01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
HCA Holdings' FY2016 10-K shows a company that grew revenue and earnings while carrying heavy leverage and returning cash to shareholders.
Revenues rose 4.6% to $41.49 billiona, driven by a 2.3% increase in revenue per equivalent admission and a 2.2% increase in equivalent admissions. Net income attributable to HCA rose 35.8% to $2.89 billion, or $7.30 per diluted share, up from $4.99 in 2015. Results were flattered by one-time items: a $246 million net legal claim benefit from the Health Midwest settlement, $162 million of tax benefits from adopting ASU 2016-09, and $51 million from resolving 2011-2012 IRS issues.
Operating cash flow was $5.65 billionb, and capital expenditures were $2.76 billion. The balance sheet remains highly leveraged. Total debt was $31.4 billion at year-end, and stockholders' deficit was $(5.6) billion.
Interest expense was $1.71 billionc. HCA repurchased 36.3 million shares for $2.75 billion during 2016 and paid no dividends. Revenue quality is a watch item: the uninsured-related combination of uninsured discounts, charity care and bad-debt provision reached $20.5 billion (33.0% of that combined base, up from 31.5%).
Florida and Texas account for roughly 47%d of revenues. Regulatory exposure is significant. Medicare and Medicaid made up 41.7% of 2016 revenues.
The Health Reform Law's future is uncertain after the 2016 elections, and it could affect Exchange enrollment, Medicaid expansion and the uninsured population that supports volume growth. Managed care payers contributed 56.5% of revenues, and rate increases of 4% to 5% were expected in 2016.
02—Key points
Key Highlights
- Revenue grew 4.6% to $41.49B in 2016, with same-facility revenue up 4.1%, driven by a 2.3% rise in revenue per equivalent admission.
- Diluted EPS rose to $7.30 from $4.99, but 2016 included one-time benefits of about $246M in legal claim gains, $162M in ASU 2016-09 tax benefits and $51M from IRS settlements.
- Operating cash flow increased to $5.65B (from $4.73B), while capex was $2.76B and 2017 capex is planned at about $2.9B.
- Total debt of $31.4B with interest expense of $1.71B; the company is highly leveraged, with a stockholders' deficit of $(5.6)B.
- Share repurchases totaled $2.75B (36.3M shares) in 2016; no dividends were paid, and $1.85B of authorization remained at year-end.
- Uninsured-related revenue deductions and bad debt rose to $20.5B (33.0% of the combined base), signaling continued pressure on collections and self-pay revenue.
- Concentration risk: 170 hospitals with about 47% of revenues in Florida and Texas, and Medicare/Medicaid at 41.7% of revenues amid Health Reform Law uncertainty.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $41.49B— | — |
| Operating Expenses | $36.68B— | — |
| Interest Expense | $1.71B$1.67B | +2.5% |
| Net Income | $2.89B$2.13B | +35.7% |
| EPS (Basic) | $7.53$5.14 | +46.5% |
| EPS (Diluted) | $7.30$4.99 | +46.3% |
| Shares Outstanding (Basic) | 383.59M414.19M | −7.4% |
| Shares Outstanding (Diluted) | 395.85M426.72M | −7.2% |
05—Questions
Frequently Asked Questions
How much of the 2016 earnings growth came from operations versus one-time items?
Net income attributable to HCA rose $761M, or 35.8%. Several one-time items contributed: a $246M net legal claim benefit (Health Midwest settlement), $162M from the ASU 2016-09 tax accounting change, $51M from resolving IRS 2011-2012 issues, and $23M in gains on facility sales. Excluding these, underlying growth was smaller, though revenue growth of 4.6% and operating margin improvement still indicate solid core performance.
How much debt does HCA carry, and what are the refinancing risks?
Total long-term debt was $31.4B at year-end 2016 (average interest rate of about 5.5%). About $3.9B is variable-rate, and roughly $1.8B of revolver capacity was available. HCA relies on continued access to debt markets and on covenant compliance. The filing notes that a covenant breach could trigger cross-defaults and acceleration of a significant portion of its obligations.
What is the key risk from the Health Reform Law?
The company says the law has had a net positive effect, mainly by reducing uninsured patients through Exchanges and Medicaid expansion. Repeal or replacement could reduce coverage and increase uninsured volume, while Medicare and Medicaid reimbursement pressure and reductions in DSH payments continue. Texas and Florida, which are major markets, did not expand Medicaid, and the 2016 elections made future policy uncertain.
Is HCA returning capital to shareholders?
Yes, mainly through buybacks. HCA repurchased $2.75B of stock in 2016, including a 9.4M-share purchase from KKR, and had $1.85B of authorization left. It paid no dividends in 2016 or 2015, after a $6.50 per-share special dividend in 2012. Distributions to noncontrolling interests were $434M.
06—Continue