117,000       119,600       355,100       356,400  

      % Change

    -2.1 %         -0.4 %    
Outpatient Surgery Cases     189,600       191,100       581,100       577,600  

      % Change

    -0.8 %         0.6 %    
                 
Emergency Room Visits     1,626,100       1,514,500       4,841,800       4,517,500  

      % Change

    7.4 %         7.2 %