01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
HCA Inc. reported a solid 2009 with net income attributable to HCA of $1.054 billiona, up 56.7% from $673 million in 2008, and revenues of $30.052 billion, up 5.9%.
Growth was driven by a 2.6% increase in revenue per equivalent admission and a 3.2% increase in equivalent admissions, with same-facility revenues up 6.1%. Cash flow from operations rose to $2.747 billionb from $1.990 billion, and capital spending was $1.317 billion. Operating margins improved, with the provision for doubtful accounts falling to 10.9% of revenues from 12.0%, although this decline reflects a shift of self-pay balances into charity care and uninsured discounts, which together with the provision rose to 23.8% of adjusted revenues from 21.9%.
The balance sheet remains highly leveraged. Total debt was $25.670 billionc at year-end 2009, down from $26.989 billion, and stockholders' deficit was $(7.978) billion. Interest expense declined modestly to $1.987 billion.
Following year-end, the company paid a $17.50d per share distribution totaling approximately $1.750 billion on February 5, 2010, funded by its senior secured credit facilities and about $100 million of cash, which adds to leverage. The company's stock is privately held by the investor group from the 2006 Recapitalization (about 97.1% indirect ownership), so there is no public market for the shares.
Key risks include heavy concentration in Florida and Texas (about 51% of revenues), pending health care reform legislation, Medicare and Medicaid payment pressures, rising uninsured volumes, an IRS dispute over the allowance for doubtful accounts, and legal exposure such as the New Hampshire Portsmouth Regional Hospital litigation. Management expects liquidity to be sufficient for the next twelve months.
02—Key points
Key Highlights
- Revenue rose 5.9% to $30.052 billion, with same-facility revenue up 6.1%, driven by 2.6% higher revenue per equivalent admission and 3.4% higher same-facility equivalent admissions.
- Net income attributable to HCA Inc. increased 56.7% to $1.054 billion, aided by lower provision for doubtful accounts (10.9% of revenue vs. 12.0%) and lower interest expense.
- Operating cash flow increased to $2.747 billion from $1.990 billion, while capital expenditures were $1.317 billion.
- Total debt declined to $25.670 billion from $26.989 billion, though the company remains highly leveraged with a stockholders' deficit of $(7.978) billion.
- A $17.50 per share distribution (about $1.750 billion) was paid February 5, 2010, funded by credit facility borrowings and roughly $100 million of cash on hand, increasing leverage after year-end.
- Uninsured and self-pay burden is growing: charity care and uninsured discounts rose to $5.086 billion in 2009 from $3.600 billion in 2008, and uninsured emergency room visits increased 6.5% on a same-facility basis.
- Concentration risk is significant, with 73 of 163 hospitals and about 51% of revenue in Florida and Texas, and health care reform and Medicaid funding remain key uncertainties.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
| Revenue | $26.78B |
| Interest Expense | $1.99B |
| Net Income | $1.05B |
| EPS (Basic) | $2.48 |
| EPS (Diluted) | $2.44 |
| Shares Outstanding (Basic) | 425.57M |
| Shares Outstanding (Diluted) | 432.23M |
05—Questions
Frequently Asked Questions
Why did net income rise so sharply in 2009?
Net income attributable to HCA rose to $1.054 billion from $673 million, mainly due to revenue growth of 5.9%, a lower provision for doubtful accounts as a percentage of revenue (10.9% vs. 12.0%), lower interest expense ($1.987 billion vs. $2.021 billion), and better operating expense leverage. Income taxes rose, with an effective rate of 37.3% (computed excluding noncontrolling interests), partly offsetting these gains. Noncontrolling interests also increased to $321 million from $229 million.
Is the bad-debt improvement a true operating gain?
Not entirely. The provision for doubtful accounts fell as a percentage of revenue, but the combined total of provision, uninsured discounts and charity care rose to 23.8% of adjusted revenue from 21.9%, reaching $8.362 billion from $7.009 billion. Much of the uninsured burden shifted into revenue deductions, so the reported drop in bad debt reflects a reclassification of self-pay losses rather than improved collections.
How leveraged is HCA and what are the near-term debt obligations?
Total debt was $25.670 billion at December 31, 2009, with $846 million due within one year. Roughly $24.5 billion is fixed rate and about $1.2 billion is variable. Senior secured credit facilities mature in 2012 and 2013, and the company has a $2.0 billion ABL facility. The stockholders' deficit of $(7.978) billion reflects the 2006 leveraged recapitalization. Covenants restrict dividends and additional indebtedness.
What are the main regulatory and policy risks to revenue?
Medicare and Medicaid represent about 60% of admissions. Risks include CMS documentation and coding adjustments for federal fiscal years 2011 and 2012, expansion of hospital-acquired condition payment rules, reduced ASC and outpatient reimbursement, Medicaid budget pressure at the state level, and federal health care reform proposals that were passed by both houses of Congress but not yet enacted. The company also faces compliance exposure under the Stark Law, Anti-kickback Statute, and False Claims Act, after its Corporate Integrity Agreement expired in January 2009.
Can public investors buy HCA stock?
No. HCA's common stock is privately held and not traded on any national exchange. As of February 28, 2010, there were 625 holders of record, and the Investors own about 97.1% of capital stock indirectly. The company registered its common stock under Section 12(g) in April 2008 and files periodic reports with the SEC, but there is no established public trading market.
06—Continue